Korea Telecom (KT), South Korea’s fixed-line incumbent operator, is to merge with its majority-owned mobile unit, KTF, the country’s second-largest mobile operator, in an effort to offer bundled fixed and mobile services and increase its global exposure. The deal ends months of speculation and will see KT absorb the mobile unit, of which it owns 54 percent. NTT DoCoMo, Japan’s largest mobile operator, also owns 11 percent of KTF. KTF shareholders will receive 0.719 of a KT share for every KTF share they own. KT also said it would sell US$253 million bonds exchangeable into its stocks to DoCoMo as part of the merger plan, as the Japanese firm is set to transfer 60 percent of its holding in KTF to KT.

Reports today see KT’s move as necessary in order to compete with SK Telecom and LG Telecom in mobile and fixed-line services. South Korea’s mobile and household broadband markets are approaching saturation and operators in the country are battling for customers by offering products bundling fixed-line, broadband, Internet TV and mobile services. Rival SK Telecom is a particular threat, being the country’s largest mobile operator and owning fixed-line firm SK Broadband (formerly Hanaro Telecom). Bloomberg notes that the KT deal will create a company with annual sales of about KRW19 trillion (US$14 billion). KT’s new CEO, Suk-Chae Lee, commented in a statement that “this merger is not an issue concerning just KT alone, it’s a matter of survival for the entire Korean IT industry. I will restore KT’s industry leadership through this merger, leading the growth of the IT industry.” SK Telecom and SK Broadband reportedly oppose the planned merger.