Updated: October 2014
CurrentlyTelenor has GSM mobile operations in six telecom circles: Uttar Pradesh (East), Uttar Pradesh (West), Bihar, Andhra Pradesh, Maharashtra and Gujarat under Unified licences granted by the Department of Telecommunications (the DoT). In addition to the above, Unitech Wireless also holds National and International Long Distance Licences as part of the Business Transfer agreement entered into December 2013, this business will be transferred to Telewings as soon as required agreements are in place and subsequently closed down.
Network and licences
The 22 telecommunications circles 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 Unified 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. Uninor’s Unified licences have a 20 year term. The consideration for Uninor’s Unified licences, 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.
Uninor and many other telecom operators, as well as the federal government through the DoT and the Telecom Regulatory Authority of India (the TRAI), were named as respondents in public interest petitions filed before the Supreme Court by the Centre for Public Interest Litigation, a nongovernmental organisation, and Dr. Subramanian Swamy. These petitions sought the cancellation of the licences granted by the Indian government in January 2008 to such operators (including all UAS licences granted to Uninor) on the grounds (amongst others) of alleged irregularities in the granting of the licences and failure to meet eligibility requirements.
On 2 February 2012, the Indian Supreme Court delivered its judgment on the public interest petition, in which it quashed all 122 licences, including the Unified licences granted to Uninor (the 2G Order). As a consequence of these developments, the goodwill in Uninor amounting to NOK 1.3 billion was fully impaired, in addition to an impairment of the Unified licences amounting to NOK 2.8 billion. This impairment loss was based on value in use calculations as at 31 December 2011, assuming continuing operations in India by acquiring new licences during the course of 2012. Furthermore, as a consequence of the 2G auction recommendations published by the TRAI on 23 April 2012, a further impairment loss of NOK 3.9 billion (NOK 2.6 billion of which was attributable to Telenor) was recognized in the first quarter of 2012 relating to the remaining tangible and intangible assets of Uninor. Following this impairment, Telenor has no further accounting exposure related to India as at 31 March 2012. Subsequent to the 2G Order, in November 2012 the government of India conducted an auction of spectrum in the 800 MHz and 1800 MHz bands. Telenor, through another subsidiary, Telewings Communications Services Private Limited (Telewings), was successful in obtaining spectrum in the 1800MHz band in six telecom circles namely Uttar Pradesh (East), Uttar Pradesh (West), Bihar, Gujarat, Maharashtra and Andhra Pradesh, and was the single largest contributor to the government exchequer in this auction.
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) 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. Uninor also 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 NLD carriage cost, and Uninor plans to roll-out NLD to other operators’ connectivity in 2012 to further optimise 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. Alcatel Lucent and Ericsson were selected as Pan India Managed Service Partners for end to end operational maintenance responsibility covering all equipment suppliers. During April 2011, Uninor also renegotiated its IT contract with WIPRO, securing significantly improved commercial terms. In April 2012, transmission request for quotation was finalised including re-negotiation on NLD rates where significant reduction in such rates has been achieved.
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 roll-out obligations’, due to delayed roll-out of services in the 21 circles with allocated spectrum. These charges are being contested by Uninor in the appropriate forums as the roll-out was affected by factors attributable to the DoT, the effect of which should be to reduce or nullify the penalties. Uninor is also involved in litigation proceedings in India regarding 2G licences granted in 2008, as described above. Further details of this litigation can also be found on page  of this Base Prospectus.
During 2012, one of Uninor’s lenders rejected Uninor’s request for an extension of its borrowings and demanded payment under financial guarantees given by Telenor. This event triggered a cross-default under Uninor’s other loan agreements. Consequently, Telenor has paid INR 98.09 billion under these guarantees.
As at 31 March 2013, out of Uninor’s total interest bearing debt of INR 45.1 billion (which includes 27.8 billion payable to the DoT for the recently concluded auction, [ECBs] of INR 13.3 billion from Telenor and INR 4 billion from a financial institution), 9.2 billion is supported by financial guarantees provided by Telenor. Uninor’s loan agreements contain typical bank loan provisions, including material adverse effect clauses. Uninor has a poor liquidity situation and is dependent on additional funding to run its operations.
The number of wireless subscribers in India was 864 million as at the end of December 2012, 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 to 12 operational wireless operators in India. Etisalat and S-Tel have announced that they will withdraw services as a result of the 2 February 2012 Supreme Court judgment referred to above.
Bharti is the largest wireless operator in India with a market share of around 21% as at 31 December 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 licences 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 13.7%. 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 17.1% 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 12.2%. 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 13.2% 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 8% 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 Teleservices 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 launched 3G services 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.
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 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
A new National Telecom Policy was issued in 2012.
Proposed Shift to Unified Licence Framework
On 16 April 2012, the TRAI issued its final recommendations on Guidelines for Unified Licence and Migration of Existing Licence. In the future, the issuance of Unified Licence will be delinked from spectrum. Spectrum will have to be obtained separately through a market-based mechanism such as an auction process. A Unified Licence 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.
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 to be allowed for operators who have paid the market price for liberalised spectrum. This will be enabled by separate government guideline.