Next year critical for decision on India venture

Telenor ASA, Scandinavia's biggest phone company, said next year will be decisive for its Indian operations. The Norwegian company, which spent about $1.3 billion to buy control of its India venture and invested 4.8 billion kroner ($808 million) more on capital expenditure, has accumulated more than 3.4 billion kroner in losses in the South Asian country. The India operations added just 159 million kroner, or $27 million, to revenue in the first half. "Our goal is to get back on the business plan next year in terms of revenues and cash flow," Sigve Brekke, the chief executive of Uninor, the Indian venture, said at Telenor's investor meeting this week. "I'm not going to say that we are confident. A year from now we'll know what we're able to do." Telenor entered India last December seeking to leverage expertise gained in Pakistan and Bangladesh to capture growth and profits in the world's second-biggest wireless market. With more than a dozen operators competing for users in India, call rates have been pushed to as low as a penny a minute, making the risk in the market too great, Telenor investors have said. Uninor could still meet its target of profitability in three years although the company has been "humbled" by its setbacks, Brekke said. The executive took over the operation in July from Stein- Erik Vellan after the first six months didn't meet projections. The company estimates it doubled revenues and boosted subscriptions 79 percent in the third quarter. LOW LEVEL "Obviously it's picking up, Sigve Brekke is doing a really good job of re-energising the sales," said Frank Maao, an Oslo- based analyst at DnB NOR. "But it's picking up from a really low level when it comes to revenue and the whole challenge is related very much to the structure of the industry and the number of players." India's current regulations discourage consolidation that would help remaining players increase profits. Another hurdle is the possible requirement for universal coverage, meaning wireless companies could be compelled to provide service in villages of 5,000 people rather than concentrating on more lucrative markets. Brekke says Uninor aims to become one of the top six companies in each of its "circles" or regions , and is close to that goal in several circles. He's changed managers in four circles where performance lagged and introduced a pricing plan that requires users to keep the Uninor SIM card in their phone to take advantage of fast-changing discounts. Indian users typically juggle prepaid SIM cards from several phone companies. Average calling prices collapsed last year as companies offered free calling minutes to sign up customers. India added 13.5 million mobile subscribers amounting to 2.9 percent of its base in August according to the Cellular Operators Association of India. Uninor added 32 percent, the association said. "The market growth you see is not going to last forever," Brekke said. "The experience we have from other markets is that if you don't take your fair share when the market is growing like that it's very difficult to do that later." Prices have stopped falling and he expects the free- minutes plans to taper off because they cut into profits. Uninor's monthly Average Revenue Per User, or ARPU, was 90 rupees ($1.97) in the second quarter, rising to 100 rupees in August, the company said. "If a year from now we are still competing with free minutes and the regulations go against us," then the business may be reviewed, Brekke said, saying the company will continue with plans to improve operations. "Even if we sell it, we have to have something to sell," he said. Telenor entered India when it acquired a majority stake in a new wireless business set up by Unitech Ltd., the real estate company controlled by Indian billionaire Ramesh Chandra. It's kept infrastructure costs down with tower sharing agreements, including new contracts that Brekke says have smaller fees and shorter lock-in periods than the initial agreement made with Tata Teleservices and Quippo Telecom Infrastructure.