Summary
SK Telecom (SKT) is planning to sell all of its 15.3% shares of Virgin Mobiles USA for the pure investment purposes with Sprint acquiring Virgin Mobile USA. The 15.3% of shares are converted into a dismal 0.53% shares after Sprint's acquisition and this kills the South Korean global operator's strategic importance to Sprint. SK Telecom's future attempts to acquire any significant operator will definitely be on a hold for very long time with painful lessons learned from Helio MVNO.
Analysis
In Korea, SK Telecom (SKT) has solid experience with CDMA and 4G technologies. Through Helio, SKT was able to acquire the U.S. operation experience in the U.S. And after Helio was merged with Virgin Mobile USA, they secured the No. 2 investor position with two board seats at Virgin Mobile USA. At that point, SKT's U.S. strategy was revised to an investment opportunity as opposed to outright U.S. operation.
With careful examination of the strategic fit to Sprint at early juncture, the idea of SKT working with Sprint was mutually beneficial to a certain extent based on SKT's postpaid experience through Helio. However, SKT using its own 3G service and billing platform in the U.S. could pose operation and service risks to Sprint due to interoperability and support issues. Furthermore, Sprint, offering Helio very attractive terms on leased lines in the final year, ultimately backfired on the Boost Mobile's bottom line. The end result is once Sprint finalizes its merger with Virgin Mobile USA, SKT's 15.3% shares on Virgin Mobile becomes a dismal 0.53%. With this change, SKT is no longer a strategic partner to Sprint with no board seats.
SKT will not be rushed into a future deal to get a major foothold like they did before in 2004 in the U.S. By paying very expensive tuition, SKT learned how difficult it is to simply bring out Korean technologies and services to the U.S. market without deep understanding of U.S. subscribers, partners, and stakeholders. With a renewed exit strategy on hand, SK Telecom now understands that even if a future deal were desired there would be so many hurdles inside SKT it would make an outright investment unpalatable.
Ben Kwak consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
