By Joachim Dagenborg
ARENDAL, Norway (Reuters) - Norway's Telenor <TEL.OL> will set up a separate business unit to claim a share of the rapidly growing mobile advertising market in Asia, Chief Executive Sigve Brekke told Reuters.
Telecom operators like Telenor are facing challenges to their traditional business as increased data usage has opened the door for digital content providers like Netflix <NFLX.O> and Spotify and messaging companies such as Facebook <FB.O> to capture an increasing share of network revenue.
Telenor aims to fight back by staking a claim to a slice of the mobile ad market that is growing fast, especially in emerging and developing markets where a rise in smartphone sales is giving many consumers access to the internet for the first time.
"A lot of digital players are coming in and taking parts of the value chain," Brekke said in an interview last week. "It's a very demanding situation for mobile players right now and we are forced to make a decision on what we want to do going forward."
Its advertising strategy builds on technology from Tapad, a U.S.-based startup it acquired earlier this year for $360 million, which is designed to place relevant ads as individual users switch between their devices.
"We will try to use Tapad as an entry into mobile advertising as a separate business unit in our Asian growth markets," Brekke said, adding that Telenor "needs to be able to do business in a different way going forward."
Telenor has more than 211 million mobile phone subscribers across Asia, Scandinavia and southeastern Europe. More than 90 percent of those subscribers are in its six Asian markets, including Bangladesh, Pakistan and Thailand.
Global mobile advertising is set to top $100 billion in revenue in 2016, representing around 16.5 percent of all media ad spending, according to a forecast last year by eMarketer.
More mature markets like the United States, China and Britain now account for two-thirds of all mobile ad spending among the top 20 markets, but mobile ad markets in the rest of Asia such as India and Indonesia are at least doubling in size every year, albeit from a far lower spending base, the media research firm projected.
"You can choose to be a 'dumb pipe', a network provider or you can try to take a larger digital position," Brekke said.
Industry-wide, he said he expected annual growth in networks of 1 percent, compared to 20-30 percent in digital.
In addition to the Tapad acquisition, Telenor has started a joint venture with Norway's Schibsted <SBSTA.OL> within online classified ads in Asia and Latin America. It also operates two bank and financial services providers in Serbia and Pakistan.
Digital businesses such as advertising and financial services accounted for just 2 percent of the group's total 2015 revenues of 26.5 billion crowns ($3.22 billion).
"The question is how far you should go into this segment. We will not do as some of our competitors have done and take positions in content like music and video streaming. That is not for us," Brekke said.
However, he did expect the company to make some smaller acquisitions to boost the move into mobile advertising.
"Some of it we can manage ourselves, but sometimes we will also need to acquire competence. These are just small acquisitions. We are not planning any major acquisitions right now," said Brekke.
Telenor is expected to give more details on its future digital strategy at its capital markets day in London on Sept. 22.
($1 = 8.2294 Norwegian crowns)
(Additional reporting by Eric Auchard in Frankfurt; Editing by Adrian Croft)