Uninor’s Vikings

On March 2, weeks before the anniversary of last year’s communal riots that displaced over 11,000 people in central Myanmar, the Industrial Road area in Yangon’s upscale Bahan Township came alive with white and blue balloons. The source wasn’t a memorial, or one of the neighbourhood cafés that signal newfound tourist interest in the former capital of the poor Southeast Asian nation, but a 13-storey white building on Plot No. 40.

For many locals, such festivity would call to mind Yangon’s boisterous political rallies, seeking freedom from decades of repressive junta rule. But behind the white building’s glass windows, 60 people—a third of them Indians—were toasting a revolution of an entirely different kind.

The balloons bore the house colours of Norwegian mobile services company Telenor—the sixth-largest in the world. The building—Aurora Tower—was inaugurated that afternoon as Telenor Myanmar’s national control and command centre, from where it would take on the world’s last virgin telecom market (unless North Korea decides to privatise).

It’s a trophy project for President Than Sein, a former military commander elected Myanmar’s first ‘non-interim’ civilian head of state in 2011, nearly 50 years after democracy was booted out and the country put behind an iron curtain. His big idea: rolling out the red carpet to multinational moneybags. Unilever, Coca-Cola, and GE are among the headline acts so far. But in a country where close to 90% of the population of 53 million has never used a phone, few can match Telenor in sheer revolutionary potential.

The story started in June last year, when along with Qatari network provider Ooredoo, Telenor won a 15-year licence to start private telephony services in Myanmar in exchange for a $500 million (Rs 3,002.5 crore) fee. Things have moved rapidly since. In October, a new law replaced the Myanmar Telegraph Act of 1885 and the Myanmar Wireless Telegraph Act of 1934, prompting communications and information technology minister U Myat Hein to claim that the country was now on a par with “international standards”. On March 8, Telenor launched its Internet link, ending a longstanding government monopoly. And on April 7, Hein made the first ever voice and video call on Telenor’s 3G network.

That’s all very historic, but for Telenor, Myanmar could well just be a logical step in a relentless Asian march. Since opening up—and lording over—Bangladesh through Grameenphone in 1996, it has entered one new Asian market every three years on average, and now half of its 12 country operations are in this continent. Its Thai and Pakistani operations are the second-largest in their respective markets. In 2011, it crossed 100 million subscribers in Asia, en route to becoming the largest multinational telecom operator here. Asia gives it 44.6% of its revenue, 47% of its Ebitda, and 89% of its subscribers. Not even Vodafone, the world’s largest telecom company, comes close to such growth.

But for all that, Telenor has chosen an unlikely role model for Myanmar: Uninor, its Indian arm, formed in 2009 with real-estate company Unitech. That’s counter-intuitive for all manner of reasons. For starters, Telenor Myanmar will practically own that market as one-half of a duopoly. Uninor, on the other hand, was the 14th player to open shop in India. Still, India’s mammoth telecom subscriber base—17 times Myanmar’s population—means that if Uninor did achieve its modest original target of 8% market share by 2018, it would have been catapulted into the top four.

But that ambition proved stillborn, as Uninor lost its 2G licence in February 2012 along with eight other operators in the wake of India’s massive ‘spectrum scam’. The damages: investments to the tune of Rs 15,500 crore. Sanjay Chandra, managing director of Unitech Wireless (a holding company through which the JV was executed), even went to jail briefly for alleged complicity in the scam.

However, rather than wilt away, Uninor decided to hunker down. It bought out Unitech’s stake in October 2012, and won fresh spectrum in an auction held the following month.

That’s when the most improbable of turnarounds started. The company withdrew to six circles (seven, including yet-unoperational Assam) from 13, cut capex by outsourcing, restricted itself to 2G despite the hype around 3G, 4G, and beyond, and went after the bottom rung of the market—daily-wage earners, rickshaw pullers, or masons—or those who needed a no-frills second or third SIM. The upshot: profits in all its circles in the first quarter of 2014. Operations are not yet cash-flow positive, but both average revenue per user (ARPU) and revenue per minute are up. The next goal: doubling data revenue and subscribers this year.

There’s been a cost—the blemish of being a regional player for the first time in Telenor’s history. But Sigve Brekke, executive vice president and head, Telenor Asia, says that point has been exaggerated. He says Uninor’s seven circles account for almost 53% of India’s population, but almost 60% of their combined market is still not taken. Uninor’s focus on these areas has helped it beat far larger peers in net addition numbers. (It currently has 9.5% market share in its six circles.)

New investments—to begin with, Rs 305 crore to add 5,000 towers to the existing 24,000—are on the anvil. Shareholders, who had hammered the Telenor stock when it first announced its India foray, also seem content. “India is as exciting as it gets,” says Barry Zeitoune, telecommunications analyst at Berenberg, a German financial firm that tracks Telenor closely. “The cost of investment was high due to the licence cancellation, but it is far more digestible now.”

A feeling of ‘what if?’ persists. What if Uninor didn’t have to give up on its national ambitions? Myanmar, with its promise of total domination, could be a salve for that. But Hilde Tonne, Telenor’s head of group industrial development, says Uninor will continue to enjoy pride of place within the group. She should know: Her team was formed in 2011, when the Telenor management, enthused by Uninor’s example, decided to standardise best practices across markets.

“What Telenor does in 12 countries, Uninor does in six states in India—and better,” says Tonne. The nub: Uninor’s compressed and frugal approach makes it just the right example for small, untapped Asian markets such as Myanmar. That’s where the future is, given that the likes of Thailand, Indonesia, Malaysia, and even Singapore are saturated or fast approaching saturation.

Of course, Myanmar won’t brook a cut-paste job. There, Telenor will have to first build a communication culture from scratch. Then there’s a non-existent retail distribution network, absence of trained salespeople, and a highly censored media that stymies marketing plans. Not to mention the vagaries of a pariah market long lost to business, where shambolic land records mean dealing with multiple claimants for the same plot before an operator can even put up a tower. Posers like that could explain why, despite the initial excitement during the regime change, Myanmar hasn’t quite seen the anticipated explosion of investor interest. A November 2013 Financial Times report quoted an investor saying multinationals need more time to shake off their suspicions about the country.

But Jon Fredrik Baksaas, Telenor’s president and CEO, says such things no longer bother the company after its baptism by fire in India. “Telenor before and after India,” says Baksaas, “are two different stories.”

At the heart of that conviction is a cache of battle-hardened talent. “Uninor employees carry the attacker’s mindset,” says Brekke. “Elsewhere, we were either the leader or among the top three. But in India, we were the challengers and had to fight for every customer. That has given us a template.”

Familiarity with that template is the reason more than 30 people from Uninor have been despatched to other countries in the last three years. Sharad Mehrotra, the former CMO, is now in Myanmar as deputy to country CEO Petter Furberg. CFO Prasoon Sinha has joined the group finance function at the company’s Oslo headquarters. There’s also Vivek Sood, CFO before Sinha, who has taken charge at Grameenphone as managing director. In fact Sood’s brief—shaking up Grameenphone from its incumbent mindset—is indicative of what the group expects of its Indian execs. “When the competition’s revenue is less than your Ebitda, lethargy sets in. We need to be challengers again,” he says.

He is referring to disruptions like the decentralised style of functioning that Telenor had never tried before Uninor. India was too large a country to manage from a central location, so Uninor divided its six circles into 216 clusters and 949 mini-clusters. Each cluster head was given an independent profit and loss account. “The idea was that if every base station is an investment, it should generate profitable revenue,” explains Brekke.

Uninor discarded several other old ways of doing things. Take its legacy sales management system, which had worked well in Thailand. But it was offline, meaning that the collected data wasn’t available for instant analysis. In India’s hyper-competitive market, delayed interventions meant lost business. So Mehrotra called in Wipro to create an online distribution management system (DMS) to get real-time data from its 200,000 retail counters. Sales executives met retailers and fed data related to inventory, recharge, and complaints into the DMS from their handhelds, and the management could address all issues immediately.

“The DMS also helped us automate the payment system and prevent delays in transferring commissions. That gave us credibility among the retailers,” says Mehrotra. He also started paying retailers maximum commission not for selling SIMs, but for the subsequent recharges. This helped bypass the problem of inactive SIMs that show up as idle assets in the operator’s books.

For the success of DMS, Mehrotra was called to Bangkok, Telenor’s regional headquarters, and asked to implement it for 1.5 million retailers in its other Asian markets.

In another significant move, Uninor shared a technology with retailers through which they could track subscribers with low balance and analyse usage patterns, and suggest top-ups accordingly. Among customers, this gave Uninor the image of reliable operator that would not leave them stranded without balance. Bigger rivals had many more retailers pushing their services, but their girth also meant they couldn’t keep pace with Uninor’s guerrilla tactics.

Apart from fixing retail, Uninor showed Telenor how to juice out its networks. A severe shortage of spectrum—Uninor on average has 4.4 MHz spectrum holdings in India, whereas in other countries this can be nearly 20MHz—forced it to derive more out of less. “We made some software changes, and our base stations now have 55% more capacity than others. This also helps us load the 2G network with data, without compromising on voice quality. Ultimately costs went down and revenues went up,” says Morten Karlsen Sorby, CEO of Uninor.

Also, when the rest of the group shifted focus to an Internet-for-all strategy, based on high-speed, next-generation data networks, Uninor stuck with 2G. It does not offer Blackberry services, neither does it promote iPhones unlike some of the bigger operators. When others launched fancy data plans, Uninor announced “sabse sasta”, or the cheapest access to basic data services, including Facebook and WhatsApp. The plan started as unlimited access for Re 1 a day. The shift from fixed, volume-based Internet access to service-based access came after intense research on its users, some fine tuning of its networks, and without incurring any additional spectrum cost.

Even interconnect and roaming pacts with other operators have been limited. “We do not have enterprise customers. In our mass market, prepaid, basic-services subscriber base, 70% to 80% of all calls remain within a circle. These are places where we often get paid given our penetration, rather than us paying another operator,” says Sorby. Such customer profiling will come in handy in Myanmar, where the per capita income of $1,700 (according to the CIA World Factbook) is among the lowest in the world.

Myanmar countryCEO Furberg is a Telenor old-timer. In his earlier roles, he was instrumental in transitioning Telenor’s networks in Thailand (dtac) and Malaysia (Digi) from voice to data-centric services. But his new assignment rolls back the clock. Myanmar is a low-ARPU market, which will be dominated by prepaid and voice customers (though 3G will be rolled out right from the start).

Furberg also faces the typical pioneer’s dilemma. “We have to make our services affordable and simple for first-time users, but at the same time we cannot take losses just to increase subscriber numbers.”

That makes Telenor Myanmar’s primary goals—Ebitda breakeven in three years, and 90% market coverage as well as positive cash flows in five—appear ambitious. To keep a lid on costs, it has started with Uninor’s outsourcing ecosystem. “As these partners already know our way of working, it’s easier to roll things out fast,” says Mehrotra. Uninor’s tower vendor Quippo has partnered with West Asia-based Golden Towers and formed a company called Irrawaddy Green Technology that will erect towers for Telenor Myanmar. Ericsson and Huawei will manage the networking equipment. Wipro will manage IT. The company’s local cadre, who make up 80% of the staff of 380, are being trained to work with multiple partners.

Mehrotra has also brought Uninor’s DMS to firm up the retail side and map 25,000 retailers and 69 distributors from day one. However, he knows that this time his challenge is not selling connections, but to make the growth profitable. “A lot will depend on our operating model and the efficiencies we are able to squeeze out of it,” he says.

That’s classic Uninorspeak, if you will.