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Executives

Meera Bhatia - Communications Manager

Jon Fredrik Baksaas - Group President and CEO

Sigve Brekke - EVP, Head of Telenor Asia operations

Analysts

Espen Torgersen - Carnegie

Harald Øyen - Enskilda Securities

Christer Roth - DnB Markets

Andrew Lee - Goldman Sachs

Laurie Fitzjohn-Sykes - Citi

Andy Parnis - UBS

James Britton - Nomura

Jakob Bluestone - Credit Suisse

Peter Kurt Nielsen - Cheuvreux

Ulrich Rathe - Jefferies

Stefan Gauffin - Nordea

Sven Grundberg - Dow Jones

Amit Rathi - BofA Merrill Lynch

Telenor Group (OTCPK:TELNY) Special Call December 14, 2012 3:00 AM ET

Meera Bhatia

Good morning and welcome to Telenor’s update on India. Whether you are present here at Fornebu, listening on the phone or watching this by webcast or via mobile phone. My name is Meera Bhatia and I have the pleasure of guiding you through the presentation this morning. I hope this short video has set the mood for this occasion and your all full of energy and inspiration.

Before we start, I hope everyone has a copy of the material we have made available, that is our press release and the PowerPoint presentation to be used here any minute. The material can also be found our website at telenor.com. There you will also find instructions on the different alternatives to watch this presentation. As usual there will be a Q&A session directly after the presentations, first here from the audience present then from the ones participating on the phone. We will try to end the entire session at about 10:30 today. In order to allow for questions from many of you, we ask you to kindly limit yourself to one question with one follow up question if clarifications are needed.

After the Q&A session there will also be an opportunity to have individual interviews for those of you present here at Fornebu. To present the update today, we have our CEO, Jon Fredrik Baksaas, and our India Managing Director, Sigve Brekke. First I leave the floor to Mr. Baksaas.

Jon Fredrik Baksaas

Thank you, Meera, and good morning to all of you. December, cold temperature outside. India, warm temperature both physically and in the marketplace as we can see from the entry movie here. Thank you for joining in on our presentation for the Indian project after we carried through the auction process just some weeks ago. It’s been quite an eventful year and today we want to give you the platform and to present our ambitions in the Indian market going forward from here.

So we will start with a business update. We will take a look at the Indian wireless market in general and our ambition and our strategy. We will be looking at business plans and targets and hopefully also our summary at the end.

So let me start in the first end, on the business update. Telenor is a company that over the years have been targeted growth markets, and the Asian markets have been very much in our focus in that sense. One could say though that when we started in Bangladesh in 1996, that was a very early project at that point of time. And at that point of time we didn’t necessarily knew that we were coming to reach both the size and the presence that we now have in Asia. We are now in five markets. All growth markets for Telenor over the last years and with the global economy having its prime drivers, so to speak, in this area. We are positioned also in that part of the world which is driving global economic growth in itself.

Also by the fact that domestic consumption is growing in all these countries. We have also reached a size and we believe we have a governance model in Telenor that can handle these markets. These markets are very competitive and we need to be the smartest guys in the streets every day, so to speak, in order to get the attention of all our customers and to reach a loyalty level in our customer base which is sustainable over time.

We also believe that we from an operational aspect are able to establish operations which are both efficient and excellence in setup. And I think we have showed both through our operating results in other markets and Indian throughout 2012, which has been a very difficult year to keep the momentum up, that we are capable of delivering operating progress as we move along. We also carry with us a lot of learnings from India in particular in this case because the Indian market is, as Sigve will show to you a little bit later, a bit more different they put together. Where the partnership model where you source long-term with partners and also share risk with partners is much more developed than what is the case is other and more traditional markets.

And these learnings, they give us new energy in other markets and also fill us with new concepts that can benefit other Telenor operating entities in the group. When we have moved into India, we didn’t expect the events that came forward after the Supreme Court ruling came forward in February this year. This was quite a surprise to us and to the market in general and it also put a pretty high level of uncertainty into the Indian market in general, in such a way that investments in the market and in networks in this period probably failed significantly compared to the year before.

And this uncertainty and the timeline in question here became of course the biggest problem for us, not knowing what kind continuation that there might be towards the auction that eventually came. And in this period I think it was done a phenomenal piece of work from our colleagues’ point of view in Uninor, keeping the momentum up and delivering progress underway, under these kind of circumstances. And it was this progress that basically also made Telenor able to participate in the auction on the terms that finally came through after a lengthy process as we saw them over some months ago.

So when the auction eventually happened, we were ready to move within the frameworks that we had set for ourselves on the project from earlier dates. In parallel with us, we also had legal dispute with our partners. We settled that before we entered into the auction process. We have taken also a rational approach to be realistic enough to know that not necessarily all our circles would potentially go through into a sustainable position and we reduced the number of circles down to nine as you know. And we have now spectrum in six circles addressing half of India’s population.

This has established a new platform for continued operations the way we see it in Telenor. The spectrum that we have acquired is for 600 million people in rough terms. It addresses the circles that you can see on the slide here. In this area we consider that the real penetration among users is roughly 40%. So the penetration stands below average in these circles and the reason being the city circles are not included in this geography. We have a circle by circle approach in this auction. So when we participated, we had the 155 billion rupee in mind and we had the license fee in mind, the way it turned out. And it was necessary for us to see the staged payment of license in such a way that only one-third should be paid upfront and the two-thirds should be paid over ten years, beginning the third year of the operation.

This is a 5 MHz spectrum in gross figures and its technology neutral. And the overall price tag for this geography is around 40 billion rupee or roughly NOK 4.2 billion, out of which one-third was to be paid up front. During the operation, we have demonstrated progress under these circumstances. Here we show you the revenue development in the six circles in which we are operating, plus the grey area demonstrating the other circles of which some of them are already scaled down. And throughout this period we have demonstrated that we have built a better position consistently quarter-by-quarter. Those are still seeing negative figures which is only natural since we are still within the three-year period since launch.

We had a EBITDA breakeven measure after three-years. We have improved that to say that we will be cash flow breakeven towards the end of 2013. And this kind of progress that basically have given us the ability to strengthen the business case but also narrowing the business case to a more focused geographical area. Namely, various circles that we have had received good traction and have been able to build market share and where we see that it will be possible to take a sustainable long-term position.

The first circle that we anticipated would breakeven was UP East and the targets of reaching that within the end of 2012 was a pretty hairy target, it was first spelled out. But we have to give recognition to the management in UP East, they really managed to move forward the way they targeted for themselves. And with 7.3 million subscribers, the number five position in the marketplace, and a very low cost structure per minute. They have been able to term breakeven in late October. So we say that November will be the first month which is breakeven for UP East. And there will be other circles that come close to this, probably early 2013 we are targeting to see both Maharashtra and Gujarat doing the same.

And of course when you reach breakeven, you also get the opportunity to move with more confidence in that geography developing the clusters further. Because this is a cluster strategy, we do focus strongly where we believe there is customer base and market base for our network and in those clusters, we go very head on with deep distribution, as Sigve will show you later on.

We have been able to keep the wheels running, as I said. What will happen now is that we will use the new company, Telewings, that won the licenses through the auction, as the new vehicle in India. There will be a business transfer which is now ongoing, to transfer all liabilities and commitments from Uninor to Telewings. There will approvals underway and we will have renegotiated contracts with vendors as the base for these new operating company. This new operating company has also a new partner and our targeted ownership structure in that partnership is Telenor 74% and Lakshdeep Investments 26%, respectively. We are now at 49%, 51%, waiting for the FIBP approval to raise our stake from 49% to 74%. This is a same kind of approval that we have had for Uninor and we consider that that kind of approval will be a formality to reach at.

I think I will leave it there and I want to invite Sigve Brekke, MD in Uninor for the time being. He has been deeply engaged in the progress that we have demonstrated in this period. And, Sigve, please tell us how you want to move this forward together with your team. Thank you.

Sigve Brekke

Good morning to all of you. I will try to go through some slides showing where we are today and more importantly, showing where we are heading. Let me start with the slide on the market. I think the last two years have been a really troublesome period for the Indian telecom. And often you here that there has been no growth, at times being negative growth in the market over the two last years. That’s not entirely true, if you look at the statistics.

Start with the subscriber numbers. This is SIM numbers, not subscriber numbers. And we estimate that the real penetration in India, pan-India is probably just a little bit more than 50%, which means that you should shave off at least 200 million customers from the 900 million SIM number you see here. The last few months, this has been negative in the market, and the reason for that is there is significant cleanup of customers which are not active anymore.

Two weeks ago, the regulator also imposed a new activation process, which means that it’s now much more difficult to activate new customers. The entire growth in the industry had because of that come down 50% to 70%. So you will see in the months to come, significant negative development of net ads in the market. However, you will also see that this is not going to impact the revenues in a lot way because you are basically taking away a lot of the customers, a lot of the SIMs which never really ended up in a customer’s hand, or you are taking also away some of the rotational churn. So I expect that moving forward you will see some positive effect on the EBITDA level because there are less money now being put into sales and acquisition cost.

On the revenues, you see that the market has been growing despite all the problems that has been in the last two years. In our six circles, there is a revenue growth of 10% and in the pan-India it’s 8%. This is coming from some rationalizations in the market already. Some of the operators have scaled back their operations, and I am coming back to that. We also see that incumbents are starting to move up the prices. They took it up almost 20% a year ago, and if you should believe what you read in the press, there is another price move coming now from the incumbents’ side.

However, there is still significant amount of free minutes being given out in the SIM cards which also is in turn hampering the growth. So what I hope now with the new more transparent activation process with less commissions actually been thrown out to the retailers, I also hope that some of the free minutes are taken out from the SIM cards which will actually help this figure to grow.

The way we look at this is that there is a lot of untapped potential for voice. That’s why we have focused on the six biggest circles in the auction. And as Mr. Baksaas said, the six regions where we are present now is actually covering more than 600 million people. The real penetration in these circles, it’s in our calculations around 40%. And the growth is coming from data, it’s not coming from voice; it’s not coming from data. I think we all know that the data growth has been a disappointment in the Indian market. My view on that is that that’s going to continue to be disappointment for some years to come, for two-three reasons.

One, I think that it’s still a little bit early to have a real customer demand for data. Most of the people are still focused on the voice part of the market and also on the quality of voice. Secondly, the 3G auction or the 3G license that the big operators have is only with 5 MHz, and it doesn’t really work. The 2.1 MHz 3g is a challenge out in the rural area where you have coverage problems, and in the cities 5 MHz is really not enough to offer quality service on 3G. And that’s why I think there will be still some time before you see 3G taking off. That’s why we have chosen to be extremely focused on the voice potential and the voice growth.

And that’s also why we have chosen to be very focused on that. So there is no post-paid in the Uninor product portfolio, there is no 3G. Yes, we have data, actually our data as a percentage of our revenues is around 10% similar to what it is with incumbents that even have 3G. So we are continuing then to take that as a focus until we see that the market demand is changing.

This is an interesting slide. The conventional wisdom in telecom is that you need to be among the three biggest in the market to make a difference. You have to be up among the three if you want to earn money. And, yes, that’s actually correct if you look at some of the other markets we have in Asia. The three big guys in Thailand are having 99% of the market, same in Malaysia, Bangladesh, also the three big guys are really, really controlling the market.

That’s different in India. The three big guys which also happen to be different from circle to circle, are only having 70%. So it’s a 30% market share left for the ones that are not among the three. Of course you cannot be number ten over time. But my view on this is that if you manage to build an operation where you have a scale as being number four, five, or six, there is money to be made. Not only customers but also margins to be made out of that market.

Another thing which is a little bit special in India in my view, compared with some of these markets, is the lack of loyalty in the market. The churn in Indian market is much much higher than any of our Asian markets. And the reason for this is the extreme price sensitivity among the customers. That’s why you see that even the incumbents are having a monthly churn of 8% to 9%. So if you take the 900 million subscriber number or the number of SIM I showed you on the first line, it actually means that 80 million SIMs are changing operator every month. And that’s a great opportunity for a new comer because you can basically be there and pick all those unsatisfied customers.

We have talked a lot about clusters and I am going to talk more about what we really mean by that later in the presentation. My experience from India is that you don’t have to be pan-India to make success. Indian in telecom is more a continent then it is a country. And nobody actually are successful pan-India. Even the two-three big guys, you will see that they take their -- most of their money from six-seven circles. That’s where the profit is. And if you look at some of the big guys that have been around for the last 15 years, they will be negative on EBITDA in several of the smaller circles where they are not so successful. So you don’t have to be pan-India to build a business.

And I will even take it one step further, you don’t even have to be pan-circle to make business. And as Fredrik showed on one of the previous slides, our circles have roughly around 100 million population, in one circle or in one state. And you don’t have to be present even in 100% of that geography. What is important is that you are present and that you make a difference in the cluster where we operate. So if you look at this slide, we probably cover around 40% to 45% of the population in the states or in the circles that we are currently present.

And if you take UP East as one example, the one in upper left there, we have a subscriber market share of 10% in UP East. And if you then see that -- say that we cover around 50% means that in over covered area our real market share is around 20%. And that’s what we are targeting. We need to have a 20% market share in the clusters where we operate. And our experience is that when you move up to those 20%, that’s when you start realizing some pull effects. That’s when customers start to know you, customers start coming and ask for you, you have the breadth necessary and you start also realizing some scale effects.

So what we are trying to do is then, cluster by cluster get up to a 20% market share and then move into new geography. So the 40% to 45% population coverage, gradually we are going to increased up to the same level as the incumbents, but we are doing it step by step. The part two consolidation has already happened. If you compare now with two three years back, you will see that four of the smaller players have already packed up. You will also see that out of the kind of mid-sized players, there are three of them which are struggling. I don’t want to name them here but three of them are struggling. And according to statements they have made, all three of them are now scaling back their presence in the loss making circles. All of them are scaling back in six or seven circles.

So on a circle basis, consolidation is actually already happening. And we see now in several circles that the number of real operators are coming down to 5-6 players. We think more consolidation is going to happen but that consolidation doesn’t necessarily have to be on the pan-India basis, it can be more circle by circle base. What we are waiting for now is the M&A policies getting into regulations. The policy is clear but the regulations are still lacking. And we think that in the coming 4-5 months those regulations should also be there.

They also need to make clear how they are going to give the spectrum. Meaning if you consolidate two companies which both have spectrum, is there an additional fee that’s going to be paid and how are they going to deal with that. Long term in my view, there will be four to five operators in each of those circles. There may be more registered operators on a pan-India basis, but on a circle basis four to five. And if you are among those four to five, you will be making money, that’s my claim.

Our business model is based on organic growth. That’s where we are going to get the return that I am going to talk about a little bit later. However, we will also be open for potential consolidation alternatives. We don’t need to do that but we will of course observe what's going to be on the plate. If at all we are going to consider that, we are going to have a very pragmatic and a very value driven approach. And we are going to keep within our financial parameters. The regulatory framework has been in a really -- what shall I call it -- difficult stage the last two years. However, I must give a little bit credit to the Indian government that when they finally got their act together, things are moving.

And if you look at it now, now we have established a market price based pricing for spectrum. That was the auction we just went through. We have also now established a principle that everything in the future which has to do with spectrum would also be based on auctions. We have also established in principle that in these auctions you are buying technology neutral spectrum which you can use to whatever you want. And it’s interesting to see that one of the smaller players that won five circles in this auction, Videocon, are saying that they are not going to use their 1800 spectrum for voice. They are going to use it for 4G. I wish them good luck with that but that’s interesting to how that technology neutrality is actually now enabling you to do more than just additional voice.

It’s also interesting to see that the government is trying to level the playing field. They have made it clear that a 900 refarming auction is now coming up, that’s going to happen in the beginning of next year and even in that they are charging incumbents for existing spectrum they are having above 4.4. So in a way they have taken their opportunity with the situation that the Supreme Court ruling gave to try to clean up all the regulatory issues that have been floating around for some while.

There are a couple of things which are important for us in the future. The first one is that there is most likely a new auction coming in the first quarter of next year. We will of course be looking at that at least for one of our circles, Mumbai, where we currently have an operation. But again, we will be doing a very pragmatic, value driven approach when we are considering that. And everything we do would be within the financial parameters or the financial targets that we have communicated before.

The second thing I think which is even more interesting for us, is to see when are they going to reduce the interconnection rates. Currently, the termination rates are -- they are 20 paisa which is very high for us when we are terminating our calls in the competitor’s network. They regulator has proposed to take that down to 10 paisa and then down to zero. If that happens, it’s a huge advantage for us as a newcomer because then we can start offering much more aggressive tariff also for calls that goes across their networks.

Another important milestone for us is when they are going to implement one nation, one rate, so that you cannot have different prices between the different circles in India. The last part I want to talk about on the regulatory side is the spectrum policy. In the policy they say that they will allow spectrum trading, they will allow spectrum sharing, and both these two things are very important for us. If they allow spectrum sharing that means that our 5 MHz that we go through the auction can have much larger value if you combine this with another operator. And even if you don’t go all the way to combine the spectrum, you can start having active infrastructure sharing where you are sharing only the passive part as we do today, or the radio transmission part, but are sharing all your antennas, all that electronic equipment, everything but the TRXs. You still have control of your radio network.

If you do that, there is a significant OpEx saving and also CapEx saving coming out from that. So I hope that those principles that they have laid down in the policy framework is now coming into regulations.

Now I will talk about our ambitions and our strategy. Our ambition is to create value by taking a credible mass-market position. My view is that there is the mass market in India is big enough to only focus on the mass market. You don’t need to be a full-fledged telecom operator to have an offer for all the different segments in the market. And the real growth is in the mass market. That’s why we are saying that our entry strategy is to build up a scale in the mass market. Built up brand, built up an organization, built up a distribution network and also built up an operational scale. And then we will grow with the mass market.

Of course, further down the road, we also need to offer postpaid services. We also need to go more into data services and so on and so forth. But right now, our focus is to take a position on this market. And that’s why we have an extremely simple strategy. And this is a strategy the entire organization in Uninor know about. It’s about being best in servicing the basic. And that’s basically the basic demand from the mass market, which is local voice, and also having processes which makes it easy to sign up as a customer having processes which makes the customer service as good as possible on basic and so on.

The second one is to be best in mass market distribution, and I am coming back to that. And the third one, of course, if you take that affordable pricing position in the mass market, you also need to be lowest on cost. And I am going to go back to how we do this three strategic points. Starting with the price point, our brand position, it’s ‘sabse sasta’. And if anyone from India here or if anyone on the call from India, you know that this means in Hindi, simply the cheapest. That’s the meaning. And that’s the position we are trying to establish.

The reason for that, it’s what you see the pictures here. It’s extremely difficult for a customer to understand the price plans being offered from the different competitors in the market. There are a lot of -- what I call it, small letters, lot of conditions, lot of numbers, it’s almost impossible. In that jungle of offerings we basically go out and we say we are the cheapest, that’s it. And there is almost a price guarantee that we want to be the cheapest, we want to own that position. That’s why most of our marketing, it’s on the ground, it’s below the line. It’s on the customer front, it’s not on TV. And our brand surveys now show that we actually have captured that position, being seen as the cheapest.

The way we do that in practice is that we have very attractive on-net offers. We also use dynamic pricing to adjust just our tariff in accordance with the utilization of the network. So when we see we have empty space in the network, we reduce the prices and boost the traffic. And we also focus on recharge. You will see that our recharge offers are better than the competitors. And of course that is to make sure that our customers are staying home and that it’s attractive for them not only to buy our service but also to top up their SIM cards.

There is an advantage of the multiple SIM environment we see in India. We estimate that in the market now, it’s more than 50% of the handsets are dual-SIM handsets. The advantage of that is that if you want to try out another operator, you don’t need to change neither the handset nor really change your operator relationship. You just put in another SIM. So what we see is that a lot of our customer comes in on the lower ARPU band. They come in and put us into that dual-SIM handset to try us out. They are not giving up their primary SIM which they have used for a long time, but they are trying us out. So it’s an entry level.

Then we see that our attractive price offers make them using us more and more for all outgoing calls. They still keep an incumbent SIM for incoming calls but for outgoing calls they are using our SIM. So you see them moving up. And then up to the top level is when the customers see that I live in an area where Uninor has a perfect, I can use them as the first SIM, I don’t even need a second SIM anymore. Or that I live outside an area where we do not have coverage but they work in an area where we have coverage. So they play around with two SIMs.

And the way we measure this, it’s we look at how many days a month is our customer using us. We have moved up that number from 18 to 22. So today on average our customers are using us 22 days a month. And we are really really happy with that. If you can move that up a couple of more days, we will really be up to the top of this pyramid.

To try to reduce the churn, we have tried to take out some industrial effects or what we have learned from the other Asian markets. What this is is a sophisticated IT tool where basically you take the statistics you have from your network. In the network of course you know the traffic pattern during the day. You know when you have an empty network, you know when you have peak hours and it’s hitting the congestion. So you have that information. The other information you have, it’s the sale in your distribution. So you see how many SIM cars are being activated at any time.

And the third part, it’s the customer behavior. And then you put all this three information parameters into one monitoring tool. And then we see for example that in this area, we have an empty network or not an empty but an underutilized network. Okay, let’s then send direct offers to the customers, below the line offer to the customer to boost their usage and let’s expand the distribution. And we do that area for area. And that tool is something we have developed from the other Asian markets and enable us to run really really micro-campaigns and to utilize both the distribution and the network to its fullest.

Knowing that this is an analyst and investor conference, I need to talk a little bit about ARPU. What you see here is that we basically had the flat ARPU development in the last two years. And I am actually quite happy with that. When we are presenting the Q4 this year, you will see that ARPU is going up. I don’t want to tell you how much, but it’s going up. That pricing strategy we are having, is that our OpEx model, is that we pay for the same if the network is empty, if it’s half full or if it’s completely full. So it means that filling up the network with traffic is without any additional cost.

So what we do is that we go into the market with very cheap offers. First on on-net, as I said, and then later on off-net. And then we fill up the network. And when the network has started to fill up then we start to extract some of this back. So we start introducing peak hour pricing and we start also introducing off-net pricing and we also take up on the on-net. So with that we are trying to move up the customer usage. Today the minute per use in Uninor is much higher than the industry. On a monthly basis each customer in Uninor on average is using us for 520 minutes whereby the industry level is around 380 minutes.

So of course we are pumping more traffic in our network than our competitors are. But we can do that because we have that capacity. And this is how we overtime are going to grow the ARPU. Today our ARPU compared with the industry, prepaid ARPU -- we have to take out the postpaid ARPU -- is probably around 30% to 40% lower. So we are significantly lower than the industry. Overtime, of course, that GAAP needs to be narrowed. If we are extreme good on costs, we don’t have to exactly match the industry ARPU, but we cannot overtime have this big difference.

The same with on churn. And you see that some of the tools that I explained on the previous slide are starting to pay off. Our churn is now down to 11%, whereby the industry churn is 9%. In our best performing circle, we are down to 8%. That’s the UP East which is performing the best. So we are now starting to get effect of the churn mechanism that we also are doing.

India is a pool market. It’s so confusing out there that when the customer go the shop, he basically has no idea what to buy. Our estimate is that at least 60% to 70% of the customers are going to a shop and ask for an advice. So then it is up to the shopkeeper to find out which SIM card am I pushing, and I have nine or ten SIM cards in my shop. The only way you can deal with that as a newcomer is if you have a good grip of your distribution. In our distribution machine in the six circles, we have 350 outlets. None of them we are controlling, all of them are selling all the different SIM cards. We have some few branded shops or some few franchises but the big, big volume is up there.

We have 8 million customer interactions every day. 8 million of our customers are going to one of the shops every day, either to buy a SIM or to recharge. These are not people that are recharging 300 rupees in one go and use it for two months. They are recharging 10 rupees and use it for two days and then coming back two days later. So our model than -- and I have done that in the circle, we have developed a distribution management system. Again this is an industrial initiative we have done across Asia. This is an IT system which also have processes similar between all the Asian markets. So what we are doing is that we as a company are communicating directly with this 350 outlets on a daily basis.

We pay commission directly from the company, not via distributors. We are physically distributing the goods to the outlets through our people, everyday. And on top of that we also know exactly what the stock in each and one of these 350 outlets is on a daily basis. Not only the SIM stock but also the recharge stock. And this is what we are using then to drive the push in that retail and using to monitor and to create relationships.

I have talked a couple of time from clusters. A cluster for us is a community of interest. 80% of all the calls that a customer makes in the industry is made within a cluster or within a community of interest. Only 20% is outside that. So what we are trying to do is then to look at how can we have a comparable network in a cluster and then have the price offer which is better. So what we do is than building this up from the ground. The lowest manager in Uninor is a guy that manages 15 base station. He is responsible for 15 base stations. Each and one base station for him, it’s a business. He will know and he will have a target on when is this base station is going to be profitable. And each of these 15 base stations, he has a profitability target on. And then he is reporting up to another manger which is responsible for that cluster, and so and so forth.

So what we are doing is that on a daily basis are measuring EBITDA actually, not only revenues. EBITDA for this mini-cluster, up to the clusters and up to the national level. So this is an example for one of our states where you see that -- the green means that this cluster is already now profitable. And then you see that there are some reds, and what we then do is that we either strengthen the distribution or we move out some of the base stations. Because we have the ability to take some of the radio equipment knowing that we don’t own the towers, and replace it into areas where we see that we can generate revenues and better business. And then we do that cluster by cluster until it’s green. And when it’s green is when we have that 20% market share, than we move into new clusters. And that’s the way we have operated and that’s the way that the machine is built.

You cannot take a low-cost position if you are not good at this one. So what this means is that you are able to pump more traffic into your network than the industry standard is. So if you look at the network utilization, even though our minutes as I said are much larger than the industry, we still have a 13% free space in our business, and this is measured in peak hours. So we still can grow our traffic significantly without hitting the ceiling. And the last two years, 2011-2012, we have not invested in one single capacity sites. All the new investments have gone into coverage sites.

The way we do this is that we are implementing some new antennas. We are also implementing automated radio planning tools. We are using not only half rate but quarterly rate in a network and we have been able to actually innovate this together with a network vendor that we have. All four of them that we are using. So with that you see that we are basically using our spectrum much better than the incumbents. So this is Erlang-- as you know it’s a measurement of the traffic, so it’s Erlang per site per MHz. That’s how you can track how efficiently are using your spectrum and how efficient are you in the capacity management of your network.

We were a late comer in India. And a lot of advantages with that because we could than -- there was no legacy in our network and we could actually benefit out of an well-established outsourced market, which our competitors built. So our outsourcing is more extreme than any of the competitors. For example, our IT deal with Wipro, there is no service integration layer between the ones that are delivering this and the ones that are actually owning the platforms and the servers. So we have a model which is cheaper.

Take another example on the network, we have chosen to have multivendor environment in a network. There are different vendors delivering our equipments, different vendors that are running our network operations center, different vendors which are doing the managed services. And with this we keep up the competition, price competition between all these people. That enables us to be cheaper. And you see that our model is actually almost an entire OpEx model rather than a CapEx model, whereby most of this is coming from the network.

This OpEx model enables us to also be quite dynamic to scale our business in accordance with the revenues. For example, that grey half, 50%, that’s network rental, and it’s power, basically. So if you see a cell site, it’s not yielding any traffic or yielding any result, we are moving that cell site another area. Or we shut it down during night time to save power. So that’s the way we can scale the costs according to how the business is going.

And this is the result of some of these cost initiatives. This is cost per minute, and you see that the incumbents, again I don’t want to name them, but despite them having 150 million customer plus and a huge scale advantage, they have now according to official figures a 29 paisa per minute. We are now, on a pan-Uninor basis, lower than that on a 24 paisa despite much much lower customers. If you look at our best performing circle, we are down to 15 paisa, significantly lower.

So what this means is that these cost initiatives is actually over-compensating the scale disadvantage. And that’s why I say that we don’t necessarily have to go up to the same ARPU as compared to this to meet similar margins.

Okay. Moving forward. We have learned that India is a risky place to be. And we definitely don’t foresee another Supreme Court ruling. But there is going to be continued challenges in this market. That’s the reason why we have chosen to have a very very high return on the equity we put in. We started to look at participating in this new auction back in July, August. Then we saw where the alternate rules were coming, we saw where the surprises were coming, and we start to build business plan moving forward. That’s when we started to say that new money getting into the business needs to have a 25% return on equity. And all those money that we have put in has that ambition. Of course this is much much higher than what we normally will have in this type of business, but this is to justify the continuous risk we see in India.

Currently, the entire funding of Uninor is through equity. When we get into breakeven status, we see that we will be able to lend money again in the Indian market and of course, than the funding going forward will be debt without any recourse to Telenor. So that’s the way we have looked at this from the more financing point of view.

We have one short-term focus, 2013. We have made two very very clear promises or statements that we made in 2008, four years ago. Four years ago we said three things. One, the peak funding of this investment should be 155 billion rupees. Two, we should be EBITDA breakeven in three years into operation. Three, we should be cash flow breakeven five years into the operation. That’s what we said four years ago. We are standing behind those targets and that’s why next year will be really about not exceeding the 155 billion peak funding. And the way they are going to do that, it’s to finance some of the 13 billion license payment with a refund of what was paid back in 2008, that is 16 billion, plus some tax benefits. That’s the way we are going to finance both what we paid in the license and also the money needed until we are breaking even in the operation.

So the 155 billion stand. The other promise was to breakeven. And three years into the operation and five years on the cash flow, we are actually moving the cash flow breakeven a little bit front. So rather than waiting five years, we will do it next year. So next year the Uninor’s operation is targeting to meet cash flow breakeven. And as Fredrik said, we have been EBITDA positive in one circle already, two more are coming. And actually November was the first month where the Uninor operation was less than $1 billion in EBITDA loss. The first month in November.

So that’s our short-term focus. We are going to keep what we said when we originally went into this investment. The more mid-term focus is that we need to continue to build scale. So we need to build up to subscriber base and you see the target there is to move up to the 55 million in 2016. These are our counting methods, by the way. This is because you know we are stricter than the Indian accounting methods, we count subscribers only on a 30 days activity basis.

The way we do that is we basically need to take 15% to 18% market share of the net adds very month. Which we have done the last two years and we need to continue to do that. The other focus area we have is on churn. And we need to take down our churn to the industry level, around 8%. And as I said, we are down to that level already in our best performing circle. In addition to that, we will continue to bring down costs. We see that there are still some initiatives we can do to take down that cost per minute. And right now that is the main focus. Actually to slightly increase the price per minute and continue to bring down the cost per minute. That’s the focus.

And then over time, also bring up or cut some of the difference we have on ARPU in relation to the industry. And consolidation, as I have said, we will look at from a rational and value perspective. Moving forward, we will also extend, of course, our footprint to cover more than 45%-50% of the population. But we have a very CapEx light model. We don’t have any towers and there is oversupply of towers in the Indian market today so this is all about radio equipment. So what we are going to do? The circles which we have exited, we have a lot of radio equipment which we will reuse. So there is basically very little CapEx needed in the years to come, and that’s why we have a target now on the long-term CapEx to sale around 5%. So that’s basically on OpEx.

And the way we are going to drive this is that when the circle is breaking even, like UP East just did, then we tell them that as long as you stay above that breakeven point, you can start rolling our more base stations and capture the extra cost you get from them until they are breakeven. But we do it gradually. Those of you that are breakeven will not get anymore CapEx before you actually are meeting that target.

So just to summarize. We have had and will continue with an operational focus. We will bring the company to an operating cash flow breakeven in the end of 2013 and after that our mid-term goal is to continue to create value through the way we are working. Thank you.

Meera Bhatia

Thank you. We are now ready to take your questions, so I invite Mr. Baksaas back to the podium, and Sigve as well, please. We will start with the audience present and then from the ones participating on the phone. A kind reminder please, limit yourself to one question per person with one follow-up question if clarification is needed. Please wait for microphone to be passed over and kindly introduce yourself. And don’t be shy, ask questions.

Question-and-Answer Session

Espen Torgersen - Carnegie

Just a clarification question. Back in 2008, it's my understanding that when you talked about M&A, potential M&As, and also mobile data that would be separate business cases. Listening to your presentation today I get the impression that that's not the case anymore, it's all about doing what you're going to do within the limits and the financial targets you've given. Is that correct?

Jon Fredrik Baksaas

I don’t know what kind of preciseness you’re questioning there, Torgersen. But the point is, from an operating perspective 2013 breakeven and 155. If there is a consolidation idea that comes to the table one time in the future, that doesn’t in a way necessarily stays in the 155 bracket. But how that might look or under what kind of circumstances, is of course impossible to say anything about that at this stage. And I could add, including the potential of seeing an additional auction in the short-term, namely in 2013.

Harald Øyen - Enskilda Securities

A little bit curious on ARPU. I understand that you really like to talk about that but again, three years ago, you stood here and showed us a slide with a quite bullish scenario on the ARPU levels which obviously has not materialized in the way that you first saw. Let us put it that way. What kind of ARPU levels do you need in order to defend those 25% that you target here today?

Sigve Brekke

Yeah, well, it’s not that we don’t want to talk about the ARPU. If I let that impression, let me correct that. And you are right, that we were too optimistic on ARPU when we invested in 2008. But so was the rest of the market as well. And I think when we talk about ARPU, first of all you need to adjust for this multiple SIM market which means that it’s not ARPU per customer anymore, it’s ARPU per SIM. So right now, more important than ARPU actually for us is to make sure that price per minute and cost per minute is starting to meet. And that’s what our target is be, to breakeven. After that, it is to gradually move up that ARPU that you saw, closer to what the industry average is.

And it’s a little bit difficult to say exactly when that’s going to happen and it’s also difficult to say what that ARPU will end up with. For two reasons, one, we don’t really know how more we can drive down the prices. We are going to continue to do that and there we still think that there is a potential for doing so. And it’s also dependent on how the industry is being rationalized more than pricing. We think that we will see some price initiative now. Our feeling is that we definitely have seen the bottom of pricing in the Indian market and we even think that you can increase the prices quite a lot without jeopardizing on the minutes. We think that people basically now have way to many minutes and they have an affordability to pay for, more than they currently do today.

So our business plan is basically based on a very tough environment for the coming three years. We don’t expect a significant industry ARPU development for the coming three years. However, after three years time, we expect that due to both market rationalization, through consolidation, but also through to that the whole industry will starting up. Then that’s when you will see some of this ARPU figures going up.

Harald Øyen - Enskilda Securities

And if I may have a follow-up. I am curious on your personal role, Sigve, in India and how you -- because currently you are MD, all right, but you also have Asian responsibility as far as I know. So how will your role in India play out for?

Sigve Brekke

Yeah, it’s correct that I am heading the Asian portfolio as well. And it’s correct that for the last two years I have also been the CEO in India. So I am trying to balance that as good as I can. I am the Chairman of the Board of these other companies. And right now I am spending most of the time in India. However, I will say that the management team we have in India, it’s a really, really competent management team. So you will see that I spend most of time actually to try to be a part of what we call the business environment, talking to regulators, talking to politicians, trying to influence the framework. And of course I am also a part of setting the strategy.

So it’s been a challenging year with having both these two roles. And now I think we are into a little bit more stabilized future and then we will see how we are going to organize and manage this in the time to come.

Harald Øyen - Enskilda Securities

And fair to say, you had a little bit of assistance.

Sigve Brekke

Definitely.

Christer Roth - DnB Markets

Just a quick question with respect to the upcoming auctions. The suggested 30% discount to the reserve price in Mumbai, does that make it attractive enough for Telenor?

Jon Fredrik Baksaas

On the details on what will be needed, I think we are a little bit early on that. And 30% is one goal, I think there has to be a bit more actually in order to get it all done. But remember here that city areas are in a way bit differently structured when it comes to the combination of operators because city areas traditionally have lower number of frequencies available than the other areas. So this is an overall situation we need to address when we see the final decision.

Christer Roth - DnB Markets

And just a follow-up, do you believe that the auction will be held in time to actually continue operations in Mumbai or will there be some sort of stop?

Jon Fredrik Baksaas

There are a couple of things that need to come in place before we can address that really. And that is if we at all should participate, there needs to be a continuation of the license that we already have. That will of course have to last until the auction is being held. And number two, the refund issue needs to be resolved.

Sigve Brekke

Just to add to what Fredrik is saying, I think you would have clarity on this during January. That’s where you will see the auction process coming out for the next round. And I think also that what the government is trying to do is three things at the same time. It’s 1800 auction for the four circles that didn’t get any bid in the last round, and there is also a 900 auction for various circles, and there is an 800 auction. All these three will come. And I don’t think you will know neither the reserve price, nor the auction rules, nor the timing before end of January.

Meera Bhatia

Any further questions? Media is also encouraged to as a few questions now. There are no further questions from the audience so then I can call upon the call conference host to introduce questions from the participants from the phone please.

Operator

Andrew Lee, Goldman Sachs. Go ahead please.

Andrew Lee - Goldman Sachs

A couple of questions. Just what you said relates to the rest of the group. Firstly, could we understand or could you reiterate your M&A plans across the group? You've previously highlighted Nordic and kind of adjacent operations to your Asian assets. Is it fair to say there are limited opportunities to make any scale purchases in the Nordics? And do you still believe that Burma is the only real opportunity in adjacent Asian markets? And then secondly, so given, if that's the case, if there's limited significant expected change in the investment profile of your group CapEx within India and with cash generation accelerating, should we expect an escalation and acceleration of your shareholder returns? Thank you.

Jon Fredrik Baksaas

The M&A profile doesn’t change with this, what we have said before, it stands as it is. Generally, speaking, Telenor Group has reached a size and a visibility in a number of markets and geographies. That any speculation around any kind of asses will probably also reach speculation around Telenor. But we speak to the same description as we have had to this before and we will also maintain the same ambition as to pay also competitive shareholder returns in this industry. So there are no changes seeing this milestone being delivered the way it is.

Andrew Lee - Goldman Sachs

Can I just ask a follow-up question on the -- just to clarify on your peak loss of 155 billion? Does that or doesn't that include the Mumbai spectrum auction in January, or the spectrum auction overall in January?

Jon Fredrik Baksaas

The 155 billion is an overall framework. That includes the potential participation also in this auction that might come early 2013.

Operator

Laurie Fitzjohn, Citigroup. Go ahead please.

Laurie Fitzjohn-Sykes - Citi

One question on the network side. Given the spectrum constraints, at what point would you expect to start building capacity base stations? And, specifically for example, how close is UP East to needing capacity base stations, given the customer numbers and current traffic? Thanks.

Sigve Brekke

Well, as you know currently, we have 4.4 MHz spectrum in UP East and in all the circles. And then we will get a little bit more, up to 5 MHz, starting from January. And actually that small top up from 4.4 to 5 gives probably also another year. So there will not be a need for any capacity investment even in UP East in 2013. I think most of the investment we will focusing on there, is done on a CapEx for expansion. As a footprint expansion.

Operator

Andy Parnism, UBS. Go ahead please.

Andy Parnis - UBS

Just one question from me. I just wanted to -- just a clarity, on the 2008 license fee, can you just confirm whether you have actually received that money back? And if not, why you're so sure that you will receive it back given some of the recent news reports? And then also whether you could quantify actually how much you get, or how much of the upfront license fee will be offset by the tax loss recognition? Thanks.

Jon Fredrik Baksaas

Let me begin, I am not sure, the last part of your question. We are not through on all the details on tax. This is a calculation on how tax will work when we deduct in group tax accounts, including that on Norway for the restructuring of the debt side last year, or this year. As for the 16 that was the 2008 license fee up against the 13 payable upfront on this one, Sigve, you really have a lot of statements and also formalities to realize before we can -- which explains why we are having this opinion.

Sigve Brekke

Yeah, let me start with Indian in the auction framework. It was very clearly stated that participants in this auction will be eligible for an offset. So that’s clearly stated as a policy. The technicalities that Fredrik is talking about is that we participated in an auction on a different entity than then one that one the auction in 2008. However, it’s the same majority shareholding. And in the dialogue we have had with the government on various levels, we have got very clear signals that as long as there is the same majority shareholders, that offset shouldn’t be a problem for us. And it’s on that base we are so fairly sure that this will happen.

However, we haven’t got it as of now, and this is something we are now actively working with, we are getting for a final confirmation in the weeks to come.

Operator

James Britton, Nomura. Go ahead please.

James Britton - Nomura

I've got a few questions on your return on equity target, that I think is new today. When you talk about the 25% return on new money, can you just clarify what you mean by new money? Is it the remaining capital to be invested under the peak funding budget? And so if that's the case, should we be expecting at least an annual return of about 6 billion INR on the remaining 23 billion INR to be invested? Can you clarify that you are assuming a zero negative return on the historic capital invested? And then is the target predicated on injecting debt and reducing the equity component over time which you presented in the slides? Thank you very much.

Sigve Brekke

To your first question, new money is new money. Meaning that all the money we put in from around August time where we start looking at this auction and where we are building a business plan, so it’s all the money, equity money we have put in since August for, continue to fund operations. And also the money needed until we break even. That’s one part of the new money. The other part of the new money is the NOK 4.2 billion we put in as a part of the auction. Those are the new money. And that is the return, because this is all equity money and that’s where we are looking at the return.

To your second question, we foresee that debt market in India is opening up for us after we have broken even and after we basically have a profitable business going forward. And that’s where the additional funding going forward will then be based on not equity and not Telenor guarantees either, but straightforward loan with no recourse on the Uninor or the company basis.

James Britton - Nomura

Okay. Just a follow up. Can I just ask what the return you're assuming is on the historic capital invested, so on the old money?

Jon Fredrik Baksaas

The historic amount?

James Britton - Nomura

No. What's the return on the old money that you've already invested in India?

Jon Fredrik Baksaas

Of course that is not sort of a question I can take here now. There is a significant investment made. It is a significant base that has been built in the marketplace and it is from that base we now inject more additional funds on top, which is a fairly moderate overall, considered, type of amount to bring the project into its next phase. And it includes the 155 billion to be precise, and then also includes the 13 billion that was paid as upfront fees which we will work and are pretty sure that will be refunded up against the 2008 license fee.

Operator

Jakob Bluestone from Credit Suisse in London. Go ahead, please.

Jakob Bluestone - Credit Suisse

I had a question about profitability for the business. When you guide for generating a CapEx sales long term of around 5%, which is obviously fairly low and a reflection of the business model having a relatively CapEx light approach. I guess the flip side to that is you probably have perhaps relatively higher OpEx. So I was wondering if you might be able to give us a little bit of guidance for what sort of EBITDA margin or operating free cash flow margin you think you can achieve. If I remember right, I think back in 2008 with a very different business model and a very different footprint, you were guiding for 30% EBITDA margin and 20% operating cash flow margin. So I was wondering if you’d might be able to update us on that.

Sigve Brekke

I don’t think I will now want to give any update on that. I think we already gave quite some guidance on the CapEx, which is low as you said, and we also have given some guidance on the return on our equity. So I don’t think at this point in time we would like to give more or disclose more numbers on how our business plan looks like going forward.

Jon Fredrik Baksaas

We could take that question when we have reached breakeven. Then we can start.

Jakob Bluestone - Credit Suisse

I will come back.

Operator

Peter Kurt Nielsen from Cheuvreux. Go ahead please.

Peter Kurt Nielsen - Cheuvreux

Can I just return to the capitalization issue, please? How will you capitalize the new company, i.e., how much equity has been injected into the new company today, before the auction fees? And from an accounting perspective, given that the assets were written down to zero, will there be a revaluation of the assets in the Indian operation or will you simply book the assets at acquisition value, i.e., the auction fee? Thank you.

Jon Fredrik Baksaas

We haven’t felt that we should do any reevaluation. I think if anything like that should happen than we are probably in some kind of consolidation game of some type. So that’s that. As for the other details, I think I have to refer you to IR, Peter.

Operator

Ulrich Rathe, Jefferies. Go ahead please.

Ulrich Rathe - Jefferies

This is a question about this business model and the advantage you derive from that and how dispensable this is. You showed the value chain as essentially being really under your own control not outsourced, only at the strategy level and then at the sales front. On the other hand you're making much of the cost advantage you're gaining from this, pinpointing the capacity to where the revenue is. Now, I assume from the chart then this means most of that process is actually outsourced, which in my world means it's probably something that is in the public domain in a sense and relatively easy to copy by competitors. So where is your confidence coming from that you can maintain this cost advantage that is so important to your business case?

Sigve Brekke

We assume that the competitors are also focusing more and more on cost. They have done that already and they will continue with that. Which means that we need to be just one step ahead in terms of how can we innovate this further. I think long-term the recent advantage of us having no legacy to do this with some of the current arrangement that the bigger guys have, will take them at least some time to get around. And over time we will also get bigger scale and can start also utilizing some of the scale effects into that cost model. Because there is almost nothing in telecom that is sustainable in the sense that giving a sustainable competitive advantage.

So you just need to continue to innovate yourself and continue to be very focused on what you do. I think that probably is something I could a talk a little bit more also on the cost side. Of course there is an advantage for us that we don’t have any postpaid. We don’t have any complex billing structure. We don’t have any complex way of handling postpaid customers. We don’t have 3G. So that extreme focus we have is also giving us advantages.

So let me say that this is, as I said, this is our entry strategy. This is where we want to build up the business and build up the scale. And we probably need to get up to 60 million-70 million customer scale and then when we are on that level, than we also have to move into other areas. And at that point of time, we need to deploy different strategies.

Jon Fredrik Baksaas

And as an example of that, take the new registration procedure. As a newcomer in the market we have the ability of rushing activation down to six to eight hours, whereas competitors need for the time being up to two to three days to execute an activation. And of course that we know is not a sustainable advantage. It’s a first mover thing that works good in a period of time and later on you need to develop other elements that will enable you to again stay ahead of competition. That’s market dynamics.

Ulrich Rathe - Jefferies

That's very clear. Can I just have one clarification on this talk about consolidation, maybe to Fredrik. I mean just in terms of general capital deployment across your business portfolio in the group, would you say at this point that your appetite is more to increase economic exposure to India or decrease? I understand there's sort of lots of possibility but just in terms of the big picture from a group perspective and where you allocate capital. Thank you.

Jon Fredrik Baksaas

We don’t necessarily address that kind of question right now. The only thing we are focusing at for the time being is to get to breakeven with all our circles and Uninor organization overall. And with the breakeven possession in place, as targeted towards the end of 2013, I think we might have clear views on questions like that. But as for now, our focus is on operating issues, period.

Operator

Stefan Gauffin, Nordea. Go ahead please.

Stefan Gauffin - Nordea

Yes, some of my questions has already been asked, but I'm curious about this new activation process, if you can give some more information on what has changed. And you talked about the impact of lower churn and less commission payments. So can you give some more information on what has been changed here?

Jon Fredrik Baksaas

That we can because we have been watching it last week.

Sigve Brekke

Yeah, now let me just explain what it is first. What it is is that when a customer goes to a retail shop, he or she needs to fill out a customer acquisition form, and they need to give a picture, and they need to give an ID and they need to give an address. Then he gets a SIM card. Then that form is being -- but the SIM card is not activated, he cannot use it. Then that form will travel to a point, a distributor point. And that form will then need to be verified by one of our employees or one of the other operator’s employees. Than that form will be uploaded to the call center. And then customer can make a call. The only call that he can get through is that call center and then they need to verify all that information that he has given when we got that SIM card in that retail shop. That’s the process.

So what's then happening here is that this is a process which will take some time. And as Fredrik said, we are down to, 5 or 6 hours I think before this form is with the call center and then the customer then call and get his card activated. So what is happening here then is that there has to be real person behind that SIM and a real person behind that form, which has not always been the case in the future. So this is dramatically bringing down the number of either customers that were never there in the first place, this was just pre-activated cards to get some commission, or people that went there just to pick up some SIM free. So now it’s more real customers. And that’s where we see that the last month for the industry, the gross number is down between 50% to 70%, just because we have taken away all this phony customers, to use that expression.

So this is very much about processes. And the ones that are good -- best in processes, can take a short term advantage as Fredrik said. Over time, this means that the gross game in India is going to be lower. Which means that you basically pay less is sales and acquisition cost. There is less commission, there is less cost of subsidizing your SIM cards, there is less distribution costs. And that’s why I think you will see that over time the whole industry will benefit out of this with actually having a positive cost effect on the EBITDA line.

Jon Fredrik Baksaas

This is a more cumbersome procedures for our customers and for operators and it will lead to less -- people will take better care of their own SIM card as they have it.

Meera Bhatia

Time allows for two more questions.

Operator

Sven Grundberg, Dow Jones. Go ahead please.

Sven Grundberg - Dow Jones

I think you have answered some of the questions I had in the beginning. It was regarding your participation in the possible renewed auction in India. I was just wondering if you could outline exactly what you said. I mean I understand that you find the 30% discount too little and can you flesh out how much of a discount you would need to participate?

Sigve Brekke

Nice try.

Jon Fredrik Baksaas

Nice try.

Sven Grundberg - Dow Jones

I am a reporter, that’s what I do.

Jon Fredrik Baksaas

We won't put a threshold over this but if Telenor needs at all value at this, we need to get the license refund in place. That’s for one. And then the reduction in -- or the threshold needs to be put on a different level which is lower than the suggested one. And from there onwards it’s all about market competition for that spectrum.

Sigve Brekke

If I just could add, Fredrik, I think for us it will be two parameters. It will be what can we pay in this auction and still be within the 155. And second, is it yielding a net present value for that investment. Both these things we will look at very very rationally. And it’s not only about the surplus either. It depends also on what are the changes in some of the auction parameters. That we don’t know and we will not know that before end of January. And also we need to see the participation. If everyone is participating here, the [share price] doesn’t really matter because then the realization price would probably be much higher anyway.

Sven Grundberg - Dow Jones

A follow-up question there. You need to be within your 155 billion funding limit here. I mean kind of room do you have in terms of how many billions of rupees are you prepared to pay?

Jon Fredrik Baksaas

Then I will repeat ourselves, nice try. But on the other hand I don’t think we go into those details to a more serious about it. This is our evaluation when and if the opportunity comes.

Amit Rathi - BofA Merrill Lynch

My question has been partly answered. Like if your model is replicated by the, say, incumbent or new players, what are the chances of tariff war again coming in India?

Jon Fredrik Baksaas

My view at the chances a tariff war to be more bloody than what we have seen so far, it’s quite low. In my opinion we have seen the bottom of the tariff level. And I am also basing this on what incumbents already have done. They have taken up the tariff, they did that a year ago. And if I should believe press statements, they are about to do it again. And also when all see that the actual number of competitors are less, some have given up, some are scaling down. So I am quite positive that you will see an increase there. However, I don’t think that it will be a substantial change in this before our we are through some more consolidation, and that may take some time.

Amit Rathi - BofA Merrill Lynch

That's true. But the operators who have given up or are moving back out of India didn't have any real revenue, right. So given this gap between your cost of operation and the incumbents, if incumbents are able to match your kind of cost then there is ample room for another price war. I just want to understand this gap and how easily can it be replicated by incumbents?

Jon Fredrik Baksaas

I cannot answer it more than what I did. I think right now we are the most affordable in the market and with the rest of the smaller guys being gone, I think we are alone holding that position. And of course we will not act irrational here. When we see an opportunity to move up our prices, of course we will do that, as we did a year ago when incumbents did. So we will be a follower in that respect. We are going to be disruptive in the market because at the end of the day, this is not about the number of subscribers. It’s about our profitability targets.

Meera Bhatia

Thank you. This is actually the last question we could take. There is no more time. This concludes the session for today and thank you all for joining us, in the audience and on line. Thank you, Sigve and thank you Mr. Baksaas. For media present, I am coordinating an interview list for Mr. Baksaas and my colleague, Glenn Mandelid is doing the one for Sigve Brekke. Thank you.

Jon Fredrik Baksaas

Thank you.

Sigve Brekke

Thank you.

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