Telefonica and China Unicom agree groundbreaking USD1bn deal

Telefonica and China Unicom have agreed a major USD1bn share-purchasing deal, which will see the firms also share infrastructure, equipment and services as they each seek to extend their respective market shares. Under the deal, the firms claim that they will have a combined user base of 550m customers or some 10% of the world's population.

Under the agreement, the companies will buy USD1bn of each other's shares, based on each company's average share price over a 30-day period ending August 28. China's number two mobile operator will take a 0.88% stake in Telefonica, while the Spain-based telecoms giant will up its existing stake in China Unicom from 5.38% to roughly 8%.

Telefonica will reportedly buy 693m new shares in China Unicom at a price of HKD11.17 (USD1.44) each, while China Unicom will buy some 40.7m Telefonica shares, for EUR17.24 each (USD24.7).

The companies claim, that under the agreement, they will cooperate in "various business areas". This includes the joint acquisition of infrastructure and equipment for customers, the joint development of wireless services and new R&D initiatives. The firms said they would also launch a management "exchange program".

"This deal is a coup for Telefonica, which has become very well placed to benefit from continued growth in the Chinese mobile market," says Informa Telecoms and Media analyst, Nick Jotischky. However, he adds: "Beyond international roaming partnerships and joint procurement exercises, there is little evidence that Telefonica hopes to move any deeper into the Chinese market."

China Unicom, meanwhile, will benefit from Telefonica's experience in running WCDMA-based networks. Beijing-based Informa analyst TingTing Liu says the partnership could help China Mobile to "close the gap with overseas operators".

"Compared to the other two mobile operators, China Unicom clearly has more to gain from the overseas investor (compared to Vodafone in China Mobile and SKT in China Telecom) as China Mobile runs TD-SCDMA network," Liu says.

"We are looking forward to enhancing the partnership and achieving a win-win situation for both parties," says China Unicom chairman, Chang Xiaobing. "We believe that the partnership will help improve our capacities to provide extensive telecommunication and information application services, and maximize shareholders' return"

The move comes just weeks after China Unicom announced a non-exclusive deal with Apple to carry the iPhone in China. The firm is also due to begin rolling out its 3G network in China later this month. Telefonica, meanwhile, is rumoured to have recently placed a USD5.7bn (GBP3.5bn) bid for T-Mobile, via its UK-subsidiary, O2. Telefonica operates in 25 countries, mainly across Europe and Latin America.