Unitech Wireless

Unitech Wireless in India currently comprises eight licensee companies, all incorporated by Unitech Ltd. and its affiliates in 2007, as vehicles for Unitech’s telecom venture, Unitech Wireless. On 19 May 2009, Telenor completed the second stage of the capitalisation of Unitech Wireless through a capital injection of NOK 1.8 billion, bringing the ownership share in the eight licensee companies to 49.0%. Telenor and Unitech Ltd. have agreed that requisite steps and actions shall be undertaken so as to facilitate a merger process with an objective of merging all the licensee companies into one, with the target for completion of such mergers being 30 March 2010. The activities of Unitech Wireless have been confined to the wireless business in accordance with the Unified Access Services (UAS) licences and are targeted at launching towards the end of fourth quarter 2009. Telenor’s objective with its investment in Unitech Wireless is to establish a leading position in the mobile telecom market segment in India. As at 30 September 2009, the mobile penetration and number of inhabitants in India were 40% and 1,156 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 a UAS licence covering all circles is approximately Indian Rupees 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, Unitech Wireless 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, Unitech Wireless 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 Unitech Wireless to mount its mobile network antennas onto existing as well as new towers to be built by Tata and Quippo. These two tower companies are currently in the process of merging their businesses to become one of India’s largest tower companies with the scale benefits that this offers. The tower-sharing agreement covers approximately 40,000 sites, of which approximately 11,000 sites were installed by October 2009. The remaining towers will be built in 2009 and 2010 in accordance with Unitech Wireless’ needs. Unitech Wireless 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. Unitech Wireless however, is tied into the agreement for a significantly shorter period than the vendors and may enter into additional tower rental agreements. On 30 September 2009, Unitech Wireless entered into a second tower sharing agreement with Indus Towers to complement the Tata/Quippo main agreement and on 25 September 2009, Unitech Wireless entered into a national roaming agreement with Idea. The agreement has an exclusivity period of one year and is unilateral with roaming only one way.

The present value of total minimum contractual obligation from the tower and transmission agreements with Wireless-TT Info Services Limited (Tata Teleservices’ tower company) and Quippo Telecom Infrastructure Limited is around NOK 3 billion.

During the second quarter of 2009, Unitech Wireless entered into a number of contracts, including an IT outsourcing agreement with WIPRO with an estimated contract obligation in the range of NOK 2.0 – 2.5 billion, and GSM equipment supplier contracts with Huawei, Alcatel Lucent and Ericsson. During the third quarter 2009, additional GSM equipment supplier contracts were entered into with Nokia Siemens Networks and ZTE Corporation.

On 23 June 2009, Unitech Wireless acquired Unitech Long Distance Communication Services Limited for a consideration of approximately NOK 17 million, to get immediate access to licences to provide national long distance and international long distance services.

On 18 September 2009, Unitech Wireless announced its brand name Uninor with the Telenor logo as visual identity.

On 27 July 2009, Unitech Wireless secured INR 50 billion as a one year bridge funding facility with the State Bank of India.

Unitech Wireless 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.

Competition

Currently, there are 10 wireless operators in India. The 4 pan-Indian players have an estimated combined market share of 72.3% as at 30 September 2009. Bharti is the largest wireless operator in India with an estimated market share of 23.7%. Bharti has a pan-Indian GSM-network as well as a presence in National Long Distance (NLD), International Long Distance (ILD) and broadband provision. The largest shareholders are the Mittal family (30%) and Singapore Telecommunications (31%). Reliance Communications (Reliance) has an estimated market share of 18.4%. Reliance has a pan-Indian CDMA-network, but is also rolling out a GSM network in all circles. The company 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 17.8%. The largest shareholders are Vodafone (67%) and Essar (33%). BSNL has a market share of approximately12%. The government owned players BSNL and MTNL have an estimated combined market share of 12.4%. They provide GSM and CDMA services and 3G services in selected areas. Idea has an estimated market share of 11.1% and provides GSM services in 15 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 10.1% and is the second largest CDMA operator. The largest shareholder is Tata Group (65.61%) followed by the Japanese mobile operator NTT DoCoMo (12.12%). In addition to the existing operators, UAS licences have been granted to four new operators, including Unitech Wireless.

Regulatory matters

The Department of Telecommunication (DOT) has been constituted under the Ministry of Communications and Information Technology to develop policies and to administer relevant laws. DOT is also responsible for granting licences for various telecom services and frequency management. The Telecom Regulatory Authority of India 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.

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 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. Unitech Wireless 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 Unitech Wireless 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 Unitech Wireless will not obtain spectrum in all circles and districts of India. It should be noted, however, that with the spectrum currently allocated to Unitech Wireless, it would be able to cover approximately 76% of India’s population, and that if Unitech Wireless 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 is currently being revised, but the proposal is 3% of annual gross revenue for 4.4 MHz and 4% for 6.2 MHz. A committee on ”Allocation of Access spectrum and pricing” in May 2009 made its recommendation to the DoT on key aspects of the spectrum management regime in India. Following this, the DoT set 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, M&A regulation, refarming and spectrum pricing. TRAI in October 2009 issued a consultation document on spectrum and licensing issues.

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 capex and operating costs. The major operators have spun off their towers in 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 capex and operating costs even further. Sharing of spectrum is currently not permitted.

3G

Guidelines, draft information memoranda and timelines for 3G and Broadband Wireless Access licences were published by the DOT in December 2008. An updated draft memorandum was published in October 2009. According to these documents the 3G licences will be awarded through an auction process for each circle, and the reserve price for 3G licences in all circles will be approximately Indian Rupees 33,500 million. Each 3G licence is for 2x5 MHz. According to the updated draft timeline the auctions are scheduled to take place in January 2010.

Note: The business descriptions have been updated November 2009.