After Uninor, Aircel to hang up in 5 circles

In a sign of deepening turmoil in the telecom sector, Aircel is learnt to be winding up operations in at least 5 circles, starting with Madhya Pradesh. Gujarat and Haryana are expected to be next, followed by Rajasthan and Punjab.

The company has some 6 million customers in these five circles taken together.

This will amount to at least 500-600 Aircel employees being laid off. The company is also believed to have handed transfer orders to various staff in the state.

“The telecom industry is facing severe margin pressure as the voice market is maturing and the data demand in its true sense is still nascent. Operational costs are high and incremental market demand for relatively new players is prohibitive. Given this situation, Aircel is revamping its business model innovatively to lower “cost to serve” without compromising on customer service or network experience. As is obvious, with shift in models, the organisation itself is being repurposed,” a company statement stated.

In July, Uninor had decided to scale down operations in four circles – Tamil Nadu, Kerala, Karnataka and Orissa – citing business viability. Instead, it said it would focus its attention on the larger subscriber base in its remaining nine circles. The move had resulted in 2,000 Uninor employees being given the pink slip.

Aircel has been facing serious losses in both profit and subscriber base fronts in recent times. India’s fifth largest telecom operator currently has around 66 million subscribers and a pan-India 2G presence, as well as 3G and BWA spectrum. Speculation about the company’s possible acquisition has been doing the rounds for quite a while. Companies like Bharti Airtel, Tata, RIL and MTS were believed to be in the running for acquiring Aircel. However, due to its scam-tainted image, thanks to its promoters being prosecuted for their role in the 2G scam, there have been no takers for the company thus far.

Naval Seth of Emkay Global said, “I have my doubts on whether Aircel will be acquired, as there is no growth being seen in the telecom sector, and no operator would like to bear the burden of taking on a loss-making entity.”

Seth feels that the latest development follows a recent trend in the sector to focus on circle-wise profitability since there are no significant subscriber additions.

Bharti Airtel, Idea Cellular and Reliance Communications lost between 1-3 million subscribers recently, after cleaning up their non-active subscriber base. It is likely that a few more operators may also go in for similar “re-structuring”.

The move may also be related to consolidation in the telecom sector, which is expected to have between 5-6 players in operation, post the 2G auctions in November. Shoubit Khare of Motilal Oswal chipped in: “M&As if at all will happen only after the 2G auctions. Since most operators have a lot of debt, they are forced to concentrate on resources only on a few circles. Most players which do not have a pan-India presence are also likely to follow Aircel’s move. This is a kind of natural consolidation required by the market, without an actual acquisition.”