Aircel on thin ice after selling 2300 mhz band to Airtel

The telecom ministry has given permission to Aircel to sell its 2300 MHz spectrum to Airtel for Rs 3,500 crore. In April, Airtel has entered into an agreement with Aircel to acquire rights to use its 2300 MHz airwaves in eight telecom circles-Tamil Nadu (including Chennai), Bihar, Jammu & Kashmir, West Bengal, Assam, North-East, Andhra Pradesh and Odisha.

But the deal may leave Aircel's consumers high and dry as the company is left with limited spectrum in 900 MHz, 1800 MHz, 2100 MHz after selling its 2300 Mhz band to Airtel. Its holding in the most-coveted 900 MHz is lowest among three bands. The 900 MHz band is primarily used for offering voice services whereas 1800 MHz and 2100 MHz can be used for both voice and data. With this kind of spectrum, Aircel can continue to offer 2G and 3G services. It can also offer 4G services but then it has to offer both 2G and 4G on 1800 MHz band because its spectrum holding for 900 MHz band is restricted to just four circles. As more consumers shift from 3G to 4G for fast data, Aircel is expected to lose out after the Airtel deal.

The money generated from spectrum sale is expected to reduce Aircel's debt - around Rs 18,000 crore. Last December, Reliance Communications had announced merger with Aircel, but the deal is yet to be finalised even after about seven months of discussions, raising serious doubts on its possibility. From the consumers' point of view, the deal is more beneficial than Airtel one because the new entity will have enough spectrum to offer better services. In case of no merger, Aircel's existing customers will have to suffer due to limited spectrum holding. While Aircel can buy spectrum in next auctions, it will have to fork out significant amount which would be challenging under the current circumstances.

In the recent months, Aircel has launched 4G services (on 2300 MHz band) for enterprise customers. Aircel, however, says that the spectrum sale will not affect quality of services because the spectrum that it has sold to Airtel is used for enterprise customers. "Aircel had 2300 Mhz spectrum and the 4G service was introduced in a limited scale only for the enterprise customers," an Aircel spokesperson said.

The telecom sector is witnessing consolidation where the large players are getting bigger and smaller players are either selling out or going for merger. In the next 1-2 years, it will be difficult for smaller players to survive on their own as consumers shift towards players who have wider reach, more product offerings and higher spectrum holdings.