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Aircel: Counting on data services

Company Stories , December 31, 2011

After setting a brisk pace in 2010, Aircel slowed down to a quiet clip this year. If 2010 was marked by aggressive service rollouts, bidding for 3G and broadband wireless access (BWA) licences, and visible media campaigns (“Save Our Tigers”), 2011 saw the company, like many of its peers, maintain a deliberately low profile.

The low profile is not surprising. In early 2011, the company came under the Central Bureau of Investigation (CBI) scanner for alleged involvement in the 2G spectrum issue –  with former telecom minister Dayanidhi Maran being probed for his role in “forcing” Aircel’s promoter C. Sivasankaran to sell his stake in the company to the Malaysia-based Maxis Group in 2005. The matter is still under investigation.

But apart from these issues, it has been business as usual for Aircel. In early 2011, the company completed 3G service rollout in almost all its circles on schedule. This year, it has also signed some key deals, undergone major business restructuring and partnered with handset manufacturers for offering services. The operator has selected long term evolution (LTE) as the technology platform for BWA services.

Current status

A 74:26 joint venture between Maxis Communications Berhad and the India-based Apollo Hospitals Group, Aircel had a subscriber base of 60.28 million as of October 2011.

The company has a long way ahead in terms of subscribers. It trails Bharti Airtel (173.73 million users), Reliance Communications (148.12 million), Vodafone Essar (145.92 million), Idea Cellular (101.82 million), Bharat Sanchar Nigam Limited (96.19 million) and Tata Teleservices Limited (TTSL) (87.84 million).

“However, given that the company was a regional player, operating mostly in the southern circles till 2006, the way it has established a pan-Indian presence is commendable,” observes a senior analyst from KPMG.

3G initiative

In 2010, Aircel bid for 3G licences in 13 circles, which constituted around 90 per cent of its subscriber and revenue base. The operator then partnered with three companies – Nokia Siemens Networks, ZTE and Ericsson – for rolling out 3G networks across the country.

In February 2011, Aircel launched 3G services in the Chennai and Tamil Nadu circles, followed by service rollout in all its licensed service areas.

For a pan-Indian 3G footprint, the operator has signed intra-circle roaming agreements. It has tied up with TATA DOCOMO in the Maharashtra and Goa, Gujarat, Haryana, Uttar Pradesh (West), Rajasthan, and Madhya Pradesh and Chhattisgarh circles. However, the recent announcement by the Department of Telecommunications (DoT) and the Telecom Regulatory Authority of India  that intra-circle roaming agreements are illegal has put a spanner in the operator’s 3G roaming arrangements.

Nonetheless, the company is confident about the uptake of 3G services. Over the next three years, it intends to spend $3 billion in deploying infrastructure across the 13 licensed circles.

The company believes that data-enabled 3G services will drive sector growth in the future. Moreover, data service demand will be largely youth driven. In line with this, Aircel has tied up with Infosys for developing an indigenous mobile application store. Its users can browse and download applications related to health, finance, entertainment and other utility services on a platform called flypp.

Aircel has kept the pricing of 3G services competitive. The cheapest 3G package is available for Rs 7 and offers 8 MB of data usage with a one-day validity. Usage beyond the limit is charged at Re 0.03 per 10 kB. Monthly tariffs start from Rs 92 with free data usage worth 100 MB at a speed of 3.6 Mbps. Currently, the most expensive plan is priced at Rs 975 per month, which offers free data usage of up to 25,000 MB at a speed of 7.2 Mbps. Aircel also offers unlimited 3G data downloads to its data card subscribers at Rs 1,275 per month.

Wi-Fi hotspots

Aircel is the only operator to launch Wi-Fi hotspots across the country. In February 2011, the service provider rolled out 50,000 Wi-Fi hotspots. This service is available at much lower prices than those charged by cybercafes. Aircel is offering hourly, daily and monthly broadband plans for Rs 15, Rs 25 and Rs 249 respectively.

While operators like TTSL and RCOM are focusing mostly on data cards for broadband connectivity, analysts believe that Aircel’s Wi-Fi strategy will be more successful going forward.

This is largely because experience shows that data card connectivity is not very reliable and data cards do not work in some areas. Wi-Fi has an advantage in this regard. Besides, as more and more subscribers sign up for mobile broadband, there is a high possibility of networks getting jammed, as has been the case with AT&T in the US. Therefore, it makes sense for the operator to divert some of its traffic to Wi-Fi networks. Aircel will stand to gain as its 3G service uptake picks up and after BWA rollout. Moreover, the operator expects that with the increase in the number of smartphone users, there will be a need for Wi-Fi to offload the traffic generated by the use of these devices.

Other initiatives

To improve efficiency and consolidate its overall operations, in September 2011, Aircel undertook a major restructuring of its business. It aligned all major business functions into two divisions – operations and network. While the former includes the operator’s go-to-market strategy, branding exercise and subscriber additions, the latter comprises its active infrastructure.

In the past few months, Aircel has also been signing deals to strengthen its telecom business. It has entered into a data centre partnership with Tulip Telecom to build a portfolio of services for corporate customers. This is in line with the operator’s plan of increasing the share of enterprise data revenues in total revenues from 5 per cent in 2010-11 to about 10 per cent by 2013. The company is also looking to offer global roaming packages that will substantially reduce call tariffs for enterprises.

On the handset front, Aircel has partnered with Canada-based Research In Motion to offer unlimited access to BlackBerry services on purchase of the Bold 9790. The operator has also tied up with Huawei to bundle its services with the latter’s devices that are available in India, the MediaPad tablet and two Android-based smartphones. Moreover, the operator has partnered with Olive Telecom to offer services on the latter’s Android-based smartphones.

Recently, Aircel launched services on the iPhone 4GS in the country, following the successful service rollout of the iPhone 4 in May 2011.

Issues and challenges

While the company has taken major strides in terms of operational expansion, it has been facing regulatory challenges. Earlier this year, the operator came under the DoT scanner for its complex equity structure and possible violation of foreign direct investment rules. DoT has also served notices to Aircel for delayed service rollout in some circles. As per the unified access service licence conditions, operators are required to rollout networks within a year from the date of spectrum allocation. The company reportedly failed to meet this requirement.

Recently, DoT released a list of operators that are likely to be penalised for delayed service rollout in rural areas under the Shared Mobile Infrastructure Scheme, which is subsidised by the Universal Service Obligation (USO) Fund. Aircel is among the seven operators facing a possible forfeiture of their liquidated damage charges and bank guarantees. So far, the company has operationalised 914 of the targeted 1,267 sites, which represents a shortfall of around 27 per cent. Apart from imposing penalties, DoT is looking to prevent such operators from participating in any future rural telephony projects supported by the USO Fund.

“Currently, the company is distracted by the allegations related to the change of facts. Also, it is not easy being number six or seven in the market. If an operator is not among the top few service providers, by definition, the majority of customers comprise new connections,” says Dr Mahesh Uppal, director, ComFirst.

The way forward

“Going ahead, the company will, therefore, need to focus on generating revenues. Although the market is tough for data, the margins from this segment are better as compared to voice,” says Uppal. Aircel is aware of this and is focusing on the launch of BWA services. The launch plan is in sync with that of key BWA licensees, which are aiming to commence long term evolution-time division duplex (LTE TDD) services by mid-2012. The operator, which has BWA licences in eight circles, was one of the six players to win BWA spectrum in 2010. Aircel has already conducted technology trials with several vendors for BWA network launch.

To improve its brand image and provide a fillip to its marketing initiatives, the operator is likely to spend around Rs 1.8 billion in 2012, with 85-90 per cent of this allocated for television and digital marketing initiatives. The company has appointed the Starcom MediaVest Group (SMG) and Mudra Max to manage its media functions. SMG is responsible for the television and digital functions, while Mudra Max will focus on the print and radio functions.

Net, net, Aircel is among the faster growing mobile companies in the country. Going forward, the successful launch of BWA services will strengthen its position by providing a suite of voice, data and broadband services and opening up new revenue streams.

 
 

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