Background
June 2004 witnessed the first intra-circle(Chennai) merger in the Telecom Industry. Hutch buys the Chennai and Tamilnadu operations of cellular operator Aircel from Sterling Infotech.(Sterling Infotech acquired Aircel from RPG cellular in Dec 2003 for a consideration of Rs 209 Cr.) Although, none of the companies have disclosed the consideration for the deal, Various sources in Industry have estimated this deal to close for 1600 Cr.(Rs 1200 Cr is the acquisition amount, where as Rs 400 Cr is the debt of Aircel). Other GSM operators cometing against Hutch for the deal were Bharati and Idea.
Sources:-
Present Scenario
Indian mobile Telecom sector is estimated to have 33.7 Mn mobile subscribers. Reliance leads the market with 7.3 Mn mobile subscribers, followed with Bharti with 6.5 Mn subscriber base. With 1.1 Mn Subscriber base of Aircel, Hutch subscriber base has increased to 6.2 Mn. Market Share of Major Cellular Service providers is as follows:- Reliance(22%), Bharti(19%), Hutch(18.5%), BSNL(16%), Idea(11%), BPL(6%) ( * Source: TRAI, June 2004 Report *)
In Chennai , Bharti grabs 37% of market share . Post Hutch-Aircel merger, total market capture by Hutch will be 49%.(Aircel: 31%+ Hutch: 18%). Keeping in mind the media spend and Services provided by Hutch, Airtel is going to face a tough time.
Whereas in rest of Tamilnadu , Aircel had clear monopoly with 7.8 Lakhs subscribers and 44% market share. Its nearest competitor is BSNL with 23% market share, others include BPL and Bharti. With the merger, Hutch has got entry into a new Circle, that too with a clear dominance.
( * Source: https://coai.com/stats.2004.q2.htm * My numbers of subscribers might differ from one provided by Economic times, but then I have my sources mentioned)
Post Merger Scenario
Hutch is known for Mergers & Acquisitions, it took over Fascel and ADIL in past. Generally whenever takeovers happened in past, just the brand name got changed keeping everything else same. e.g. when Bharti took over Skycell, it just changed the brand name to Airtel and continued with the tariff rates of skycell.
But… being the first intra-circle merger, the Hutch-Aircel merger is one of its own kind. Since both the players have different tariff rates! Lets have a compare their tariff rates offered in Chennai for Pre-Paid cards.(in Rs/ min)
* Local Outgoing *
Hutch: GSM – 0.5, Landline – 0.99
Aircel: GSM – 2, Landline – 3
*STD to GSM mobile *
Hutch: 2.99, Aircel: 2
*STD to Landline *
Hutch:(0 to 200 kms) - 2.99, (200 to 500 kms) – 3.99, (> 500 kms) – 3.99
Aircel:(0 to 200 kms) - 4, (200 to 500 kms) – 5, (> 500 kms) – 5
( * Source: https://hutch.co.in, https://aircel.com *)
Road Blocks
1.DIFFERENCE IN TARIFF RATES
Offering tariff rates of Hutch to Aircel subscribers doesn’t seem to create any problem in first instance. Since, tariff rates of Hutch are generally economical to that of Aircel except STD to GSM mobile!
But, STD to GSM mobile constitutes a major chunk of mobile bill of many people in Chennai, e.g. Personal calls made to parents, Friends, GF/BF or spouses and Official calls made to clients. A hike of Rs 0.99/min might instigate subscribers to switch to BSNL offering Rs 2.40/min in Prepaid and Rs 1.80 in postpaid(Plan 525 of Cellone).
Thus it makes sense for Hutch to keep the tariff rate of Rs 2/- for STD to GSM mobile. It might mean a loss of revenue for Hutch from existing hutch subscribers, but it’ll ensure its grip on market share.
2.NETWORK CONGESTION
Due to lack of infrastructure, Aircel often suffers from network congestion.(Reviews on mouthshut.com would vouch for that) With its robust infrastructure and strong financial muscle, Hutch should be able to take care of that problem in near future. But, it needs immediate action as any hiccups in services might annoy the premium customers/ corporate clients.
3.DIFFERENCE IN HR POLICIES
Merging two brands having different HR policies again requires major changes. By offering remuneration and other benefits to Aircel employees equivalent to Hutch will call out for additional cost. It’ll hit the bottom line of Hutch as it has generate revenues from dull infrastructure of Aircel with a much higher cost!
P.S. Since cellular service providers in Chennai have reduced to 3. Can we expect BPL to make its foray as 4th Cellular Service Provider.(Comments reqd.)
- Let’s see, how Mr. Sunil Bharti Mittal retaliates… In the end, mobile users can only expect a much better service or probably another price war or Pandora box of freebies. Looking forward to receive your comments, hope all of you will throw some more light on other aspects of the merger.