MAJOR CONCERNS

• Bharti’s customer base was growing 100% per year

• Equipment bought in the last couple of years was no longer of much use; the
new software wouldn’t run on it and they had spent $15 to $20 million on it.

To overcome this,
• A reliable, predictable usage-linked cost structure was needed for Bharti to
become the lowest cost producer of minutes

2 outsourcing proposals:
• One to Bharti’s key telecom network equipment vendors: Ericsson, Nokia, and
Siemens
• The other to its IT equipment vendor, IBM.
 BHARTI’S PROPOSED DEAL
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
 BHARTI’S PROPOSED DEAL
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
 REACTIONS AT BHARTI
• IT and marketing departments - concerned that software or
hardware applications not supported by IBM would no longer
be available.

• The vendors are much bigger, and they’re worldwide

companies. The cultures are different.

• The main concern expressed by all of the board members was

the risk of excessive dependence upon the vendors
 VENDOR’S MIXED REACTIONS
• They liked the opportunity to do more business with a
major player – Bharti

• But they were concerned with the risks

• They were also concerned with absorbing hundreds of

Bharti employees – culture mix

• IBM needed to be fairly sure of Bharti’s future success

 WHY OUTSOURCING?

• Huge capital expenditure needed to help growing customer

base
• Rapidly changing trends in telecom industry leads to quicker
obsolescence of equipments
• Keep the IT applications that are used to tackle competition
in-house
• Risk diversified by involving three vendors instead of one
• Proper governing mechanism should be in place
OUTSOURCING & JV
Top 6 outsourcing deals in Indian Telecom

1. Airtel outsourced its operations to IBM which

started at $750 million  and now reached $2.5
billion
2. Vodafone outsourced its operations to IBM for
$1.2 bn
3. IDEA outsourced its operations to IBM for $0.8 bn
4. Aircel outsourced to Wipro for $0.6 bn
5. Unitech to Wipro for $0.5 bn
6. Tata Teleservcies to TCS for $0.25 bn
 DEAL WITH IBM

• Deal with IBM - $750 million (2004)

• Extension of the contract by $100 million (2006)
• Presently deal worth $1.5 billion
• Net profit increased from Rs.461.72cr to Rs.814.38cr
during 2005-06
 Benefits of Outsourcing to IBM
• Its new platform provides a standardized framework
for Bharti Airtel to integrate its channels and
customer-facing processes–enabling a more seamless
customer experience, higher customer satisfaction
and more profitable growth.
Key Benefits:
• Ability to process 1.5 million new customers per
month
• Outsourcing of technology enables Bharti Airtel to
focus resources on growing the business
 DEAL WITH ERICSSON

• Contract : $400 million (around Rs 1,800 crore)

• Bharti has borrowed $300 million from ABN Amro Bank to fund the project
• Following the deal, around 250 Bharti employees working on planning and
designing of the company's network are absorbed by Ericsson
• The overall cost of funding, including hedging costs, is around 4%
• The company had talks with Motorola and Siemens for similar
arrangements in its remaining three circles then.
• Sep ‘07 - Bharti Airtel revealed plans to award a $900 million GSM network
expansion contract to Nokia Siemens Networks
 5 Contracts with Ericsson
• Ericsson has won five network outsourcing deals from Bharti
since 2004.
• Bharti had signed $400 million outsourcing deal with
Ericsson in 2004.
• The Swedish company also bagged two sub-$1-billion deals
in 2004 and 2005
• Ericsson bagged the $2-billion network outsourcing,
maintenance and management contract in 2007, the largest
deal in this sector.
• Ericsson has bagged $1.3-billion outsourcing contract from
Bharti Airtel to upgrade its mobile network.(2010)
BENEFITS OF OUTSOURCING
BENEFITS OF OUTSOURCING
SUBSCRIBER & PROFIT AND LOSS DATA