LG, Hanaro to form Korea's third 3G network

SEOUL, Korea -- LG Telecom and Hanaro Telecom agreed to work together to bid on South Korea's third and final advanced mobile license.

LG is the country's smallest mobile phone operator and Hanaro is the second largest high-speed Internet service provider.

The Korean government had been encouraging LG and Hanaro to team up with foreign investors and local companies to achieve synergy and compete better with other major telcos.

"LG and Hanaro agreed to closely cooperate in an attempt to successfully win the bid for 3G service based on cdma2000 and to raise competitiveness," the two companies said in a joint statement.

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LG Telecom, along with an unnamed foreign partner, plans to hold more than a 50 percent stake of the consortium.

Analysts expect Canada's Telesystem International Wireless (TIW) to take part by buying a 24.1 percent stake in LG held by British Telecommunications.

The LG official declined to comment on TIW, but confirmed the BT stake was key.

"If BT completed selling its 24.1 percent stake in us to another foreign investor, the acquirer would lead the consortium with us," said Lim Byung-yong, manager at LG's strategy development department.

He said the foreign partner would take a more than 25 percent stake in the consortium through the stake purchase and by subscribing to buy about $500 million (650 billion won) in new shares to be offered.

Other participants in the consortium that will be later absorbed by LG Telecom include its largest shareholder LG Electronics , Dacom and Powercomm, a cable leasing company, Lim said.

Lower license fee?

"We plan to suggest to the Information and Communication Ministry that we pay only 220 billion won ($170 million) in license fees, as the consortium would not be able to generate enough cash at an early stage," Lim said.

The ministry set the license fee at $887.7 million.

The government's hunt for a provider to take the license has dragged on for months as the two potential bidders insisted on forming a separate consortium under their own control.

"We expect to launch the service commercially as early as in the second half of next year," said Lim.

The government rejected separate bids from LG and Hanaro when it handed out two licenses in December.

Those licenses were for service based on W-CDMA technology favored by Japan's NTT DoCoMo and Finish phone maker Nokia.

They went to consortia led by top mobile carrier SK Telecom and state-run fixed-line giant Korea Telecom.

The government is currently looking for a provider to offer a service based on Qualcomm's cdma2000.

Bidding is expected to open this month.

Reuters contributed to this report.