Telenor's first-quarter numbers should have been a treat for any investor. Up 20% year-on-year, to 4.99 billion Norwegian kroner ($630 million), first-quarter net profit easily beat analyst expectations of NOK3.53 billion ($450 million). Dividend payments to shareholders could total NOK18.6 billion ($2.35 billion) this year, up from just NOK11.3 billion ($1.43 billion) in 2016. "It's a record year in terms of distribution to shareholders," CEO Sigve Brekke told analysts this morning.

Yet the Norwegian operator's share price was trading down 4% in Oslo this afternoon, following the earnings update. Setbacks in India, where Telenor Group (Nasdaq: TELN) is struggling to offload its loss-making Indian business to Bharti Airtel, seem partly to blame. But a Q&A session with analysts also revealed unease about Telenor's cost-cutting strategy and low financial leverage.

Weak growth prospects have spurred Telenor to prioritize efficiency above all else. One in five jobs will go in the next three years because of digitization and automation, the operator said in early 2018. It finished last year with 31,000 workers, down from 37,000 a year earlier, although the planned sale of its Indian business accounts for about 4,000 of those reductions. (See Downsizing Telenor Pins Margin Hopes on Automation.)

Jobs seem bound to go with the opening of a single IT and network delivery center in Asia to replace older facilities. This has already been equipped to support operations in Bangladesh, Malaysia and Myanmar. Telenor hopes it will deliver a 20-30% reduction in annual regional costs of about NOK2.6 billion ($270 million). In Singapore, meanwhile, it has set up a new procurement business that should manage three quarters of external spending by 2020. That seems likely to result in job losses elsewhere, as does the growing customer enthusiasm for new digital tools when upgrading or querying service plans.

The results so far are undeniably impressive. Operating costs in the first quarter were 7% lower than a year earlier. Even though sales fell nearly 2%, to NOK27.6 billion ($3.5 billion), earnings (before interest, tax, depreciation and amortization) were up 7.6%, to NOK11.3 billion ($1.4 billion), rising 10% in "organic" terms, according to Brekke. Telenor has cash to fling at shareholders.

But Goldman Sachs questions whether this is sustainable and points to a "lack of confidence" in the investor community. It frets about the riskiness of cutting marketing and commercial expenditure with sales in decline, and worries that similar cost-saving aggression displayed by Telenor's rivals, including Swedish incumbent Telia, could erode any advantage Telenor might have.

Forced to defend the strategy, Brekke and CFO Jørgen Rostrup insisted that cost savings were not about delivering a short-term boost to profits and would not hinder competitiveness. "These are cost reductions based on procurement, common delivery centers, virtualization, cloud-based IT systems," said Brekke. "We are systematically making the organization more efficient. The machine is starting to work."

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There is, moreover, concern that Telenor is "hoarding cash," as one analyst put it during the operator's Q&A session. Its net debts currently equal about 0.9 times annual EBITDA, while most of its peers in Europe operate at multiples of between two and three. "There will always be different views on what is solid," said Rostrup. "We've said we want to be below two and balance that with attractive shareholder remuneration."

But the gearing also points to some interest in M&A opportunities, should they arise. Telenor has spent 2017 and the early part of 2018 in divestment mode, negotiating the sale of its Indian subsidiary, selling a stake in emerging-markets giant VEON and, most recently, flogging its assets in central and eastern Europe to private equity group PPF. Still active across Scandinavia and in the southern Asian countries of Bangladesh, Malaysia, Myanmar, Pakistan and Thailand, it could benefit from a bigger presence in some markets as it continues to automate operations. "We want to take careful steps into looking at inorganic opportunities in core geographies," said Brekke. (See Telenor Offloads Its CEE Unit for €2.8B, Telenor Eyes Eastern European Exit and Airtel to Acquire Telenor in India.)

Despite the investor unease this week, Telenor's share price is still about a fifth higher than it was this time last year. And in many ways, the company's strategy is a signpost for other operators with lackluster growth prospects and a legacy burden. Of 17 Tier 1 operators examined by Light Reading, Telenor saw the biggest percentage increase in revenues per employee last year, with the figure up 13.4%, to more than NOK4 billion ($510,000, at today's exchange rate). That should be an encouraging indicator for shareholders, even if it is a troubling one for staff. (See Efficiency Drive by Major Telcos Has Claimed 74K Jobs Since 2015.)

— Iain Morris, International Editor, Light Reading