Microsoft eyes telecom in South Korea

Kim Miyoung

SEOUL: Microsoft Corp announced a strategic alliance with South Korean

telecom giant KT Corp on Saturday, giving the US software firm access to a

country with the highest penetration of broadband services in the world.

KT Corp, formerly named Korea Telecom Corp, is the nation's top fixed-line

and broadband service provider with a 2.7 million subscribers for high-speed

Internet services, or 36-per cent market share.

"Our software technology will combine with KT's hardware infrastructure,

helping us provide a variety of Web services to KT customers," Microsoft

Korea's general manager Ko Hyun-jin told reporters in a news conference.

"We are very pleased to tie up with KT, which has nearly four million

customers (including fixed-line subscribers)," Ko said.

The alliance would accelerate KT's attempts to become a global company, KT

chief executive, Lee Sang-chul told reporters. The deal will see Microsoft

buying $500 million in bonds with warrants issued by KT. The bonds can be

converted into the common shares of KT in 2003 at a yet-to-be-determined

exercise price and are equal to about three percent of KT's market

capitalization.

Under the agreement, the two companies will jointly develop new integrated

services such as an Internet phone service, wireless Internet access as well as

a co-branded Internet portal.

KT had no immediate plan to buy Microsoft shares in exchange as it needs to

reserve cash to buy back shares from the government, Lee said. KT shares fell

3.8 per cent on Friday to close at a nearly two-month low of 46,950 won and

Microsoft ended 1.2 per cent higher at $67.54.

Major shareholder



Should Microsoft convert the bonds into common shares of KT in 2003, it will
become the second-largest shareholder of the Korea's state-run fixed-line giant

with a three percent stake.

"But we are not interested in the management," said Ko. "We

have confidence in KT's current management and we want to focus on what we can

do better - software development."

Currently the government is the largest shareholder with a 40.15 per cent,

but it plans to privatize the firm as a part of Seoul's pledge to the

International Monetary Fund in exchange for a hefty bailout in late 1997

financial crisis.

KT has already agreed to purchase 11.8 per cent from the government to sell

them back to Microsoft and other foreign investors. To secure funds to purchase

shares from the government, KT issued $1.32 billion in convertible bonds

overseas on Thursday via Merrill Lynch and UBS Warburg, which will represent 8.8

percent if converted.

A total of $1.82 billion in proceeds will be paid to the formerly named Korea

Telecom on January 4, the Ministry of Information and Communication said. The

government plans to sell the remaining 28 per cent to local investors in the

first half of 2002.

"That amounts to huge 88.6 million shares and we will consider various

options to reduce any negative impact that the planned sale might on KT's share

prices," said an official at the Ministry of Information and Communication.

The planned 28-per cent stake exceeds four trillion won ($3.10 billion) as of

the company's stock price on Friday.

(C) Reuters Limited.