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Business

India's telecom consolidation war claims another bankruptcy

Aircel is on its way out as stressed industry leaves three giants standing

MUMBAI The fierce competition in India's telecommunications sector has claimed another victim: Aircel, the Indian unit of Malaysia-based Maxis Communications.

Aircel said on Feb. 28 that it had filed for bankruptcy in the local courts. The move by the last surviving small telecom operator signals that the end may be near for industry consolidation.

Aircel's insolvency proceedings follow a round of mergers and fire sales by the bigger players. Reliance Communications sold its consumer business assets to Reliance Jio, while the consumer mobile businesses of Tata Teleservices and Tata Teleservices Maharashtra merged into Bharti Airtel. Meanwhile, a merger of giants Idea Cellular and Vodafone India is pending.

The consolidation has created three big players -- Bharti Airtel, Idea Cellular-Vodafone India, and Reliance Jio -- as well as the much smaller, government-owned Mahanagar Telephone Nigam Limited.

Aircel, which attempted to merge last year with another stressed player, Reliance Communications, attributed its demise to "troubled times in a highly financially stressed industry" owing to intense competition following the "disruptive" entry of Reliance Jio, and to legal and regulatory challenges, increased losses and unsustainable debt.

"This has caused significant negative business and reputational impact on the company," it said in a statement.

The bankruptcy filing for Aircel and its units Aircel Cellular and Dishnet Wireless falls under Section 10 of the Insolvency and Bankruptcy Code. This allows corporate debtors to initiate the insolvency resolution process on their own, instead of bankers driving the proceedings.

The company was trying to work out a debt restructuring plan with creditors, including the country's largest lender, State Bank of India, but the parties could not agree on debt and funding. The company's debt is estimated to be around 190 billion rupees ($2.91 billion). Last month, it faced suspension of interconnected services by Idea Cellular for not paying its dues.

Aircel had been exploring options such as a capital infusion or debt payment by parent Maxis Communications. But that was clearly not feasible, said people in the banking industry familiar with the matter.

The company emphasized that the corporate insolvency resolution process is not a proceeding for liquidation, but rather "a process to find the best possible resolution" that would be in the best interests of all parties, and which would protect the value of the company and manage its operations.

Aircel started operations in 1999. It became a leader in the southern state of Tamil Nadu, but failed to gain a solid footing elsewhere. In 2005, Maxis Communications bought a 74% stake from founder Chinnakannan Sivasankaran. The Aircel-Maxis deal is under investigation by the Central Bureau of Investigation for alleged irregularities in the stake purchase.

By 2012, Aircel had shut down operations in many northern and western Indian states. After struggling with regulatory and operational challenges, it began talks with Reliance Communications in 2016, but the two companies called off the deal last year.

Aircel lost a net 2.65 million subscribers in January, although it still had around 81.44 million customers, according to data from the Cellular Operators Association of India. In the same month, Bharti Airtel had the largest share, 29.5%, adding 1.5 million subscribers to take its total subscriber base to 291.61 million. Vodafone India had 213.81 million subscribers, Idea Cellular had 197.64 million, and Reliance Jio had 160.09 million.

Market research company India Ratings and Research reckons that consolidation in the sector has led to sufficient spectrum availability, and the top companies have strengthened their business models by acquiring spectrum at attractive prices. The agency revised its outlook on the telecommunications services sector to negative-to-stable for the financial year starting April, from negative in the current financial year.

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