By Kim Yoo-chul
Staff Reporter
SK Telecom has decided to sell its 3.8 percent stake in China Unicom to improve its financial soundness.
The $1.3 billion deal marks the end of SK Telecom's three-year investment in the Chinese company and its complete withdrawal from China's telecommunication market after suffering stalled growth.
Under the decision, its CEO, Jung Man-won, will resign as a director of Unicom's board upon the completion of the transaction, officials of the nation's leading mobile carrier said.
SK expects the sale of 899.7 million shares to be completed sometime in mid-November after the Chinese firm's independent shareholders approve the plan.
The company bought convertible bonds worth $1 billion from Unicom in 2006, which were later converted into a 6.6 percent stake in the Chinese company.
Its stake in Unicom was reduced to 3.8 percent following a merger between Unicom and China Netcom last year in a wide-ranging restructuring of China's telecom sector.
"We've failed to get impressive results by directly investing in China's telecommunication sector. Since 2008, our China business has been losing momentum, leading us to make such a decision," an SK Telecom spokeswoman said Monday.
"Under the telecom regulator's order to cut mobile phone rates, SK Telecom needs to secure additional cash to save our bottom line. We are also tasked to steadily invest in telecom-related infrastructure such as 3G networks," she said.
SK said the decision to sell has been in line with the company's reorganization process of its business portfolio.
In an alternative strategy, the mobile carrier is set to show more interest in the convergence business, which includes distribution, Internet and finance.
The latest decision has also been interpreted as a firm clarification by the company not to take a direct investment approach in overseas telecommunication-related businesses, which is also bad news for SK's local competitors such as KT and LG Telecom, analysts said.
"Convergence strategy is just an excuse to hide SK's failure in overseas markets. SK's return to the local market means competition will be getting fiercer and fiercer in the saturated sector," a high-ranking industry source said.
SK's Vietnamese venture is not showing any significant improvement in profitability, while its effort to set up a base in Kazakhstan is also not going anywhere.
SK Telecom has already decided to stop further investment in its S-Fone joint venture mainly due to its low subscription growth. Officials say the possibility of directly investing into Vietnam's 3G networks is very low, considering SK's previous track record.
"An SKT executive who has been in charge of the Vietnamese market has already returned home. Now, he is handling SK's convergence-related businesses," an SK representative said.
Meanwhile, the company didn't participate in the final bidding for the 51 percent stake in Kazakh mobile operator Mobile Telecom Service (MTS), a subsidiary of Kazakhtelecom, in August as SK's top decision-makers doubted whether growth momentum could be found there.
As of the end of last year, the mobile penetration rate in the Kazakhstan market reached a saturated level of 80 percent. MTS' market share is less than 19 percent. Most of MTS’ customers are using low margin pre-paid services, raising uncertainty over profitability.
SKT, which controls 51 percent of South Korea's mobile phone market, still needs to find new growth engines in overseas markets to escape from its limited organic growth opportunities locally.
"SK is expected to experience a tough period in applying its new overseas strategies. It's questionable whether its convergence strategy will pay off in China, considering its meager brand recognition," said another industry source.