Business Today

Trying to untangle wires

Sunny Sen | Print Edition: April 14, 2013

It is late evening and a flickering matchstick dimly lights up a small Ranchi shop called Sanjay Telecom. The shop owner, Sanjay, gropes around for a candle because he's got about five customers lined up for Uninor recharge coupons and expects many more soon because the mobile services company offers some of the country's lowest call rates. "They come at this time everyday and buy small recharge amounts which they use throughout the next day," he says. "Uninor is some Delhi-based company, not a very old one, but sells well in my shop."

Sanjay doesn't have a clue that Uninor is actually majority owned by Norwegian telecom company Telenor ASA. But Telenor Chief Executive Officer Jon Fredrik Baksaas is probably just happy that customers are pouring in.

Telenor CEO Jon Fredrik Baksaas
Telenor CEO Jon Fredrik Baksaas
After all, it has been a rough year-and-a-half for Telenor's Indian operations: the telecom giant was forced to slash business down to just six circles from 13 circles after the Supreme Court in 2012 ordered the cancellation of its permits in the 2G licensing scandal involving several companies. In February, Uninor shut down its Mumbai operations in line with the Supreme Court order. To add to its woes, Telenor was also embroiled in a legal battle with its former partner, real estate firm Unitech, over partnership issues.

"Having been in India for the past three years, one thing we have learnt is that we cannot be sure of anything," says Baksaas, who was in New Delhi for the India Today Conclave where he took time out to speak with Business Today.

Things may finally be looking up for Telenor again in the world's second-largest mobile market. It is the sixth largest operator in India's fiercely competitive market where 10 operators are fighting for a slice of the subscriber pie. Its six circles have enormous business potential: they have a population of 600 million but mobile penetration is a low 40 per cent. Uninor has 32 million subscribers in India and hopes to add another 8 to 9 million this year, which is almost equal to the number of subscribers it lost after it shut down several circles. "We have broken even in Uttar Pradesh (East) and Gujarat, and in the coming year we will break through in the rest of the circles," says Baksaas.

Telenor's troubles and tentative recovery have been a valuable learning experience for the company. It has gained several insights from its Indian operations which it is exporting to other Asian markets. For example, Uninor has implemented a unique distribution-management system, which tracks distribution, networks and consumer usage. It is hoping to export the concept along with its per tower profitability model which is peculiar to India: under this model, profitability is measured on the basis of the number of each tower's subscribers.

  • Rs 4,018 cr Amount Telenor paid for licences in six circles
  • 600 mn Population of these six circles where mobile penetration is just 40 per cent
  • $900 mn Amount Telenor hopes to save in fi ve years by implementing new operating models
"Baksaas and Sigve Brekke (Managing Director of Uninor) are amazing people in that they carried on with the business and kept pumping in money and growing the business even though they did not know if they would get licences after the cancellation," says a company executive.

The telecom company has also learnt how to use spectrum more efficiently to cut costs in India, where profitability is tough because of extremely low call rates. Telenor has the lowest spectrum in India which makes it difficult to offer high bandwidth-consuming data services.

Baksaas says the company has to strike a balance between spectrum prices and investment conditions. It has taken a page from the country's biggest mobile operator Airtel's book and cut costs by outsourcing its entire network management and infotech infrastructure.

"India is a very competitive market place," says Baksaas. "We have learnt to work with (outsourcing) partners, and have a better understanding of resource utilisation." Analysts agree. "Telenor's lowcost business model is well suited to the lower than average income characteristics of these (six) circles, and Telenor calculated that its average 'cost of production' remains 20 per cent lower than incumbents despite its lack of scale, which should support a sustainable discounter positioning," James Britton of equity research firm Nomura wrote in a recent research note.

But Telenor's India business could face some challenges ahead. Telecom circles were abuzz with talk of Telenor being in negotiations with Tata Teleservices to combine their operations in India. A Uninor executive and another at Tata Teleservices confirmed the telecom firms were in talks, but Baksaas was non-committal.

"There is no way you can say yes or no to these things," he says. The company will also be hamstrung by its lack of 3G and 4G spectrum or licences. Baksaas agrees the long-term use of 2G for the Internet is not the best option, but is confident it won't hinder the company's growth.

Baksaas is optimistic because, at the end of the day, the numbers make India a lucrative market. "We are addressing 600 million people already, but we don't mind having a national footprint," he says.

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