Telenor may benefit from licenses loss: Experts


12 Jan 2012
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Telenor may benefit from licenses loss: Experts


India’s decision to revoke Telenor’s mobile licences may be a blessing in disguise for the Norwegian telecom company, investors and analysts said on Thursday.

“They need to shut the door, get out of India and stop the losses,” one institutional investor in Telenor, who asked not to be named, told Reuters. “India is a difficult market where you constantly get surprises. Why do you want to invest billions there?”

“The market is still very sceptical about the business case in India, so there could be a positive reaction if Telenor withdrew,” Arild Nysaether, an analyst at Oslo-based Fondsfinans, told Reuters.

India’s Supreme Court on Thursday ordered the cancellation of 122 telecoms licences issued under a scandal-tainted 2008 sale, including 22 licences Telenor holds via Uninor, a joint venture with real estate firm Unitech. The move could allow state-owned Telenor to quit a market where it has always struggled.

India is the second-largest cellular market in the world by subscribers, with 894 million at the end of December, although fierce competition means call rates are among the lowest, hitting mobile operators’ margins.

Many market players have doubted the wisdom of entering the Indian market which costs Telenor 61 billion rupees ($1.24 billion) in upfront direct investment.

Telenor has also guaranteed bank loans to Uninor worth some 6.4 billion Norwegian crowns ($1.11 billion) as of the third quarter of 2011. “Our exposure to India today is primarily via the guarantees we have made for loans contracted by Uninor,” Telenor’s head of investor relations, Marianne Moe, told Reuters.

On top of that Uninor has various contractual obligations related to the Indian market, which could lead to further losses if Telenor decides to withdraw from the Indian market.

Shares in Telenor were down 5 per cent at 1228 GMT lagging a European telecom index down 0.03 per cent.

What to do next?
Uninor, which has 36 million subscribers, has vowed to fight on, saying it was “shocked” by the court’s decision and felt it was “unfairly treated”. Telenor said it would review the ruling and comment later.

A key question will be whether Telenor is allowed to win back its licences, and if so, at what price. “If they want to stay, they will need to buy spectrum and it is going to cost them another one to two billion dollars,” said the institutional investor. “Plus they are going to have to compete against the big boys Bharti Airtel and Vodafone, which have a lot of muscle.”

A Citigroup analyst said the spectrum cost could amount to 1 billion dollars, or 4 crowns per Telenor share. “This would clearly break (Telenor’s) target for maximum cumulative … losses in India of 155 billion rupees,” Laurie Fitzjohn-Sykes wrote in a note to clients.

She said a decision to quit India would raise Telenor’s share price by 2 crowns per share. “A decision to exit would show capital discipline,” she wrote.

Can it be solved?
Telenor might seek government help to overcome the loss of its licences. “This problem can only be solved by a political miracle,” said the institutional investor. “If Telenor wants to stay in India, they will need the help of the Norwegian government.”

The Norwegian state has said in the past it would help Telenor with its problems in India, as it would with any other company. But Telenor has been embroiled in a public row with the Norwegian trade and industry minister over the sale of a Telenor stake in a Norwegian TV channel to a Danish company.

The minister is facing a parliamentary inquiry for his handling of the affair. The ministry declined to comment when contacted by Reuters.

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