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Strategic alliance

Amazon, SK Telecom join hands in Korea e-commerce market

Nov 15, 2020 (Gmt+09:00)

SK Telecom Co. and online retail giant Amazon.com have agreed to team up in South Korea’s e-commerce market, in a deal that could lead to cross-shareholding, according to investment banking sources, as the telecom operator is planning to list its online shopping platform by 2023.

Their business alliance is expected to give an edge to SK Telecom’s e-commerce platform 11Street, as it lags behind SoftBank-backed Coupang Corp. and eBay Inc. as well as the country’s top internet portal Naver Corp. Both Amazon and SK Telecom may focus on the online retail market for direct overseas purchases, the sources said.

The country’s top mobile carrier also could expand the partnership into other non-telecom businesses, benchmarking the subscription-based business model of Amazon Prime. SK Telecom is working to diversify beyond the stagnant telecom service business.

SK Telecom signed the agreement with Amazon.com last month, under which both parties also agreed that they could cross hold shares to strengthen the alliance, depending on progress on their cooperation, according to investment banking sources on Nov. 13.

The telecom operator is expected to announce the agreement as early as mid-November, the sources said. Details about investment amount and how they will cooperate have not yet been determined.

Around the time of the partnership agreement, Amazon has secured an additional office space in southern Seoul, the sources added.

The Chosun Ilbo reported on the weekend that Amazon is likely to invest 300 billion won ($269 million) to buy preferred shares to be issued by 11Street, which can be converted into common shares later on.

SOUGHT-AFTER DEAL

SK Telecom Chief Executive Park Jung-ho was keen to form a partnership with Amazon from last year, after the company abandoned a plan to sell the e-commerce operations to the country’s two retail giants – Shinsegae and Lotte groups – in 2017.

In a new conference in September, Park said he was trying to differentiate 11Street from rival platforms by forming an alliance with “a certain business partner,” without elaborating further.

SK Telecom carved out the e-commerce platform 11Street from SK Planet and attracted around 500 billion won from the National Pension Service and other financial investors into the spun-off unit in 2018. To soothe investor concerns about the loss-making operation, SK Telecom has promised to list 11Street by 2023.

Industry sources expect the alliance would enable Korea-based consumers to directly purchase products sold by Amazon on the 11Street platform.

Alternatively, 11Street could secure a stock of Korean-favored Amazon products in advance, using Amazon’s accumulated data, and sell them on its platform. That would cut delivery time and shipping fees.

In 2018, SK Telecom bought a stake in a Korean retail platform that arranges both direct overseas purchases by Korea-based consumers and domestic goods purchases by those from other countries.

Further, SK Telecom is likely to bolster the subscription-based business for its non-telecom businesses, including the over-the-top (OTT) service provider Wavve and security service firm ADT Caps Co. Its subscription-based service, All Prime, has yet to win popularity. 

SK Telecom’s cloud computing and big data businesses could also benefit from the alliance.

“Given the intense competition in the domestic e-commerce market and regulatory risk, global companies like Amazon have turned to finding established local partners such as SK, rather than directly entering the market,” one of the IB sources told the Korea Economic Daily. “That matched Uber’s strategy to team up with SKT to crack the tough domestic market.”

Last month, SK Telecom said it was spinning off its mobility platform business as a separate unit and also launching a joint venture with US ride-hailing company Uber Technologies Inc. Uber will inject over $100 million in the JV and an additional $50 million in the separate entity, T Map Mobility.

Meanwhile, earlier this year, eBay Inc. put 100% of its South Korean operations, including the country’s top online shopping malls – Gmarket and eBay Auction – up for sale, valuing them at about 5 trillion won combined. But no progress has yet been reported.

By Jun-ho Cha and Chae-yeon Kim  

chacha@hankyung.com 

Yeonhee Kim edited this article.

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