Spanish based international telecommunications giant Telefonica (NYSE:TEF, news, filings) and Chinese based fixed and mobile provider China Unicom (NYSE:CHU, news, filings) have deepened their relationship. In a large stock swap, each will buy $1B in stock in the other. That will bring Telefonica’s stake in China Unicom to some 8%, and give China Unicom its first stake in Telefonica of just under 1%. The two intend to cooperate on developing mobile phone technology, servicing multinational corporations, and even in exchanging managers. I think they like each other…
Actually, this alliance makes a great deal of sense for both. Telefonica is growing rapidly internationally, but its presence is perhaps weakest in the Far East. It’s not an easy part of the world to break into, partnering with one of China’s three dominant carriers is something of a no-brainer. There is no other way to service MNC customers in China than through partners, so it pays to have a good one. An 8% stake is pretty substantial, giving Telefonica nice exposure to the rapidly expanding telecommunications market in China.
China Unicom, for its part, is fighting for position with China Mobile (NYSE:CHL, news, filings) and China Telecom (NYSE:CHA, news, filings) following the re-organization of the industry by the Chinese government. Precisely how the new structure will play out is not yet clear, but a deeper relationship with Telefonica gives China Unicom greater resources with which to compete. They’ll need it too. In the wireless market in Beijing at least, China Mobile is everywhere and before the reorganization China Unicom was struggling to compete meaningfully.
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