STRATEGIC

OUTSOURCING AT
BHARTI AIRTEL LTD.

Jins Jose
Navneet Kumar
Vivek Kumar Singh
 FINANCIAL PERSPECTIVE
• March 2004: Revenues of $1,113.4 million, a 100% increase over
2003.
• Operating margins from negative (–2.25%) in 2003 to 16.9% in
2004. (Able to take advantage of the economies of scale due
to its larger network).
• While it had suffered a net loss in 2003, the next year saw a
net income of $117 million.
• Return on equity in 2004 was nearly 12%.
 TELECOM SECTOR: MARKET
Others; 13 Bharti; 25

MTNL; 1.5
Tata; 2
Idea; 11

Vodafone; 12 Reliance; 19.5

BSNL; 16

2004-2005
Core Competency of Bharti
• The main core competency of Bharti was OPERATIONS.
• And its focus was to maintain the quality leadership with
competitive pricing.

• Improve on Market Share

• Maintain Quality leadership
• With growing competition remain competitive on pricing.
• Emphasis more on value added service to improve bottom line.
• More investment for capacity expansion
Major Concern for Bharti
• Bharti’s customer base was growing 100% per year
• Equipment bought for $15 to $20 million in the last
couple of years was no longer of much use as the
new software wouldn’t run on it.
• Budgeting and the tendering process for network
expansion is taking up a tremendous amount of
management time.
• ARPU was falling to $4- $5 as against $10 in US,
Europe.
Major Concern for Bharti
• Had to keep 30% excess capacity to meet the growing
demand.
• Could not afford to delay the purchasing of additional
capacity as it might effect the quality of service.
• software or hardware applications not supported by
IBM would no longer be available.
• Transfer of nearly 1000 employee can pose cultural &
managerial problems.
Major Concern for Bharti
• Threat to security and confidentiality of Bharti.
• Quality problem
• Tied to financial Well-being of vendors
Advantages of Outsourcing
• It can use its resources and expertise to its core areas of product
innovation, value-added services, marketing, branding and pricing
• Company do not have to keep investing in maintaining excess
capacity of 30 -40 %
• Improvement of overall industry profitability by reducing conflict
between network equipment vendor(like Nokia, Ericsson) and
telecom company(Bharti)
• Can provide world-class mobile services by leveraging Ericsson's
expertise.
• Rapid Growth is possible.
• Cost reduction for Bharti: Rapidly changing trends in telecom
industry leads to quicker obsolescence of equipment's
Disadvantages of Bharti outsourcing
• Chances of losing out Bharti core competency.
• Over dependency on its vendor.
• Outsourcing from smaller company to a larger company.
• Time to market of new IT based services might get
affected.
• The IT and marketing departments were concerned that
software or hardware applications not supported by
IBM would no longer be available .
• Transfer of nearly 1000 employee can pose cultural &
managerial problems.
 Nokia, Ericsson ,Siemen & IBM’ s Concern
• They might be stuck with important investments in
network equipment
• And hence the deal might become risky.
• They were also concerned with absorbing
hundreds of Bharti employees – culture mix
• Turning down the Bharti offer can hamper future
growth in Indian market
• IBM needed to be fairly sure of Bharti’s future
success
 Agreement Structure
Ericsson, Nokia, and Siemens
• Buildup, maintenance and servicing of telecom networks
equipments
• Payment agreement based on erlangs used by Bharti excluding
the unused capacity
• Ownership of assets rests with Bharti and maintenance
responsibility rests with service providers
• Quality parameters also taken care by SLAs
• Three year contract and renewable under mutual agreement
 Agreement Structure
IBM:
• Buildup, maintenance and servicing of core IT infrastructure
• Everything from computers to mainframes excluding
telecom network specific networks
• Sharing of revenue between Bharti and IBM
• Percentage of revenues share set to decrease as overall
revenue increases
• SLAs – hotline customer satisfaction and application
implementation delays
• Five year contract renewable for another five years
Thank You