Aircel, one of the last remaining smaller telecom companies in the country, filed for bankruptcy on Wednesday, unable to fight the ongoing aggressive price war, and after failing to reach an accord with its lenders.
“The board of directors acknowledged that it has been facing troubled times in a highly financially stressed industry, owing to intense competition following the disruptive entry of a new player, legal and regulatory challenges, high level of unsustainable debt and increased losses. This has caused significant negative business and reputational impact on the company,” Aircel, owned by Malaysia's Maxis, said in a statement.
Mukesh Ambani-owned Reliance Industries made an aggressive entry with Jio in 2016, promising free voice calls for life and 4G data at low prices. This forced incumbents like Airtel, Vodafone, Idea and others to follow suit and offer attractive packages. This move put pressure on balance sheets in an industry already burdened with huge debts, driving a wave of consolidation.
Norwegian telecom firm Telenor, for instance, exited the market last year, selling its operations to Bharti Airtel, which is also acquiring the consumer mobile business of Tata Teleservices. Vodafone and Idea Cellular are also expected to complete their merger this year.
Anil Ambani-led Reliance Communications and Aircel were in talks to merge, but those plans lapsed in September 2017. Aircel's strategic debt restructuring plans too were unsuccessful.
“Post detailed discussions with the financial lenders and shareholders, the company could not reach a consensus with respect to restructuring of its debt and funding. Despite these discussions and the invoking of a strategic debt restructuring scheme in January 2018 pursuant to the then guideline of the Reserve Bank of India, no agreement could be reached,” the company said.
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Aircel tried to emphasise that insolvency was not a proceeding for liquidation, rather a process to find “best possible resolution” for the current situation, and it would be in the best interest of vendors, distributors, and employees among others to protect and preserve the value of the company and manage operations.
Aircel had already shut down operations in six circles from January 31, 2018. Furthermore, the company's major infrastructure provider—GTL Infra—had turned off almost a third of their sites, impacting Aircel's operations severely, the Telecom Regulatory Authority of India had been informed earlier this month. It had already received large number porting requests from subscribers following the disruption in operations.
On Tuesday, TRAI had directed Aircel to generate unique porting codes in is operating circles and not reject any porting-out requests of its subscribers whose activation of mobile numbers in the Aircel network was of less than 90 days.
India Ratings and Research had, last week, revised its outlook on the telecom sector for 2018-19 to “negative-to-stable” from “negative” in 2019.
“While consolidation has opened avenues for structural improvements, the industry pricing power is yet to return. Weak average revenue per user outlook, coupled with elevated capex for network and technology will continue to suppress the sectoral credit outlook,” said Tanu Sharma, analyst at India Ratings.
Post the consolidation, India's telecom market is expected to left with four large players—Airtel, Vodafone-Idea combine, Reliance Jio and state-owned BSNL.