‘Uninor Is Telenor. It’s Not Unitech’
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Now, Brekke has his hands full grappling with problems. He has to explain Uninor's (and Telenor's) stand to various investigative agencies. He has to deal with the problem of funds as banks shy away from lending to 2G licencees. Then there is the problem of employees wanting to quit due to the uncertainty. And finally, there are plenty of rivals. Telenor has invested Rs 6,100 crore in equity and guaranteed debt of Rs 5,000 crore already in the Indian operation. And it is ready to spend even more as it is in India for the long term. In a candid interview with BW's Anjuli Bhargava and Prosenjit Datta, Brekke explains Telenor's take on the 2G controversy, the problems, and why India's telecom policies are better than others. Excerpts:
Why did Telenor enter India so late?
Two reasons. One, we felt we need to walk before we run. When we entered Asia in 1997, we started with an investment in Bangladesh and Malaysia, and at that stage we looked at India. But we felt Asia is a long way from home and we needed more experience in these types of markets to make a difference in India. So, we continued to expand our presence in Asia. Then in 2007-08, we felt we had some experience, we have an operational model from similar growth markets, and we had the resources and competencies to take on the ultimate challenge — the Indian market.
Secondly, there were not as many openings in between. Telenor likes to enter through a greenfield rather than spending a lot of money buying an existing company. We have a business model that works in growth markets, so we are very specific about always having operational control in all our ventures. You will never see Telenor being a minority partner. So, we needed an entry opportunity. That said, I don't agree 2007-08 was so late. It is still a long way before the Indian market matures.
Master of Public Administration, Harvard University
Started as manager, business development in 1999 and was executive vice-president and head of Telenor Asia operations before he moved to India
Served as deputy minister (state secretary) of Defence, Norway, in 1993. Was associate research fellow at John F. Kennedy School of Gover-nment, Harvard
Did you explore other partners before you picked Unitech?
Yes, we looked at all the four. We started to look at this 6-7 months after the licences were awarded in January 2008. We started to look at this in July 2008. One of the main reasons (for choosing Unitech) was that we needed to have a controlling stake. We would not have entered as a minority partner.
When did you first get an inkling that all may not be well?
There have been rumours about this for long. But they seemed more concrete in September-October last year. But all along, we felt we had done our due diligence. What we saw when we came here was this company with a valid licence given by the government. We also checked if the licence was given based on the eligibility and the papers indicated it was so. There was no reason for us to question that. Also, all our money — Rs 6,100 crore — went to the firm, not to promoters. We had no reason to suspect any wrongdoing. Even now, when we have redone our due diligence and looked at it all again, there's no way we could have suspected or known anything was wrong.
So, were you personally sent in around the time (in August 2010) to firefight the situation that was developing?
No. We had put in place a management and, after half a year, we were not happy with the performance. So, we decided to change it and I came in myself. This was purely operational. We were unhappy with the subscriber offtake, revenues and the way the business was growing. So rather than sitting in Bangkok and screaming about it as head of the Asian operations, I decided "let me try myself".
But it hasn't exactly been a smooth ride from what one understands…It hasn't. Operationally, we are doing quite okay now. We have crossed 25 million subscribers and are picking up market share. In the two best circles (in the 13 Uninor is operating), we have gone from No. 12 to six. Then, in three of them, we have gone from 11-12 to seven. And the rest, we are 8, 9, 10 and so on. We are doing especially well in the Hindi belt. We are struggling a bit in the South. Our aim is to be at least at No. 6 in all 13 circles. In every circle, there is room for 5-6, not more than that. But it is very challenging to operate when we find ourselves in the media every day. We didn't expect that. We didn't plan for that.
Have you done market research to find out how it has affected your brand?We haven't done market research, and have not had to spend more money. But, in terms of effort and management time, yes. You will see me constantly travelling to all circles, informing people of what is happening, asking them to calm down, stay on and focus on operations. A lot of my time and of the top management goes to ensure employees are concentrated and not confused. So, in that sense, it has a cost.
Have you lost employees as a result of the controversy?
Yes, we have. People are quitting as they feel things are too uncertain. This is more at the junior and mid-level ranks.
You have a bigger stake, still why did Unitech appoint the chairman?
That was part of the negotiation. When we decided that we should have control — not only shareholding, but also board and management control, we agreed that our partner could have the chairman.
Based on what has happened, when will you recover what you invested?
We had said that we wanted to be Ebitda positive by the first half of 2013, and that is still the plan we are following. For the first six months, we were not happy. But the past 9-10 months, we have been able to turn things around. If you look at some of the incumbents, they have taken 7-8 years to break even. So, if we manage it in three years, it will be an achievement.
That's why you will see us being rational. We have spectrum in 20 circles, we have services in 13, but we will expand only when we feel the machine is working. We will not be too aggressive — we need to break even. This is not just about building a huge customer base or revenue base. We need to be profitable.
Is this your largest investment in the world?
Over and above the Rs 6,100 crore we invested, Telenor has a guaranteed debt of Rs 5,000 crore. So that takes it to Rs 11,100 crore. This is the biggest in Asia. Moving forward, we need more capital to come into the company. We want to bring in more equity.
Is that a reason for discord between you and your partner?
Yes, the plan was that the cash Telenor brought in should be enough to fund the first couple of years. The rest of the funding would be through debt. That was very likely to happen till October last year when, suddenly, all banks just closed their doors on us. So, the debt market dried up. The other option was to bring in more equity. Unitech would like us to consider debt options even now.
They may not be in a position to bring in more equity. Well, you will have to ask them about that. There is discussion on this at the board level. We want to bring in more equity. But we can only bring in up to 74 per cent equity as per India's laws. We need to have a long-term funding solution.
How much money do you require?
Over and above the Rs 6,100 crore, we were looking at Rs 8,000 crore of debt. We managed to raise around Rs 5,000 crore, but that is international short-term debt (which is quite expensive). This is done on Telenor guarantees.
Going past 2G, you did not bid for any 3G stake. Will that be a constraint?
Yes and no. Data or 3G are not a game- changer today; 90 per cent of revenues are coming from 2G today. So, we don't think the competition is about 3G. Later, when the market penetration is flattening out and the market is more mature, data will become important. So, the reason why we didn't bid is partly because we think it is premature and partly because we need to walk before we run — to get into 3G without even having a proper 2G operation would have been way too early. We have not even moved to postpaid yet.
Coming to Sanjay Chandra, how would this have been dealt with in Norway?
The reason why Telenor asked Chandra to step down as chairman and as a board member is that this is the normal practice in our country. If you have been charged for something, it is natural you will step down until you prove innocence.
Did you have to meet a lot of people in the government?
I have met a lot of people including the government agencies. There are two main reasons for that. One, there is a miscon-ception that we too are just a paper company, like some others.
That's because we have not launched in Delhi — we do not have a licence for Delhi. So, most of these decision makers do not see us here in Delhi, in the streets. We have 25 million customers, we have invested close to Rs 11,000 crore and we have 2,500 employees. We are soon to be a medium-sized operation.
Second, we have to explain that Uninor is Telenor, it is not Unitech. It is primarily owned and fully controlled by Telenor.
Third, we need to explain all these technicalities like where did the money go, whether the money went to promoters, where this money came from.
What will happen if any of the accused are actually convicted?
This is a tough question. Telenor's business practice is zero-corruption tolerance. We are totally against even the smell of corruption. I can't comment on conviction, it is too hypothetical a question.
There is talk that the government will not take away licences, but increase fees quite dramatically. How much would it impact your initial calculations?
It's not right to change the rules of the race in the middle of it. We had clear obligations on roll-out, which we have fulfilled. So, in the middle of the game to change one of the main assumptions is not fair. At the same time, I will say that we are taking one problem at a time and one day at a time.
Is Uninor defending Chandra — or is he paying for his own legal counsel?
No, he is chargesheeted as a person, not as a company representative. His defence is personal, in his private capacity.
What do you think of India's spectrum pricing and what should it be?
Generally speaking, we found India's telecommunications policy very clear, transparent and competition friendly. That's why we invested. In many of the countries we are working in, it would not be so easy to come in as a newcomer a little later in the game. Also, the consumer in India has benefited from the policies.
Does Telenor regret its decision in India? No (laughs). Because we take a very long-term view, more than 10 years. When we invest in a country, we look at funda-mentals. Sooner or later, this will blow over.
Is this your toughest posting?Actually, yes. But not because of the controversy, but because of the very, very competitive environment.
(This story was published in Businessworld Issue Dated 06-06-2011)