Strategic Outsourcing at

Bharti Airtel Limited

Sanjay Jharkharia

Indian Institute of Management Kozhikode

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Bharti: History and Background
• Sunil Mittal founded Bharti in 1995
• During liberalization Bharti won the
govt. tender and launched “Airtel”
• First private provider in Delhi
• In 1998 Bharti was India’s first
private provider to turn on profit
• In 2002 Bharti went public on NSE
and raised $172 million in its IPO
• 91% of all mobile users in India
• First private telecommunications
service provider to launch
national/international long-distance
service
• Able to take advantage of economies
of scale 3
 Bharti Management and
Organization
Board of Directors

Chairman and Group

Managing Director
(Sunil Mittal)

Joint Managing Joint Managing

Director Director
( Rajan Mittal ) ( Akhil Gupta)

Dir Business Director Human Group Financial

President Mobility
Development Relations Controller

Director Marketing Director Legal

Head Regulatory & Group
President Infotel
Company Secretary
Director IT & Group Director
Technology Strategy & Planning

Director Corporate
Supervisory Director
Affaires

Director Corporate
Communications

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 Indian Market for
Telecommunications
• In 1989, there were 4.2 million
telephone subscribers

• In 2003 the number was 54 million.

• 8th largest telecom network in world

• By 2003, India adopted 3G

technologies and provided value
added services like data transmission,
SMS, Ring Tones etc.

• Indian operators chose to sell mobile

phones and mobile telephone services
separately.

• 60% - Prepaid vis-à-vis 40% -

Postpaid

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 Market Competition
• By 2002-03 mobile rates were as
low as 3 to 4 US cents per
minute

• Average monthly revenue was

fallen by 50% per customer unit

• Bharti operated in both fixed and

mobile segments

• With industry consolidation the

focus was shifting to provide
value added services. This was a
major capital investment
challenge for any telecom sector
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 Bharti’s Telecommunication
Network
• Bharti had a 25% market share in 2003

• Growth in both wireless and wire line sectors was expected to be

exponential as Bharti obtained licenses to achieve nationwide
coverage

• Bharti operations was structured into 3 strategic business units:

1) Mobile Services – 64% of Bharti revenues. Focused on

providing excellent customer service through error free service,
cost efficiency, innovation in new products and services.

2) Long-Distance, Group Data and Enterprise – 30% of Bharti

revenues. This network spanned 24000 km and connected
almost all major cities

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Bharti’s Telecommunication Network
Contd…

3. Broadband and Airtel’s Revenue Breakup

Telephone
Services – 16% of
Bharti revenues.
Provided wire-line
bases telephone
services in six circles
and broadband
services in all major
economic centers
• 10% of revenues pertains
to inter-segment
eliminations

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Mobile Network Architecture

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 Technology and Development
• By March 2004, Bharti
network covered 1400 towns
using GSM
• Target: GSM system up in all
5161 census towns by 2007
• This required an increase in
the number of Base Stations
from 5,000 (Mar ‘04) to
40,000 (Mar ‘07) and an
additional 2,000-3,000
increase in headcount
• Started deploying EDGE
(Enhanced Data rates for GSM
Evolution) in major cities
• Network reach through fiber
optic cables, deployed in
partnership with Singtel (SEA-
ME-WE 4)
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 Bharti’s Relations with vendors
• Bharti had number of relationships with
network suppliers like Nokia, Siemens,
Ericsson
• Bharti was comfortable working with
many suppliers as everything is “plug
and play”
• Environment was also very competitive
between telecom vendors
• Issues in the industry
– Vendors always tries to sell more
equipment
– A typical network uses only 60% –
70% of installed capacity
– Around 35% excess capacity to keep
one step ahead of customer demand
– Delay between the time the need for
additional capacity is identified and
the time it could be up and running
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 IT & HR Requirements
• The telecom network systems and software –
related to basic functioning of telecom connection
and switching system
• Customer management information systems that
allowed for collection of data on customer use,
service quality
• Business support software and hardware
architectures including internal programs such as
billing, security, user programs etc
• IT issues:
– The IT systems of acquired companies are
incompatible with existing systems
– Certain applications like fraud management
are not provided by its existing vendors like
IBM, HP, Sun Microsystems etc.
• HR issues:
“Would you rather go work for one of the world’s
top multinational firms, large in size and
reputation, or for a local upcoming operator 12
like us?” said by Gupta
 Bharti’s Proposed Deal
• Build-up,
maintenance, and
servicing of the
telecom network to
equipment vendors
– Ericsson, Nokia
and Siemens

– The agreement is
to be for an
initial period of 3
years subject to
renewal by
mutual
agreement.

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 Bharti’s Proposed Deal
• Build up, maintenance, and servicing of its
core infrastructure to IBM
– IBM will provide end-to-end management
service for supplying, installing, and managing
all of its hardware and software requirements
and all of the applications to operate it
– It includes all internal customer service and all
negotiations with external software and
hardware suppliers
– It includes maintenance of all hardware and
software, including those provided by other
vendors such as security, data warehousing,
fraud management, business intelligence, HRM
etc.
– IBM services will be subject to a number of
quality controls specified in SLAs
– Bharti will pay the share of its revenues which
will progressively decline as overall revenue
increases

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 The Dilemma
The Bharti personnel presently
carrying out tasks would be
taken over by vendors

“Should the proposal be

accepted by the vendors,
around 270 IT staff and 800
network staff could be
transferred out of Bharti”

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 Reactions at Bharti
• The reaction was not highly supportive

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Vendor Reactions

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 IT Outsourcing Pros for Bharti
• It is not the core competency of Bharti
• Strategic outsourcing of non core activities will
help the company to focus on distinctive
competencies
• Specialists will be able to perform the activity at a
lower cost because they are able to realize
economies of scale
• Quality of the activity performed by the
specialists will be better
• Clearly defined performance metrics
• Existing incompatible IT systems
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 IT Outsourcing Cons for
Bharti
• Hardware and Software not
supported by IBM will be of no use
• Accessing services of other vendors
• Transfer of 270 employees

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Network Outsourcing Pros for
Bharti
• Technological Superiority is essential
for competitive advantage
• No expertise in installing such a huge
network
• Utilizing economies of scale
• Carefully defined performance metrics

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 Network Outsourcing Cons
for Bharti
• Huge Capital Investments for Network
Equipment and Installation if not outsourced
• HR issues, transfer of staff, nearly 800
• Loss of control
• Wastage of installed capacity
• Outsourcing a core competency, operations
management

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Vendor’s Risk and Returns

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 Proposed Deal with Vendors

• Vendors provide network capacity and paid only for

running Capacity
• Unused Capacity – No Payment (Vendors can have
problems here)
• Capacity Ownership with Bharti, Maintenance with
Vendor
• SLAs signed with vendors for quality control etc
• Renewal after 3 years

Microsoft Office
Word 97 - 2003 Document

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 Proposed Deal with IBM
• IBM to provide end to end supply, installation,
maintenance and management of IT
infrastructure
• SLAs for quality control, etc
• Ability to process 1.5 million new customers per
month
• Bharti to pay IBM a share of revenues which
will progressively decline as revenue
decreases (IBM can have problems here)
• Renewal after 5 years

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Proposal Implications on Bharti

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Proposal Implications on
Partners

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Kralijic’s Supply Matrix

S
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R
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S
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PROFIT 27
IMPACT
 Kralijic’s supply matrix
• Network equipment lie in the Leverage
Item grid
–They have low supplier risk
–High Profit Impact
–Hence Bharti has the bargaining power
• IT architecture lies in Strategic Item grid
–It has high supplier risk (only IBM)
–It has high profit Impact

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IT Equipment Outsourcing
Analysis

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 Network equipments

• Telephonic network components are

Modular products
• They are designed to be easily plugged
• Very critical for the functioning of the
system
• Easily available

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Network Equipment Outsourcing
Analysis

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Porter: Strategic Analysis

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