Strategic Outsourcing at Bharti Airtel Limited

Group E08

Bharti Airtel: A Recap

Future Strategy

Bharti Airtel
Revenue Breakup 25% market share in 2003

Target: GSM system up in all 5161 census towns by 2007 Target: To be in all 23 circles by end of 2005 Current Status: Present in 15 Circles and 1400 Towns

Broadband & Telephone (16%) Long dist, Group Data, Enterprise (30%)

Mobile Services (64%)

Vendor Analysis
Number of relationships with network suppliers like Nokia, Siemens, Ericsson

Comfortable working with many suppliers as everything is plug and play Issue: 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

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.

IT Infrastructure getting obsolete to fast

IT is currently not a core competency

Issues with the Proposal

Operations
Operations is Bharti s core competency Outsourcing of network management and operations is not acceptable Can be better handled by a Just in Time Inventory System

IT

The hardware applications not supported by IBM wont be available. IBM may not be able to work fairly with other vendors Over Dependence on IBM Can be better handled by having a Service Oriented Architecture with multiple vendors

HR

Staff may not want to be transferred, or perhaps the vendors may not want to take them

Assumption that the Vendors and IBM would agree to the current contract does not have a strong backing

Kralijics Supply Matrix

S U P P L Y R I S K IT architecture: It has high supplier risk (only IBM) It has high profit Impact

Bottleneck

Strategic Item

Non Critical Item

Leverage Item

Network equipment: Low supplier risk High Profit Impact

PROFIT IMPACT
Source: http://www.scribd.com/doc/52784387/Bharti-Airtel-Case

Decision

NO TO OUTSOURCING In current form

Strategic Plan: Vendors

Collaborate with the network equipment vendors through a subsidary for expansion in different areas Joint investment in the network equipment by both Airtel and the vendor Implement a Just in Time Inventory System for additional capacity varying across locations Investment and usage to be at the following terms Minor investment by Airtel as compared to vendor A small chunk of the network, e.g. a set of antennae on the transceiver station to be dedicated for Airtel s use, whereas the rest of the capacity is for the vendor, e.g. Nokia, Siemens or Ericsson in different regions, to lease out or sell After a period of 5 years, when Airtel would have reached its target of covering the desired number of cities, the towers would be passed permanently to the vendor, with some capacity reserved for Airtel Rationale behind the move: Issues of investment and growth covered Involving the vendor into the investment ensures that the expansion takes place at our pace Having some reserved capacity on the tower allows us advantage of first-mover entry into the market whereas capacity present with the vendor acts as spare capacity for us Low fixed cost on the books and allowance for the transfer of tower to make the deal attractive for the vendor

Strategic Plan : IT
Enable a Service Oriented Architecture to enable scalability at lower cost Outsourcing of the IT infrastructure in steps Initial outsourcing to be done to all the vendors namely IBM, Sun, HP and Oracle for a period of 3 years This step takes care that no one vendor gets major share of the system This step ensures that Airtel doesn t become dependent on one vendor After 3 years, outsource the complete infrastructure to IBM and dismiss the contract with the other vendors Since IBM doesn t have the infrastructure, it would have to subcontract to the other 3 vendors for the pieces of infrastructure that they had This step ensures that even though Airtel has formed the contract with IBM only, IBM still won t have power over Airtel as Airtel can always go back to the previous arrangement

Strategic Plan : Decisions ( Qualitative & Quantitative)

Arena Focus on the key business, i.e. Telecom and nothing else Expand the wire-line based telephone services and target the areas where Airtel s market share > 40% (Providing incentives for being a joint customer) Increasing geographical reach by obtaining mobile licenses for the remaining 8 circles Vehicles Collaboration with the vendors, i.e. Nokia, Siemens and Ericsson to expand the telecom network by joint investments and ownership Outsourcing of the IT network to all the suppliers IBM, Sun, HP and Oracle for a period of 2 years, and thereafter complete outsourcing of the IT infrastructure to IBM Expansion into the international market after a period of 5 years with the help of the venture with Singtel Differentiators License for mobile services in 15 circles and permission to expand wire-line services in those regions without additional investment Venture with Siemens allowing for easy entry into foreign markets and getting more profitable customers having higher ARPU

Strategic Plan: Decisions ( Qualitative & Quantitative)

Staging Entry into the 8 circles in the nest 3 years Covering the target of 5000 cities by the end of 2007 Details for both provided in the coming slides Along side geographical expansion, focus on increasing market share in the 6 circles where market share > 40%, as BSNL would be removing its attention from this market Economic Logic Provide service at nominal rates with the advantage of economies of scale Market share capture through first-mover advantage in the circles and first to cover the country

Strategic Plan
Trade-offs Lose the flexibility of changing suppliers if the service is found unsatisfactory, but advantage of having the vendor collaborate with us in making our entry in a region successful, so that others will join us later Support and Resistances Support from the vendors who would be willing to build their relationship with Airtel and join the bandwagon for the growing telecom market in India Resistance from the top management, in terms of outsourcing the infrastructure, which would have to be tackled by showing the advantages of the proposal in terms of saved costs, time and efforts and have better operational efficiency Impact (Qualitative and Quantitative) Continuously expand our customer base and have revenue growth, so as to meet the expectations of IT vendors, but having the risk of loss of trust and business if the revenue growth does not match expectations Opportunity for rapid growth and capturing market share but failure would push the company out of competition due to fast moving competitors

Year On Year Financials

2003 Sales % Increase in Sales Mobile Services Long Distance Group & Enterprise Broadband and Telephone Services Eliminations Cost of One Call (Rupees) Mobile Services Sales Total Number of Customers Number of Calls Usage per customer (minutes) Net Income Earnings per Share (INR) Total Assets Total Liabilities Long-Term Debt Profit Margin Number of Circles Towns 64% 30% 16% 10% 1.5 15468.8 4013094 10312533333 2569.72135 -2018 1.1 88659 47981 22736 -8.30% 15 24170 2004 48320 99.92 64% 30% 16% 10% 1.4 30924.8 7814481.11 2.2089E+10 2826.69349 5076 2.76 119021 73105 36965 10.50% 19 1400 144409.1 96420 47989.09 11.50% 23 2700 3950 5161 181860 128413.9 53446.09 12.50% 237144.2 175080 62064.17 13.50% 2005 80000 65.56 68% 28% 15% 11% 1.3 54400 13458112 4.18E+10 3109.363 9200 2006 120000 50.00 72% 26% 14% 12% 1.1 86400 22964499 7.85E+10 3420.299 15000 2007 180000 50.00 76% 24% 13% 13% 0.8 136800 45450570 1.71E+11 3762.329 24300

2005

2005 2004 2004

2005 2005 2004 2004

Thank You