UPDATE 2-Telenor to invest $3.2 bln in India venture

* To launch Indian mobile services in Q3

* To invest $3.2 bln in JV over 5 years

* Analysts sceptical: say JV too risky, ARPU view too upbeat

* Telenor targets winning 8 pct of Indian mobile market

* Shares down 2.8 pct in rising market

(Adds details, quotes, shares)

By Wojciech Moskwa and Joergen Frich

OSLO, Feb 13 (Reuters) - Norway's Telenor ASA TEL.OL plans to launch mobile services in India in the third quarter and invest 22 billion crowns ($3.2 billion) in the controversial venture until its expected operational breakeven in five years.

Analysts have criticised Telenor’s plans, saying they would rather see it continue to pay dividends from existing operations than enter an already crowded Indian mobile market -- the world’s second biggest.

Telenor has remained steadfast, however, believing its experience in Asia, where it is the second-largest foreign operator after Vodafone VOD.L, will help it quickly gain market share as India's mobile penetration rates double over the next 3-4 years.

Shares in Telenor had slumped 2.3 percent to 41.70 crowns by 1608 GMT on Friday, lagging a 1.6 percent rise on the DJ Stoxx Telecom Index .SXKP.

“It would be difficult to be even more negative,” said Espen Torgersen, analyst at brokers Carnegie in Oslo. “Telenor is running too much risk here.”

Scepticism by analysts and some shareholders had forced Telenor to scrap plans to finance the venture through a share issue. Instead, it will be funded by its own funds, new debt and retained dividends, the company says.

Telenor said it would inject 8.7 billion crowns in new equity into India’s Unitech Wireless in 2009, raising its stake to between 54.3 and 60 percent in the third quarter.

Unitech Wireless is part of realty group Unitech UNTE.BO, which is currently undergoing debt restructuring needed for it to carry out its share of the mobile investment.

“We are of course aware of the fact that we are putting a lot of strain on investors in this period,” Chief Executive Jon Fredrik Baksaas told a news conference. “For us this is a long-term project. The low penetration rate attracts us.”

THE CASE FOR INDIA Telenor said 800 million people in India were without mobile phones, creating “the world’s largest untapped market” where per capita GDP was expected to grow by 80 percent by 2014.

India’s mobile penetration, now at 31 percent, was below China’s 47 percent and 33 percent in neighbouring Bangladesh.

A mobile tower-sharing agreement will cut Telenor’s capex by 75 percent compared to an “own built” model, and enable it to give 60 percent of India’s population coverage after a year.

Telenor said intense competition between India's eight operators, including leaders Bharti Airtel BRTI.BO, Reliance Communications Ltd RLCM.BO and Vodafone -- who jointly control a 56 percent market share -- would keep prices from dropping.

“I am not really concerned about further price drops in a market where churn rates are so high,” Telenor’s Asia chief, Sigve Brekke, said, referring to low customer loyalty in the fast developing market where clients frequently switch operators.

“If operators sharply cut prices they run the risk of hurting their own market shares and customers throwing away SIM cards to buy new ones,” he said.

Telenor said it was targeting an 8 percent pan-Indian market share and average revenue per user (ARPU) in line with rivals.

It targeted breakeven at the EBITDA (earnings before interest, tax, depreciation and amortisation) level three years from launch and on the operating cash flow level in five years.

The venture’s long-term goals include 30 percent EBITDA margin and 20 pct operating cash flow margin.

A slide presented by Telenor showed ARPU dipping in 2009 before gently rising over the foreseeable future -- a view disputed by some analysts who expect Indian mobile prices to continue to fall as new entrants join a crowded market.

Telenor shares are down 30 percent since it first announced its India venture in October, but Baksaas said that the present gloomy market sentiment was not a good yardstick for India.

“There is a future here that goes beyond the present valuation parameters,” said Baksaas. “We have optimism.” ($1=6.802 Norwegian Crown) (Editing by Simon Jessop)