You’d expect the headquarters of Telenor, Norway’s biggest telecom company, to reflect at least some of its Scandinavian side. Sure enough, meeting rooms are furnished with wooden floors, sleek tables and angular armchairs; there’s even a breathtaking view of the Oslo Fjord. But look closer. The small silver plates and golden sculpted boats in one such room are from Bangladesh; the green-and-gold tea set, with its five matching cups, from Thailand. And the black-and-gold rug hanging on a wall is among the finest you would find anywhere in Pakistan.
The design mix is a good metaphor for Telenor’s successful business strategy. At its core, the firm is undeniably Norwegian. It’s the leading fixed-line and cell-phone operator in the country where it started more than 150 years ago; the government is still the largest shareholder. But Telenor’s influence extends well beyond the borders of Norway, a country of less than 5 million people. It’s a big player in the telecom markets in Sweden and Denmark, and has quietly built up cell-phone operations in five Central and East European countries. More surprising, though, Telenor is building its future in Asia.
Drawn by the potential for rapid growth in some of Asia’s younger cell-phone markets, Telenor has been expanding in the region for more than a decade. The company now has 50 million subscribers in Asia, 17 times its number in Norway. The area now accounts for some 30% of Telenor’s $17 billion in annual revenues, and will generate 36% in a couple of years, according to estimates by investment bank Dresdner Kleinwort. Asia, says Arild Nysaether, telecoms analyst at investment bank Fondsfinans in Oslo, is simply “the most important part of Telenor.” And it’s a point not lost on bigger rivals. France Tlcom, Europe’s third largest operator, said in mid-April it was looking into a potential takeover of Telenor, among other options.
It was the liberalization of Europe’s telecom markets in the late ’90s that forced Telenor abroad, in search of growth to offset stiffening domestic competition. But squared up against the region’s big boys — Telefnica, say, or Deutsche Telekom — Telenor was too small to make much headway in established European markets. It “never had the firepower to go for scale in Europe along the lines pursued by others,” says Martin Mabbutt, telecoms analyst at financial services group Nomura in London.
What it did have, though, was experience. Telenor adopted gsm — the global standard for digital mobile telecoms — as early as 1993, and had pioneered gsm’s precursor more than a decade earlier. By the late ’90s, mobile-phone penetration levels in Norway were more than double those in France and Germany, according to telecom consultancy Analysys. In light of deregulation, Telenor’s savvy for nurturing a customer base from the early stages to maturity looked like its strongest export.
Asia’s less developed cell-phone markets soon became targets. The company launched into Bangladesh’s fledgling sector in 1997 convinced, says Jon Fredrik Baksaas, Telenor’s CEO, that “mobile communications are as important in this kind of society as in Scandinavia.” Once Grameenphone, its business in Bangladesh, was up and running, Telenor sought fresh openings in markets offering rapid growth, and gradually accrued controlling stakes in local Thai and Malaysian operators. When Pakistan invited bids for a license to operate from 2005, Telenor jumped at the chance.
As expansion policies go, it was opportunistic. “From the beginning, we didn’t necessarily look to those four countries that we have today,” says Baksaas. But there’s no denying it’s been fruitful. “Telenor has developed one of the best portfolios of international assets” of all Europe’s major telecom firms, analysts at Citigroup wrote in a recent note. Since Telenor took control of Malaysian operator DiGi in 2001, for example, that business has expanded “from a small, niche player to one of the driving forces in the market,” says Espen Torgersen, telecoms analyst at Carnegie, a Nordic investment bank. Now the third largest cell-phone operator in Malaysia, DiGi’s operating profits grew by a third last year to $454 million; subscriber numbers rose by a fifth to 6.4 million.
Elsewhere, Telenor’s prospects appear even brighter. Subscriber numbers at Grameenphone swelled by 53% last year to 16.5 million, giving the firm half the market. In Pakistan, Telenor’s user numbers more than doubled. Yet fewer than 50% of Pakistanis own a cell phone; in Bangladesh, the rate is even lower.
That leaves Telenor vast potential for expansion in South Asia. Meeting demand in Pakistan, where Telenor is the third largest operator with roughly a fifth of the country’s market, requires adaptability. In rural Sindh province, for example, Telenor Pakistan sells cell-phone credits to women who pass them on to poor neighbors for two cents each; in urban centers, it sells youngsters sms messaging in prepay packages. Targeting a range of customers is bringing rewards. Sales in Pakistan almost tripled last year to $632 million; Tore Johnsen, the Norwegian in charge of Telenor Pakistan, expects that rapid growth to continue in coming years.
But realizing potential in emerging markets doesn’t come cheap. Picking up new subscribers in low-penetration markets like Pakistan means beefing up network capacity and extending coverage into new, often rural, areas. Groundwork like that established across Pakistan and Bangladesh has already cost Telenor some $3 billion in the last three years, according to Handelsbanken. So while “we invest, and grab as much revenue as possible,” says Telenor Pakistan’s Johnsen, “we can’t imagine that we will recover our initial investment any time soon.” Powerful companies like China Mobile have recently joined Telenor in Pakistan, and Egypt’s Orascom is fighting for a share both there and in Bangladesh.
The rough-and-tumble of emerging market politics can pose risks for firms like Telenor. Thailand, Pakistan and Bangladesh have all experienced political turmoil in recent years, but that has posed less trouble than unexpected tax increases. Operators were forced to subsidize a 2005 levy imposed on the sale of SIM cards in Bangladesh, for instance. And in Grameenphone’s case, work with its local partner hasn’t always been straightforward for Telenor. The Norwegian firm owns 62% of Grameenphone, with Grameen Telecom — part of the bank founded by Bangladeshi Nobel Peace Prize winner Muhammad Yunus — owning the rest. Yunus claims the Norwegians reneged on a deal to cede majority control a few years back. Telenor maintains no such agreement ever existed.
Still, Telenor’s reception in Asia has been generally free of controversy. “Norwegians are seen as friendly people,” reckons Sigve Brekke, the Norwegian CEO of Telenor’s Thai operator DTAC, “from a small country far away, which is not seen as a threat.” That perception could ease Telenor’s way into a fresh round of expansion in Asia. “We have a lot to offer in markets where Telenor is not present for the time being,” says Baksaas, with Vietnam, Indonesia and the Philippines all on watch. Back at the firm’s Oslo headquarters, meeting rooms could get even more eclectic.
