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Aircel: Appetite for growth

September 06, 2010
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 While it occupies seventh position in the hierarchy of mobile operators in the country, Aircel's positioning in the southern and north-eastern states remains strong. Its strategies are pragmatic with a keen eye on the future. This is reflected well in the company's bidding strategy in the recently concluded 3G spectrum auction. Aircel won 3G spectrum in 13 of the country's 22 telecom circles, mostly in the states where it holds a leadership position.

In a media statement, Aircel's chief operating officer, Gurdeep Singh, said, “We went into the auctions with the aim of protecting our leadership position in the circles we were strong in, so we concentrated on circles like Tamil Nadu and the Northeast. Once we had those, we looked for corridors of contiguity, where we went for all the southern circles (around Tamil Nadu), and Assam, West Bengal, Bihar and Orissa as these complete the Northeast belt. Once we had bid for Jammu & Kashmir, we went for Punjab and Uttar Pradesh (East) to open a new corridor."

In fact, Aircel's win assures the operator 90 per cent and 91 per cent coverage of its total subscribers and revenues respectively, the highest any service provider was able to manage.

However, like other winning operators, Aircel too had to shell out a huge sum towards the spectrum payment-Rs 65 billion for 3G and Rs 34.38 billion for broadband wireless access (BWA). To pay out this massive sum, Aircel raised Rs 40 billion through commercial papers from Deutsche Bank, Standard Chartered Bank, HSBC and Barclays, and took a Rs 20 billion one-year bridge loan from HSBC, Punjab National Bank and Axis Bank. Its recent tower deal wherein it sold its tower business to GTL Infrastructure for Rs 85 billion also came in handy by providing the necessary funds for acquiring spectrum.

Nevertheless, the company faces stiff competition from the incumbents and new entrants alike. Keeping this in mind, the need of the hour is to develop foresight to stay ahead in the game. Aircel's acquisition of 3G spectrum is a key step towards achieving this goal.

Background

Aircel commenced operations in 1999 and became the leading mobile operator in Tamil Nadu within 18 months. In December 2003, it acquired RPG Cellular, which had operations in the Chennai circle, and very rapidly established itself as the market leader in the circle, a position that it has held ever since. While Aircel has 29 per cent market share in the circle, Bharti Airtel has 23 per cent. Similarly, in Tamil Nadu, it enjoys a market share of 30 per cent.

Originally a part of the Sterling Infotech Group, the company underwent a change in its shareholding pattern in December 2005 with Malaysia-based Maxis Communications buying a 74 per cent stake in Aircel. This is the period when it decided to cast away its regional label and start outward expansion. The idea was to expand operations in order to achieve economies of scale and deal with increasing competition from rivals such as Bharti Airtel, Vodafone Essar and Reliance Communications (RCOM).

With Maxis at the helm, assimilating and charting the future course of the company became a key priority, as did restructuring of the top management to achieve a national-level organisational structure.

Having obtained all the operational licences, Aircel's first foray was in the eastern circles, where it planned to replicate the same degree of success it had in the southern circles. It managed to gain subscribers in Assam and other parts of the Northeast, Orissa, Bihar, Jammu & Kashmir, Himachal Pradesh, West Bengal and Kolkata.

The rollout gained further momentum after additional spectrum was allocated by the Department of Telecommunications (DoT) in 2008 for 13 new circles, Delhi, Mumbai, Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra and Goa, Rajasthan, Punjab, Uttar Pradesh (West and East).

Market position

The one-time regional operator is today operational in 20 of the 22 telecom circles, occupying 6.4 per cent of the mobile market, compared to the 2.88 per cent it held in March 2006. The latest addition to the company's footprint is the Haryana circle, where it is the tenth operator to launch services.

Apart from the Tamil Nadu and Chennai circles, it enjoys market leadership in the Northeast and Assam circles. In Bihar and Orissa too, it is among the top four operators.

Overall, Aircel's growth has been commendable. From a subscriber base of 16 million in 2008, it reached 31 million in 2009, registering a 92 per cent growth. From January 2010 to June 2010, its subscriber base grew by 26 per cent to 41.69 million. In terms of revenue, the company contributed 4.1 per cent to the group's revenue in 2009, up from 2.1 per cent in 2008.

Strategy so far

With India being a significant market for the Maxis Group, accounting for more than half of its total subscriber base, Aircel continues to play a major part in the group's business strategy.

In order to ensure quality and quick rollout of services in the new circles, Aircel has opted for the outsourcing route and has tied up with specialists like Ericsson (for network), Wipro (for IT services) and Oracle Communications (for software).

In order to raise funds for the 3G and BWA spectrum and to focus on its core services, in early 2010, Aircel sold off its tower assets to GTL Infrastructure for Rs 85 billion. Since GTL Infrastructure has a sizeable tower portfolio across circles, it can also cater to Aircel's 3G and BWA requirements in an effective manner. As part of the deal, Aircel transferred 17,500 towers to GTL and committed an additional 21,000 tenancies on GTL's towers in the future.

Compared to several other operators, Aircel has shown considerable speed in tapping the opportunities arising from emerging technologies like Wi-Max and 3G. Following the rapid launch of Wi-Max services in Chennai in October 2006, Aircel has expanded its network to cover over 50 cities, servicing thousands of corporate and other customers. The company believes the initiative will increase its revenue and check churn among existing customers owing to better quality services. The company has also successfully tested the complete range of 3G services in Chennai.

The road ahead

Aircel's biggest asset is its strong financial backing. It has earmarked a total of $10 billion for investments till 2011 as its countrywide capex. The company is likely to complete its nationwide rollout soon, with the lucrative Gujarat circle being next in queue.

However, the fight for market share in these new circles will be tougher for Aircel. This is especially true for circles like Delhi and Mumbai. As Dr Mahesh Uppal, director, ComFirst, notes, “The creamy layer has already been taken away. The company will now need to market its products very aggressively as it is very difficult to churn customers, especially in India."

To an extent, Aircel has managed to differentiate itself, as is reflected in its aggressive marketing strategies and subscriber numbers. In the Delhi circle alone, it has managed to add 1.21 million subscribers within a year of its service launch.

The operator plans to use the 3G spectrum largely to differentiate itself on the basis of value-added services (VAS). In fact, its entire marketing campaign, called "A World of Possibilities", projects Aircel as the first to spread the use of VAS and data. “We believe that by 2012, VAS will contribute 25 per cent of the revenue," says Singh. Moreover, while most other companies will need to arbitrage their 3G spectrum for voice services, Aircel has adequate spectrum to focus largely on data services.

Apart from speeding up its pan-Indian growth, Aircel also plans to strengthen its foray into the enterprise business segment.

The company has a strong appetite for growth, as is evident from the aggressive targets it has set for itself and the punishing pace it maintained last year. Launching services in eight circles in a record 90 days within the first half of 2009, covering all the metros and key corridors is indeed an accomplishment. It aims to increase its market share to 11 per cent in the next three years and take its subscriber base to 100 million. Given Aircel's past record and the size of its current monthly additions, this does not seem unlikely.



 
 
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