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Home » OOH News » Telenor's fast route to success in India

Telenor's fast route to success in India

By Sounak Mitra, Business Standard, New Delhi - December 18, 2013

Its strategy of rock-bottom tariffs and barebone services has helped it break even within a year of launch. Can it sustain this growth?

Telecom, any analyst will tell you, is a sector in severe pain: tariffs are too low, competition is intense and innumerable regulatory issues still hang fire; profits of telcos, therefore, are under squeeze. Amid this gloom comes news that Telenor, of Norway, has broken even in one year of operations. Five of its six telecom circles (the country is divided into 22 circles) have turned Ebitda (earnings before interest, tax, depreciation and amortisation) positive, while the sixth will get there by the end of this month.

This is, actually, Telenor's second innings in India. It had bought 67.25 per cent in Unitech Wireless in 2009 for more than Rs 6,000 crore. Unitech Wireless had got spectrum in the infamous 2008 allotment when Andimuthu Raja was the telecom minister - the so-called 2G scam - in 22 circles. The company focused on 13. In spite of the controversies, Unitech Wireless, which operated under the Uninor brand, had got over 40 million customers: its largest base anywhere in the world. Rivals said it had done so by dropping tariffs, which had brought grief to the entire industry, but the company stayed the course. Then, in February 2012, the Supreme Court cancelled all the 122 telecom licences (and the spectrum that came with each licence) allotted under Raja. Telenor, which was also fighting its local partner, the Chandra family of Unitech, over whether to finance the expansion through debt or equity (with real estate in a bind, cash-strapped Chandras favoured debt), was back to square one - it had no option but to start afresh.

It settled with the Chandras, roped in a new partner, Mumbai-based Lakshdeep Investments & Finance, and bought spectrum for six circles in an open auction last November: Uttar Pradesh East, Uttar Pradesh West, Bihar and Jharkhand, Maharashtra and Goa, Andhra Pradesh, and Gujarat. The choice of circles was interesting. One, though these house almost 50 per cent of the country's population, they account for just about 28.7 per cent of the price of pan-India spectrum. Two, it downsized Telenor's footprint more than half from 13 to six circles (it gave up Mumbai which has the highest average revenue per user in the country) but its subscriber numbers fell only by 10 million: a drop of a quarter or so. "We take India not as a country, but as a continent. So, we don't have to be present pan-India. Even the big telcos are not successful in all circles. They are successful in a few circles. So, the competition is circle-based and not pan-India," says Sigve Brekke, head of Telenor Group's Asia operations and acting CEO of Uninor.

Change and continuity

Even in the second innings, Telenor (the new operational joint-venture is called Telewings Communications, though the service brand remains the same, Uninor) has stuck to its earlier strategy of offering the lowest tariff: as much as 40 per cent below its nearest rival. Its slogan is "sabse sasta" (the cheapest of all). "The principle is quite simple, really. Selling a minute sabse sasta will only work if you can produce it sabse sasta too. It is about the ability to relentlessly attack every cost and defy conventions to be able to profitably deliver the lowest tariffs in the market," says Brekke. The company claims that its operating cost is the lowest in the industry - about 30 per cent less than rivals. The long-standing charge against Uninor has been that it burns cash to acquire subscribers. But the narrative could be different: Uninor has broken even, though its average revenue per user of Rs 100 is below the industry average of Rs 111.

As a part of this strategy, Uninor offers barebone voice and SMS services, and has not bought expensive spectrum for third- (3G) or fourth-generation (4G) services. Brekke had told Business Standard in 2012 that value-added services accounted for only 10 per cent of the market, and were, therefore, not worth investing in. "If you are a postpaid, 3G or data customer, forget us," he had said. This helps in another way. While most telecom companies spend 6 to 7 per cent of their revenue on advertising, Uninor spends only around 3 per cent. Since its target is the mass market, it does not advertise on the electronic media (it is expensive) or national publications (it is not consumed by its potential customers).

Also, Uninor was amongst the last buyers of 2G equipment. It got all the five equipment makers - ZTE, Huawei, Ericsson, Nokia-Siemens and Alcatel-Lucent - to compete for the order. "Their 2G investments were at the end of their lives - almost all the fixed costs had been taken out, and they had to worry only about the variable costs. This got our prices down by close to 20 per cent," Brekke had said in 2012. "Our IT contract with Wipro also came out 10 per cent cheaper than expected." At the call centres, managed by Wipro, employees are trained to resolve queries from subscribers in less time. This has reduced the IT spend by about 40 per cent as the number of people has come down about a third to about 300.

Drawing in customers

To get customers, Uninor has divided each circle into eight to ten clusters. That's because nine out of ten calls end within a small geographical area. This helps the company use its spectrum efficiently. As a result, every Uninor cell-site works to full capacity, compared to the industry average of 70 per cent. Within each circle, Uninor focuses on large towns and cities. These might have high telecom density but the churn is high - as many as 10 per cent customers change their telco every month. This, combined with the fact that almost half the country's mobile phone users carry more than one SIM card, is a huge opportunity for Uninor with its low tariff plan.

The important question is, how long can Uninor survive on its bread-and-butter voice and SMS service? Internet usage on the mobile phone is on the rise. So much so, the number of internet users on the mobile phone is almost the same as that on the personal computer. Uninor knows this cannot be ignored for too long. "The data opportunity and data potential is undeniable. The difference is that, much like with voice, in data too we see tremendous potential for basic services. This is the segment that will truly explode," says a company spokesperson. The internet needs - social networking, browsing, email and listening to music -of mobile subscribers are not dependent on high-end and expensive platforms like 3G and 4G, the company feels. "Uninor's model will help the company extend the same unique positioning of affordability to data as well," adds the spokesperson.

Market analysts are bullish about the model that Uninor has adopted. "This was a unique innovation. It has been able to develop a very cost-efficient model which is sustainable. However, if it decides to expand within India and beyond basic services, it may not be that easy to maintain this level of profitability in this model," says a team leader at a global management consulting firm that works with Telenor.

Meanwhile, Telenor is planning to replicate the India model in other Asian countries. "We never thought India could emerge as the 'innovation centre' for us and would be so valuable in terms of learning. And the learnings in terms of optimised utilisation of spectrum and efficient distribution and cluster-based operational model would be replicated in the all six markets in Asia: Bangladesh, Pakistan, Thailand, Malaysia, India and Myanmar," Brekke says.

BUILDING A STRONG CONNECTION


Brekke believes that a customer walks into the store with an open mind, and the purchase is impacted heavily by the retailer's advice. To get the retailer on its side, Uninor offers him three commissions: first when the SIM card is sold, second when he achieves a certain volume, and third when the customer delivers certain revenue. This is an innovation Uninor has imported from Telenor's operations in Bangladesh.

Besides the traditional distribution network, it has made new connections and recharge available through new channels like auto-rickshaw drivers and at the doorsteps of users through milkmen, paperboys, insurance agents and watchmen. Instead of large format company-owned showrooms, Uninor operates small "express stores" at tehsil headquarters that take just eight days to set up and cost about 60 per cent less. In rural markets, Uninor has launched the concept of micro distributor - one person who is the distributor, retail executive and subscriber activator all rolled into one.
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