Forster

201
Management Case
Vision

Aircel: Distribution Challenges

16(3) 201–211
© 2012 MDI
SAGE Publications
Los Angeles, London,
New Delhi, Singapore,
Washington DC
DOI: 10.1177/0972262912460157
http://vision.sagepub.com

Jaydeep Mukherjee
Amit Gupta
Bhavesh Pande

Abstract
The case is about the marketing challenge faced by the Head of the Delhi/NCR circle of Aircel Ltd, a telecom company in India. In
Delhi circle, the company had achieved a commendable share of users in just two years, but they also had the lowest average revenue
per user (ARPU) among the telecom majors. Both the achievement of user base and failure to get adequate ARPU could, in some
way, be attributed to the type of distribution channel and end consumers they attracted due to their late entry in the Delhi circle. The
company was attempting to change its customer strategy to henceforth focus on the quality of customers rather than the number of
customers. It was also planning to implement a strategy of bundling handsets with the connection, based on the research finding that
such customers were likely to have a greater ARPU. The dilemmas presented were the impact of the change in the customer strategy
on the distribution channel and its motivation. The case deals with the choices to be made and how to make the changes necessary to
implement the marketing strategy through the well-established distribution system.

Key Words
Distribution Channel Motivation, Channel Partner Incentives, Distribution Channel Correction, Distribution Channel Development,
Channel and Segment Mapping

Swadip* had joined Aircel in December 2008 as the Sales
Head for the Delhi circle where the telecom company was
readying for a launch in March 2009. His challenge was to
put in place a distribution network to take on the might
of well-established players like Bharti Airtel, Vodafone
(Hutch), Idea Cellular, BSNL and MTNL in the extremely
competitive Indian telecom market. In the year 2010,
Swadip had to its credit an increase of subscriber base
from 0.77 million to 1.85 million, which translated to a
market share figure of 8.5 per cent by the end of the year.
Considering the competitive nature of the Delhi market,
the performance of Swadip was recognized as exceptional
by the senior management of Aircel. Refer Exhibit 1 for the
summary data of 2010.
The national sales head had however, in his meeting
with Swadip in early February 2011, pointed out that the
average revenue per user (ARPU) of Aircel was still much
below that of the industry, refer Exhibit 2 for details. The
recent introduction of mobile number portability (MNP)
with all India roll out on 20 January 2011 was seen as a

Exhibit 1. Summary Subscribers Data for 2010, Delhi

Market Share
Share of Market, Share of Market, Sales Growth over Growth over
Operators January 2010* January 2010# December 2010* December 2010# Previous Year# Previous Year#
Bharti Airtel 5,822,208 36.0 7,420,171 34.1 27.4 –5.3
Vodafone Essar 4,818,472 29.8 6,491,025 29.8 34.7   0.1
MTNL 2,189,841 13.5 2,456,174 11.3 12.2    –16.7
Idea 2,478,120 15.3 3,422,238 15.7 38.1   2.6
Aircel Ltd 874,437 5.4 1,851,911 8.5 111.8 57.3
Etisalat DB Telecom 0.0 146,516 0.7
16,183,078 100.0 21,788,035 100.0 34.6
Source: Compilation by the authors from companies’ records.
Note: *denotes number of subscribers; # denotes figures in percentage.

* The names have been changed to disguise the identity of the protagonists.
202 Aircel: Distribution Challenges

Exhibit 2. ARPU* Figures of Delhi in 2010 Background

January– April– July– October– The commercial launch of the cellular service based on the
Name of the March June September December GSM technology was done in Finland in 1991. India was
Company 2010 2010 2010 2010
not far behind and the licence for providing cellular mobile
Bharti Airtel 260.46 254.99 221.43 217.40 services was granted by the Government of India for the
Ltd
metropolitan cites of Delhi, Mumbai, Kolkata and Chennai
Vodafone 250.94 222.61 206.74 195.00
Essar in 1994. It was decided that cellular mobile service would
Idea Cellular 175.75 161.65 151.23 141.45 be duopoly (i.e., not more than two cellular mobile opera-
Aircel Limited   90.41   85.88   84.47   72.39 tors could be licensed in each telecom circle), under a fixed
Average 230.78 213.78 192.04 182.77 licence fee regime for 10 years. Subsequently 19 more
ARPU— licences were granted after dividing the country into 23 tel-
Delhi
ecom circles as shown in Exhibit 3. The Delhi circle was
Source: Compilation by the authors from companies’ records. subsequently also rechristened as the National Capital
Note: *All figures are in Indian rupees.
Region (NCR), which consisted of Delhi and its satellite
potential game changer and hence the issue was discussed townships Gurgaon, Faridabad, Noida and Ghaziabad. The
threadbare. Among the many courses of action discussed, restriction on number of service providers per circle was
the ones that required his involvement were—countering subsequently removed.
or matching the initial higher switching rates of the com- The mobile telephone operation required a mobile
petitors and ensuring higher usage by the existing custom- handset in which a SIM is inserted. The SIM data includes
ers so as to increase the ARPU. user identity, location and phone number, network authori-
A recent research had shown that where the handset was zation data, personal security keys, contact lists and stored
bundled with the connection, the users had twice the ARPU text messages. In cellular service there are two main com-
as compared to the average ARPU of the customers who peting network technologies: global system for mobile
bought the connection only. Based on the finding, the communications (GSM), which was the prevalent platform
National Sales Head of Aircel had advised the circle heads used by all the major telecom players in India, and code
to ready a blueprint of distribution of devices within next division multiple access (CDMA), which is operated by a
six weeks. He felt that this would also be synergistic with few players like Reliance and Tata Telecom.
the value added services (VAS) that the 3G mobile services The telecom companies in India were traditionally sell-
would entail. He shared that marketing department should ing the SIM cards and the user bought the handset sepa-
be tying up with a few device makers to come up with a rately. This changed when the wireless in local loop (WLL)
market offering. In the past, Aircel had tried bundling the technology was introduced by Reliance (a mobile teleph-
handset with their subscriber identity module (SIM), but ony player) and the connection was bundled with the hand-
the consumer acceptance was not very good. Swadip had to set. The service providers on the GSM platform had tried
develop his sales strategy for 2011; a major thrust had to be the same, but in the GSM space this trend had not caught
on bundled offer. up. The handset and connection were marketed separately,

Exhibit 3. Telecom Circles in India

Name of Telecom Name of Telecom

Circle/Metro Circle/Metro
Sl. No. Service Area Category Sl. No. Service Area Category
 1 West Bengal B 13 North-East C
 2 Andhra Pradesh A 14 Orissa C
 3 Assam C 15 Punjab B
 4 Bihar C 16 Rajasthan B
 5 Gujarat A 17 Tamil Nadu A
 6 Haryana B 18 UP-West B
 7 Himachal Pradesh C 19 UP-East B
 8 J&K C 20 Chennai Metro
 9 Karnataka A 21 Delhi Metro
10 Kerala B 22 Kolkata Metro
11 Madhya Pradesh B 23 Mumbai Metro
12 Maharashtra A
(Exhibit 3 continued)

Vision, 16, 3 (2012): 201–211

Jaydeep Mukherjee, Amit Gupta and Bhavesh Pande 203
(Exhibit 3 continued)
Source: Compilation by the authors from companies’ records.
Note: Map not to scale.
to a large extent. The WLL technology did not live up to
give an equal fight to the players in the GSM space and the
telecom service industry in India was heavily using the
GSM technology by the end of 2010.
The mobile telephone industry in India has been a suc-
cess story, in a short span of time. By 2011, the subscriber
base was among the highest in the world and intense
domestic competition had ensured that the consumer was
the ultimate winner. The Indian mobile consumer saw the
changing revenue range from ` 16 per minute (` 1 = 100
paisa) on incoming calls during the initial days of mobile
telephony to all incoming free and 1 paisa per second on all
outgoing calls in 2010.
The new buzz in the telecom industry is MNP. The
customer till now was captive to the company from which
s/he had taken the connection. Switching to another service
provider meant change of the number. MNP was to give
consumers the option of changing the service provider
without changing the number. The maximum switching
cost involved is stipulated to be a minimal amount of ` 19
by Telecom Regulatory Authority of India (TRAI), which
may be levied as port in fees by the new service provider.
Competitive Landscape
Aircel: The Aircel Group was formed in 1994 as a result
of alliance between Maxis Communications Berhad of
Malaysia and Apollo Hospital Enterprises Ltd. The
Malaysian company holds 74 per cent of the equity while
Apollo holds 26 per cent.
Aircel commenced its India operations in 1999. In the
first decade of operations, it concentrated on building its
foundations in the southern part of the country, and soon
emerged as the regional market leader. The company began
with its expansion in 2005 and met with extraordinary suc-
cess in the eastern frontier circles to emerge as the market
leader in Assam and north-eastern states within 18 months
of operations. During this period, the company gained a
strong foothold in 10 circles and today it operates in all 23
telecommunication circles.
Vision, 16, 3 (2012): 201–211
204 Aircel: Distribution Challenges

Bharti Airtel: The company was one of the pioneers in the
telecom sector after private participation was allowed and
emerged as the biggest player both in terms of subscriber
base and revenue. It had presence in the full spectrum of
information, communication and entertainment (ICE) and
ventured into direct to home television, Internet services,
etc. The company had extended its footprints in the global
market with its USD 10.7 billion acquisition of Zain’s
African operations.
Vodafone: Vodafone Plc. was the world’s leading mobile
telecommunications company, with a significant presence
in Europe, the Middle East, Africa, Asia-Pacific and the
United States. The Indian operations were a result of acqui-
sition of Hutch. It was currently the second largest telecom
service provider in India.
The other major players in the Indian market were Idea,
Reliance and BSNL, apart from some relatively small play-
ers like MTNL, BPL and Uninor. There was evidence that
economies of scale operated in the manufacturing, market-
ing and even distribution of telecom services. The sub-
scriber bases of all the players are shown in Exhibit 4. The
revenue of the telecom companies are given in Exhibit 5.
The circle-wise market shares of the companies in metro
and ‘A’ category markets, based on subscriber figures, are
given in Exhibit 6.
Aircel’s Operations in the NCR Circle
The NCR circle had 12.2 million subscribers at the start of
year 2009 on the GSM platform. It was considered to be
one of the lucrative circles for operators. The market was
then serviced by Bharti Airtel, Vodafone (Hutch), Idea and
MTNL (a Government of India organization). Before
Aircel entered the Delhi market, the distribution network
of existing companies in the GSM space consisted of
approximately 12,000 multi-brand retailers serviced
through 226 exclusive distributors. Airtel was leading with
97 distributors, Vodafone had 76 and Idea had 53.
The company at the time of entry of into NCR circle
decided to divide the circle further into six zones: (a) North
Delhi, (b) South Delhi, (c) East Delhi, (d) West Delhi, (e)
Gurgaon and Faridabad and (f) Noida and Ghaziabad. Each
zone was headed by a Zonal Business Head (ZBH) and
comprised of two verticals—Pre-paid and Post-paid, each
headed by a Zonal Sales Manager (ZSM). The channel
partners picked up by Aircel were from varied industries.
Channel partners, generally, would be dealers of fast mov-
ing consumer good (FMCG) products (Nestle, Cadbury
and Perfetti distributors mainly) or electrical appliance
dealers/distributors (say, Godrej, LG). After joining Aircel
family, the distributors were neither asked nor pressurized
to quit their earlier businesses. However, there had been a

Exhibit 4. Subscriber Base of the GSM Platform

December March September December March September December January

Operators 2008 2009 June 2009 2009 2009 2010 June 2010 2010 2010 2011
Bharti Airtel 85.65 96.74 102.37 110.51 118.86 127.62 136.62 143.29 152.50 155.80
Vodafone Essar 60.93 71.54 76.45 82.85 91.40 100.86 109.06 115.55 124.26 127.36
BSNL 41.36 47.72 49.07 53.36 57.61 63.82 68.89 74.21 81.78 84.29
Idea 38.01 44.17 47.09 51.45 57.22 63.49 66.89 72.69 81.39 83.59
Aircel Ltd 16.08 19.59 21.80 25.73 31.02 36.86 41.68 46.52 50.17 51.83
Reliance 10.35 11.97 12.84 14.17 15.76 16.31 19.31 16.31 16.31 23.87
Total India 258.24 298.15 316.22 344.93 380.45 421.86 456.59 494.04 542.97 564.25
Source: Compilation by the authors from companies’ records.

Exhibit 5. Revenue in Rupees (billion)

October– July– October– July–

December January– April–June September December January– April–June September
Operators 2008 March 2009 2009 2009 2009 March 2010 2010 2010
Bharti Airtel 63.77 64.42 65.27 64.05 61.01 64.08 67.43 64.65
Vodafone Essar 39.41 40.93 42.13 40.75 41.00 42.71 44.09 43.82
Idea 23.18 24.75 25.65 25.25 25.82 26.34 27.94 27.44
Aircel Ltd 6.17 6.95 7.30 7.99 7.79 9.63 10.53 11.00
Reliance 3.17 3.67 3.85 3.88 4.08 0.00 0.00 0.00
Total India 136.97 141.97 145.41 143.11 140.91 144.26 151.57 149.20
Source: Compilation by the authors from companies’ records.
Note: Reliance data is not available since March 2010.

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Jaydeep Mukherjee, Amit Gupta and Bhavesh Pande 205

Exhibit 6. Circle-wise Market Shares of Service Providers (GSM Platform) for Metro and ‘A’ Category Circles Based on Subscriber
Base, January 2011

Metro Circle ‘A’ Circle

Name of the Andhra
Service Provider Delhi Mumbai Chennai Kolkata Maharashtra Gujarat Pradesh Karnataka Tamil Nadu
Bharti Airtel 33.80% 16.80% 28.90% 24.72% 20.93% 18.59% 38.42% 45.23% 21.63%
Vodafone 29.61% 27.96% 19.41% 30.03% 26.27% 41.31% 17.32% 19.96% 20.19%
MTNL 10.95% 13.35%
Idea 15.93% 9.10% 6.66% 31.02% 19.67% 19.25% 2.81%
Aircel Ltd 8.50% 7.36% 37.30% 12.31% 2.44% 0.87% 4.38% 4.83% 34.84%
Etisalat DB 1.21% 0.23% 0.03% 0.03% 0.02% 0.03% 0.03%
Telecom
Loop Mobile 15.28% 0.00%
Videocon 5.35% 0.03% 3.96% 0.02% 0.03% 2.98%
Uninor 4.56% 8.66% 3.99% 4.90% 4.89% 2.53% 2.83%
BSNL 14.39% 17.62% 15.31% 10.68% 15.70% 15.38% 14.69%
Spice 12.02%
Communications
Source: Compilation by the authors from companies’ records.

few instances in NCR where the distributors had adopted
Aircel as their major revenue stream and either did away
with their earlier businesses or reduced the focus on them.
The selection of channel base is essential because the dis-
tribution had to intensive and require very regular servic-
ing, a core competence of FMCG distributors.
The role of telecom business in the revenue stream of
channel partners varied from 30 to 80 per cent, and it was
perceived to be operationally easier to manage and more
profitable. However, only in exceptional cases, the partners
were having Aircel as their sole business (say, 90–100 per
cent of the total portfolio). It is, however, always ensured
and mandated that the Aircel distributor was not a distribu-
tor for any other telecom company. The distributors had to
deal with resellers, who are selling not just Aircel products
but those of other telecom company’s products as well. So,
a distributor had to carve a niche for Aircel through various
offerings/schemes.
The business predominantly came from the pre-
paid connections and all players focused on this segment.
This was best illustrated from the pre-paid figures of Aircel
for January 2011 revenue of ` 190 million out of total
revenue of ` 200 million. The subscriber base of 1.885
million out of total of 1.925 million was in the pre-paid
category.
Zonal Sales Managers had Territory Sales Managers
(TSMs) reporting to them. Each TSM is responsible for
one distributor. The sales function reporting structure is
shown in Exhibit 7. This was very much in line with how
the sales function of the other players was organized.
Swadip had worked with Airtel prior to joining Aircel
and hence had understanding of the nuances of the channel
management problems. He had decided not to deviate from
the industry practice of setting up the distribution network
for Aircel in Delhi/NCR. The qualifying criteria for select-
ing a distributor were: (a) preference for an existing dis-
tributor of FMCG, as they followed intensive distribution,
(b) market reputation, (c) financial strength and (d) exclu-
sivity in the telecom sector. The prospective candidates
were evaluated on these and other qualitative parameters
and then appropriate candidate selected. The distributor
qualifying criteria and evaluation format are shown in
Exhibit 8 and Exhibit 9 respectively.
The business was cash driven, and the distributor was
expected to employ a working capital of ` 1 to 1.5 million.
Each distributor was expected to enrol 300–350 retail out-
lets. These retail outlets were essentially multi-brand out-
lets and were termed as Feet on Street (FOS). The selection
of the retail outlets was based on the customer turnover and
the counter profile. Most of the retailers had businesses like
photostat shop, kirana1 store, medical shops and even trol-
ley carts of ice cream was considered to be a retail point.
For every 50 retail counters, the distributor was expected to
employ one supervisor termed as Direct Sales Executive
(DSE). The channel partners earned commission on new
activations and recharges. Retail outlets were linked to one
distributor only on exclusive basis and use of electronic
recharges (called e-Top) predominantly ensured that
there was minimal undercutting in the market on account
of dumping.
Typically the retailers were classified by Aircel into
A, B and C category. The classification was based on the
number of days in which the retailer placed orders on the
distributor. The retailers who placed orders everyday were
classified as ‘A’ category; those who ordered every alternate
day were classified as ‘B’ category and the rest of them as

Vision, 16, 3 (2012): 201–211

206 Aircel: Distribution Challenges

Exhibit 7. Structure of Sales Function of Aircel

Circle Head
23 Circles in India Delhi/NCR

Zonal Business Zonal Business

NCR Has 6 Zones Head Head
(Ggn/Fbd) (Gzd/Noida)

2 Business Verticals Zonal Sales Zonal Sales

under each ZBH Manager (Post- Manager (Pre-
paid) paid)

Each TSM Handles Territory Sales Territory Sales Territory Sales Territory Sales
1 Distributor Manager 1 Manager 2 Manager 3 Manager 4

Source: Compilation by the authors from companies’ records.

Exhibit 8. Qualifying Criteria for Distributorship

Accept
Minimum Criteria Explanation Distributor?
1. FMCG DISTRIBUTOR The candidate is currently a distributor for a leading FMCG brand, or is an Yes
outstanding distributor for non-FMCG brands
2. TELECOM EXCLUSIVITY The candidate would agree to sign an exclusive distribution agreement with the Yes
company, in the Telecom sector
3. NO CONFLICT OF The candidate does not present any conflict of interest between company’s Yes
INTERESTS business and competitors’, business
4. EXPERIENCE The candidate is a distributor operating for over 2 years in the market where he No
is evaluated to be appointed (1)
(1) Exceptions can be considered
5. MANPOWER The candidate has at least currently 6 skilled sales executives in large towns/4 in Yes
small or medium towns
6. INITIAL INVESTMENT The candidate is ready to invest at least: Yes
AND FINANCIAL 15 Lakhs for Main Distributor 05 Lakhs for LMP
STRENGTH The candidate has demonstrated growth over the last 2 years and shows interest
for areas we need to cover
7. TURNOVER The candidate has last year turnover > 4 months of company’s turnover Yes
requirement
8. MARKET NAME The candidate is well known on the market place and has no reported bad track Yes
record (no reports of very bad past experience with this candidate has been
received from trustworthy local sources of information) – BASED ON ZH/ASM
PERSONAL KNOWLEDGE
9. SCOPE The candidate has the capacity of distributing prepaid handsets and recharge Yes
vouchers
OVERALL ASSESSMENT The candidate fulfils all the 9 minimum selection criteria described NO
above
IF YES, PROCEED TO THE FINAL EVALUATION OF THE DISTRIBUTOR (INFORMATION SHEET)
Source: Compilation by the authors from companies’ records.

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Jaydeep Mukherjee, Amit Gupta and Bhavesh Pande 207

Exhibit 9. Distributors Final Evaluation Sheet

Distribution reach (out of 20) Points
Geographical reach: number of > 650 in a large town or > 300 in a medium or small town 10
overall outlets covered in an area 200 to 400 in a large town or 60 to 150 in a medium or small town  5
of interest for Company
Manpower (out of 15)
Total current manpower (number >9 sales executives in a large town or >8 in a small town   7.5
of sales executives) 6 to 8 sales executives in a large town or 5 to 7 in a small town  5
4 to 5 sales executives in a large town or 2 to 4 in a small town   2.5
Investment Capacity (out of 15)
Warehouse investment capacity for Capacity to stock:
handsets inventories > 750 handsets in a large town or > 500 in a small town   7.5
300 to 500 handsets in a large town or 250 to 350 in a small town   2.5
Service level (out of 25)
Frequency of service Every retail outlet served at least 3 times per week  5
Every retail outlet served twice a week  4
Every retail outlet served once a week  3
Every retail outlet served once every 15 days   1.5
Every retail outlet served once a month or less   0.5
Personal involvement Day to day active involvement, habit of market visits   2.5
No direct and/or not frequent involvement  1
Transport capacity Number of 4 wheelers (motorized):  5
Number of 3 wheelers (motorized):   2.5
Number of 3 wheelers (not motorized):   1.5
Infrastructure and systems (out of 20)
Hardware and software Computers, Internet and billing software   7.5
Computers, billing software but no Internet connection  6
Computer with no billing software  5
No computer  0
Location/Office facilities In a prime location, with a large office facility   2.5
Not in a prime location, but with a large office facility   1.5
Medium location  1
Experience (out of 5)
Experience 4 to 12 years of experience   2.5
>12 years of experience or 2 to 4 years of experience  1
Total Marks

The Points system shown above had been indexed to maintain the confidentiality of the process.
Source: Compilation by the authors from companies’ records.

‘C’ category. Aircel had not gone into end consumer level
profiling.2 By this classification, Airtel/Vodafone, however,
had only A and B category resellers because they had the
advantage of much higher consumer pull.
Apart from setting up the distribution network, set up as
described earlier, Aircel introduced the concept of Aircel
Preferred Partner (APP) retailers and implemented it
concurrently. These retailers were given infrastructure sup-
port (like printers, displays) and special incentive by the
company. The company directly serviced them for the new
activations. However, for recharges, they were attached to
one particular distributor. Similar concept was introduced
by the competitors as well but only with infrastructural
support and no special incentive schemes. The network
structure of Aircel is shown in Exhibit 10.
In the beginning of its operations, Aircel gave commis-
sions higher than the competitors. Swadip explained,
For example, if the commission given by competitors to a
distributor for recharge is 1%, we are giving 2% to the distrib-
utor. Similarly, for 2% commission to retailer by the competi-
tors, we give 4%. We also provided manpower subsidies of
Rs. 25 per activation during initial months. This was brought
down every half year to Rs 16, then Rs 9 and finally to Rs. 4 at
present. We intend to abolish this altogether in next 6 months.
(Interview with Swadip)
The policies were successful for Aircel. As the retail
network of the industry grew from 12,000 to 50,000 strong,
Aircel was able to sell through 19,000 of these. The dis-
tributor network initially started with 32 and steadily grew

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208 Aircel: Distribution Challenges

Exhibit 10. Network Structure of Aircel Exhibit 11. Channel Discount Structure
Distributor and Retailer Commission (` per activation)
COMPANY Distributor Retailer APP*
Aircel 5 10 12
Competitors 5 10 NA
FOR NEW
DISTRIBUTOR ACTIVATIONS
Distributor and Retailer commission (% on recharge)
Aircel 2 4 4
LAST MILE POINT Comp. 1 2 NA
FOR MNP Incentive to Retailer
RECHARGE
Aircel Fixed incentive plus recurring incentive for next 6
months. 15% of recharge value for 1st 3 months
RETAILER AIRCEL and 10% for next 3 months.
Comp. Fixed incentive only. TATA gives recurring incentive
PREFERRED for next 2 months.
Scheme for First Recharge—Aircel
PARTNER FR Value (`) Retailer Commission (`)
   0–97 35
Source: Compilation by the authors from companies’ records.   98–124 42
125 onwards 80
Source: Compilation by the authors from companies’ records.
to 64. In early 2010, the company came out with the con- Notes: *APP – Aircel Preferred Partner
cept of focusing on the Dynamic Revenue Earning *FR – First Recharge
Customer (DREC) and linked it to reseller incentive. The A unique Customer Linked Incentive Plan (CLIP) exists for
APPs. For every connection issued by an APP, the APP gets
details of distributor and retailer commissions and a sam- additional 2 per cent of recharge value for next one year,
ple incentive scheme for retailer with DREC are given in every time the customer recharges the connection anywhere
Exhibit 11. The fact that the Aircel had not lost a single in India. This is similar to the revenue scheme of insurance
distributor since the implementation of DREC last year agents.
and, on the contrary, was looking for new distributors was
a powerful pointer that the practice could be considered to than a third of the industry leader, but it was also less than
have found favour in the market and resulted in the net- half the industry average. In fact the ARPU stood lower
work expansion and revenue gains to Aircel. than the national average in prime telecom market like
Delhi/NCR. The subscriber and revenue figures till the
The Problem at Hand quarter-ended September 2010 are given in Exhibits 12
and 13 respectively.
The issue of low ARPU was of utmost importance at this Swadip had been discussing with his team about the low
stage. To solve the low ARPU as well as the losses, the idea ARPU problem. After the meeting with the National Sales
of focusing on quality customer rather than on new activa- Head, he shared the problem:
tions had occurred to him almost six months back and the
company had implemented the same in the form of DREC. The market-operating price of the new connections is another
The ARPU of Aircel in the NCR circle was not only less thorn in flesh. It is paradoxical that though the population

Exhibit 12. Subscriber Figures of NCR Circle till January 2011 (in million connections)

December March June September December March June September December January
2008 2009 2009 2009 2009 2010 2010 2010 2010 2011
Bharti Airtel 4.42 4.81 5.11 5.42 5.72 5.92 6.49 7.08 7.42 7.66
Vodafone Essar 3.74 4.09 4.25 4.47 4.73 5.07 5.56 6.02 6.49 6.71
MTNL 1.79 1.92 1.97 2.00 2.16 2.26 2.33 2.40 2.46 2.48
Idea 2.26 2.41 2.34 2.37 2.45 2.59 2.90 3.04 3.42 3.61
Aircel 0.00 0.03 0.33 0.55 0.77 1.12 1.37 1.67 1.85 1.92
ESTAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.15 0.27
Delhi Total 12.21 13.26 14.00 14.80 15.84 16.96 18.66 20.21 21.79 22.65
Source: Compilation by the authors from companies’ records.

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Jaydeep Mukherjee, Amit Gupta and Bhavesh Pande 209
Exhibit 13. Revenue Figures of Delhi/NCR Circle Quarter-ended September 2010
Revenue in Rupees (million)
October– April–
December January– June September
Name of the Company 2008 March 2009 2009
Bharti Airtel Ltd 4,971.7 4,872.7 4,599.0
Vodafone Essar 3,693.3 3,494.7 3,527.0
Idea Cellular 1,578.6 1,577.2 1,465.2
Aircel 0.0 0.0 91.6
All India 16,462.1 14,197.0 14,541.0 14,311.1
Source: Compilation by the authors from companies’ records.
of the NCR region is estimated to be around 25 million, the
number of mobile connections is close to 30 million. A SIM
card typically costs Rs 15 and if it is being sold with Rs 50
Talk Time, the Market Operating Price (MOP) is expected to
be around Rs 70. However, established service providers are
selling new connections either at cost price or even below cost
price. It is estimated that only 60–70 % of the new connections
are being recharged after activation. At times, free talk time is
bundled with new SIM card as part of the customer acquisition
cost. This is done with the underlying logic that subsequent
revenue from the recharges would help realize this sunk cost.
However, when new SIM card is not used subsequently, it is a
drain on the company’s cost. For illustration, if the customer
acquisition cost for a new connection is Rs 200 per SIM and
Aircel added 0.25 million new connections in a month. With
only 60 % of these going for subsequent recharges, there will
be a drain to the tune of Rs 20 million (0.4 X 0.25 million x
Rs 200) on a monthly basis. (Interview with Swadip)
Now that Swadip was sitting and pondering over the
discussions in the meeting, he was forced to recollect a
somewhat heated discussion he had just a week back
with one of the biggest distributors of Aircel, Mr Mahesh
Ahuja of M/s Ram Laxman Telecom, in presence of his
ZBM, Ms Sanjana. He wondered whether the seeds of the
problem of low ARPU and its solution lay in what Mahesh
had flagged.
The issues discussed with Mahesh were:
1. Aircel’s insistence on getting the customer verifica-
tion done before activating the connection was caus-
ing loss of business as the competitors activated
a new connection immediately and went for verifi-
cation subsequently. The loss of business was also
affecting the distributors and retailers adversely as
they were also losing on the amount they would
make on a new connection. Mahesh was also critical
of the company always supplying new SIM cards
far less than the demand by the distributors. There
was a feeling among distributors that the company
was restricting the supply particularly towards
the last days of the month. The drain on company’s
July– October– January– April– July–
December March June September
2009 2009 2010 2010 2010
4,642.0 4,389.6 4,545.8 4,745.4 4,507.0
3,537.0 3,563.2 3,687.9 3,548.9 3,593.1
1,472.0 1,386.8 1,329.4 1,332.5 1,347.5
200.0 83.0 256.3 321.0 385.0
14,090.6 14,425.9 15,156.8 14,920.6
resources due to churn was discussed with him—
though he had remained un-convinced.
2. The low MOP enforced by the competitors was
affecting the distributor margins as they were being
forced by the retailers to part with their margins,
claimed Mahesh. Refer Exhibit 14 for the compara-
tive financial deals in the Delhi circle. Sanjana
pointed out that the DREC linked schemes were cre-
ating a pull for Aircel in the market and countering
the ‘use and throw’ behaviour of a section of the
consumers who were looking for the lowest cost and
did not require a fixed connection number.
3. The distributor was given twin targets of ‘recharge
sales’ per month (typically ` 4–5 million) and
addition of retail counters. The company was also
rationing the supplies of new SIM to the distributors
to improve the enforcement of DREC concept.
However, recharge was a function of SIMs active in
the market, and with DREC concept and strict verifi-
cation requirements, it adversely affected the distrib-
utors’ revenue. Swadip had responded by pointing
out that the commission given by Aircel was almost
double of that being given by the other companies.
He also shared that the active base of Aircel was
around 70 per cent of the total subscriber base against
estimated industry average of 50 per cent. Swadip
also pointed out that Aircel had approached the
channel relationship with a long-term relationship
approach by signing agreement for five years where
the industry practice was still to do it on year-to-year
basis. He tried to convince that the strategy was
going to be a winner in the long term and Mr Mahesh
should have a strategic perspective.
4. On the counter addition issue, Mahesh had vehe-
mently opposed the company’s move to truncate his
area and place another distributor when the number
of outlets with him had grown to 587 from the 300
that he had started with. Sanjana emphasized that it
was not possible for him to manage such a large
network effectively and hence, the decision for new
Vision, 16, 3 (2012): 201–211
210 Aircel: Distribution Challenges
distributor was taken. It was also shared that this
was a policy decision and would be implemented
irrespective of the distributor in question.
5. The commission structure of APPs was another
sore point and he had asked that some such scheme
should also be introduced for the distributors. This
demand had seemed more like a wish list as part of
the negotiation strategy. Sanjana explained that spe-
cial schemes were introduced from time to time,
exclusively for the distributors.
6. Mahesh highlighted the unique retailing formats
he had developed by introducing the recharges on
the ice cream trolley carts of Cream-Bell and the
High Selling Dhabas (small but popular eateries) in
Gurgaon (in high traffic areas like Udyog Vihar and
near office complexes). He expected the company to
take cognizance of the same and introduce some
scheme for distributors for similar innovative ways
of increasing the retailer bases.
7. He was particularly sore about the gradual reduction
in the manpower subsidy by the company and now
the declared stand of the company to abolish the
scheme in another six months. This was a direct loss
to the distributor as the commission of 2 per cent on
an investment of ` 1 to 1.5 million could hardly be
called an equitable return in the Indian economy of
2011.
8. Finally, Mahesh informed that he had learnt from
his sources that the company was going to go big on
devices. He wanted to extract a confirmation from
Exhibit 14. Commercial of the Major Telecom Players in Delhi/NCR (Annual) of a Large Distributor
Vodafone /
Unit Idea/Airtel
A Number of retailers Number 700
B Investment (equipments, office ` million 0.8
infrastructure, vehicles)
C Average annual turnover ` million 90
D Average margin (including % 2
schemes)
E Margin in Rs Lac per annum ` million 1.8
F Rent for office ` million 0.12
G Manpower (salary, perks, etc.) ` million 0.6
H Operating expenses (telephone, ` million 0 0
travel)
I Miscellaneous costs (office ` million 0.125
running costs, etc.)
Annual Profit (= E-F-G-H-I-J) in ` million 0.955
Source: Compilation by the authors from companies’ records.
Vision, 16, 3 (2012): 201–211
Swadip that he would be given the exclusive dealer-
ship of the devices in Gurgaon as a natural extension
of the distributorship of the SIM cards, etc.
Since the discussion was not getting anywhere, and no
immediate resolution looked in sight, Swadip and Sanjana
had to bring the meeting to a close. However, they could
do so only after giving assurance to Mahesh that when the
issue of distributorship of devices would come, he would
be considered on merit.
Decision to be Taken
Swadip wondered whether it was a good idea to withdraw
the manpower subsidies being given to distributors when
dealer motivation was critical to the business success.
Should Aircel relook at the shift in its strategy of discerning
between a quality subscriber and any subscriber? Or was it
that the network structure or the sales function structure was
not suited for the current strategic shift—because the struc-
ture was borrowed from the industry but the customer
acquisition philosophy was markedly different from the
industry practice now. The debate with Mahesh and his
logical extension of rights for distribution of devices threw
the question whether the criteria of preferring a FMCG
distributor for the telecom service business was correct.
Further, if Aircel decides to venture into bundled offers
with devices, were the current channel partners a good
choice for the new venture. Were their capabilities and tem-
perament suited for the new business? If not, could they still
Aircel Remarks
350
0.6 This includes security ` 0.1 million, office
infrastructure ` 0.1 million and ` 0.4 million
in stocks (working capital).
30
4 For Aircel, this includes 2% fixed margin. The
variable component varies from 1 % to 3%
and has been taken as 2% on an average basis.
For Vodafone/Airtel, the fixed margin is 1%.
1.2
0.12
0.6
Included in manpower because staff salary
include fuel component. There is NO
expense on telephone because free SIMs are
provided by the telecom company.
0.075
0.405
Jaydeep Mukherjee, Amit Gupta and Bhavesh Pande 211
be co-opted with some capability-building exercises or
whether the new market offering was so different that the
channel decisions will have to be taken totally afresh?
He was also aware that the telecom sector was facing a
dynamic transformation from voice to VAS. The advent of
Pocket Internet, 3G and DTH were making the life difficult
for telecom companies. He was not sure whether the future
lay in voice, data or both? He was sure that the fight for
ARPU was not going to be won by answering only one of
the above questions. May be all of them would have to be
answered and may be still many more questions answered
before the battle could be won. There was limited quantita-
tive data but decisions needed to be taken at present by
extrapolating the data and the understanding.
Notes
1. Kirana stores are small grocery shops which stock most of
the household goods of daily requirement.
2. They used a rule of thumb (developed based on experience)
that for ‘A’ category outlets, 60 per cent revenues were com-
ing from 40 per cent of customers. For ‘B’ category outlets,
75 per cent revenue came from 25 per cent customers and for
‘C’ category outlets 90 per cent revenues came from 10 per
cent customers.
Jaydeep Mukherjee (jmukherjee@mdi.ac.in) is an Associate
Professor at Management Development Institute, Gurgaon, India.
He teaches Marketing for Virtual World, Marketing Strategy,
Product Management, Sales and Distribution Management. He is
currently researching the various antecedents of motivation to
use social media. He takes active interest in developing case
studies from the Indian companies and developing simulation
games to aid in the classroom teaching.
Amit Gupta (amitgpat@yahoo.co.in) is Manager (Retail Sales)
at Shimla Divisional Office of Indian Oil Corporation Ltd,
India’s leading marketer in petroleum products. A winner of
Prime Minister’s Gold Medal for topping the National
Management Programme of MDI (2010–11), he has a decade
long experience of channel partner management in oil sector. He
is currently looking after network expansion and development for
petrol, diesel and kerosene for Indian Oil Corporation across the
state of Himachal Pradesh. He is the author of a book on Punjabi
poetry, Navin Fasal Da Beej, published in 2002.
Bhavesh Pande (bhaveshpande@indanoil.in) is Senior Manager
(Consumer Sales) at Gujarat State Office, Ahmedabad, of Indian
Oil Corporation Ltd, India’s leading marketer in petroleum
products. He is the winner of ITC Gold Medal for topping in
Marketing stream of National Management Programme of
MDI (2010–11). He has a decade and a half long experience of
petroleum marketing in Rajasthan, Haryana and Uttar Pradesh.
He is currently looking after B2B marketing of various petroleum
products, viz. petrol, diesel, furnace oil, bitumen, benzene, pet-
coke and sulphur, for Indian Oil Corporation Ltd. in the state of
Gujarat through a set-up of three Divisional Offices.
Vision, 16, 3 (2012): 201–211