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Aircel: Data offers growth opportunities but several challenges remain

March 08, 2016
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The going has been tough for Maxis Communications-led Aircel in India, particularly over the past few years. The operator has struggled to hold its own in the face of growing competition, the saturating voice market and shrinking margins. This situation can partly be attributed to the attention that has been diverted towards the litigation surrounding the Aircel-Maxis deal and the company’s alleged involvement in the 2G scam. Both these matters have had a serious bearing on its operations, market position, finances and credibility.

Aircel, just like its peers, had turned to the data segment in the hopes of achieving a turnaround, shelling out a massive amount to acquire 3G spectrum in 13 circles and broadband wireless access (BWA) spectrum in eight circles. However, the initially tepid response to 3G services in India and the under-developed BWA ecosystem did little good for its business. Nevertheless, Aircel has continued offering innovative data plans at affordable rates in a bid to encourage higher data usage.

Its efforts have finally started paying off, as can be seen from the enhanced data usage recorded on its networks in 2015. Mobile data consumption grew by 65 per cent between 2014 and 2015, translating into a data revenue growth of about 60 per cent during this period. Meanwhile, its 3G subscriber base grew by 167 per cent, resulting in a 104 per cent growth in 3G revenues.

Data brings hope

The growing appetite of Indians for affordable data services, along with Aircel’s innovative offerings in the segment, has helped the operator in a big way. Its “Be Online with Aircel” umbrella initiative, which aims to boost mobile internet penetration, has found many takers. Under this initiative, Aircel offers free basic internet usage and unlimited 3G access for as little as Rs 9 per day. The strategy is to encourage first-time users to come on board and get an internet experience in the hope that they eventually become frequent users. Aircel has also introduced a 1 GB for all mobile internet service pack for prepaid customers, with its validity changing according to customer usage patterns.

In a press release, Sunil Kuttam, vice-president, marketing at Aircel, said, “Aircel is taking the lead in the mobile internet space with renewed energy and vigour with its ‘Be Online with Aircel’ initiative. Data consumption by Aircel customers has seen a dramatic rise; our unmatched offerings helped Aircel record significant data revenue and consumption growth in 2015. With the new, attractive mass campaign that appeals to all to ‘Be Online with Aircel’, we aim to continue driving a much sharper rise this year to take data to the next level of growth and acceptance in India.”

A drastic transformation in user preference towards high-speed services can be seen in the industry, which will fare well for Aircel. Smartphone adoption has been on the rise, providing significant opportunities to allow more users to connect to internet. Smartphone adoption on the Aircel network went up by 61 per cent in 2015.

Aircel is also leveraging the opportunities arising from emerging technologies like Wi-Fi. It currently has a network of over 50,000 Wi-Fi hotspots, helping it ease network congestion as 3G and 4G services gain traction. It joined the 4G bandwagon in 2015, becoming the second operator after Bharti Airtel to offer 4G services in the country. However, by the end of 2015, Idea Cellular as well as Vodafone India had launched 4G, which added to the competition in the segment and dented Aircel’s plans to some extent.

In addition, the operator is focusing on enterprise customers and the smart homes segment for clocking higher revenues. It claims to have been registering an increasing trend of 3G to 4G upgrades as enterprises attempt to make their networks and IT set-ups future-ready. In such a scenario, working closely with an enterprise’s IT department to formulate a digitisation strategy is turning out to be a successful move. Aircel has launched commercial 4G services in six of its eight enterprise circles where it holds 4G spectrum. It is also planning to come up with a portal that will act as a platform for developers to collaborate directly with enterprises and explore business opportunities.

In October 2015, Aircel partnered with Telenet Systems for using the latter’s indigenously manufactured customer premises equipment (CPE) for offering 4G/long term evolution (LTE) services to home and enterprise customers. The CPE is powered by a single-mode LTE chipset from Sequans Communications. Outdoor CPEs are generally installed on rooftops to connect with an operator’s high-speed data network for providing indoor broadband service.

Aircel recently partnered with Gramin Healthcare to launch a primary care health helpline, Gramin Healthcare Line, with the aim of servicing rural and semi-urban customers in Odisha.

Continuing challenges

While the surge in data uptake across the industry promises higher revenues for all operators, the real benefits will be reaped by those in a stable position in terms of competition and finances. Unfortunately, both these aspects are grey areas for Aircel.

The operator is currently at fifth position in the wireless pecking order. With a subscriber base of 85.02 million, it holds an 8.42 per cent share in the market. In contrast, Bharti Airtel, Vodafone India, Idea Cellular, etc. are way ahead in the wireless race with respective market shares of 23.85 per cent, 19.02 per cent and 16.91 per cent. Meanwhile, Aircel’s 4G spectrum in its current licensed circles overlaps with that of at least one of the incumbents, weakening its 4G business case. Competing with incumbents for new 4G customers in circles where they already have a strong 2G/3G foothold will be a herculean task.

One way of surviving the competition is to look for synergies with other operators. The government’s recent approval of spectrum trading and sharing norms is conducive to consolidation in the sector. In this regard, Aircel has been approached by Reliance Communications (RCOM), another debt-laden operator looking for a major turnaround, suggesting a merger of their operations. In December 2015, RCOM entered into 90-day exclusive talks with Aircel’s shareholders to consider merging the wireless businesses of the two operators. This will result in the formation of India’s fourth-largest operator after Airtel, Vodafone and Idea Cellular.

However, Aircel’s poor financial credentials are playing spoilsport in this plan. The company’s debt is estimated at Rs 200 billion as of end-December 2015. During the March 2015 spectrum auction, Aircel, along with Tata Teleservices Limited, was disqualified from bidding for new airwaves as both companies had a negative net worth of Rs 66.69 billion and Rs 71.92 billion respectively. Aircel was disqualified from bidding in bands where it did not have spectrum.

The Aircel-RCOM merger is subject to the condition that both parties reduce their debt to less than Rs 100 billion each. With RCOM’s net debt standing at Rs 390 billion at the end of December 2015, this condition is unlikely to be met, unless RCOM sells its tower assets and Aircel parts with some of its spectrum holdings.

At this point in time, when all players are aiming to enter the 4G segment, Aircel’s holdings in the 2,300 MHz band (acquired in the 2010 spectrum auction) are the most lucrative and sought after. Bharti Airtel has reportedly shown interest in buying these airwaves for Rs 38 billion, but has delayed its decision till the conclusion of the upcoming spectrum auction. The current rules do not permit a single company to own more than 25 per cent of spectrum in a circle. Airtel has already reached this limit in the Odisha and Andhra Pradesh circles after buying Qualcomm’s 4G airwaves. Thus, the Aircel-RCOM merger talks are likely to be postponed till after the spectrum auction.

Outlook

Going forward, Aircel will have to design strategies that will not only help it survive the hyper-competition in the Indian market, but also promise growth and opportunities. Aggressive marketing plans and innovative offerings will pay dividends in the long run, but the need of the hour is to forge strong business partnerships to achieve financial stability and survive the impending 4G war.

 
 
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