Telefónica, China Unicom Fortify Alliance

Telefónica SA (NYSE: TEF) and China Unicom Ltd. (NYSE: CHU) have strengthened their existing relationship with an agreement to invest an additional $500 million in each others' equity and work together on technology and service development.

The new agreement, announced Sunday, builds on the strategic alliance that the operators forged in September 2009 whereby they invested $1 billion in each others' equity. (See China Unicom, Telefónica Strengthen Ties.)

With the new investments, Telefónica will increase its stake in China Unicom to 9.7 percent, while China Unicom will have a 1.37 percent stake in the Spanish operator. China Unicom will also gain a seat on Telefónica's board.

The companies said they would cooperate further on "procurement, mobile service platforms, services to MNCs [multinational corporations], wholesale carriers, roaming, technology, among others, where both companies have been cooperating since the signature of their Strategic Alliance Agreement."

Together, the operators claim a joint subscriber base of 590 million across Europe, Asia and Latin America, which is about 10 percent of the world's population.

Why this matters
This agreement shows that Telefónica has been able to make its minority investment in a Chinese operator work, an achievement that others have not been able to pull off such as its European rival Vodafone Group plc (NYSE: VOD). Last year, Vodafone sold off its entire 3.2 percent stake in China Mobile Communications Corp. , although the companies said they would continue working together on technology developments. (See Vodafone Sells China Mobile Stake.)

The scope of the partnership could go beyond technology developments -- such as the migration from WCDMA to Long Term Evolution (LTE) and new service platforms -- or coordinated offers for international roaming and large business customers. According to a Reuters report, the operators are considering joint investments in other Asian markets or in Africa where they do not have a presence.

For more
Telefónica is a powerhouse in the international telecoms scene with a stronghold in Latin America and Europe, and now an increased investment in China.

— Michelle Donegan, European Editor, Light Reading Mobile

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