UPDATE 1-Telenor commits to India as telco scandal grows

Fri Nov 19, 2010 6:24am EST

* Indian regulator seeks to cancel telco licences -source

* Analysts see Telenor remaining in India despite risks

* Telenor shares off 1.5 pct, underperform telco peers

(Adds quotes, analysts, context)

By Wojciech Moskwa and Mikael Holter

OSLO, Nov 19 (Reuters) - Norway's Telenor (TEL.OL) confirmed its commitment to India on Friday, even as a scandal over the awarding of licences roiled India's government and telecoms sector and armed critics of its presence on the subcontinent.

"We are in India to compete and do business. We're definitely part of the mobile game in India," Telenor spokesman Esben Tuman said.

Shares in Telenor and other operators in India were lower on Friday as the scandal deepened over the allocation of telecoms spectrum, which a government audit said may have cost India $31 billion and led to the weekend sacking of Telecoms Minister Andimuthu Raja. [ID:nSGE6AI036]

A source with direct knowledge of the matter said the telecoms regulator had recommended cancelling 38 licences, including eight held by Telenor's Indian operations, because the operators did not meet rollout obligations. [ID:nSGE6AH0IE]

Telenor shares were down 1.5 percent at 92.2 crowns at 0951 GMT, while the STOXX 600 European telecoms index .SXKP was down 0.35 percent.

Tuman said Telenor had not received any official communications regarding any recommendation to cancel the licences held by its joint venture with Unitech (UNTE.BO).

"We have launched operations in 13 circles, and the latest figures show we have 13.5 million customers in India, and we are adding huge (subscriber) numbers each month," Tuman said.

Analysts have long been cool on Telenor's entry into India, a market of fast growth but wafer-thin margins, where few believe the Norwegian company can quickly turn a profit.

Analysts expect Telenor, which has operations throughout emerging Asia, eastern Europe as well as the Nordics, to remain in India for now, as the licences row plays out.

"They're not just going to give up and go home," said John Davies, an analyst at ING, adding that Telenor could be a buyer or a seller in Indian mobile consolidation, which is expected in a year or two.

Davies said: "People were already of the view that it's a difficult market ...(in part) because they're in the hands of government rather than a well understood and objective process. Basically, you're either optimistic on India or you're not."

Telenor has praised its strong market development in India over the third quarter but said it would post an EBITDA loss of 4.5 billion crowns ($775 million) for its India operations in 2010. [ID:nLDE69P0X6]

Analysts said many investors would prefer the Norwegian company simply to pull out of India as soon as possible.

"There is no doubt about that in the financial community. That view (that Telenor should exit India) is the consensus," said DnB NOR Markets analyst Frank Maaoe. (Editing by Will Waterman) ($1=5.804 Norwegian Crown)

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