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Aircel: Strategies for survival

November 30, 2012
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The world’s fastest growing mobile market has lost some of its sheen in the past few years. The 2G spectrum scam in 2010 and regulatory uncertainty have put paid to the business plans of many telecom operators. Aircel, the Indian arm of leading Malaysian telecom operator Maxis Berhad, has, like its peers, been weighed down by policy and regulatory uncertainty, apart from facing a heavy debt burden. This has inhibited the operator from making additional investments in its 2G and 3G networks.

In light of severe margin pressures, Aircel is looking for ways to cut costs. It plans to prune its operations in five circles – Madhya Pradesh, Gujarat, Haryana, Rajasthan and Punjab – and reallocate its resources to more profitable zones.

However, it does not plan to shut down operations completely in any circle. It is in the process of revamping its business model to reduce the cost to serve without compromising on customer service or network experience. This step was necessitated in the backdrop of the telecom industry facing severe margin pressures as the voice market is maturing.  Also, the data segment is still at a nascent stage. Moreover, operational costs for new players are prohibitive.

Recently, Aircel announced its plans to opt out of the 2G spectrum auction. “This is a reluctant decision on Aircel’s part. Given the full cost-benefit analysis of the decision, more spectrum would have certainly helped coverage and increased flexibility for the operator. However, the price of the spectrum was not good value for money,” observes Dr Mahesh Uppal, director, ComFirst.

Market position

Prior to 2010, Aircel had shown strong growth. Riding on an aggressive branding exercise, the one-time regional player steadily expanded its operations to become the seventh largest operator in the country.

In 2011, however, it started maintaining a low profile after having come under the scanner for alleged involvement in the 2G spectrum scam. Despite this, it has kept up the momentum on the operational front. Last year, it rolled out 3G services in all the 13 circles where it won licences.

In recent months, Aircel has stepped up its growth impetus by announcing aggressive tariff packages to attract new customers. Its business strategy aims to establish itself as a mobile internet company and position itself as a youth brand, offering voice and data services at affordable prices. For instance, its youth-centric pack called Pocket Buddies offers unlimited surfing and texting at competitive prices and is a big hit with college students. The company has also introduced the Aircel Student Ambassadors Programme, a 30-day internship programme wherein students are required to promote the Aircel brand and, in turn, get a chance to enrol for the prestigious Harvard Manage Mentor Program.

Aircel has also introduced several prepaid and post-paid plans – priced between Rs 24 and Rs 159 and offering 600 to 6,000 free SMSs – which have been a major draw. These packs also offer unlimited data use at 2G speeds.

The efforts are paying off. As of September 2012, Aircel’s subscriber base stood at 66.6 million. According to the Telecom Regulatory Authority of India, Aircel registered the second highest number of new subscribers in August 2012. It added more than 7.9 million subscribers, an increase of 1.22 per cent over its July 2012 figures.

3G services

Aircel offers 3G services in 13 circles. These are Tamil Nadu, Karnataka, Andhra Pradesh, Kolkata, West Bengal, Uttar Pradesh (East), Assam, Northeast, Odisha, Kerala, Jammu & Kashmir, Punjab and Bihar. However, with the slow uptake of these services, the company has slashed its 3G tariffs significantly apart from introducing innovative products like the 3G dongle value pack, Pocket Buddies and the full talktime prepaid pack.

Today, Aircel is the only operator to offer unlimited data usage. For instance, it provides five PocketInternet cards in the range of Rs 5 to Rs 251, where subscribers can avail of free data usage.

Aircel also provides bundled offers comprising handsets and attractive voice and tariff data plans. It has tie-ups with vendors like Nokia, Sony, Samsung, BlackBerry, G-Fone, Philips, Huawei and INQ. For instance, it offers the iPhone 3GS for Rs 9,999 bundled with voice and data services worth Rs 3,000.

Data focus

Having established itself as a youth brand, Aircel continues to focus on data-centric services. It has established about 50,000 Wi-Fi hotspots across the country, the idea being to leverage its Wi-Fi network once 3G service uptake improves and broadband wireless access (BWA) roll-outs gain traction. With an increasing number of subscribers opting for 3G services, Aircel wants to decongest its network by offloading the data traffic on to its Wi-Fi networks.

In June 2012, Aircel became one of the 30 operators globally to announce plans to undertake trials for Wi-Fi hotspot technology with a view to undertake commercial deployments in early 2013. With BWA spectrum in eight circles, the operator also plans to conduct long term evolution-time division duplex trials with vendors and launch services by early 2013.

Recent initiatives

In October 2012, in order to leverage the growing demand for cloud services, Aircel tied up with NEC to power its cloud computing initiatives, called Business Unplugged. These initiatives are targeted at large, small and medium enterprises, and PSUs across various industry verticals. As part of the partnership, Aircel will be responsible for managing end-to-end customer relationships, including presales and sales engagements, and billing and contractual relationships while NEC will provide the Cloud Aggregation Platform along with  various cloud offerings.

In November 2011, the operator entered into a data centre partnership with Tulip Telecom to build a portfolio of services for corporate customers.

Future outlook

According to analysts, Aircel’s key advantage vis-à-vis newer players is its experience in the southern region, where it continues to have a significant presence. Also, compared to the incumbents, it rolled out its pan-Indian network only in 2010 and, therefore, did not have to face the risks they did while entering virgin markets.

However, being a late entrant it did lose out on the lucrative customer segment. “Aircel is clearly not amongst the top four or five operators in the country in terms of subscriber numbers or revenue. It has, moreover, had its share of controversies relating to its reported move to sell a major stake. That said, Aircel is a forward-looking player and one of the few to have taken the data business seriously,” Uppal says.

Analysts also believe that given the controversies surrounding  the company, it is likely to be less aggressive with regard to its business strategies in the future, which would hit growth. Signs of this are already visible. Aircel, which registered a 44 per cent growth in subscriber numbers in 2010, registered a mere 7.26 per cent growth from March 2011 to August 2012.

Despite new launches and an aggressive marketing strategy, the operator is ranked seventh, ahead only of Uninor, MTS and Mahanagar Telephone Nigam Limited, with a market share of 7.35 per cent as of August, 2012. Also, Aircel faces stiff competition from leading players like Bharti Airtel, Reliance Communications and Idea Cellular in the data service segment. In comparison to the extended 3G networks of these players, Aircel has rolled out 3G networks in only 80 cities.

According to market experts, Aircel is a likely candidate for a merger/acquisition. Recent reports about Sistema Shyam TeleServices Limited (SSTL) considering buying a majority stake in Aircel are, therefore, not surprising. SSTL has reportedly appointed Barclays and Standard Chartered Bank as its advisers. The fact that SSTL has decided not to participate in the 2G spectrum auction, and with its licences to be cancelled in early 2013 as per the Supreme Court directive, only reinforces the possibility of SSTL striking a deal with Aircel.

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