Uninor

Last updated June 2012

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 2012, Uninor had 31.5 million mobile subscriptions based on Uninor’s definition of customers. As at 29 February 2012, the mobile penetration and number of inhabitants in India were 76% 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.

On 2 February 2012 the Supreme Court of India delivered a judgment in favour of a public interest petition seeking cancellation of 122 cellular phone licences granted by the Government of India in 2008, including 22 licences awarded to Uninor. The order of the Supreme Court is due to become effective on 2 June 2012. The Supreme Court has also instructed the Telecom Regulatory Authority of India (TRAI) to issue recommendations on the issuance of fresh licences and spectrum in the 2G band via an auction process. The Supreme Court has further directed that on receipt of these recommendations from TRAI the Government has to take a decision within one month on the issuance of fresh licences and spectrum. TRAI has completed the consultation process with the industry on the auction process and issued its final recommendations on 23 April 2012. Meanwhile, the Government has submitted to the Supreme Court that it will take 400 days to complete the auction process and new licences and spectrum accordingly cannot be allocated before March 2013.

Uninor is seeking clarity from the Supreme Court and the Government on the status of its licenses beyond June 2 2012, if the Government is not able to issue fresh licenses through the auction process by such date. Uninor is also requesting that the Supreme Court grant an extension to the validity of its licenses until Telenor is able to obtain fresh licences and spectrum through the upcoming auction process and then migrate all its Indian assets and customers to the new licensee company.

In its roll-out, Uninor has made use of the availability of infrastructure sharing. This has helped 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 72% of the current tower portfolio. As at 31 March 2012, Uninor had installed network equipment on, and activated, approximately 27,863 towers. Uninor also entered into a transmission agreement with Tata Teleservices which caters for the majority of Uninor’s requirements. 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. Uninor launched its NLD services in January 2012 which helped reduce the NLD carriage cost, and Uninor plans to rollout NLD to other operator’s connectivity in 2012 to further optimise the transmission cost.

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 again in the fourth quarter 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. In December 2011, the “Managed Services Next Level” project was completed, to improve efficiency further and reduce structural cost. The two key elements of the Managed Services Next Level project were to make the whole supply chain vendor and technology agnostic (to remove process inefficiencies) and to start a transformational partnership journey based on gain sharing. Alcatel Lucent and Ericsson were selected as Pan India Managed Service Partners for end to end operation maintenance responsibility in the vendor and technology agnostic environment. During April 2011, Uninor also renegotiated its IT contract with WIPRO, securing significantly improved commercial terms. In April 2012, transmission RFQ was finalized including re-negotiation on NLD rates where significant reduction in such rates has been achieved. [SandM: I am not sure the description of the Managed Services Next Level project is particularly clear – can we clarify this? What is the reference to agnostic and transformational partnership journey based on gain sharing trying to capture?]
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.

Competition

The number of wireless subscribers in India was 912 million as at the end of December 2011, making India the second largest telecom market in the world in terms of number of subscribers. The Indian market primarily comprises prepaid subscriptions, with such tariffs representing 97% of subscribers.

Currently, there are 10-12 operational wireless operators in India. Etisalat and S-Tel have announced that they will withdraw services after their licenses were cancelled as a result of the 2 February 2012 Supreme Court judgment.

Bharti is the largest wireless operator in India with a market share of almost 20% as at 29 February 2012. Bharti has a pan-Indian GSM network as well as a presence in NLD, ILD and broadband provision, and has now started offering digital TV services. Bharti owns 3G licenses for 13 out of 22 circles and has launched 3G services in key cities in India. Bharti has also now expanded across Asia (Bangladesh and Sri Lanka) and Africa. The largest shareholders are the Mittal family (45.48%) and Singapore Telecommunications (32.25%).

Reliance Communications (Reliance) has a market share of 16.7%. Reliance has a pan-Indian GSM and CDMA network, digital TV network and also has a presence in NLD and ILD. Reliance holds 3G spectrum for 13 circles and has initiated its offers in key locations. The controlling shareholder in Reliance is Anil Ambani (65%).

Vodafone India has a market share of 16.4% and a national GSM presence with 3G spectrum in 10 circles. The largest shareholder is Vodafone Group Plc (74%), which increased its shareholding during 2011 by acquiring the stake previously held by Essar.

The government owned operators BSNL and MTNL have an estimated combined market share of around 11.4%. They provide GSM and CDMA services and have 3G licences in 20 circles and have also started offering 3G services.

Idea has a market share of 12.2% and provides GSM services in 22 circles. Idea has merged with Spice, one of the smaller wireless operators in India. After the merger, Birla owns around 46.0%, while Axiata Berhad owns around 20.0% in Idea. Idea holds 3G licences in 11 circles.
Tata Teleservices has an estimated market share of 9% 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%). Tata holds 3G licences in 10 circles and was the first operator to launch 3G services in India.

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 2011, but the uptake of services has been moderate.

After numerous delays, mobile number portability was launched in January 2011. About 29 million subscribers have ported during the year which represents a marginal take-up compared to the total subscriber base. This number is, however, increasing on a monthly basis.

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. 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.

New National Telecom Policy

The Government has undertaken a public consultation with all stakeholders on the draft of the New National Telecom Policy. The New National Telecom Policy 2012 is to be issued during the course of 2012.

Proposed Shift to Unified License Framework:
16 April 2012 TRAI issued its final recommendations on Guidelines for Unified License and Migration of Existing License. In the future, the issuance of Unified License will be delinked from spectrum. Spectrum will have to be obtained separately through a market-based mechanism such as an auction process. A Unified License will be service and technology neutral. The operators must pay a usage charge 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, in accordance with the DoT circular dated 25 February 2010.

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 transferred 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.