News, views and commentary from the telecoms sector across emerging markets and developing countries worldwide

Wednesday, 11 February 2009

Nordic telcos' emerging markets plans for 'challenging' 2009

In July 2007 I was pleased to provide meeting facilities for in Dhaka, Bangladesh for a gathering of the South Asian GSM Forum, whose Chairman Mehboob Chowdhury was a key supporter of the following day's Mobile South Asia conference of which I was co-organiser. Mr Chowdhury, a former Chief Commercial Officer of Orascom Telecom-backed Banglalink, had fellow Forum board member Stein Naevdal run the pre-conference meeting. Mr Naevdal, now CMO at Bakcell of Azerbaijan, was with Bangladeshi operator Grameenphone at the time, a company owned by Grameen Telecom and Telenor.

Having had the opportunity to meet members of Grameenphone's senior management team, and having had a quick look round a Grameenphone retail store on the busy streets of Dhaka, I have continued to take an interest in the performance of this and other MNOs across Telenor's collection of emerging markets operations.

An article carried yesterday by Telecompaper reported Telenor's cautious forecast for the "challenging" year ahead: stable organic revenues and an adjusted EBITDA margin around 34 percent, versus a reported 34.7 percent in 2008.

The article indicates that the Norwegian company's $US 1 billion purchase of a majority stake in Indian cellco Unitech Wireless is not expected to add significantly to revenue and will generate and EBITDA loss of of NOKA 2-2.5 billion ($US 295 million-369 million). Revenues are not expected to begin flowing from the greenfield operator, which has licences in all 22 of India's telecoms circles, until mid-2009.

The largest shareholder in Telenor, the 7th-ranked telecoms operator in the world in terms of subscriber numbers, is the Norwegian Government, which was apparently initially supportive when the business proposed a rights issue in order to fund the Unitech Wireless purchase while maintaining the company's credit rating.

While Telenor CEO Jon Fredrik Baksaas has continued to express great confidence in the long-term value of the move into the Indian market, investors have not responded well to news of the acquisition. The proposed rights issue has also attracted criticism, not least from Norway's Conservative opposition, which attempted to persude the Government to prevent Telenor from selling shares to fund the Indian adventure.

A Bloomberg TV interview with Baksaas on November 9th was prefaced with a reminder that Telenor's share price fell by as much as 20% on the trading day on which the Unitech deal was announced. Baksaas reponded by saying "The negative swing in the share price was greater than we had expected... but in order to build a long-term... mobile operation takes years." He reminded viewers that the company has been making such long term bets in Ukraine, in Russia, in Malaysia and in other countries for many years. "It is a period of investment that's needed in order to grow towards a sustainable, long-term position," Baksaas explained.

Baksaas told viewers about the criticism Telenor faced when entering Ukraine, then "one of the poorest countries in Europe" in 1997 and stated that Kyivstar now one of the best performing contributors to the Telenor business.

When interviewed by the same channel twelve days later, by which time the fall in Telenor's share price (since the Unitech announcement) was 26%, described by the interviewer as the largest in eight years, Baksaas was speaking about the good growth prospects afforded by India's low teledensity relative to other countries in the region. He sounded lukewarm about the prospect of Unitech getting involved in the Indian 3G licence auction, saying that the company would be intitially focused on "basic services". Baksaas was also keen to express the belief that the telecoms industry is likely to be more resilient than many sectors in a downturn.

Late last month, Telenor finally withdrew the proposed rights issue, electing instead to fund its investment in Unitech Wireless in India through a combination of cash flow and issuance of additional debt. A proposed immediate result of this will be to make no payment of dividend to shareholders for 2008 or 2009.

Yesterday, another Nordic telecoms giant was reporting a positive contribution from emerging markets business units. As reported by Telecompaper, TeliaSonera's Eurasian activities continued to show strong growth, with sales up 45 percent to SEK 4.2 billion and EBITDA rising 57 percent to SEK 2.1 billion. Consolidated since October 1, 2008, the operations in Nepal and Cambodia affected net sales positively by 5.8 percent. However, according to Total Telecom, TeliaSonera cautioned that it needs to "be prepared for a potentially drawn-out economic downturn that may affect consumer and corporate behavior."


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