They're still in the ring

THE APRIL HEAT IS ON in Ahmedabad. And it’s not just the blazing sun as far as Sigve Brekke is concerned, as he interacts with dealers and retailers from Uninor. The managing director of
Unitech Wireless, a joint venture between Indian real estate firm Unitech and Norwegian telecom operator Telenor that operates the Uninor brand in India, is out in the market himself to gather customer feedback. The growth projections come crashing down as users complain about poor network availability.

It’s a common grievance across Uninor’s 13 commercial operating circles. The best bet seems to be to invest more in its network. Earlier in March, Unitech, which has a 32.75% stake in Unitech Wireless, objected to a move by Telenor for a Rs 8,000 crore rights issue to raise funds for that purpose, claiming that it would disrupt the shareholding pattern. Unitech proposed debt as an option, but long-term bank loans were not easy to get. Moreover, Unitech Wireless also does not have spectrum in key circles such as Delhi, Rajasthan, Jammu and Kashmir, Assam, and the North East.

In 2008, the Union communications and IT minister, A. Raja, allegedly favoured some companies over others in awarding licences for 2G spectrum. The losses to the exchequer were as high as Rs 176 lakh crore.

Not only is Unitech Wireless mired in controversy, with its chairman Sanjay Chandra behind bars after being accused in the 2G scam, the image of the company has also taken a beating.

And if the Department of Telecom accepts the Telecom Regulatory Authority of India’s recommendations on spectrum allocation, new rollout obligations, and future mergers and acquisitions, Uninor will not only be waiting until perpetuity for more spectrum but surviving in India would be difficult.

The challenges are similar for Etisalat. The Abu Dhabi-based telecom operator might be on shaky ground over the Rs 4,050 crore investment for a 45% stake in Swan Telecom, owned by DB Realty. (The partnership was later renamed Etisalat DB Telecom, or EDBT). In fact, it was Etisalat’s evaluation of Swan Telecom that triggered the 2G scam.

“We’re certainly concerned by the situation evolving in India. There remains some uncertainty in the market and this will impact our strategy moving forward,” said Ahmed bin Ali, group senior vice president, Etisalat. “We have a variety of options open to us for the future and the course we will take depends on the results of forthcoming government policy changes.”

Coincidentally, the two foreign investors in question are majority-owned by their respective governments. The Norwegian government has a 54% stake in Telenor while the United Arab Emirates government owns 60% in Etisalat. In fact, Norwegian Prime Minister Jens Stoltenberg urged the Indian government to protect foreign investments, including Telenor’s, here.

The easy way out for both PSUs would be to cut losses and exit India like AT&T, British Telecom, and France Telecom did between 1995 and 2000 because of regulatory and partnership issues. The difficult part would be sticking around, even if it means changing partners and profiting in a competitive market.

Etisalat says that Swan was one of many telecom companies that were being marketed by various leading investment banks. “We considered a variety of other investment options, working with a number of leading advisors. Swan was chosen on commercial merit,” says Ali. In hindsight, its apparent, Etisalat’s due diligence (like Telenor’s) should have been better.

The trouble for Telenor and Etisalat will be if the Supreme Court orders the cancellation of the 122 licences awarded to 11 companies in 2008. The court has reserved judgement on two pleas seeking cancellation of the licences. This would complicate matters, given the huge investments for both.

But, despite the troubles, both have declared themselves as long-term investors and committed to the market. Brekke, who pushed hard to convince Telenor’s management to enter India, has made a few organisational changes. All strategies now are developed in Delhi, dealers have been given better commissions, and dynamic pricing—a user gets discounts according to his location—has been introduced.

These changes seem to be working. Uninor’s subscriber base jumped from 2.5 million in January 2010 to nearly 23 million in March 2011. “Uninor is a prepaid player and is not offering fancy value-added services beyond music or heavy data access. We do not have 3G and we are not fighting for primary SIM space,” says Brekke. His focus is on achieving the long term goal of becoming Ebitda positive by 2012 and cash flow-positive by 2014 with an 8% market share by 2018.

More than a year into its launch, in March 2010, Etisalat has a minuscule share of 0.2% of the GSM mobile market share (6,52,370 subscribers) from its 15 circles of operation. Etisalat and EDBT still have commitments in excess of $3 billion (Rs 13,329 crore) here.

Breaking into the top six in India, while braving the uncertain regulatory environment is one of the ambitious targets both the operators have set themselves. You can forget about a peek into the details of their new plans in these times of turmoil. But rest assured, Telenor and Etisalat are even more determined to take the right calls. At least for the moment.