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Telefonica, China Unicom in US$1B stock swap deal

Stock swap and business collaboration agreement will give China Unicom a foothold in South America and Telefonica a chance to reach China's massive mobile audience.
Written by Tom Espiner, Contributor

One of the world's largest telecoms companies, Telefonica, has announced a US$1 billion share swap with Chinese operator China Unicom.

Under the agreement, announced on Monday, each company will buy 600 million pounds (US$983.3 million) in shares in the other company. In addition, the partners will cooperate in business areas. For example, they will undertake the joint acquisition of infrastructure and equipment, and the joint development of wireless service platforms.

"We are looking forward to enhancing the partnership and achieving a win-win situation for both parties," said Chang Xiaobing, China Unicom's chief executive, in a joint statement from the companies. "We believe that the partnership will help improve our capacities to provide extensive telecommunication and information application services."

The partners, which handle both fixed-line and mobile business, will jointly provide services to multinational enterprises. They also plan to co-operate on providing roaming coverage, conducting research and development, and mapping out best practices for management.

The deal will give the two companies a combined 550 million customers, which represents nearly 10 percent of the global population, according to the statement.

China Unicom, which was granted the licence to operate 3G WCDMA technology by the Chinese government on Jan. 7, has fixed-line and mobile operations in 31 provinces of China. The company is the second-largest mobile operator in China.

Madrid-based Telefonica, which owns UK operator O2, conducts the majority of its business in Europe and Latin America.

Both companies have 3G mobile businesses that use WCDMA technology.

Independent telecoms analyst Dean Bubley said the deal would be beneficial for both companies, giving them a foothold in each other's respective markets. "China Unicom will be [especially] interested in Telefonica's reach into Latin America," he said.

"This [deal] will increase Telefonica's footprint in the Chinese market," Ovum analyst Charice Wang said. She noted that Telefonica had expressed an interest in China Netcom before that company merged with China Unicom in 2008.

Before the deal, Telefonica owned 5.38 percent of China Unicom's shares. After the transaction is completed, Telefonica will own approximately eight percent of China Unicom's shares, while China Unicom will own around 0.88 percent of Telefonica's shares.

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