SK Telecom Announces JV

South Korean wireless kingpin SK Telecom (SKM - Analyst Report) is eyeing the Indonesian market as part of its quest for growth as the carrier has reportedly joined forces with Indonesia’s largest wireline and wireless operator PT Telekomunikasi (TLK - Analyst Report) or Telkom. 

Under a deal worth KRW12.5 billion (US$10.5 million), the companies will set up a joint venture to operate digital content business. SK Telecom will offer entertainment services such as music, games and video to Telkom’s 106 million customers though a digital content exchange hub.
 
Moreover, SK Telecom aims to expand services to online music stores as well as fixed-line and wireless operators in future. In doing so, the carrier will leverage its vast experience of operating its own online music store (“MelOn”) in Korea. 

SK Telecom will have a 49% stake in the joint venture and will be responsible for managing the hub’s operations and sourcing digital content. Telkom will hold the remaining 51% stake and will oversee local marketing and billing functions. The carriers will also collaborate in the business-to-business (B2B) market to offer network and advanced telecom services to health care, automobiles and education industries. 

Despite being the leader in the domestic wireless market with a 50.5% share, SK Telecom is facing greater challenges in retaining market share. Competition has increased in the Korean wireless market following the consolidation of archrival KT Corp. (KT - Snapshot Report) and its wireless unit KT Freetel in June 2009 and is further exacerbated by the launch of iPhone by KT. 

SK Telecom is pursuing business opportunities in emerging markets given limited growth prospects in the highly matured domestic wireless market. The company holds a controlling stake in SLD Telecom in Vietnam that offers S-fone, one of the leading mobile phone networks in the country. SK Telecom also invested in SkyTel, the second largest cellular service provider in Mongolia, enabling CDMA-based mobile services. 

With a population 240 million and a GDP of roughly US$969 billion, Indonesia is the largest market in Southeast Asia. The Indonesian economy is growing at a healthy pace with GDP having grown at 5.7% in the first-quarter 2010 (a sequential improvement) with a projected annual growth of 6% by end-2010. 

Expansion into the lucrative Indonesian market bodes well for SK Telecom’s overseas ventures. The joint venture with Telkom provides the Korean operator a major platform to strengthen its foothold in the B2B business.

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