SK Telecom’s efforts to buy into Sprint Nextel underline its desperation to expand abroad.

Spending billions of dollars for a minority stake in the struggling US mobile network operator might not seem like the wisest investment decision, but analysts say South Korea’s leading wireless carrier is becoming increasingly frantic as its looks for overseas solutions to its domestic woes.

SK Telecom, part of one of Korea’s biggest conglomerates, is in preliminary talks with Sprint over potential deals. The Seoul-based company on Thursday denied that it was trying to take over Sprint, although it did not refute that they were in talks.

“[We] are seeking various business opportunities in the US, but are not in the process of acquiring management rights of a major mobile carrier in the US,” SK Telecom said.

Korea’s largest mobile telecoms provider has 22.2m subscribers but competition is cut-throat. The country has one of the highest wireless penetration rates in the world, with 91 per cent of the population owning a mobile phone – and heavy-handed regulation means it has been unable to grow its bottom line in its home market.

Last month, the Korean government ordered wireless companies to halve their voice call tariffs for 2.6m low-income customers, part of its plan to curb rising inflation. Concerns over potential further tariff cuts have weighed on telecoms stocks. SK Telecom’s shares have fallen sharply from the Won278,500 they hit in Dec-ember, closing at Won179,500 on Thursday.

These challenges at home have contributed to SK Telecom’s desire to expand abroad. It has had teams of executives scouting for opportunities in both China and the US for several years, but their efforts have so far amounted to little.

Together with Providence Equity Partners, the US private equity group, SK Telecom last year made an unsolicited offer to invest $5bn in Sprint, but was rejected. However, this time both sides appear to be talking.

SK Telecom bowed out of its struggling US mobile business, Helio, last month, agreeing to combine it into Virgin Mobile USA in a deal that will leave SK Telecom holding close to 20 per cent of the enlarged business, worth about $50m.

In China, SK Telecom has a 6.6 per cent stake in China Unicom, the country’s second largest mobile phone operator, although this will be diluted to about 4 per cent as the company expands. It also has a stake in S-fone in Vietnam.

In addition to finding new growth opportunities, analysts say the company’s global ambitions are driven by Chey Tae Won, the group chairman, the eldest son of SK group’s founding family who has yet to make his mark.

“Part of his strategy to establish his own legacy is to globalise SK,” said one analyst in Seoul. “And it’s really only SK Energy and SK Telecom that are capable of laying down multi-billion dollar bids overseas.”

From a group point of view, investing in China makes more sense than in the US. “In China, you definitely know there is plenty of room to grow, given its lower market penetration and from an SK group perspective, there could be additional business opportunities outside telecoms that could help them build a much larger presence there,” said John Kim, who covers SK Telecom for Merrill Lynch.

An investment in Sprint would not act as such a springboard, he added.

Lee Dong-Seok, telecoms analyst at Daeshin Securities in Seoul, agreed that an investment in Sprint would not make sense. “SK Telecom would have to spend a huge amount of money for a 20 per cent stake,” he said. “They would have to raise the money by issuing bonds or inviting financial investors.”

Source:ft.com