 "Kaizad Heerjee")
With Rs 24,000 crore of debt and operating losses every month, thre has been speculation that Aircel would have to get its debt restructured and even be forced to sell its business. But breaking his silence after over a year, chief operating officer Kaizad Heerjee tells Surajeet Das Gupta and Sounak Mitra the company won’t do so. Edited excerpts:
Aircel has been in discussion with its lenders for the past few months for possible restructuring of about Rs 24,000 crore of debt. Have you filed for CDR?
No, we have not gone for CDR. And there is no plan at the moment. Yes, we are having discussions with our lenders, updating them about our business developments and how we are growing. Our business is becoming healthy, and we are entering the next phase of growth. We have already making operating profits in seven circles and we hope to have the same in 10 circles by end of this year.
How are you managing your debt? And have you reduced your debt in recent times?
The debt part we will continue to manage. We have not reduced it too much. But as we are reaching operating profits, we are now going to the next step of servicing the debt. And then we will start paying it off. We are working with the lenders on payment schedules. Things are under discussion at this point of time, and this is an ongoing process. Currently, we have the same structure in place, and discussions are going on with both the foreign and the Indian lenders.
Has Maxis made fresh investment in Aircel?
Maxis has always been putting money in. But that is basically to help us to service the debt on time. It’s a long-term strategy that Maxis has. They have a structure with the lenders on how the things would be managed.
There have been indications in the past that you may seek strategic investors in the company. Are you still looking for investors?
As a business we are always open to all opportunities. It’s not a general no, but there’s nothing on the table right now.
The mergers and acquisitions (M&A) policy is expected soon. How important is that for Aircel?
We’ll have to really wait and see. Until the final regulations come, we are not sure what it could be. Actually, 4G is a strategic asset for us, and there was no intent to sell it. Over the past few years, we have demonstrated that we can run nationwide operations.
Debt per consumer is huge for Aircel. How are you managing that?
If we divide debt for 2G, 3G and 4G, the 2G part is doing very well. And, 3G is building up fast. Our biggest investments went in 3G during the past few quarters. And in some circles, like Karnataka, 3G is growing quite fast for us. Actually, the money we have invested in 3g and 4G has not generated the expected return and that has been the biggest cause of concern for the entire industry, not just us.
Are you negotiating for fresh debt with your lenders, considering the fact that you would need to invest more for 4G.
We have kept all sides open. If we get debt at the right price, why not? But, it all depends on how the strategy rolls out. True, rolling out 4G may require extra investments, but we are not quite sure about the quantum at the moment. We need to make the right investment at the right place. We are just talking to the lenders, keeping all options open, including fresh debt. However, if the business continues the way it is now, things would be under control.
What is the estimated investment that you would require for 4G roll out?
It all depends on how the pilot goes. We are going to have extensive pilot in a few circles within a few weeks. Actually, we may not require huge investment here. But, we are not quite sure. 4G may also be done with existing infrastructure with minimum investments, or it may require whole new infrastructure.
When do you target to roll out 4G commercially?
We are hoping to launch it commercially early next year, in a few circles like Tamil Nadu, Chennai and Andhra Pradesh. We held up 4G roll out as there was no ecosystem. We can now roll out 4G aggressively. We will have a slightly different approach in 4G. Besides the consumer part, we will also use 4G spectrum for internal backhaul. And, service for the end user could also be different. Before we start rolling out commercially, we need to understand how we will sell it to the customers. We need the wow factor, otherwise, it would not sell. The real growth would actually come from consumers, while offices could be hotspots.
Is the device ecosystem in place for 4G?
For voice, it is still a concern. But, it would be more on data card and dongle based service. And, dongles prices have come down to about $40.
However, if the ecosystem does not develop at all for voice, it will be a completely different scenario. The next six to nine months would be very crucial for us.
So, what is your target for the next year?
Next calendar year, we hope to be operating profit for the whole year. We have a series of targets. On the operations side, of course, we have a target to generate operating profits. Our loss was about a few hundred crores some time back, which has been reduced.
How did you do that?
We have adopted a city-cluster circle prioritisation strategy, where we literally looked at our core competencies across the country. It’s not possible to apply a homogeneous strategy pan India. Late last year, we came up with a different business strategy, where we have like almost fine companies within Aircel. In five circles — Chennai, Tamil Nadu, Assam, North east, Jammu & Kashmir, where we have 900MHz spectrum, our focus was to become a full service operator. We will also launch 4G services.
Then we have asset of challenger circles, where we do have some 3G assets, such as Orissa, Karnataka, Andhra Pradesh, where we knew we have some assets and we wanted to invest for the future as well, and we wanted to grow fast. For these, we adopted a different strategy.
And, there are few circles where we are very late entrant. We followed a completely different strategy of focussing on cluster-based approach in cities and then spread. And this has worked in quite a few circles for us. Rajasthan was a good example. We have followed this strategy in about 35-40 cities.
How crucial was cost saving for you? And what are the steps that you have taken to save costs?
Cost saving for us is better utilisation of assets, increasing productivity and concentrated assets relocating to the clusters where we need more, instead of keeping them in a place where we don’t actually require. Cost exercise was done keeping in mind the impact on top-line.
We took a very conscious decision of building a business model which is realistic. As a business, we need to go for a model that suits the consumer needs and also makes business sense. We need to have a profitable business model, which is very circle specific, but with a pan-India approach. We need to have a healthy business model.
Has average revenue per user (ARPU) increased for you? What is the net realisation?
Yes, ARPU has gone up from Rs 133 to about Rs 145 for pre-paid services in the past few quarters. We take tariff decision depending on how we are positioned in a particular circle. Our realisation currently stands at 32 paisa.
You said you aim to make operating profit in 10 circles by end of this year. What sort of revenue market share do you need to make operating profit in a circle?
Globally, an operator can make operating profit with about 10-12 per cent revenue market share. In India, we need about 7-9 per cent revenue market share to become operating profitable. We don’t need to have 30 per cent market share in every circle.
How much of your revenue come from data?
Our non-voice revenue, excluding SMS, is at about 10-12 per cent now.
Will you bid for spectrum in the next auction?
We do require spectrum in a few circles, like Tamil Nadu, North East, Jammu & Kashmir. But, we’ll have to wait and see how the Government prices the spectrum. We will not push for it.
