SK Telecom (NYSE:SKM) announced on May 22 that the board decided to buy SK Networks’ leased-line business and issue new shares of SK Broadband.
Under a business transfer agreement, SK Telecom plans to take over both the asset and debt of SK Network’s leased-line business. Thus, SK Telecom will pay 892.9 billion won (US$718.8 million) and assume 654.1 billion won (US$526.6 million) of assets and 627.8 billion won (US$505.4 million) of debt.
As SK Telecom is expected to have sufficient network capacity for its mobile phone business after the purchase, since it includes another mobile telecommunication transmission network ranging from switchboards to base stations or repeaters.
The agreement will allow SK Telecom to dramatically expand its optical cable lines from the current 4,947 kilometers to 88,416 kilometers, pushing up its mobile phone network self-sufficiency rate from 51% to 92%.
Moreover, the company is expecting a significant reduction in leased line rental costs. Since 2002, SK Telecom paid an annual amount of some 300 billion won (US$241.5 million) to use leased lines owned by SK Networks to maintain enough transmission network resources for its mobile phone service.
With the acquisition of SK Network’s assets, SK Telecom will gain control over all parts of the mobile phone transmission network, which is also expected to lead to enhanced call quality.
In particular, SK Telecom said that its backbone network (transmission network between switching centers) and SK Networks’ subscriber network (transmission network between switching offices and base stations or repeaters) are complementary, thereby allowing efficient network operation.
SK Telecom’s CFO Dong-Hyun Jang said: “Concerns were constantly raised that SK Telecom was too dependent on outside network resources. However with this agreement, SK Telecom will be able to greatly enhance efficiency in network operation and costs.”
On May 21, SK Telecom’s board of directors approved the company’s plan to acquire SK Networks’ leased-line business. Once signed by the two companies, the business transfer agreement will go through a two-month approval process of the Korea Communications Commission and be completed in September when the company settles the payment.
Meanwhile, the board also voted to participate in the capital increase of SK Broadband and approved up to 300 billion won (US$241.5 million) in subscribing to new shares to secure stable funding of the fixed-line operator. SK Telecom currently holds a 43.4% stake in its subsidiary, SK Broadband.
