OSLO (Reuters) - Norwegian mobile phone operator Telenor ASA (TEL.OL) plans to cut hundreds of jobs in India as part of a cost-cutting drive that some analysts saw as a signal it will stay in the country despite recent regulatory problems.
Telenor, which threatened to exit India after it lost its licenses in an industry-wide corruption probe, plans to reallocate resources to more profitable regions in India and brought forward by a year and a half the break-even point for a unit that has never turned a profit.
“By doing this, we believe that we can make (Indian unit) Uninor self-financing, that means cash-flow break-even, within the end of 2013,” Chief Executive Jon Fredrik Baksaas said. “In the previous business plan, this target was the first half of 2015.”
The firm will lay off 400 employees and the restructuring will also affect 1,600 independent distributors, Telenor said.
However, Telenor - which has more than 150 million subscribers across Europe and Asia - would only take part in a new licensing process, expected in late August, if it stayed within its self-imposed 155 billion Indian rupee ($2.8 billion) funding cap, Baksaas added.
Uninor is among eight carriers set to lose a total 122 zonal permits in September, after a Supreme Court order to revoke all licenses granted in a scandal-tainted 2008 sale.
Still, analysts said the restructuring plans represent a subtle shift in Telenor’s approach, as a restructuring indicates the company is planning for the long haul rather than getting ready to leave.
“We think Telenor’s language signals its intentions at the upcoming auctions,” Nomura said in a note to clients.
“We expect this be well received by investors as it helps to reduce the uncertainty for potential outcomes from the auction process,” Nomura analysts said. “Expectations may even start to rise that India might hit EBITDA break even ahead of plan.”
Analysts at DNB also took Telenor’s message as a plan to stay. “As such Telenor remains committed to India for now, and is likely to partake in the upcoming spectrum auction, focusing on circles (zones) where they are doing relatively well.”
In the second quarter, Telenor picked up 2 million customers in India, a slowdown from earlier as the market saturates, and reduced its EBITDA loss to 625 million crowns from 965 million a year.
Telenor shares were among the top performers on the Oslo bourse .OBX, rising 2.5 percent on the Indian comments and the firm’s plans to buy back around 47 million shares.
Telenor’s second-quarter operating profit rose 32 percent to 4.29 billion crowns, prompting the company to lift shareholder returns as both its European and Asian operations improved.
The firm will buy back shares worth around 4.7 billion crowns ($771.1 million), improving total returns including the dividend to 12.6 billion crowns from 10.7 billion a year earlier.
For the full year, Telenor continues to expect group-wide revenue excluding India to rise in excess of 4 percent, in line with its guidance from three months ago, and still sees its earnings before interest, tax, depreciation and amortization (EBITDA) margin in the 35 to 36 percent range.
(This story has corrected job cut numbers in first paragraph, provides further detail in fourth paragraph after company clarification)
Additional reporting by Devidutta Tripathy in New Delhi; Editing by David Holmes