Aircel Bankruptcy and the Fate of Small Telecom Operators

Aircel's bankruptcy has left many wondering about the fate of small telecom operators in India. The company's debt of over 43,000 crores is a staggering amount that has left many investors and creditors in a tight spot.

Aircel's acquisition by the Reliance Jio group was a major factor in its downfall. The company's inability to compete with Jio's low-cost data and voice plans led to a significant decline in its subscriber base.

The Indian telecom industry is highly competitive, with several small operators struggling to stay afloat. Aircel's bankruptcy is a reminder of the challenges faced by these operators in a market dominated by a few large players.

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Aircel was founded by Chinnakannan Sivasankaran from Kovilur village, Cheyyar taluk, Tiruvannamalai district in 1999.

It started its operations in the Tamil Nadu telecom circle and became the leading operator in Tamil Nadu and one of the fastest growing mobile operators in India.

Malaysian telecom company Maxis Communications bought a 74% stock in the company from Sivasankaran in 2005.

The remaining 26% stock is held by Sindya Securities and Investments promoted by Suneeta Reddy, managing director of Apollo Hospitals.

Aircel scaled down its operations in five telecom circles in 2012, namely Madhya Pradesh, Punjab, Haryana, Rajasthan, and Gujarat.

In 2016, Aircel and Reliance Communications announced a merger of their mobile network operations, but they later called it off due to regulatory and legal issues.

Aircel had planned to shut down its operations in unprofitable circles including Gujarat, Maharashtra, Haryana, Himachal Pradesh, Madhya Pradesh, and Uttar Pradesh (West) from January 2018.

As of December 2017, Aircel was under a debt of around ₹16,000 crore (US$1.9 billion).

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Aircel offered poor network coverage in Delhi & NCR circle, but surprisingly, it offered the best service among all telecom providers in major cities like New Delhi, Mumbai, Bengaluru, Chennai, Hyderabad, Ahmedabad, and Kolkata, according to a 2015 survey.

Aircel's network issues were partly due to its use of radio link time out technology, which, although it reduced call drop rates, was still a concern for many customers.

Aircel acquired wireless broadband spectrum in eight circles for ₹ 34.38 billion in June 2010, marking a significant investment in its network infrastructure.

The company launched 4G services in Tamil Nadu and Jammu & Kashmir in August 2014, becoming the first private telecom operator to offer all three existing technologies: 2G, 3G, and 4G.

Aircel partnered with Chinese equipment maker ZTE to deploy a 4G broadband network based on LTE technology, which was launched in Tamil Nadu and later expanded to other circles, including Andhra Pradesh, Assam, Bihar, and Odisha.

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3G was a significant milestone in India's network development, with the auction ending on 19 May 2010.

Aircel paid a whopping ₹ 65 billion for spectrum in 13 circles, including Andhra Pradesh, Assam, and Bihar.

The company's 3G spectrum cost was US$1.44 billion (₹ 79.1 billion), a substantial investment for the time.

As of November 2012, Aircel had about 5 million 3G customers.

Aircel's 3G tariff was slashed, making it more competitive in the market.

In 2011, Aircel partnered with Apple to launch the iPhone 4, making it an attractive option for customers.

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Aircel paid ₹ 34.38 billion in June 2010 for acquiring wireless broadband spectrum in eight circles.

They launched 4G services in Tamil Nadu and Jammu & Kashmir in August 2014, becoming the only private telecom operator to offer all three existing technologies: 2G, 3G, and 4G in these markets.

Chinese equipment maker ZTE won a contract to deploy a 4G broadband network based on LTE technology for Aircel in December 2013.

This LTE network was launched in Tamil Nadu and was planned to be expanded later to other circles.

Aircel launched 4G services in four circles: Andhra Pradesh, Assam, Bihar, and Odisha on July 16, 2014.

Aircel's network connectivity has had its fair share of ups and downs. In Delhi & NCR circle, they offered poor network coverage, which led to high call drop rates.

Aircel's network issues were not limited to Delhi, as a 2015 survey found that they offered the best service among all telecom providers in major cities like Mumbai, Bengaluru, Chennai, Hyderabad, Ahmedabad, and Kolkata.

Aircel has made significant investments in their network infrastructure, including acquiring wireless broadband spectrum in eight circles for ₹ 34.38 billion in June 2010. They also paid ₹ 65 billion for 3G spectrum in 13 circles in 2010.

Aircel was one of the first telecom operators to launch 4G services in Tamil Nadu and Jammu & Kashmir in August 2014, offering all three existing technologies of 2G, 3G, and 4G in these markets.

Here's a breakdown of Aircel's network expansion:

Aircel's 4G services were launched in four more circles - Andhra Pradesh, Assam, Bihar, and Odisha - on 16 July 2014, expanding their 4G coverage.

Aircel's operations were significant in India, with a subscriber base of over 84.93 million as of December 2017, making it the country's sixth-largest GSM mobile service provider.

The company had a presence in 22 circles and was a market leader in Tamil Nadu, with considerable presence in Odisha, Assam, and North-East circles.

Aircel scaled down its operations in five telecom circles in 2012, namely Madhya Pradesh, Gujarat, Haryana, Kerala, and Punjab, as part of a major re-organization in its operations.

In April 2015, Aircel relaunched its service in Kerala, marking a return to the circle after scaling down its operations.

Aircel is currently under the Corporate Insolvency Resolution Process, which was initiated on March 12, 2018.

The company cited intense competition, unsustainable debt, and increased losses as reasons for filing for bankruptcy, stating that it has been facing troubled times in a highly financially stressed industry.

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Aircel had a subscriber base of over 84.93 million as of December 2017, making it India's sixth-largest GSM mobile service provider.

The company had a significant presence in 22 circles across India, with a strong market leadership in Tamil Nadu.

Aircel was also a major player in Odisha, Assam, and the North-East circles, showcasing its extensive reach.

However, in 2012, Aircel scaled down its operations in five telecom circles: Madhya Pradesh, Gujarat, Haryana, Kerala, and Punjab.

This move was a part of a major re-organization in its operations, indicating the company's efforts to adapt to changing market conditions.

Aircel relaunched its service in Kerala in April 2015, signaling its commitment to reviving its presence in the region.

Unfortunately, Aircel is now under the Corporate Insolvency Resolution Process, which began on 12 March 2018.

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Competition harming small telecom operators has led to huge job losses and debt in the sector. The telecom sector recorded a massive job loss, and debt is estimated to reach Rs 4.8 lakh at the end of FY18.

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Smaller operators like Telenor and Aircel are badly hurt by the fierce competition in the telecom sector after Jio's rollout. The big ones like Airtel and Vodafone also suffered serious damage.

Competition has become so intense that even the big players are being impacted. As one CEO mentioned, "As competition remains intense in a hugely financially stressed market, we too are being impacted."

The impact of competition has been so severe that Aircel has filed for bankruptcy, citing intense competition, unsustainable debt, and increased losses. The company's debt has become unsustainable, leading to a significant negative business and reputational impact.

Here are some key facts about the impact of competition on small telecom operators:

Aircel has been at the center of several controversies over the years. The company is being investigated by the Central Bureau of Investigation (CBI) for alleged irregularities in the Maxis takeover in 2005.

Aircel's previous owner, C. Sivasankaran, was reportedly forced to sell his stake to Maxis by the then Telecom Minister Dayanidhi Maran in return for an investment of Rs. 5 billion in a DTH company owned by the Maran family.

In 2012, Aircel received notices from the Department of Telecommunications for not meeting radiation norms in their base tower stations. The company was one among seven operators to receive such notices.

Aircel filed for bankruptcy in 2018, citing intense competition, unsustainable debt, and increased losses. The company's Board of Directors acknowledged that it has been facing troubled times in a highly financially stressed industry.

Aircel's bankruptcy filing was made in the National Company Law Tribunal (NCLT) Mumbai, and the company believes that the resolution process under the Insolvency and Bankruptcy Code is an appropriate recourse.

Aircel's history is marred by controversies. The company is being investigated by the CBI for alleged irregularities in the Maxis takeover.

The CBI claims that Aircel's previous owner C. Sivasankaran was forced to sell his stake to Maxis by the then Telecom Minister Dayanidhi Maran in 2005 in return for Maxis' investment of Rs. 5 billion in a DTH company owned by the Maran family.

Aircel received notices from the Department of Telecommunications for not meeting radiation norms in their base tower stations in September 2012.

There were also rumors in September 2012 that the Russian company Sistema was in talks to acquire Aircel, but this wasn't confirmed by either company.

Aircel filed for bankruptcy at NCLT on 28 February 2018.

Aircel's bankruptcy filing is a stark reminder of the intense competition in the telecom sector. The company cited unsustainable debt and intense competition as the primary reasons for its financial struggles.

In a highly financially stressed industry, Aircel's Board of Directors acknowledged that the company has been facing troubled times due to intense competition, legal and regulatory challenges, high level of unsustainable debt, and increased losses.

The company's efforts to merge its wireless business with another operator did not yield any results, and it ultimately lapsed in September 2017. Despite discussions with financial lenders and shareholders, no agreement could be reached on debt restructuring and funding.

Aircel's bankruptcy filing is not an isolated incident; smaller operators like Telenor and Aircel are badly hurt by the fierce competition in the telecom sector. The company CEO mentioned the impact of competition in an email, stating that the company expects things to get even more difficult in the coming days.

The debt in the sector is estimated to reach Rs 4.8 lakh at the end of FY18, according to ICRA estimates. This highlights the severity of the financial stress in the industry.

Here are some key statistics on the impact of competition in the telecom sector: