Following Telenor’s declaration of its Q1-12 financial results, CEO & President Jon Fredrik Baksaas reiterated that the implementation of the TRAI recommendations on spectrum auction pricing will make it almost impossible for a newcomer like Telenor to stay on in India. He said that despite regulatory uncertainties, the company witnessed growth in terms of customers and revenues in the Indian market, and also on the EBIDTA side, although from a reporting point of view, there were some accruals from the fourth quarter.

He said that had it not been for the ‘regulatory mess-up’, Uninor would have delivered EBITDA breakeven in the second quarter of 2013. He informed investors that the recommendations would hit the entire telecom industry and that there’s been a backlash- “Frequencies are necessary to have. We can’t do this without access to frequencies and licenses. And the recent recommendation that came out from TRAI didn’t only hit a newcomer like Telenor, it also hit the whole industry in a very dramatic way, and the industry collectively joined in a joint message to the authorities, not only their regulator but also the authorities that are to decide on this during the month of May.”

Baksaas added that If there were decisions coming out of this situation in Uninor’s favour, then Telenor will maintain its peak funding commitment to the project of Rs 155 billion as the peak funding figure before it reaches breakeven.” We will continue to work for a regulatory environment in India that makes it feasible for us to stay in, I have to say, a restricted way in the sense that what we do from here onwards needs to have a solid business case.,” he said, sounding a bit cautious.

Telenor CFO, Richard Olav Aa informed that the company witnessed an 8% growth and a 21% operating cash flow margin in India, but had to write off NOK 3.9 billion, out of which NOK 2.6 billion was Telenor’s share. He said that if the company excluded that, the net income to Telenor was NOK3.2 billion in the quarter which was about NOK2 per share.

On Uninor’s contribution to Telenor, he said that Telenor experienced 8% organic revenue growth, about 2.3% of which came from India, making it a significant contributor, but it still accounts for only one-third of the growth. India contributed close to NOK500 million to Telenor, according to Aa.

On the impairment write-down of NOK3.9 billion in India- Olav Aa said that after the Supreme Court verdict., the company was expecting the regulator to come out with reasonable recommendations for the auction, which did not happen and the current recommendations make it almost impossible for Telenor to participate in an auction if they stand as they are. According to him, the company decided to write-off the remaining book values in India of a total of NOK3.9 billion on 100% basis. ” As we own about two-thirds of the Uninor operation, it will be attributable to the shareholders of Telenor is NOK2.6 billion. We, of course, hope to succeed with changing this recommendation when the politicians in India will make their final decisions on the auction rules, and that these losses will not become a reality,” he added.

During the Q&A session when someone asked a question as to whether Telenor would be able to maintain its peak funding of Rs 155 billion, if the same recommendations were approved, Baksaas responded that it would be impossible, and it has to look after other factors such relating to network coverage.

Whether the rollout requirements or the base auction price as per the current recommendations prevent Telenor from participating in future aucions-  Baksaas said, “The rollout, as it stands by itself, is basically one roadblock to our business case, as we see it. If that goes away, then we’re back to the fact that the Supreme Court order basically took back roughly 20 megahertz, on average, in the different circles in India. And they only returned 5 of it, plus potentially 2.5, in this recommendation. And we cannot see why the government is doing – should be doing that, and TRAI tries to basically address the long-term combination on how they want to view the frequencies also in a transition to 3G and 4G. And in sense, basically, we’ve asked the Supreme Court to clarify whether that was the intention. And hopefully, there will be an answer to that this week.”

“So it’s both the fact that there is a rollout requirement that is very, very extensive, and the fact that there has been created an artificial bottleneck or spectrum, because there are spectrum blocks available at the shelf. And we haven’t seen that kind of holdback of frequencies of this magnitude anywhere else. And then it all flows back into the high-reserve price, if you take that dimension as well. So there are potential road blocks on every element.”

 Conference Call Transcript – Courtesy: Seeking Alpha