Telenor at a crossroads in India

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Major Norwegian telecoms firm Telenor has lost huge sums of money investing in India’s mobile phone business. Critics say that it’s time the company pulls out of India, but Telenor executives disagree.

Telenor CEO Jon Fredrik Baksaas at the launch of his company's challenging venture into India. PHOTO: Telenor

The new head of Telenor’s Indian subsidiary Uninor, Sigve Brekke, claims things are getting better and that Telenor wants to stay in India on a long-term basis.

Telenor admits that investing in India has been far more challenging than had been expected, with cut-throat competion and record low telephone rates. Communications director Dag Melgaard, however, points to August figures as a step in the right direction, with an increase of 2.2 million new customers.

Brekke, who took over the Indian operation this summer, also says things are improving, “but there will be many tough challenges ahead,” he told newspaper Aftenposten this week.

Since he took over, he has introduced new pricing schemes more in tune with local market conditions. He has also reorganized his administration and improved incentives for better sales. Brekke points out that the number of new customers is growing faster than before and that trafic per customer is up along with revenue.

“This was according to our expectations,” Melgaard told Aftenposten. However it gives Telenor only 1.9 per cent of the market, making it the biggest of the small operators, far behind the six major phone companies.

Investment analysts are waiting to see what strategy Telenor chooses now.  “Market developments in India have been more negative than Telenor or anyone else based their assumptions on a couple of years ago,” says analyst Arild Nysæther. He thinks Telenor should become a driving force in the wave of market consolidation in India, which many are predicting.

“I can’t see how Telenor can make money on their own in India. Yet, if the number of competitors were reduced from 14 today to five or six, I believe Telenor can make a profit in the long run,” says Nysæther.

If business doesn’t further improve, he said he’ll join the chorus of Norwegian and foreign analysts who think Telenor should pull out of India. He also questions Telenor’s plans in its other South Asian markets. Both Pakistan and Bangladesh are ready to invite tenders for the third generation (3G) cellphone network. Telenor did not apply for 3G in India, but Nysæther thinks that the company is more or less compelled to do so in Bangladesh and Pakistan, adding that this may become expensive.

“The prices of these 3G licences have risen sharply recently,” Nysæther told Aftenposten.

Views and News staff