Telenor to focus only on six licence areas: CEO
NEW DELHI, Nov 30, 2012 (Mint - McClatchy-Tribune Information Services via COMTEX) --
Norwegian telco Telenor ASA is making the most out of a bad situation -- and also a virtue of a necessity -- by touting the merits of its strategy of focusing on six licence areas, the only ones where its Indian arm won spectrum in the recently concluded 2G auctions.
On Thursday, during a visit by Telenor chief executive officer Jon Fredrik Baksaas, the company announced that its Indian operation had broken even in one area where it operated, east Uttar Pradesh.
After a January 2011 Supreme Court ruling cancelled all its 22 licences, Telenor broke up with its former partner, property developer Unitech Ltd, and found a new partner, but it won spectrum in only six of the 13 circles where it had rolled out services commercially.
The company has already all but closed operations in four of these, and it will have to do so in the three more for which it didn't win spectrum, Kolkata, West Bengal and Mumbai (it has around 4.6 million subscribers in these three circles) by 18 January, but Baksaas said the company is happy to focus its efforts in the six circles that he claimed account for around half the addressable market in the country.
India is divided into 22 telecom licence areas or circles.
To date, Telenor has invested around Rs.15,500 crore in the Indian operation and written off $500 million on account of its problems in the country. The six circles for which it has won spectrum, through its new joint venture, are UP (West), UP (East), Bihar and Jharkhand, Andhra Pradesh, Maharashtra and Goa and Gujarat. The company has about 37 million subscribers in these six areas .
Analysts aren't convinced the company's new strategy will work.
"Telecom in India has always been about scale. With just six circles they would have to be profitable in all which will be nearly impossible," said a Mumbai-based telecom analyst at a multinational brokerage firm who spoke on condition of anonymity because his company does not allow him to speak to the media.
The analyst said that the company's inability to offer roaming services by itself will eat into its revenue (it will now have to enter into some sort of revenue-sharing relationship for roaming, or continuing to provide services to its customers when they move outside the telecom circle), especially given that some of the six circles where it operates have a large migrant population.
"Indian telcos started with regional players in the metros and the states. The Bhartis and Vodafone reached where they are after expanding mainly through acquisitions. If being a regional player was enough then why would they have needed to do that," said the analyst.
Then, this has always been part of Telenor's contrarian strategy in India.
The company offers no post-paid service, relying instead on pre-paid customers (who pay upfront for a certain amount of airtime).
It didn't participate in the data rich 3G or third-generation spectrum auctions.
And it firmly believes that voice is the way forward -- at least in the near term.
The head of the company's Indian operations Sigve Brekke said that voice accounts for around 90% of telecom revenue in India and that 80% of all calls are made within a circle.
The company's new partner in its Indian adventure is the Sudhir Valia promoted Lakshdeep Investments and Finance Pvt. Ltd. The new joint venture telecom company is called Telewings Communications Pvt. Ltd but Baksaas said there has been no decision yet on whether the brand name Uninor will change.
The company will take the deferred payment option provided by the government for the 2G spectrum, and pay 33% of its total bid amount of Rs.4,018 crore on 1 December. It expects that this amount will be offset against money paid in January 2008 for the cancelled licences, Baksaas said. The remainder of the money will be paid in equal annual instalments over 10 years.
All six circles will target to become Ebitda (earnings before interest, taxation, depreciation and amortisation) and cash flow positive by the end of December 2013, Baksaas said.
"Uninor incurs a cost of 18 paisa per minute, the lowest among all operators in the circle. Its spectrum usage efficiency is 40% higher than all others," Baksaas said.
Brekke hinted that the company would continue to play the tariffs game but added that, with time, he expects to see some stabilisation in tariffs with the number of telcos in each circle reducing as all companies start focusing on areas where they are the strongest and also most profitable. The aggressive customer acquisition processes followed by telcos in the past will likely see current churn rates of 10-11% a month (or around 80-90 million customers moving networks every month) continue for some time, he said.
Explaining Telenor's six-circle strategy, Baksaas said the regions have a real (mobile telephony) penetration as low as 40% There are 95 mid-sized cities in these six circles that have grown an average 37% over the past decade, with five cities growing in triple digits, he said.
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