In our ongoing commentary on 3G, today we will discuss Telenor Pakistan and its chances for upcoming 3G license auction on March 29th, 2012.
Many of you will agree that Telenor Pakistan is hot favorite to get a 3G license, rightly so, for the kind of attitude they have developed over the years, it looks apparent for them to have a 3G license in the auction.
In fact they were first one to think of up grading their network to support 3G. Currently Telenor Pakistan is number two cellular operator in the country, having around or over 28 million subscribers – that’s 5 million short of market leader, Mobilink.
Through off the record interviews, I can tell you that Telenor wouldn’t want 3G auction to happen, that’s like any other operator, but if government manages to throw 3G at operators then Telenor will grab it at any cost. At any cost means “Strictly at any cost”.
Telenor is hoping that highest bid for 3G wouldn’t top $300 million. Anything around $250 million to $270 million will be a fair deal for them. No foreign operator in 3G bidding would be another ideal situation for Telenor.
Along with investment plans, Telenor is also evaluating recent terrorist attacks plus the political instability in the country.
In fact Jon Fredrik Baksaas, CEO, Telenor Group, just recently noted: “Pakistan has a phenomenal underlying growth factor”. However, he said, it’s in a way a pity that a huge flow from the country is dominated by more challenging factors. Mr. Baksaas explicitly mentioned the criminal attacks on Telenor franchises while hoping that security situation will move positively in 2012.
Otherwise Telenor management is contented with its Pakistan’s operations, financial results and the way it is growing. Meaning that they can inject high value of money into Pakistan, however, with given scenario they will keep the pockets tight.
Couple of media reports recently hinted that Indian exit will make it more viable for Telenor to invest in Pakistan. But that’s not the case. Telenor told me that they see Pakistan as a separate business case.
Telenor will invest in Pakistan regardless of what happens in India. But Telenor officials agreed that group is very careful after Indian 2G scandal, and wouldn’t want to be in same situation again, ever.
Issues due to Common Ownership at Parent Groups
Having said this all, a recent development at VimpelCom may entirely change the outcome of 3G auction in Pakistan. According to details, Telenor Group last week bought 234,000,000 VimpelCom preferred shares from Weather Investments to increase its voting rights at VimpelCom from 25.01 percent to 36.36 percent and to become majority stake holder in VimpelCom.
This transaction will translate into a situation where Telenor Group will have significant stakes in Mobilink. How much? let’s find out:
- VimpelCom holds 51.7 percent rights of Orascom Telecom
- Similarly, VimpelCom holds 51.7 percent rights of Mobilink
- Telenor Group holds 31.66 % economic rights and 36.36 percent voting rights in VimpelCom
- or Telenor Group holds 31.66 percent out of of 51.7 percent economic rights of Mobilink
- or Telenor Group holds 16.32 percent economic rights in Mobilink
Not only this, 5 out of 11 directors in VimpelCom comes from Telenor Group.
I am wondering if CCP will get into it at all or they are done after the earlier clearance they gave for the VimpelCom-Orascom merger.
Possible Disqualification for 3G Auction:
Unfortunately, we don’t have a protocol to follow here, as PTA’s Information Memorandum doesn’t clarify if two bidders are having common directors at holding level.
Clause 7.8.1 of PTA’s IM for cellular license auction says:
All bidders must disclose their ownership information in a separate
sheet. No two bidders shall have any common directorship on their
PTA is reportedly in process of looking into matter, i.e. about having common director at holdings. They will of course consult the industry stakeholders to make sure that there’s no conflict of interest or monopoly situation due to to common directors at parent group level.
Just to let you know, Information Memorandum can be updated anytime. Check below clause 11.1 and 11.2 from IM:
PTA reserves the right, in its sole discretion, to take any action, including amendment in this IM, which it considers necessary to ensure that the Auction process is carried out in a fair, open and transparent manner, in accordance with law and discourage collusion and predatory bidding that may block the entry of potential bidders into the bidding process.PTA further reserves the right to modify or terminate the Auction process at any time in its sole discretion. In such an event Bid Earnest Money would be returned to the Bidder within thirty (30) working days without bearing any liability.
I am not saying that Telenor and Mobilink both will get disqualified, but this can be one of potential outcomes due to their common interests at group levels.
A Telenor official told me that Telenor Group and VimpelCom has this understanding that if two operations arise conflict of interest in same market (due to common ownership) then the newer operator will have to quit the market or otherwise newer operator will have to merge into older operator.
Hint of a merger in near future – all speculations, I would say, at this point of time.
Just to let you know, one bidder can buy two 3G licenses.
Time left for 3G auction is too little for all this to get concluded. PTA might need to revise the timeline for 3G auction, which evidently they will, or they can possibly go ahead with auction without disqualified operators.
Let’s wait and see how all this unrolls in coming two months.