Strategic Outsourcing at Bharti

Airtel Limited
- Time Taken by Network Suppliers to finalize the equipments tender and Airtel’s customer’s base
was growing at the rate of 100% per year.
- Budgeting and the tendering process for network & the expansion takes up tremendous amount
of management time and Bandwidth.
- Management of firms IT Capital Expenditures
- APRU will come down by 50% in next 3 years

IT INFRASTRUCTURE
- IT network scalability to match the size of the organization
- IT design not Bharti’s core competency
- Incompatibility in existing and inherited IT systems
- High obsolesce cost
- To face huge up-front investments for getting right architecture

NETWORK CHALLENGES
- Conflict of interest with vendors
- Industry practice to purchase 30% excess capacity to compensate for estimation error in
prediction capacity
- Increased costs of purchasing and installation at more sites, staff and maintenance
 Why Would Nokia –Siemens agree to their
proposal
- Opportunity to enter India booming telecom market
- Association with a company like Bharti Airtel will expand its services to other
customer as well.
- Potential profit in the future by contracting with other Telcom service providers.
- Expand market share in India
- Huge Incentive in terms of Bonus, Reputation & Revenue sharing
- Easy exit options and future growth
- 100% business expansion commitment in terms of new equipments installations and
upgradations for existing systems
- Indian Telecom industry CAGR will be 17 % in 2003.
- Regulatory has given Bharti huge advantage to grow in Wireless network .
- Multi Year contract and option for renewability.
Why would IBM accept their Proposal?
- Huge Opportunity to enter Indian Market
- Improving Financial health of Bharti Airtel
- 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)‡
- ‡ Return on equity in 2004 was nearly 12%
- Opportunity to do more business with a major player like Bharti.
- Revenue Sharing model & Performance Bonus.
- 10 Year Deal.
- IBM will be using Bharti Deal for new business expansion
The Contract Sign & Expectations are different why
is it so ?
AGREEMENT
-Bharti will pay the vendors according to the Erlangs of the installed capacity.
-Payment will be processed only when the capacity is up & running and it can be
used by the customer
-Pricing agreement per Erlang in case of very high demand density requirement.
-Vendors will establish Network Operating Centers to monitor cellular activity
-SLA to guarantee quality for Airtel’s customers
-Once capacity is installed- ownership is Bharti
Performance Metrics of Measurement of quality
-Blocked calls in Peak/non peak hours
-Dropped calls in Peak/non peak hours
-Voice quality
Financial Rewards & Penalties.
BHARTI AIRTEL’S CONCERNS
- First time such an agreement was on the table and it expressed serious
reservations about handing over network management and operations to the vendors
-Concerned that the software or hardware applications not supported by IBM would
no longer be available
-Implications the deal would have on the time to market of new IT-based services for
customers
-Concerned about the management of transfer of nearly 1,000 staff
Members
- Network Outages & Loss of customer due to poor operations
Vendor Concerns
NOKIA SIEMENS CONCERS
-Stuck with Capital investments in network equipment that they will make in
behalf of Bharti in the event that Bharti did not use the equipment.
-Concerned with absorbing hundreds of Bharti’s employees
-Opportunity loss for vendors could be dangerous because of the rapid growth of
Bharti causing them to loose of lucrative deals

IBM CONCERNS
-Forecasting Bharti’s future revenue growth in next 5 to 10 years
- Doubts if investment would improve Bharti’s chances for success
in the future
- Concerns about the implications of the deal would have on the
time to market of new IT-based services to Bharti
-Culture’s different from India: India is not a “Hire-and Fire” country
 How can I resolve the conflict?
Conflict resolutions

-Building of professional contract group

-Developing of feedback mechanism to leverage & Share knowledge & innovations
in both directions

Creating a Mutual 3 – level Contact system-

Top Management level: Break bottlenecks & ensure responsiveness
Champions on both sides of the relationships
Numerous operating level personals who will develop the personals & knowledge
exchanges.
-SLA also builds the basis for any renegotiation or legal dispute
-A periodic comprehensive assessment and evaluation mechanism was made to
measure the performance and expectations of the agreement.
Thank You
GROUP 8 | EMDP – IIM KOZIKODE

Indian Institute of Management, Indore