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SK Telecom, the largest wireless carrier in South Korea, on Wednesday said it would buy $1bn worth of bonds in China Unicom, which are convertible into a 6.7 per cent stake that would give it an important foothold in the world’s largest mobile market.
SK Telecom has been seeking overseas opportunities as it struggles to develop new revenue sources in its saturated $17bn home market.
China is due to loosen restrictions on its telecoms sector in December, according to World Trade Organisation requirements. It is also expected to issue licences for 3G mobile services.
“The Chinese telecoms market is an attractive market, where growth is expected both in quantity and quality,” said Kim Shin-bae, SK Telecom’s chief executive.
Mr Kim said the alliance would help boost China Unicom’s CDMA (code division multiple access technology) business – which use the US-based mobile standard – and give SK Telecom an entry to the market.
SK Telecom will not be able to convert its holding into an equity stake for a year. However, the deal would make it the exclusive partner in China Unicom’s CDMA business by the end of 2007.
The two companies already have a joint venture, UNISK, which generates content for wireless internet services in China. Under the new alliance, they plan to source mobile phones jointly, as well as developing handsets and service platforms.
Hong Kong-listed China Unicom is competing against China Mobile and fixed-line carriers such as China Telecom and China Netcom for a 3G mobile licence on the mainland.
SK Telecom said the Chinese company chose the South Korean operator as its partner over competitors from the US and Japan because of its strength in CDMA and 3G.
SK Telecom would be following other overseas telecoms groups that have invested in China’s mobile market, which grew 11.7 per cent to Rmb580bn ($72.5bn) last year.
China has about 393m mobile subscribers and a relatively low 30 per cent penetration rate. China Unicom, which has a 33.6 per cent market share, reported a net profit of Rmb4.93bn on sales of Rmb87bn in 2005.
Vodafone has a 3.3 per cent stake in China Mobile, while Telefónica of Spain last year won approval from the Chinese government to double its stake in China Netcom to 9.9 per cent.