Telenor and GrameenPhone Joint Venture: Risk and SROI Analysis

Risks for Telenor as an Investor in GrameenPhone

For Telenor, the risks of investing in GrameenPhone were significant from both a financial and operational standpoint, as the costs and scope of the operation could affect the firm over the long term. One significant risk at the corporate culture level was entering a joint venture in a developing nation where the norms, values, and customs of customers were largely unfamiliar to Telenor. Additional risks included the complex process required for gaining a mobile license in Bangladesh, the many requirements and regulations that the Bangladeshi government placed on multinational corporations (MNCs) operating in the country, the threat of tariffs and duties the government could potentially use to restrict the outflow of funds, and the prospect of periodic civil and political unrest.

Why Telenor Proceeded Despite the Risks

Despite these risks, Telenor chose to pursue the joint venture for several compelling reasons. The initial investment required was relatively modest at $40 million. The Bangladesh market represented a significant opportunity, with a potential subscriber base of six million — larger than Norway's entire population. Telenor also recognized the strength of its proposed partner: Grameen Bank, Bangladesh's most widely respected financial institution, and its subsidiary Grameen Telecom, which was well-financed and credible.

Telenor also believed that Corporate Social Responsibility (CSR) programs and initiatives could be commercially successful, which informed its decision to accept the risks associated with the joint venture. In Grameen Telecom, Telenor found an alliance partner that shared the same values regarding CSR as both a corporate objective and a means of accessing new emerging markets in developing nations. The overall risk was further mitigated by the equity structure: Telenor held a 51% majority stake, Grameen Telecom held 35%, Marubeni held 9.5%, and Gonofone Development Corporation held the remaining 4.5%.

Direct and Indirect Benefits of the Joint Venture

Telenor's senior management was justified in pursuing the joint venture, and the results validated their confidence. The direct financial benefits were exceptional: Telenor's investment in GrameenPhone grew to a value of $600 million by 1999 — more than 15 times its original majority equity investment. By 2000, GrameenPhone was generating an annual profit of $14 million, outperforming the original business plan, which had projected only break-even by that year. Total revenue reached $131 million in 2001, with a 39% profitability margin. By 2003, GrameenPhone had created 600 jobs internally and 40,000 jobs externally across 29,000 Bangladeshi villages through the Village Phone Project.

Additional direct benefits included the operational expertise Telenor gained from working in rural, developing-nation environments where infrastructure was still evolving. This experience provided valuable insights into planning future joint ventures and alliances in high-growth emerging markets.

Indirect benefits included greater intelligence about consumer cell phone markets in rural and village settings — knowledge that proved applicable beyond Bangladesh. Partnering with Grameen Bank provided invaluable experience in building profitable businesses at the village level. There were also significant indirect CSR-related benefits: the mobile phone service Telenor and its partners provided became a catalyst for economic growth in rural communities. By participating in the joint venture, Telenor helped create a platform for economic development across the 29,000 villages enrolled in the program.