For Norway’s Telenor ASA, a little over three years after it entered India, the choices were stark: quit the world’s second-largest telecom market and write off its billion-dollar investment, or pivot to a stripped-down but risky survival strategy.
It decided to stay. Telenor still had to write down more than half of its initial investment and put in another billion dollars to start again, almost from scratch.
The Norwegian firm entered India rather late, in October 2008, when companies such as Bharti Airtel Ltd and Vodafone India Ltd were well established. Telenor bought a 60% stake for $1 billion in Unitech Wireless Ltd, a company that had licences to operate mobile services but little else—no customers, no cash flows.
The joy of entering the country was, however, shortlived. A rude shock awaited it in February 2012. Giving its verdict in the 2G telecom scam, the Supreme Court cancelled 122 telecom licences awarded to nine companies, including all of Telenor’s 22 permits.
“Telenor chose to stay for a number of reasons. Telenor sees itself as a growth company and India is a growth market. There’s a big opportunity just because of the demographics—the size and scale,” said Vivek Sood, 55, who took over as Telenor India’s chief executive in December 2014.
India, of course, gives the Norwegian company contiguous air waves across six Asian countries. Of its 190 million subscribers, 175 million are in Asia—in Pakistan, India, Bangladesh, Myanmar, Thailand and Malaysia. Telenor now has almost 50 million subscribers in six circles, making it the fourth largest in those circles by subscribers and revenue.
Why that matters is because roughly 50% of the country’s population is in these six circles, and they contribute about 45% of the telecom industry’s revenues.
While revenue for the company, which rebranded itself as Telenor in September (earlier known as Uninor), has grown a modest 13.5% from 3.7 billion Norwegian krone in 2012, to 4.2 billion krone at the end of 2014, the bigger achievement is that Telenor India became Ebitda (earnings before interest, taxes, depreciation, and amortization) positive in the quarter ended 30 June. “We expect to end the year Ebitda positive as well,” said Sood.
Telenor India’s debt is a manageable Rs.1,500 crore, while Arpu (average revenue per user) is Rs.97. In comparison, India’s largest telecom firm Bharti Airtel has a net debt of almost Rs.70,000 crore at the end of the June quarter and an Arpu of Rs.198 for its India mobile services.
It has not been an easy ride. In the past couple of years, it has been more about figuring out how to survive.
After the telecom licences were cancelled, Telenor’s local unit was at the bottom of the telecom pile, far behind telcos such as Bharti Airtel, Vodafone India and Idea Cellular Ltd, that had been in business in India, across all 22 circles, for around two decades. The incumbents had a range of offerings across voice and data, including postpaid and enterprise businesses, and were already rolling out 3G services—with plans for 4G in the works. All Telenor had was the bare minimum voice service.
With limited resources, it was forced to keep its costs under control and that became its business model: an extremely stripped-down operation that offered basic voice services with a wide sales distribution network.
“Here was a large population with a very long tail, and to be able to serve them, you have to be extremely competitive on price. This means you can’t have too much baggage. You can’t complicate the proposition; the fundamental was a stripped-down, naked cost structure meant for the mass market—that means no enterprise business and even no postpaid business, just the mass market basic services proposition. That was the starting point,” Sood says.
Sure enough. Telenor outsources everything except strategy, marketing and sales functions. This strategy has helped it keep costs down and pass on the savings to customers with its tag line—sabse sasta—and hang on to its customers (it has some of the lowest churn numbers in the sector: approximately 4.5% annually).
Apart from cheap calls, it also retains customers with its policy to reimburse for call drops with a free minute, even if the fault is with another operator’s network.
And even as the other operators are trying to increase tariffs, Telenor says it will continue to be the lowest. “If the market increases prices, then we will but we will still keep a differential,” says Sood.
“We can’t drive prices. We don’t have the scale to make a difference and we are a second SIM operator. We cannot dictate price in the market,” he adds.
Another way it keeps its costs down is by keeping at a minimum its expenditure on branding, key for consumer businesses like telecom.
“We don’t have to go and do some emotional communication with the consumers. Our brand position is what we offer. We don’t do television ads, or large newspapers,” said Sood.
Instead, it keeps its retailers happy, not necessarily by paying extra, but by paying on time, consistently.
“The decision for most customers is taken inside the shop. That retailer has to be loyal to Telenor. So, we have to ensure that the servicing to the retailer is the best,” said Sood.
Telenor now also has around 2,000 of its own stores where it can hard sell its own brand, without fear of competition, in its circles, much higher than most other telcos.
Last October, Telenor paid Rs.780 crore to acquire the remaining 26% that it didn’t own in Uninor and decided to rename the Indian unit. And for once, it will spend close to Rs.100 crore to spread that message in conventional advertising, with the help of McCann.
Post the 2012 licence cancellation, Telenor successfully bid for the six circles where it had seen good demand—Andhra Pradesh, Bihar, Uttar Pradesh (East and West), Gujarat and Maharashtra.
What was common in these circles—and its customers—was that these states had high levels of migrant population, of both workers and students, all of whom would be calling friends and family regularly. (It’s soon starting services in Assam, another state with a large migrant population.)
Today, Telenor gets 6% of its global revenue from these six circles, and 12% of its Asia revenue.
The cheaper calling rates for on-net subscribers, especially for STD calls, ensured that users retained their Telenor number, even if it was as a second SIM.
“We stayed put in these circles with a clear focus to build the business over time—block by block. We didn’t go and borrow a huge amount of money from the banks and start everywhere at once. The focus remains to be profitable,” Sood said.
The next block that it plans to add, in the next 18-24 months, is data services. Last month, it signed an agreement with equipment vendor Huawei Technology Co. Ltd to get its network ready for 4G.
“We’re a small player. We can’t develop the ecosystem. That has to be developed by the big guys,” says Sood. And once they do, Telenor can ride it.
Telenor, though, does offer some amount of data services—mostly for Facebook and WhatsApp—on 2G technology, and about 25% of its customers use that service—a number similar to those of other operators across the country.
“2G is still safe,” Sood said but admitted that Telenor will have to shift to data eventually.
The task before Sood and Telenor is set to become more challenging with the growing primacy of data in telecom economics. “Regional players have so far struggled with growth and staying in black (not going into losses). This challenge will become greater as data, that is growing exponentially, becomes the only play in the sector,” says Hemant Joshi, partner at auditor firm Deloitte Haskins & Sells in India. “They will find it more and difficult to grow. Efficient operations can take you to a certain point and allow you to maintain Ebitda, but the question of growth will remain. To handle data, you have to get into the newer technologies like 3G and 4G that handle data more efficiently.”
So far, the company seems to be very happy with its progress.
“For a foreign multinational coming to India and saying we will sell sabse sasta is not an easy thing. But the fact is starting from number 14 and now being the number four operator means you have done something. It’s working for us,” Sood said.
But the question is whether it can maintain that momentum. In the June quarter, the top three companies—Bharti Airtel, Vodafone India and Idea Cellular—all grew voice volumes faster than Uninor, for the first time.
“It shows that the others are seeing them as a threat and coming after their customers. The market will get tougher for them going ahead. We will see how this plays out but it is unlikely that Uninor will go away easily,” said a senior telecom analyst with a multinational brokerage firm.
Telenor now needs to hunker down and prepare for the next round of battle coming its way—the data wars—as deep-pocketed Reliance Jio and Bharti Airtel, among others, introduce in the country low-cost, very-high-speed, content-rich, data-based communications services.
“They may be able to survive in the business if they can maintain their subscriber base but the question remains on their growth prospects,” said the Mumbai-based analyst cited above. “For them, offering data will become very important when the service become a mass-market phenomenon.”
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