Section C Group 4 Nikhil John Kurian Sandeep Tripathy Priyankar Biswas (PGP/14/100) (PGP/14/114) (PGP/14/229) Reuben P.

Abraham Zoheb Khan Kavya S (PGP/14/234) (PGP/14/255) (PGP/14/276)

Case Facts
 Introduction to Bharti Airtel  Indian Telecom Market  Bharti s Telecom Network  Issues  Proposed solution  Vendor Reaction

Case Questions

A family run business by Mittals Airtel launched in 1995 Aggressive acquisition of licenses in circles Heavy capital inflow Equity stake for partners/shareholders 2003 - wide presence all over India 2004

 100% revenue growth  Operating profit from -2.9% in 2003 to 16.9% in 2004  Earned profit

Opened for private sectors in 1991 1995 :Phone was a true luxury 2003 :
 $54 mn subscribers 

$8.5 bn revenue, growing at 17%

18% wireless, 82% fixed

 2G services, launch of VAS  Huge growth potential in basic telephone service : $10.9 Bn by 2008

Sale of mobile and service separately 60% prepaid, 40% postpaid Highly competitive Market
Low ARPU  7 major national players, few strong regional players  Thrust on VAS to earn more; 2.5G, 3G required for those services


18 circles, 25% market share, 6 mn customers To expand wire-line services in future Services :
 Mobile : 64% revenue, high market share ( 40% in 6 circles) High quality service Prepaid, post paid, Blackberry, fax, data transmission etc  Long Distance, Group Data and Enterprise : 30% revenue End-t0-End broadband, long distance, videoconferencing etc  Broadband and Telephone : 16% revenue Wifi, video surveillance, VPN

GSM technology High growth plans :

 100 towns to be added every month, all census towns by 2007

From 5000 base stations in March-04 to 40000 in March-07

 2000-3000 more people to maintain them

EDGE 2.5G technology launched in Mumbai Fiber optic cables for long distance calls International carrier business
 i2i undersea cable system for international carrier business  Participation in JV for building SEA-ME-WE4, the Singapore-France

submarine cable

Operational Problems
 Conflict of interest for vendors  30-40% excess capacity -> heavy financial implications  Apprehensions on being able to meet the growing demand due to long

tendering and planning process

IT Issues
 Not core competency, heavily dependent on IT vendors IBM, HP, Sun

Microsystems and Oracle  Not sure whether current investments will be productive in future  Incompatibility across the system due to acquisitions  Huge up-front investment needed

HR Issues
 Increasing need to hire more people for network management  Challenge in attracting and retaining the best talents

Outsourcing telecom n/w to equipment vendors

 Vendor to provide capacity Erlangs  Bharti to pay for capacity that s up and used by its customers  Bharti to own the assets producing Erlangs, vendors to perform O & M  Quality controls in SLA Penalty and rewards

Outsourcing IT infrastructre to IT vendors

 Vendor to supply, install and maintain the IT infrastructure  Includes all hardware and software that are not linked to telecom

network specific infrastructure  Bharti to pay a share of revenue, which will decline  Quality controls in SLA Penalty and rewards

Employee transfer agreement

Unprecedented even at Global level CTO s apprehension on outsourcing core operations Some h/w and s/w applications may not be available Employee transfer may not be feasible because of cultural differences Heavy dependency on vendors

Heavy risk for both equipment and IT vendors Cultural barrier in absorbing Bharti employees Willingness to have a pie of growing Indian market : Nokia and Ericsson First of its kind revenue-sharing proposal for IBM : highly risky

Core competency : Operations For success,

 Build a scalable and flexible infrastructure ( IT and telecom network )

so that it can meet the growing consumer demand  Shift from short-term agreements with equipment vendors to long term commitments to get better bargains and service, thereby eliminate the conflict of interest  Outsource areas of non-core competency e.g. IT

Advantages of the current outsourcing proposal

   

Focus only on core competency and leave the rest to experts Pass the risk to vendor Vendor can achieve economies of scale and pass on the benefits More scope for employees to learn from global giants, higher job satisfaction

Disadvantages
 Firm loses control, heavy dependency on Vendors
Mitigation : SLAs, revenue-sharing model, heavy penalty and rewards, long term partnership at stake

 Loss of IPR : not highlighted as a big threat in this case  Cultural barrier in transfer of employees
Mitigation : Communicate the benefits clearly to all the parties and prepare a transfer plan in consultation with HR experts for a smooth transition

Opinion :

Outsource IT part to vendors as it does not have expertise Eliminate conflict of interest for equipment vendors by
a)

Entering into long term contracts which makes them work for mutual benefit

Transfer employee to vendor organization in a smooth process by addressing issues of all parties

Outsourcing IT infrastructure to IBM

 Totally dependent for IT infrastructure on giant companies  Monitoring and managing a project on which Bharti does not have

expertise  Willingness to work on non-IBM technologies

Outsourcing telecom network to Nokia, Ericsson or Siemens

 First of its kind in the world  Ability of vendor to ensure scalability and flexibility is in question  Managing the complex project

Telecom network outsourcing contract

 Pay per erlang basis  Vendor to improve capacity as intimated by Bharti in advance  Not to own assets for producing capacity
Minimize fixed cost If the model is successful, then vendor can provide capacities to other operators also. Economies of scale benefit

 SLAs, penalties and rewards

IT outsourcing contract
 Find out IT expenses as a proportion of revenues and negotiate on its basis  SLAs, penalties and rewards

Assign two project managers to have a close eye on both projects Finalize metrics after mutual discussion, based on which monthly evaluation is to be performed

Concerns for IBM

 Total exposure to risks of Bharti
Mitigation : A fixed fee irrespective of performance of Bharti, upon crossing certain revenue, revenue-sharing agreement would come into the effect

Concerns for Nokia

 Uncertainty about requirement and usage of installed capacity
Mitigation : Intimation on more capacity requirement before 6-12 months time. A fixed fee for installed capacity irrespective of usage, additional fee for usage

Thank You