Indian million phones go silent as a cash-starved service provider gasps for survival

Since Wednesday (Feb. 21) morning, Divya, the owner of clothing boutique Tamara in the south Indian city of Chennai, has been struggling with her mobile phone connection. Being a small boutique, her business depends a lot on her ability to interact with customers over phone, she said.

"Being 'not reachable' is giving customers a sense that we might be closed for the day. Sadly, my personal number is also Aircel," said Divya, who preferred to be identified only with her first name.

Like Divya, thousands of cell phone users across Tamil Nadu have been hit hard because the network of their service provider, Aircel, has been down for several days now.

Such is the annoyance with Aircel now that its customers are abandoning it in droves.

Nearly 900,000 customers across Tamil Nadu have sought to port out to other networks—300,000 did so on Tuesday (Feb. 20) alone, the Hindu Business Line newspaper reported. This is nearly 10 times the average number of requests, and the company has resorted to manually process the port-out requests so that customers aren't affected.

“There is some legal issue with one of the telecom tower companies. Due to this, the network was cut by the tower company across India. This created a network problem and mayhem in the market. Our customers decided to port out. We allowed them to go as they need mobile service," K Sankara Narayanan, head, SBU (South), Aircel told the Hindu Business Line. The company didn't respond to an email from Quartz.

Aircel has around 15 million customers in the state, the largest chunk of its 89 million customers across India.

The situation came to a head two weeks ago, when rival Idea Cellular snapped its connectivity-sharing ties with it since Aircel hadn’t paid its dues. So customers of these two service providers haven't been able to talk to each other on phone since then.

Earlier this week, Aircel CEO Kaizad Heerjee reportedly warned its 5,000-plus employees of "difficult times" ahead as the company faced a severe cash crunch. “Our financial situation has resulted in network and system outages,” he reportedly told employees. “Millions of customers have been impacted...We have had no funding for some time and have been dependent on cash generation from our current business operations.”

The crisis unfolds amid media reports suggesting the company is considering filing for bankruptcy.

Rise and fall

Launched by serial entrepreneur Chinnakannan Sivasankaran in 1999, Aircel was one of India’s leading telecom firms in its heydays and the largest service provider in Tamil Nadu where it was based. In 2005, Sivasankaran sold it to Malaysia-based telecom group Maxis Communications for around $1 billion. It continued to grow rapidly and was among the fastest growing service providers in 2011.

However, in 2011, Aircel got embroiled in the massive 2G spectrum scam. A year later, following cost pressures, it decided to scale down operations in five of its telecom circles. The firm then tried tweaking its business model to achieve profitability, laying off hundreds of employees around 2012.

In 2016, Aircel explored a merger with another cash-strapped rival, Reliance Communications. The talks fell through due to legal hurdles, adding to the firm's distress. Soon it began defaulting on debt repayments.

It was around this time that Mukesh Ambani-owned Reliance Jio bulldozed the market, offering data and mobile connectivity at rock-bottom prices. While all other players were hit by this, smaller ones like Aircel were the worst off.

Aircel had a quarterly operating profit of Rs120 crore (around $18 million) in July 2016, before Reliance Jio launched its services, according to an Economic Times report. This dropped to Rs5 crore in July 2017 and further swung towards an operating loss of Rs120 crore in December 2017.

In January 2018, it scaled down operations further, shutting shop in six circles. And now, the falling out with Idea has dealt Aircel the death blow.

At a time when most Indian telecom players are struggling, Aircel may be the next casualty.