UPDATE 3-Telenor starts efficiency drive, keeps India goals

Tue Sep 21, 2010 6:30am EDT

* Global telephony market growing again, led by smartphones

* Sees EBITDA break-even in India around end of 2012

* Cautiously optimistic on Pakistan outlook after floods

* Shares up 3 percent, outpacing peers and Oslo bourse

(Adds more on smartphones, analyst, updates shares)

By Wojciech Moskwa and Joachim Dagenborg

OSLO, Sept 21 (Reuters) - Norwegian group Telenor ASA (TEL.OL) set new targets for improving efficiency by 2013 and affirmed financial guidance for its fledgling India operations, sending its shares higher on Tuesday.

Telenor, one of the world's biggest mobile operators by subscriptions, said the global telephony market has started to pick up in line with economic growth, buoyed by a growing smartphones market which feeds mobile data traffic.

"The most important thing that has happened in the past year is that growth in the industry seems to be back," Chief Executive Jon Fredrik Baksaas told analysts and journalists.

"The driver is the new-generation handset," he said.

Telenor said smartphones on average generated 50-130 megabytes (MB) of mobile data traffic per month, compared to 8 MB for feature phones, lifting average revenue per user (ARPU) as more customers switch to smartphones.

In its most developed Nordic markets, smartphone penetration rose by 8-10 percentage points over the past year to between 19 and 28 percent of the total mobile market.

Telenor said it would balance revenue potential, especially in data, with continued subsidies in the revved-up smartphones sector. It is also looking at opportunities in the tablets division created by Apple's (AAPL.O) iPad this year.

Officials were speaking as Nokia (NOK1V.HE) announced another delay of its smartphone N8 model. [ID:nN20107098]

AFFIRMING INDIA

Shares in Telenor were up 3 percent to 95.8 crowns at 1022 GMT, outpacing a 0.3 percent rise on the STXE 600 Telecom Index .SXKP and a 1 percent rise on Oslo's .OSEBX index.

"There is a hint of higher EBIT margins (in the new guidance)," said Fondsfinans analyst Arild Nysaether.

Telenor said it had identified "significant" potential to improve its operational efficiency and initiated programmes to boost margins in all business units.

It aimed to reduce its operating expenditure to 35 percent of sales by 2013 from 39 percent in 2009, with capital spending down to 10 percent of sales by 2013 from 13 percent last year.

With 184 million subscriptions in 14 countries across the Nordics, central and Eastern Europe and Asia, Telenor late last year launched operations in the crowded India market despite investor concern that the fast-growing Asian market was already crowded and offered little prospects for fatter margins.

Telenor affirmed that its India operations would break even on at a core profit level (earnings before interest, tax, depreciation and amortisation) three years after its launch in late 2009. On the operating cash flow level, break-even would come five years after launch, it said.

It expects seven million active subscribers in India in the third quarter -- up from 3.9 million in the second quarter -- and said it was satisfied with revenue growth there so far in the quarter.

In its capital markets day presentations, Telenor said it aimed to "continue to deliver growth above peers" and "develop Uninor in India according to plan".

The operator said its mobile operations in Pakistan, which has been hit by devastating floods, broke even on an operating cash flow basis in 2009/2010 and that it was cautiously optimistic on the country's overall prospects. It said that by 2013 Telenor aimed to strengthen its No. 2 position on the Pakistani mobile market with 10 percent revenue growth year-on-year, a capex to sales ratio of below 12 percent and an operating cash flow margin of above 25 percent. (Editing by Will Waterman and Michael Shields)

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