Uninor

Unitech Wireless comprises eight Unified Access Services (UAS) licence companies and Unitech Long Distance Communication Services Limited, acquired by Unitech Wireless Tamilnadu Private Limited on 23 June 2009. These entities were merged into Unitech Wireless (Tamilnadu) Private Limited with effect from 1 October 2010. The transfer of UAS licences for 21 service areas and the National Long Distance (NLD) and International Long Distance (ILD) licences in the name of the resultant entity is subject to the approval of the Department of Telecommunications. The company is hereafter referred to as Uninor, Telenor’s brand in India. On 10 February 2010, Telenor completed the capitalisation of Uninor, bringing the ownership share in the eight licensee companies to 67.25%. In 2009, Uninor launched services in Andra Pradesh, Karnataka, Kerala, Tamil Nadu, Bihar, Uttar Pradesh East, Uttar Pradesh West and Orissa. In May 2010, Uninor launched services in an additional five circles, namely Mumbai, Maharastra, Gujarat, Kolkata and West Bengal, taking the total population footprint to approximately 900 million. As at 31 March 2011, Uninor had 17.4 million mobile subscriptions. As at 28 February 2011, the mobile penetration and number of inhabitants in India were 65% and 1,210 million, respectively.

Network and licences

The 22 telecommunications networks in India are classified as Metros (Mumbai, Delhi and Kolkata) and A, B and C circles. The Metros and the A circles have the highest economic development. The UAS licence authorises a licensee to provide wireline and/or wireless services, including full mobility, limited mobility and fixed wireless access within the circle for which the licence has been granted, subject to allocation of spectrum. The UAS licence is valid for 20 years and can be extended for another 10 years by the licensor. The upfront cost for Uninor’s UAS licence covering all circles was approximately INR 16,586 million. The annual licence fee, for the term of the licence, (including 5% USO) is 10% for Metros and A circles, 8% for B circles, and 6% for C circles of the adjusted gross revenue.

In its roll-out, Uninor will make use of the availability of infrastructure sharing. This will not only help to roll out services faster, but will also help to reduce network roll-out costs and capital expenditure per subscriber. On 10 February 2009, Uninor entered into a tower sharing agreement with Wireless-TT Info Service Limited (Tata Teleservices’ tower company) (Tata) and Quippo Telecom Infrastructure Limited (Quippo). The tower sharing agreement allows Uninor to mount its mobile network antennas onto existing as well as new towers to be built by Tata and Quippo. These two tower companies have merged their businesses into a new company named VIOM, which has become one of India’s largest tower companies with the scale benefits that this offers. The tower-sharing agreement covers approximately 40,000 sites. During the fourth quarter of 2009, Uninor entered into agreements with Indus Towers, Bharti Infratel, Global Infrastructure Limited (GIL) and Reliance Infratel as additional tower suppliers, however VIOM constitutes 86% of the current tower portfolio. As at 31 March 2011, Uninor had installed network equipment on, and activated, approximately 24,300 towers. Uninor also entered into a transmission agreement with Tata Teleservices. The tower sharing and transmission agreements each have 20 year terms with options to extend the contracts for a subsequent 5 year period. Uninor, however, is tied into the agreement for a significantly shorter period than the vendors. On 25 September 2009, Uninor entered into a national roaming agreement with Idea to enable services in circles where Uninor has not yet launched services on its own network.

During the second quarter of 2009, Uninor entered into a number of contracts, including an IT outsourcing agreement with WIPRO and GSM equipment supplier contracts with Huawei, Alcatel Lucent and Ericsson. During the third quarter of 2009, additional GSM equipment supplier contracts  were  entered  into  with  Nokia  Siemens  Networks  and  ZTE  Corporation. Uninor renegotiated the GSM contracts in the first quarter of 2011 and was able to secure better prices in terms of equipment cost, as well as operating expenses related to managed services and annual maintenance charges. The renegotiated terms will enable Uninor to improve its energy and spectrum efficiency. During April 2011, Uninor also renegotiated its IT contract with WIPRO, securing improved commercial terms.

Uninor received UAS licences which were executed on 28 and 29 February 2008 and were effective as of 25 January 2008. The UAS licence agreements require that various obligations are fulfilled by the licensees. These include maintaining quality of service, payment of licence fees, security conditions etc. In addition, the licensees are required to fulfil certain rollout obligations (being the date of allocation of spectrum in the relevant circles).

Pursuant to the terms of the UAS licences, the licensee must ensure that:

• At least 10% of the towns designated as district headquarters in each administrative district are covered in the first year and 50% of the towns designated as district headquarters in each administrative district are covered within three years from the date of the GSM spectrum allocation.
• For metro service area licences: 90% of the service area is covered within one year of the GSM spectrum allocation.
  

Uninor is facing penalties of INR 875.5 million in the form of liquidated damages, as per the licence conditions for ‘first year rollout obligations’, due to delayed rollout of services in the 21 circles with allocated spectrum. These charges are being contested by Uninor in the appropriate forums as the rollout was affected by factors attributable to the Department of Telecommunications, the effect of which should reduce or nullify the penalty. Uninor is also involved in litigation proceedings in India regarding 2G licences granted in 2008. Further details of this litigation can be found on page 105 of this Base Prospectus.

Competition

Currently, there are 10-12 operational wireless operators in India. Bharti is the largest wireless operator in India with an estimated market share of 20% as at 28 February 2011. Bharti has a pan-Indian GSM network as well as a presence in NLD, ILD and broadband provision. Bharti has now expanded across Asia (Bangladesh and Sri Lanka) and Africa. The largest shareholders are the Mittal family (30%) and Singapore Telecommunications (32.5%). Reliance Communications (Reliance) has an estimated market share of 16.9%. Reliance has a pan-Indian GSM and CDMA network and also has a presence in NLD and ILD. The controlling shareholder in Reliance is Anil Ambani (65%). Vodafone Essar has an estimated market share of 16.7%. The largest shareholders are Vodafone (67%) and Essar (33%). BSNL has a market share of approximately 10.9%. The government owned operators BSNL and MTNL have an estimated combined market share of around 12.2%. They provide GSM and CDMA services and 3G services in selected areas. Idea has an estimated market share of 11% and provides GSM services in 21 circles. Idea has merged with Spice, one of the smaller wireless operators in India. After the merger, Birla owns 49.05%, while Axiata Berhad owns 20% in Idea. Tata Teleservices has an estimated market share of 11.2% and is the second largest CDMA operator after Reliance. The Japanese mobile operator NTT DoCoMo has a 26% stake in Tata Teleservices and owns 12% of Tata Teleservices Maharastra Ltd (TTML), the listed arm. The largest shareholder in TTML is Tata Group (65.61%). New operators have been granted UAS licences, but not all have launched services across circles.

Many telecom operators obtained 3G licences at high prices during the 3G auctions held in 2010. None of the operators obtained a pan-India licence. Bharti, Reliance and Aircel obtained 13 circles each for USD 2.8 billion, USD 1.9 billion and USD 1.4 billion, respectively. Idea obtained 11 circles for USD 1.3 billion. Vodafone and Tata-DoCoMo obtained 9 circles each, for USD 2.6 billion and USD 1.3 billion respectively. S-Tel was the only new operator to obtain 3G licences, at a cost of USD 73 million for 3 circles. Most operators have launched 3G in a few cities, and plan to launch across a large number of cities during 2011.
After numerous delays, mobile number portability was launched in January 2011. This has not had a sizeable impact on the cellular industry in India, with less than 4 million requests for port-out in the first two months following its launch (representing less than 1% of total subscribers).

Regulatory matters

The Department of Telecommunications (the DoT) has been constituted under the Ministry of Communications and Information Technology to develop policies and to administer relevant laws. The DoT is also responsible for granting licences for various telecom services and frequency management. The Telecom Regulatory Authority of India (TRAI) is responsible for, among other matters, ensuring competition in the sector, regulating prices and making recommendations to the DoT on all matters relating to telecommunication. The government has announced the formulation of  the  New Telecom  Policy (NTP) 2011  and  begun  a  consultation  process  with  industry stakeholders. The Minister held a round-table meeting with all stakeholders on 8 March 2011, to hear their views on 15 identified issues covering, amongst other items, allocation and pricing of spectrum, de-linking of spectrum from licence, TRAI’s recommendations on roll-out obligations, spectrum sharing and mergers and acquisitions policy. As the industry was fragmented on many important issues, the Minister advised the stakeholders to arrive at a consensus, failing which the Government would have no option but to take its own decisions absent such consensus. The policy is expected to be finalised during 2011, but no clear date has been set.

Spectrum

In addition to a UAS licence, licensees will need to be allocated spectrum in order to offer mobile telecom services. The new licensees will, subject to availability, initially be allocated 4.4 MHz of GSM 1800 MHz spectrum. According to the UAS licence, additional spectrum will, if available, only be allocated when certain subscriber thresholds have been reached. To obtain 6.2 MHz, the requirement is 500,000 customers in a Metro, 800,000 customers in A and B circles, and 600,000 customers in C circles. The Indian government is currently in the process of vacating frequencies in the 1800 MHz frequency band, but it may take time before all the frequencies have been vacated.

Uninor has been granted spectrum in 21 of the 22 telecom circles in India. It has not been granted spectrum in Delhi nor in some districts of Assam, Rajasthan, Jammu & Kashmir and North East. As Uninor currently has not been granted spectrum in all 22 circles or in all districts in the circles where spectrum is granted, and as spectrum is a scarcity in India, there is a risk that Uninor will not obtain spectrum in all circles and districts of India. It should be noted, however, that with the spectrum currently allocated to Uninor, it would be able to cover approximately 76% of India’s population, and that if Uninor is not successful in obtaining spectrum in all circles, the value of Telenor’s investment will be subject to a relative adjustment.

The operators must pay a spectrum fee based on how much spectrum they have been allocated. The fee has been revised to 3% of annual gross revenue for 4.4 MHz and 4% of annual gross revenue for 6.2 MHz, as per the DoT circular dated 25 February 2010. In May 2009, a committee on “Allocation of Access Spectrum and Pricing” made its recommendation to the DoT on key aspects of the spectrum management regime in India. Following this, the DoT put all allocation of GSM spectrum on hold. The DoT has subsequently sought the recommendations of TRAI for a number of spectrum issues including spectrum allocation and rollout requirements, mergers and acquisitions regulation, refarming and spectrum pricing. On 11 May 2010, TRAI issued its recommendations to DoT. These recommendations are part of the previously mentioned consultation process with the industry around the forthcoming New Telecom Policy (NTP) 2011.

National roaming and intra circle roaming

Since few of the operators have been able to offer pan-Indian coverage until quite recently, national (inter circle) roaming is permitted. Recently, the regulator has also allowed intra circle roaming, based on mutual agreements between the operators. Consequently, if a new operator is able to enter into an intra circle roaming agreement with an existing operator, it will be able to offer early coverage even without having rolled out its own network. Although a new operator can offer early coverage without having to roll out its own network, such early coverage would not be counted towards the satisfaction of the roll out obligations of the new operator.

Infrastructure sharing

The Indian government has promoted passive infrastructure sharing through regulation and through USO funds. The operators have supported passive infrastructure sharing to reduce capital expenditure and operating costs. The major operators have spun off their towers into separate companies. Also, several independent tower companies have acquired or built significant portfolios of towers. The new operators are therefore expected to be able to rent a significant number of towers, and thereby reduce the network roll-out time and investment. Recently, the regulator has also permitted active infrastructure sharing. Active infrastructure sharing is limited to antenna, feeder cable, node B, radio access network and transmission. Potentially, this could reduce the capital expenditure and operating costs even further. Sharing of spectrum is currently not permitted.