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Telefonica, China Unicom swap $1 billion in stock

Deal gives the two giants a combined 550 million customers and a foothold in each other's markets. China Unicom is especially interested in Telefonica's Latin American customers.

2 min read

Telefonica, one of the world's largest telecommunications companies, has announced a $1 billion share swap with Chinese operator China Unicom.

Under the agreement, announced Monday, each company will buy $1 billion in shares in the other company. In addition, the partners will cooperate in business areas. For example, they will jointly acquire infrastructure and equipment and jointly develop wireless service platforms.

"We are looking forward to enhancing the partnership and achieving a win-win situation for both parties," Chang Xiaobing, China Unicom's chief executive, said in a joint statement from the companies. "We believe that the partnership will help improve our capacities to provide extensive telecommunication and information application services."

The partners, which handle both fixed-line and mobile business, will jointly provide services to multinational enterprises. They also plan to cooperate on providing roaming coverage, conducting research and development, and mapping out best practices for management.

The deal will give the two companies a combined 550 million customers, according to the statement.

China Unicom, which was granted the license to operate 3G WCDMA technology by the Chinese government in January, has fixed-line and mobile operations in 31 provinces of China. The company is the second-largest mobile operator in China.

Madrid-based Telefonica, which owns U.K. operator O2, conducts the majority of its business in Europe and Latin America.

Both companies have 3G mobile businesses that use WCDMA technology.

Independent telecommunications analyst Dean Bubley said the deal will benefit both companies, giving them a foothold in each other's respective markets.

"China Unicom will be (especially) interested in Telefonica's reach into Latin America," he said.

"This (deal) will increase Telefonica's footprint in the Chinese market," Ovum analyst Charice Wang said. She noted that Telefonica had expressed an interest in China Netcom before that company merged with China Unicom in 2008.

Before the deal, Telefonica owned 5.38 percent of China Unicom's shares. After the transaction is completed, Telefonica will own about 8 percent of China Unicom's shares, while China Unicom will own around 0.88 percent of Telefonica's shares.

Tom Espiner of ZDNet UK reported from London.