New Delhi: Telecom firm Uninor, the joint venture between Telenor Group and Unitech Ltd, expected to start services in the third week of December, will stay away from the ongoing tariff war.
“Historically, Telenor companies are not generally price leaders—we do not offer the cheapest rates,” Jon Frederik Baksaas, president and chief executive officer (CEO), Telenor Group, said in an interview. While rates need to be competitive, Baksaas said Uninor would rely on better connectivity to build its subscriber base.
Wooing subscribers: Telenor’s Jon Frederik Baksaas says Uninor will focus on better connectivity. Rajkumar / Mint
Baksaas admitted there was a need to keep costs in check. “Our business model for India will have to slimmer and leaner—both in terms of capex (capital expenditure) and organizational set-up,” he said.
Telenor bought a 67.25% stake in the company from Unitech for Rs6,120 crore, almost four times the Rs1,651 crore that the realty company paid for the licence allotted last year. Uninor, which has invested Rs2,620 crore in its planned roll-out, has also tied up with Wireless-TT Infra Services Pvt. Ltd—a 51:49 joint venture between Tata Teleservices Ltd and Quippo Telecom Infrastructure Ltd—for sharing tower infrastructure.
Baksaas agrees with analysts who expect the rate battle to lead to a shake-out and consolidation. Calling it a long-term game, Kunal Bajaj, managing director with strategy consulting firm BDA Connect (India) Pvt. Ltd, said companies that are short on cash will be the first to flinch.
“This, however, will take some time as many of the firms have backers with very deep pockets. Rationalization of tariffs will only happen once consolidation starts happening which will take two-three years given the cash-rich promoters. Some operators like Shyam (Sistema) and Reliance Communications (Ltd) have launched tariffs below 1 paisa per second in a few circles. So it doesn’t look like tariffs have bottomed out as yet,” Bajaj said.
That may not be a problem for Telenor, which reported a revenue of Norwegian kroner 110 billion (Rs91,700 crore) for 2008 and had a subscriber base of 172 million at the end of the third quarter of 2009, making it the seventh largest mobile service operator in the world.
Baksaas sees great potential in the Indian market, where mobile phone usage is growing at the fastest pace in the world.
“Real penetration is lower than what is reported in statistics. We are seeing that penetration will continue to grow due to the sheer number of new users in the Indian subcontinent,” he asserts. The rural market, Baksaas said, will be a key focus area for Uninor’s growth, although he refuses to explains how he plans to make inroads into an already crowded market that’s price sensitive.
Bajaj said the initial strategy could well be to aim for valuations.
“It is difficult to say what the new operators can do. They will have to focus on establishing a sizeable customer base and credibility in the market showing that they can drive competition. So when consolidation comes they will get a good look and valuation for their investment,” he said.
Shauvik Ghosh contributed to this story.