While most Americans and Europeans have come to take their mobile telephones for granted, in many parts of the world mobile penetration is still quite low thanks to a lack of investment and spotty coverage. That has created huge opportunities for telecom operators, as they’ve pushed into new markets over the past decade.

Unfortunately, though, this trend can also create significant risk for telecom investors, especially if they focus their attentions on nascent local operators who are essentially forced to building their networks from the ground up. Those local telecoms are at risk of running out of capital, may face the prospect of having their assets expropriated and nationalized, or may be victims of questionable accounting and other frauds.

Telenor (OTC: TELNY), the largest telecom operator in Norway with greater market share than its next two competitors combined, largely sidesteps many of those risks.

The company’s operations are spread throughout Europe, including the other Scandinavian countries of Sweden and Demark as well as Hungary, Serbia, Montenegro and Bulgaria.

The company also is one of the largest operators in Thailand, Malaysia, Bangladesh and Pakistan and is making inroads into India. Additionally, the company owns a 33 percent interest in VimpelCom (NSDQ: VIP), giving it a 43 percent voting stake in the telecom. In all, the company currently services more than 161 million subscribers around the world.

What makes Telenor so attractive is the fact that it is the dominant player in Scandinavia and ranks at least second in its other European markets. This advantage creates substantial free cash flows, amounting to NOK7.1 billion in 2013 and NOK5.6 billion in the third quarter of 2013 alone (see cash flow chart below).



Most of that European cash flow is then plowed into growing the company’s Asian businesses, allowing Telenor to grow into a controlling player in the emerging markets where it operates (see revenue mix chart below).



Subscriber revenue growth in Norway, Sweden and Denmark has slowed as those markets have been thoroughly penetrated and have become highly saturated, but Telenor has grown its organic mobile subscription and traffic revenue by 4 percent in the third quarter, as growth in its Asian markets came in at 8 percent alone.

The company’s revenue sank by 3 percent and 13 percent in Sweden and Denmark, respectively, on a year-over-year basis in the third quarter, but organic revenue shot up by 23 percent in India, 10 percent in Bangladesh and 5 percent in Pakistan. The slowest growing nation in Telenor’s book of business was Thailand, with just 1 percent revenue growth as the company invested in launching its new 3G network in the country and began migrating users to new licenses.

Telenor plans to grow this year and beyond in two primary ways.

The first is its goal of “Internet for all.” While mobile data enjoys a greater than 60 percent penetration rate in Norway and Denmark, it is less than 40 percent in Malaysia, Serbia, Thailand and Hungary. As a result, in those markets data usage accounts for only about 20 percent of Telenor’s service revenues.

Part of Telenor’s long-term operating strategy is to acquire spectrum in those markets to improve data coverage and network capacity. It is also introducing affordable, Internet-capable devices in those regions as it grows its data coverage footprint, while offering competitive pricing on data usage bundles that differentiate on volume of usage and speeds.

The company also is working with other industries to develop content and services in ecommerce and mobile banking, as well as video and other entertainment content, primarily in its Asian markets. Moreover, the company is continuing to expand into new markets, having recently been awarded an operating license in Myanmar.

The military junta that ruled Myanmar for decades has been gradually loosening its grip on civil society. The country is by no means a liberal democracy, but growing freedoms are being allowed to its citizens. Many countries, including Denmark, have been helping fund health centers and infrastructure projects in the country for several years and Telenor has benefited from the goodwill that has created.

Less than 10 percent of the country’s 60 million people use mobile devices. Last week, the Myanmar Investment Commission gave Telenor permission to begin operating in the country and authorized 100 percent ownership of any infrastructure it puts into place. The company expects that it will be able to achieve a rapid roll out of service, becoming operational within the next eight months.

Most of the Asian markets in which Telenor operates are occasionally subject to political instability, but the company has an excellent operational track record with relatively few business disruptions, which should translate well into Myanmar. And with solid cash flows from its European operations to back its Asian investments, the company can afford to take some Asian risks.

That has allowed the company to generate average annual revenue growth of between 3 percent and 5 percent over the past several years, outpacing most of its European telecom rivals. It also generates extremely attractive returns on assets and equity of 8.4 percent and 18.9 percent, respectively, more than twice its industry averages.

But due to its operational geographies, the company’s shares are often subjected to a risk discount, with shares currently trading at just 15.5 times trailing 12-month earnings versus a 28.7 percent average for other European telecoms. This represents a great bargain, because the company is forecast to grow earnings by more than 14.2 percent over the next five years.

As with most telecoms, Telenor also pays an attractive dividend, with its American Depositary Receipts (each ADR represents three underlying shares) currently yielding 3.6 percent. The company’s dividend, paid annually in May, has also shown attractive growth and has risen from USD0.85 in 2010 to USD2.588 last year.

Telenor is a buy up to 80.