Sigve Brekke, Vice President and Asia-head of the Norway-based mobile major Telenor has played a big role in Telenor’s aggressive Asian foray. Brekke spoke of his plans for Telenor’s joint venture with real-estate firm Unitech to Surajeet Das Gupta. Excerpts:
As a latecomer, how do you survive in a market with low Average revenues per user (ARPUs)?
We are testing a model which we have not used before in any country. To address to lower ARPUs, you need to build a low-cost base also.
How do you do this?
We have some advantages as newcomers. Most equipment suppliers are giving us prices which are much lower than before since their 2G production lines are depreciated. We’re also building a smaller organisation compared to our competitors; we are creating eleven hubs in 11 circles and decentralising decision-making to this level.
We’re not going to build any towers but will lease and rent them — this cuts capital costs significantly and also cuts time-to-market, which is why we’ll roll out by this December. We are also outsourcing our IT solutions to Wipro. Our marketing decisions will be highly decentralised.
What is your likely investment?
We’ll put in $1 billion in equity and put in investment of another $1 billion in 3-5 years. We hope to be Ebidta-positive in three years and cash-flow positive by the fifth year. We’re looking at an 8-9 per cent market share of the 750 million subscriber base in a few years. Our investments are far lower than what incumbents made to reach similar numbers — this is the cost advantage.
But there will be half a dozen new players as well as you move from 450 mn to 750 mn users. Is this big enough for the business to be viable since existing players will also increase their subscribers?
You don’t have any dominant player in India. The top player has a 25 per cent market share, which is a scale advantage but is not dominance. In Europe, dominant players have over a 60 per cent market share. So it is relatively easier for a new player to come into India since the market is fragmented. The spectrum policy also makes it difficult for incumbents to use their market power as they cannot significantly drop their tariffs due to the limited spectrum availability. The kind of subscriber churn you see in India — which has a 30 per cent penetration — is something you don’t see in other countries. Forty per cent of Indian customers change their mobile phone provider every year — that’s a churn rate you see in markets that have a penetration of over double India’s.
So when we come in the market, we are also addressing the churners — newcomers have an advantage in the sense the new network has no congestion. Apart from pre-paid and the post-paid market, there is no clear segmentation of the market. Our focus will be to segment the market and get closer to the customer. The aim is not to be the price leader but to give localised offerings.
You will not follow the aggressive tariff strategies of Reliance or the Tatas?
While Reliance and Tata have been aggressive on prices, you see a lot of mid-sized operators like Idea Cellular and Aircel who have been able to take market share in circles which already have a high penetration. This shows that it is possible for a newcomer to get market share by addressing the churn and the non-loyal customers and by offering a different product. You don’t have to play on only price.
Will churn rates go up?
Yes they will. In countries like Thailand where penetration is 100 per cent, the churn is as high as 60 per cent
What kind of numbers are you looking at in the Indian market?
Between 60 and 70 million customers in the first three to four years. However we expect ARPUs to decline and our ARPUs will align to the level of that of the industry. We also expect data revenue to go up.
What is your 3G strategy?
We will look at it, but we will not go for a pan-India 3G licence. Our focus is on 2G. It might make sense to take 3G licences in some areas — you can look at metros were people use data or look at remote areas were the masses are looking at internet connectivity. We have not decided what we will go for. Right now our focus is to get the 2G launch right. In Malaysia, we did not do 3G initially but picked up a licence after three years, so our approach has been different in different countries
Will 3G in India pan out differently from how it has in other markets?
The European market for 3G is different. Everyone in Europe has a fixed broadband at home, so they do not need mobile broadband connectivity at home, nor do they need mobility on their their laptops. They need mobility while travelling in the car — that is real mobility. That is why 3G grew so slowly in Europe, and also they have not got always got the business model right — for instance, do you charge in minutes or on the basis of downloads? In India, 3G will be internet for the masses, and the masses will demand internet assess as they demanded voice. Laptop prices will come down, there will be much larger adoption of 3G and, of course, tariffs will be cheaper.
Over what time-frame?
At the moment, telcos are not focused on data services since the voice market is adding 12-13 million customers every month. Voice will be the main driver of growth for some years, but growth will flatten out and then you will see the 3G uptake going up. In the initial stages, 3G growth will be slow.
Do you see consolidation happening in the Indian market?
3G growth needs serious money, so there is bound to be some consolidation.
Are you shifting focus to Asia and will India be your biggest market?
We have 165 million customers out of which 70 million are from Asia (four operations) In three years, with 70 million customers from India, this will be our largest market and most of the subscribers will be in Asia. We entered Asia in 1997 — in Bangladesh — so we have 10 years of experience. We expect that in three to four years, of Telenor’s 225 million subscribers, 185 million will be from Asia. India is a very competitive and complex market and for us each hub in India is like one country — by entering India, we say that we have actually doubled the number of countries that we operate in!
