Global Insight Perspective | |
Significance | SK Telecom has expressed its interest in a stake in China Telecom, but has not held talks with the Chinese company. |
Implications | SK Telecom, which already holds a stake in China Unicom, is keen on increasing its exposure to the Chinese telecoms market. |
Outlook | For strategic investors an investment in China Telecom will make sense in the long term, but given that the fixed-line giant has yet to spend heavily to build up its mobile business, investors should not expect an immediate return. |
SK Telecom president So Jin Woo said his company would be "very interested" in buying a stake in China Telecom, if "the circumstances were right," Dow Jones reports. So far he has not held talks with China Telecom's management, but he hopes to explore options when China's telecoms industry restructuring is complete. As part of the wide-scale industry reshuffle, China Telecom, the fixed-line market leader, will make its first step into the mobile market through the purchase of China Unicom's CDMA business. The remainder of China Unicom, the country's second-largest mobile operator, will merge with China Netcom, the second-placed fixed-line operator (see China: 2 June 2008: China Unicom, Netcom, Telecom Announce More Details of Restructuring Plans).
Outlook and Implications
- SK Telecom Seeking Increased China Exposure: SK Telecom already holds 6.6% of China Unicom, which will translate to a 3.7% stake in the merged entity between Unicom and Netcom. However, the Korean company is keen to widen its business relationship with the Chinese government and telcos to gain more exposure to China's massive telecoms market. SK Telecom is particularly interested in forming a strategic alliance with China Telecom on the development of CDMA businesses in China, given its experience of running CDMA-based mobile services at home. The Korean company has also established a cooperation agreement with the Chinese government on the development of TD-SCDMA, China's home-grown 3G standard. In addition, along with several sister companies, SK Telecom will invest US$1 billion to build a digital content and design centre in China, which it said would help to meet an expected surge in demand for digital content as China adopts 3G mobile services that allow faster multimedia streaming on handsets.
- Investor Interests in China Telecom: China Telecom is currently looking for a strategic investor, following the announcement of the industry restructuring plans. The company, which will soon become an integrated telecoms operator, would benefit from an alliance with a strategic investor with solid experience of developing mobile businesses. The capital raised from a stake sale would also help the company to bear the US$6.3-billion cost it will pay for Unicom's CDMA business (the remaining US$9.6-billion payment will be made by China Telecom's state-owned parent) and help fund its future mobile network expansion. China Telecom said earlier this month that it had been approached by four or five interested parties. Apart from SK Telecom, SingTel and Qualcomm have been reported to be among companies that are interested in becoming strategic investors in China Telecom. China's regulations cap foreign investment in a local telecoms operator at 49%. For strategic investors, an investment in China Telecom will make sense in the long term, but given that the fixed-line giant has yet to spend heavily to build up its mobile business, investors should not expect an immediate return in the next three to five years.