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Telenor bets on Asia's bottom-of-the-pyramid market

Norway's telecom operator expands presence in Myanmar, Bangladesh and Pakistan

A Telenor sign outside a cellphone retailer in Myanmar's Shan state. The Norwegian telecom operator offers the country's lowest calling prices thanks to strict cost controls. (Photo by Yuichi Nitta)

BANGKOK/YANGON/MUMBAI -- Norwegian wireless carrier Telenor is investing heavily in Myanmar, Bangladesh and Pakistan as part of its strategy to build a sizable presence in Asia's developing markets.

In a town near the Chinese border in Myanmar's Shan state, the Telenor logo can be seen on the storefronts of many cellphone retailers. A 34-year-old taxi driver says that Telenor is faster than the government-owned Myanma Posts and Telecommunications, the country's largest carrier.

Telenor has built up a reputation in Myanmar as a cutting-edge company. It rolled out 4G service there half a year before Myanma Posts and was quick to provide electronic money services as well. In December, it said it would buy spectrum from the government for $80 million, part of a strategy to differentiate itself with fast speeds.

With just 5 million people in its home of Norway, the telecom company has looked to Asia's rising population and wages for growth. It currently has operations in five Asian nations. Growth in the region has been driven by the developing economies of Bangladesh, Pakistan and Myanmar. In those three markets, Telenor quadrupled its subscriber base to a total of 130 million in 10 years. Telenor earned a record operating profit of 9.59 billion krone ($1.17 billion) in the trio of countries in the year ended December, 36% of the group's total.

Telenor has adopted a bottom-of-the-pyramid strategy. To offer low fees, it cut fixed costs by outsourcing the operation of customer call centers and base stations. It now has Myanmar's cheapest mobile calling service at 10 kyat (1 cent) per minute.

In Bangladesh, its average revenue per user is the equivalent of only about $2 per month, but with 65 million subscribers, the company earned an operating profit of 5.1 billion krone last fiscal year. The country has become an Asian cash cow for Telenor, surpassing Thailand and Malaysia, where ARPU is more than four times as high.

Telenor has also actively invested in telecommunications infrastructure in developing nations to handle both population growth and faster speeds. Cumulative investment in Pakistan, which Telenor entered in 2005, reached $3.5 billion at the end of 2017, according to a top official at a local unit. Total investment in Myanmar has exceeded $2 billion since the company moved into the country in 2014.

Mobile provider Grameenphone, a joint venture between Telenor and Dhaka-based microfinance lender Grameen Bank, holds 45% of Bangladesh's market. And Telenor is No. 2 in Pakistan and Myanmar, where there are no big American or European competitors.

The key drivers of Telenor's strategic plan through fiscal 2020 are "growth, efficiency and prioritization." The company made clear that it will narrow markets to focus on.

This strategy can be seen in Telenor's exit from India. That market used to be highly competitive, with more than 10 players fighting over the pie. But when Reliance Industries unit Reliance Jio Infocomm entered the market in September 2016 and began offering low prices, a debilitating price war followed.

Telenor decided to sell its Indian business to market leader Bharti Airtel in February 2017, a decade after entering the market. In March of this year, it said it would quit central and Eastern Europe as well.

The company is now betting its future on Bangladesh, Pakistan and Myanmar. But Telenor cannot breathe easy in the developing markets of Asia. On June 9, a unit under Viettel, which is effectively owned by Vietnam's military, officially announced the launch of nationwide service in Myanmar. With competition sure to intensify, Telenor cannot back down as it tightens focus.

Telenor has fueled its growth by taking profits from mature markets and investing them in growth ones. In Thailand, however, it is becoming known for slow speeds and has slipped to third from second place, a development that could threaten its business model. Local unit Total Access Communication lost 15% of its subscribers over the last eight quarters to such rivals as True Corp., which is under the umbrella of Thai conglomerate Charoen Pokphand.

Competition in Thailand, where the mobile phone ownership ratio exceeds 100%, is turning into a war of attrition. Total Access Communication vies with highly profitable market leader Advanced Info Service and True, which is backed by a deep-pocketed corporate group. Total Access Communication's difficulties there show how a mature market differs from developing markets in Asia.

The licenses for over 40% of Telenor's Thai spectrum will expire in September, and the government plans to auction these rights off soon. The local unit has curbed costs to boost cash on hand by about 60% over the year through March. The company can spend only so much, an analyst points out, and spectrum in Thailand is among the world's costliest.

While having adequate spectrum is essential to providing fast speeds to customers, Total Access Communication lost the last round of bidding in 2015. A reputation for slow speeds is what drove subscribers away. The company decided in April to borrow bandwidth from the state-owned telecom, so it has averted a crisis over a shortage of spectrum for now, but it still faces the pressing need to rebuild its brand image.

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