Telenor CEO Jon Fredrik Baksaas believes the 3G handset ecosystem in India is still not at the level where the market could suffice on 3G service and at this stage, 2G service is more than sufficient in the country right now. This came up when a caller on the Telenor earnings conference call asked about how the company feels about not having a 3G service in India, after witnessing 3G growth in Bangladesh, and potential 3G growth in Pakistan.
Baksaas also pointed out that 3G investments by other telcos has been fairly limited in the country and the mobile Internet penetration is still very low and the 2G data service is serving very well to those who are on mobile Internet. This way, the company can target the low cost user base with very aggressive pricing as compared to others and sustain the pricing levels.
Remember that Uninor had chosen to focus only on basic services (voice, SMS and basic Internet) in six operational circles and and offer the most aggressive plans in these services, after it noticed that data wasn’t contributing to its revenue growth and this trend was likely to continue for a few years. It has broken even in five of its six operational circles until now and is targeting an overall break-even by the end of this calendar year while aiming to stay well within the peak funding of Rs 15,500 crore for the operation.
He added that Telenor wants to address this problem (providing 3G service) at some point in time but that is currently outside the medium term horizon.
Other notes from Telenor’s earnings conference call:
– Baksaas said the competitive environment is improving in the country, with signs of price increases and consolidation, leaving fewer operators in each circle. Despite this, the operating cash flow was flat this quarter, as compared to the previous quarter.
The operating expense (OpEx) and capital expenditure (CapEx) increased due to the launch of 870 new sites in India, which is a reuse of existing equipment. Baksaas said the new sites will help them drive revenue growth in the forthcoming quarters. This had a negative impact of NOK 40 million (Rs 411.8 crore) on cash flow this quarter.
– On whether they will be participating in the forthcoming 2G auctions to expand its operations in the country, Baksaas said it will depend very much on what will be the reserve prices for the auction and how the auction will eventually play out.
– On potential inorganic growth options, Telenor CFO Richard Olav Aa said the merger & acquisition rules are still not in place and there is currently no certainty on what the spectrum values are and how it will be priced going forward, while Baksaas declined to comment on this, saying “Consolidation happens when it happens”. He also pointed out that there has been some sort of circle-by-circle consolidation, due to which Uninor has the position to be the best basic service supplier and the best in distribution, which has been the telco’s growth formula for all its circles.