SKM to Enter LightSquared Venture – Analyst Blog

SK Telecom Corp. Ltd. Co. (SKM), the largest wireless carrier of South Korea, is again trying its luck in the nearly saturated but lucrative U.S. wireless market. The company has decided to invest in the LightSquared venture, which is trying to become a U.S. wholesale wireless operator specializing in next-generation (4G) LTE network. LightSquared is promoted by the private equity firm Harbinger Capital Partners.

 

In last July, LightSquared announced that it will establish a nationwide LTE network that can be shared by several wireless and cable operators. The service is expected to start in 2010 and targets 92% of the U.S. subscribers under its network by 2015. LightSquared has already awarded an 8-year $7 billion contract to Nokia Siemens Network, a joint venture between Nokia Corp. (NOK) and Siemens AG (SI), to install and manage that LTE network.

 

However, major problem for LightSquared is the availability of funds. Several analysts have estimated that the company will require at least $5 billion for LTE deployment. LightSquared has so far secured $1.75 billion in debt and equity financing. The company is also banking on $2.9 billion of assets from Harbinger. However, it desperately needs external fund infusion and SK Telecom appears a prospective investor.

 

SK Telecom is gradually looking for international opportunities despite commanding more than 50% wireless market share in South Korea. This market is technologically advanced and relatively matures with roughly 47 million total subscribers representing 96% penetration of the country’s population. Moreover, SK Telecom is facing massive competitive pressure from its rival KT Corp. (KTC) after the introduction of mobile number portability system in South Korea.

 

In November 2009, KT Corp. received a shot in the arm after introducing iPhone of Apple Inc. (AAPL). Although SK Telecom replied with Samsung Electronics’ Android-based Galaxy S, it failed to match iPhone. Recently, SK Telecom has decided to install LTE network in South Korea in 2011 to regain its competitive edge.

 

SK Telecom’s love for the lucrative U.S. market dates back to 2005, when it entered into a joint venture with EarthLink Inc. (ELNK) for a mobile virtual network. But that attempt failed measurably and the company exited after selling the unprofitable unit to Virgin Mobile USA Inc. (VM) in 2008.

 

Nevertheless, the latest attempt of SK Telecom to secure a foothold in the U.S. market looks promising. We believe successful deployment of LTE wholesale network by LightSquared may place the company head on to the existing 4G wholesale WiMAX network of Clearwire LLC (CLWR). The venture may also compete fiercely with the upcoming LTE projects of Verizon Wireless (VZ), AT&T (T), and MetroPCS Communications Inc. (PCS).