A leading mobile service provider in the amil Nadu and Chennai circles since 999, Aircel decided to cast away its regional label and gain a pan-Indian presence. 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.
The company’s ambitious plans were based on the expertise and financial muscle of its majority stakeholder, Malaysia’s Maxis Communications. Maxis bought 74 per cent stake in Aircel in 2006.
Aircel’s carefully drafted revamp plans gained momentum over 2007. The results are visible in the change in the company’s positioning and strategies. As a result of the new approach, the company’s market share increased from 2.88 per cent in March 2006 to 4.1 per cent in February 2008.
Aircel is currently pulling out all the stops to increase its presence in the rapidly growing telecom industry. “What took 10 years to build will now be done in a year through our existing operations,” claims Sandip Das, chief executive officer (CEO), Maxis Communications. The company has earmarked $3.5-4 billion as investment over the next 24 months. “We are looking forward to completing our metro picture as well as contiguous areas, states and circles that are still underpenetrated,” adds Das.
Going pan-Indian
Currently operating in nine circles, Aircel has recently been granted start-up spectrum for 13 more circles. The company has set a target to go pan-Indian by mid-2010. Before that, by end-2008, it is looking to cover 60 per cent of the population, compared to the current 23 per cent. This year, the company intends to launch operations in four to six new telecom circles, starting with Kolkata (where operations are slated to begin in the second quarter of 2008), Delhi and Mumbai. It is considering launching operations in Uttar Pradesh as well. Also on the agenda is doubling its current tower portfolio of over 6,000 towers by end-2008.
Regarding the financial arrangements for the expansion, Aircel’s executive director Rohit Chandra says, “The company’s annual investment plans are made and have been approved by the board. The funding required to roll out services in the new circles is all in place.” The funding options include bank loans and an initial public offering. Recently, a State Bank of India (SBI)-led syndicate of seven banks raised a $1 billion, one-year loan for Aircel. SBI provided $287.5 million, IDBI Bank provided $250 million, Allahabad Bank and Indian Overseas Bank committed $125 million each, United Bank of India provided $87.5 million, and Indian Bank and State Bank of Patiala provided $62.5 million each.
For quick rollout of services in the new circles, Aircel has opted for the outsourcing route and has tied up with specialists. In February 2008, it signed a three-year managed services hosting agreement with Ericsson, according to which Ericsson has the end-to-end responsibility of providing Aircel with consumer push e-mail service, including systems integration, management, operations and maintenance. In January 2008, the company awarded a nineyear next-generation network (NGN) outsourcing contract to Wipro. Under the contract, Wipro will deliver next-generation business transformation through business-IT alignment, implement a futureready IT architecture in accordance with industry standards, and deploy global best practices and tools to sustain comprehensive IT operations.
A major brand promotion exercise is also under way. However, the company has clarified that it will not be using the Maxis brand name. According to Chandra, “Aircel has an identity and a personality and we want to build on that. We do not see a reason to change the brand.” While the company is not planning to go in for rebranding, it does intend to build brand visibility. To spruce up its image, Aircel has appointed Wham, an international design firm and Pune’s Elephant Design to design its retail outlets.
Current performance
The company’s emphasis on expansion has not compromised its focus on its current operational circles. Traditionally strong in the Tamil Nadu and Chennai circles, with 28 per cent and 26.4 per cent market share respectively as of February 2008, Aircel recently caught the attention of industry observers through its performance in the Assam and Northeast circles. In Assam, the company crossed the 1 million subscriber mark in January 2008, translating into a market share of over 30 per cent in just two years of launching operations. The company plans to strengthen its lead in the Assam circle by increasing the number of base transceiver stations to 1,200, covering 375 towns by the end of 2008-09.
In the Northeast circle, Aircel was at the number two position with a subscriber base of 570,978 as of February 2008, slightly below Bharat Sanchar Nigam Limited, which had 588,509 subscribers.
On the basis of gross revenues, the Tamil Nadu and Pondicherry circle contributed the highest amount at Rs 11.2 billion for the year ended December 2007, followed by the Chennai and Assam circles at Rs 5.7 billion and Rs 2.08 billion respectively.
With competition set to intensify following the entry of new players, Aircel officials expect another tariff war, which will put pressure on already low telecom ARPUs. To counter this, the company is planning to enhance its value-added service offerings, including music and the internet, using Maxis’s expertise in this area.
Diversification
Compared to other operators, Aircel has shown considerable speed in tapping the opportunities arising from emerging technologies like Wi-Max and 3G. As of March 2008, the company offers Wi-Max services in 31 cities to over 1,000 corporate customers.
It has successfully tested a complete range of 3G services in Chennai. According to a company official, “Aircel will gain a huge competitive edge if it was to enter mature markets like Delhi or Mumbai with 3G rather than 2G.” High speed downlink packet access (HSDPA)based services such as large-volume downloads of business data and online movie streaming (at 3.3 Mbps speed) have also been tested using both handsets and computers connected to HSDPA modems.
While the company has already launched national long distance (NLD) services, it is in the process of chalking out a strategy to make a foray into the international long distance segment by the third quarter of 2008. Aircel has also deployed NGN technology for its NLD network.
With Aircel accounting for 50 per cent of Maxis’s total subscriber base, there is no doubt that India is a significant market for the Maxis Group. However, Aircel still needs to catch up in terms of contribution to the total revenue of the group, and this will be possible only after it attains sufficient economies of scale and a diversified portfolio of telecom services. Given the kind of growth path the company has been following lately, there is little doubt that it has all the essential strengths needed to acquire a pan-Indian footprint in the years to come. Once the 3G policy is in place and the new entrants into the telecom sector receive spectrum, Aircel’s moves will be worth looking out for.
Maxis’s operations
Malaysia
While the subscriber growth in Malaysia pales in comparison with the 100 million users added in India during 2007, Malaysia is still a significant market for Maxis. The company sees ample scope for further growth in business, and intends to invest RM 1 billion on its Malaysian operations in 2008. The Maxis Group witnessed a series of changes last year ?? a new management team, new shareholders, privatisation and the departure of several company stalwarts. However, as Maxis’s CEO says, “The company really came through all that turbulence with a great deal of resilience.” Maxis is still the telecom leader in Malaysia, catering to more than 40 per cent of the market with a subscriber base of 10 million. While on an absolute basis, it had the highest revenues compared to its rivals in 2007, its year-on-year revenue growth of 10.5 per cent was less than DiGi.Com’s 19 per cent and Celcom’s 13.1 per cent.
Indonesia
Maxis is all set to launch operations in Indonesia in the second quarter of 2008 through its 44 per cent-owned Indonesian associate, PT Natrindo Telepon Selular (Axis). According to media reports, Maxis intends to invest about $500 million (about RM 1.6 billion) to cover the whole of Java as well as areas like Sumatra Utara, Bali and Nusa Tenggara. The company aims to acquire 2 million subscribers by the end of 2008.
