South Korea’s incumbent wireless operator SK Telecom (SKM) is considering absorbing the company’s Internet service unit SK Broadband Co through a merger, likely in April 2010. SK Broadband (formerly, Hanaro Telecom) is South Korea’s second largest provider of high-speed Internet services. 

This move follows a recent announcement by SK Telecom’s rival LG Telecom, which plans to merge its operation with LG Group’s fixed-line unit (LG Dacom) and broadband unit (LG Powercom). 

SK Telecom acquired 50.6% stake in SK Broadband in 2007 through which the company offers broadband and Internet-related services such as video-on-demand and Internet Protocol television (IPTV) services. SK Broadband is the largest player in the South Korean broadband market with an approximately 25% share. The company registered the highest net subscriber addition among the national broadband operators in first-half 2009. 

SK Broadband is also a leading player in the domestic IPTV market with a subscriber base of 775,000, above its direct competitors KT Corp (KTC) and LG Dacom. The company expanded its IPTV offering in early 2009 with the launch of a full IPTV service which include real-time broadcasting capability. To counter competition, the operator has established a retail subsidiary unit which will operate and manage discounted bundled service offerings. 

SK Telecom is the leader in the Korean wireless market, enjoying approximately 51% market share. However, competition has increased in the Korean mobile market due to the consolidation of KT Corp and its wireless unit KT Freetel in June 2009. As such, SK Telecom faces greater challenges in retaining its wireless market share. 

A merger with SK Broadband will strengthen SK Telecom’s competitiveness in the South Korean broadband and IPTV markets. Moreover, this will foster the company’s effort to improve subscriber retention in the highly saturated domestic market through bundled service (IPTV, wireless and broadband) offerings.
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