Telefonica and China Unicom form alliance

Telefónica signs agreement with China Unicom and capture10% of world market

Telefónica has taken a decisive step towards its future strategy – to infiltrate the Chinese market. In an unprecedented strategy the Chairman of Telefónica, César Alierta, has signed an agreement with China Unicom – the second largest telecommunications operator with access to almost 55 million clients – 10% of the global market. The Alliance between the two telecommunications giants will place them at the top of the list telecommunications operators in terms of numbers of clients in the world.

Telefónica will increase its participation in China Unicom from 5.4% to 8% while the Chinese group will take on almost 1% of Telefónica in a groundbreaking move which marks relations between Western and Chinese operators. Both moves will involve transactions worth around 1,000 million dollars (700 million euros) for each company.

This move into the Chinese market is a result of efforts made by Alierta whose interest in internationalizing Telefónica, the largest Spanish company, was also behind the purchase of O2 the British telecommunications operator.

Finding a foothold in the Asian market has been one of Alierta’s long term objectives. Alierta travelled to Beijing to sign the Alliance together with his Chinese counterpart, Chang Xiaobing.

China is one of the largest markets for telecommunications in the world in terms of numbers of clients especially when it comes to the potential for growth – currently every six months it grows at the rate of the total population of Spain. At present only three companies operate in China: China Mobile (mobile telephones) China Telecom (fixed land lines and mobiles) and China Unicom (covers all types of telephone services).

Following the signing of the agreement Alierta said that he was ‘very happy with the alliance’ and confirmed that Telefónica’s commitment was ‘total’.

He added that his company would take advantage of all the synergies of this expansion to benefit both its clients and shareholders.

His Chinese counterpart, Chang Xiaobing, also declared that he was ‘very satisfied with the strengthening of relations between China Unicom and Telefónica’. He said that the increase in collaboration between the two companies would benefit both companies and contribute to improving their telecommunications services.

China Unicom will take on almost 1% of Telefónica while Telefónica will increase its participation in the Chinese company to 8%. What is clear is that this alliance will act as a significant impulse to other joint projects already agreed between the two operators. The alliance will help many aspects of the business from extending client bases, the development mobile services, the exchange of best practices and research and development and joint cooperation in developing networks.

The participation of Telefónica in China Unicom is a result of a strategy which began four years ago when it acquired 2.99% of the capital of China Netcom. Little by little it increased its participation to 9.9% which gave it a voice in the administration of the Chinese group. However, China Netcom was absorbed by China Unicom, which lowered its Telefónica’s participation to 5%. With this new alliance Telefónica and China Unicom have said that they will not sell their new shares for at least one year.

Information taken from El País