South Korea's top mobile operator SK Telecom (SKT) will buy a stake in China Unicom Ltd, giving it a foothold in the world's largest mobile phone market by subscribers.

 

Unicom yesterday said it will issue US$1 billion in convertible bonds to SKT. SKT will be able to convert the bonds to a 6.6 percent stake in Unicom in a year.

 

The move could be a new milestone in the opening up of China's telecom market after the country's accession into the World Trade Organization (WTO).

 

Spain's Telefonica last June acquired a 2.99 percent stake in fixed-line carrier China Netcom for about US$300 million. Telefonica has increased the stake to 9.9 percent.

 

Vodafone already owned a stake in China Mobile, Unicom's larger rival in the country's mobile phone market.

 

Unicom has also inked a strategic alliance framework agreement with SKT under which the two firms will cooperate in areas such as CDMA (code division multiple access), handset, value-added service (VAS), VAS platform, marketing, IT (information technology) infrastructure and network businesses.

 

Unicom currently operates both GSM (global system for mobile communications) and CDMA networks with a total of 130 million subscribers.

 

The alliance with SKT is expected to improve the performance of Unicom's loss-making CDMA networks, which have about 35 million subscribers.

 

"We believe that the strategic alliance will facilitate the company's future development, enable the company to provide better services to its CDMA subscribers and create greater shareholder value," said Chang Xiaobing, chairman of China Unicom.

 

SKT is betting the alliance with Unicom will help it take advantage of a broader opening up of China's telecom market.

 

China promised to lift geographical restrictions in opening the mobile voice and data market related with basic telecom businesses within five years after its WTO entry in 2001.

 

The Unicom-SKT deal gives SKT sole and exclusive partnership in China until the end of 2007.

 

"The Chinese mobile market has great potential both in quality and quantity," said Shin-bae Kim, chief executive officer of SKT.

 

"With this partnership, we look forward to making significant developments in the CDMA business of China Unicom."

 

China had 421 million mobile phone subscribers by May. SKT expects there will be around 600 million new subscribers within the next three years.

 

Despite the great potential of the Chinese market, overseas operators still face regulatory uncertainties in China such as a possible industry consolidation as well as the licensing of 3G (third generation) mobile communications technologies, said Li Jia, an analyst with Beijing-based research house Analysys International.

 

Japan's leading operator DoCoMo has also shown interest in entering the Chinese market but said there will be investment risks due to local regulatory uncertainties.

 

The firm said it will wait until Chinese regulators decide how to award 3G licences to operators.

 

SKT said the investment in the form of convertible bonds gives it "the flexibility to react to the Chinese policy environment compared to direct stock investment."

 

Analysts still doubt the prospects of the partnership between SKT and Unicom.

 

"Under the current regulatory framework, overseas operators are unlikely to get a major stake. That will help little in improving Chinese operators' performance and capabilities," said Li.

 

(China Daily June 22, 2006)