STRATEGIC OUTSOURCING AT BHARTI AIRTEL LTD.

Jins Jose Navneet Kumar Vivek Kumar Singh

4 million. ‡ Return on equity in 2004 was nearly 12%. ‡ Operating margins from negative ( 2.113.9% in 2004. ‡ While it had suffered a net loss in 2003. a 100% increase over 2003. .FINANCIAL PERSPECTIVE ‡ March 2004: Revenues of $1. (Able to take advantage of the economies of scale due to its larger network). the next year saw a net income of $117 million.25%) in 2003 to 16.

25 Vodafone. 11 Others.5 Tata. 13 Bharti. 12 Reliance. 2 Idea. 19.5 BSNL.TELECOM SECTOR: MARKET MTNL. 16 2004-2005 . 1.

‡ And its focus was to maintain the quality leadership with competitive pricing.Core Competency of Bharti ‡ The main core competency of Bharti was OPERATIONS. More investment for capacity expansion . Emphasis more on value added service to improve bottom line. ‡ ‡ ‡ ‡ ‡ Improve on Market Share Maintain Quality leadership With growing competition remain competitive on pricing.

‡ Budgeting and the tendering process for network expansion is taking up a tremendous amount of management time.$5 as against $10 in US. Europe. .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. ‡ ARPU was falling to $4.

‡ Transfer of nearly 1000 employee can pose cultural & managerial problems. ‡ software or hardware applications not supported by IBM would no longer be available.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.

Major Concern for Bharti Threat to security and confidentiality of Bharti. ‡ Quality problem ‡ Tied to financial Well-being of vendors ‡ .

Rapid Growth is possible. 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. value-added services. Ericsson) and telecom company(Bharti) Can provide world-class mobile services by leveraging Ericsson's expertise. marketing. ‡ ‡ ‡ Cost reduction for Bharti: Rapidly changing trends in telecom industry leads to quicker obsolescence of equipment's .Advantages of Outsourcing ‡ ‡ ‡ It can use its resources and expertise to its core areas of product innovation.

‡ Outsourcing from smaller company to a larger company. ‡ Transfer of nearly 1000 employee can pose cultural & managerial problems. ‡ Over dependency on its vendor.Disadvantages of Bharti outsourcing ‡ Chances of losing out Bharti core competency. ‡ 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.

‡ 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 .Siemen & IBM s Concern ‡ They might be stuck with important investments in network equipment ‡ And hence the deal might become risky. Ericsson .Nokia.

Nokia.Agreement Structure Ericsson. 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 .

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