How Not to Partner in India

The Norwegian telecommunication firm, Telenor, has been in the news recently as it tries to sell its Indian joint venture with property developer, Unitech Ltd. The partners' 2G wireless venture, Unitech Wireless (67% held by Telenor; 33% by Unitech), has struggled since the Indian Supreme Court threatened to cancel several telecom licenses earlier this year, on the grounds of corruption in allotting licenses in 2008.

While Unitech Wireless may bid for new spectrum licenses in India this fall, Telenor might prefer to shut it down if spectrum prices are too high. In the interim, Telenor wants to auction the unit in order to establish its market value. Unitech Ltd. strongly disagrees with putting the venture up for bid, claiming that Telenor is trying to take over the venture through another Indian affiliate.

Public discussion of the dispute has focused on implementation problems in the alliance: conflict among the two partners' appointees on the board of the joint venture, differences about the value of the joint venture, lack of detail in the original contract, and disagreement about the responsibility of the former managing director, who was arrested amidst alleged involvement in licensing irregularities.

Certainly, these implementation problems are real, but the underlying problem is not implementation. The real issue is that Unitech was the wrong partner for Telenor. The Indian firm — primarily a property developer — had limited experience in the telecom sector even though it had bid for and won spectrum licenses in 2008.

Of course, Telenor needed a partner if it wanted to offer telecom services in India, because Indian law allows a maximum 74% foreign holding in telecom services, and since Unitech had won the spectrum licenses, a joint venture made sense on the face of it. The venture got off to a good start. Through its "Uninor" brand the alliance acquired more than 35 million subscribers and more than 15,000 employees, providing services over more than half of the subcontinent.

But the very scope of the initial growth exacerbated the challenges. Even before the Supreme Court's judgement earlier this year about licensing irregularities, the partners were struggling to give clear direction to the partnership. The two firms have faced strong debates about changes to investment responsibilities, geographic strategy, target markets, pricing strategy, relationships with infrastructure providers, and many other key elements of the business model.

Bottom line, the capability gap between the two firms was simply too great for a joint venture to work. Given Unitech's limited experience in mobile telephony, Telenor staff needed first hand engagement with the Indian firm's personnel in a wide-ranging set of activities: negotiating refinements to the telecom licenses, creating technical and marketing organizations, creating relationships with infrastructure partners, developing and adjusting a marketing and pricing strategy, and building a management team. This level of engagement placed too many stresses on the Uninor partners.

Clearly, India is an attractive telecommunications market for international players. The market is huge and growing, and there is increasing (though fluctuating) political willingness to allow foreign investment. In turn, foreign entry requires a local partner.

But any joint venture deal needs to make sense as a partnership. The most successful foreign players will be those either with enough experience in India to be able to take the lead in creating the business there, creating a partnership that requires only focused involvement by their local partner, or those who ally with experienced Indian firms, requiring only focused involvement by the foreign firm. The Uninor type case — one firm with limited experience in India and the other with limited experience in telecom, requiring both partners to attempt to cover too much ground, too quickly — is a recipe for failure.

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