Market to be challenging & tough for Uninor: Analysts

Written by Nikita Upadhyay | Nikita Upadhyay | Mumbai | Updated: Sep 22 2011, 21:49pm hrs
As Norway-based Telenor, the worlds second largest mobile telephony by revenues and subscribers meets its investors on Thursday, Norways Capital Markets Day, both foreign and Indian telecom analysts tracking the company predict a tough and challenging market for the Indian subsidiary, Uninor, a joint venture with real estate developer Unitech.

Uninor, operating in 13 telecom circles, has been loss-making ever since its late entry in 2009. Last year, on Norways Capital Markets Day, the companys presentations had focused on driving operational efficiencies through infrastructure sharing. Investors then had expressed concern regarding the companys operations in India and had asked the company to exit all loss-making businesses, including Uninor.

Last year, Telenor had halved its guidance on capital expenditure from NOK 2 billion in 2010, to NOK 1 billion in 2011. The Norwegian government owns 54% of Telenor, with the remaining held by shareholders spread across Scandinavia, western Europe and the US.

Telenor has got a good hold in other emerging markets unlike in India, Espen Torgersen, sector head, telecommunications services, Carnegie, an Oslo-based brokerage firm. Right from the beginning, stakeholders have seen Uninor as an ugly duckling. With no clarity on the regulatory front, Telenor should clearly come out and say that since the rules of the game have been changed, we dont want to play the game anymore, he added.

According to him, Uninor has been struggling to acquire revenue market share. The telco is looking at around 8% market share in the country by 2018, achieve cash flow positive in five years and ebitda break even in three years.

Capex is already at a fairly low level and they are not expanding, says an analyst from a multinational brokerage. If they invest in the business, it will lead to negative ebitda. In this way, they are not investing in the business and growing it, he added. Uninor is yet to receive 2G spectrum in key circles such as Delhi and in pockets of Jammu & Kashmir, Rajasthan, Assam and the northeast. Uninor said that their presence in 13 circles ensures of 75% population coverage of India.

The company added 27 million prepaid subscribers in 22 months with an average revenue usage of R100, half of leader Bharti Airtel, which is approximately R190, but better than other newcomers like Videocon Mobile Services, Etisalat, who have their average revenue in R45-60 range. Average revenue usage refers to an average revenue a mobile telephony company receives from a user every month. The parent Telenor is the second largest mobile telephony in Pakistan with around 27 million subscribers and the largest in Bangladesh, owning around 34 million subscribers. Telenor owns 100% in Telenor Pakistan and 55.8% stake in Bangladesh.

Telenor spokesperson Glenn Mandelid, communications director, at Telenor Asia did not respond to FE questionnaire.

Experts feel Uninor will not sustain in the Indian market, given its thrust on the prepaid segment, inability to roll out third generation mobile services or 3G which gives faster access to data.

This model is unsustainable, a consultant said. There is a threshold for sweating a companys assets. Unless you have a 10% revenue share with 20% of value added services like mobile internet revenue to your topline, survival is difficult, the consultant added. He or his firm cannot be quoted as the firm does not comment on specific companies.

Uninor is in a market where it is competing with the largest telecom provider in the country, Bharti Airtel, which has around 160 million subscribers, said another consultant with an international consultancy firm, and cannot be quoted as his firm does not comment specifically on companies. The urban markets in India are already saturated and tapping the rural potential would incur huge additional expenses. Sensing this, Bharti has already moved out of the country in search for newer markets like South Africa, Bangladesh and Sril Lanka. The Indian market is not as lucrative anymore, posing a new challenge to companies like Uninor, he added.

New entrants survival depends on who has the larger pocket, said Romal Shetty, head-telecom, KPMG India. Some of them will fade away and some may get consolidated. Even with six to seven players per circle, the survival in the market will not be less competitive. New entrants have an issue of differentiation and innovation. Only subscriber acquisition will not drive profitability. One must not just focus on low cost models but also on revenue generation,

Many Indian and foreign companies which rolled out mobile telephony late are hoping to ride on the governments National Telecom Policy or NTP expected in 2011. They expect the new merger and acquisition rules will facilitate consolidation among companies. Now, mobile telephony companies are barred from owning more than 10% stake in a rival company in the same territory.

But, analysts say Uninor will be a target rather than an acquirer. I can see a path to profitability for Uninor, but changes to the regulatory landscape remain a material risk, says Barry Zeitoune, an analyst at Norway-based Berenberg Bank.We believe the Indian mobile market is ripe for consolidation, and we see Uninor as a target, rather than an acquirer in this process. Uninor, in the past, has said that it will evaluate a good opportunity if it makes business sense and the regulatory environment on M&A makes it feasible.