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Strategic Outsourcing at Bharti

Airtel Limited
GROUP 8
M Gautam 13P081
Mitual Jain 13P086
Nitin Dangwal 13P094
Anupama Rana 13P195
Nikhil Saini 13P218
Palak Khaneja 13P219
Prathmesh Waghmare 13P221

About Airtel
A family owned business that was started in 1995 and launched its

services using GSM


3 SBUs include : Mobile services; Long-distance, Group data &
enterprise; and Broadband and Telephone services
First provider in India to launch national & international long-distance
service
Sold equity interests for greater capital inflows and later went public in
2002
2004 revenues of $1113.4 million marked a 100% increase over 2003
Has presence in all major economic & industrial centers (15 of 23
circles)
Has 25% market share and over 6 million mobile subscribers

Indian Market for


Telecommunication
Experiencing a growth rate of 17% per annum
Wireless services contribute about 18% of telecom revenues
In addition to 3G, huge potential remained in the development of

basic phones (6 of 100 inhabitants had a telephone connection)


Highly competitive industry with mobile rates as low as 3-4 US cents
per minute; and ARPU had fallen to 50% in 3 years

Airtels Future Plans:


To have presence in 5161 census towns (currently present in 1400

towns)
Increase the number to base station from 5000 to 40000 by March
2004
This would mean hiring of over 2000-3000 people

Current Problems
Keeping pace with expansion
o Industry is growing at an exponential rate, it is important to match the industry

growth rate

Capital expenditures and the risk


o They require a reliable, predictable usage linked cost structure
o Want to buy fewer boxes but get maximum capacity and coverage to stay

competitive

IT Requirements
o Need an IT network that could scale up to match the size of the organization it has

projected
o Scalability is a problem with the current set-up
o IT infrastructure is further complicated by incompatible IT system

Human resources issue


o Difficult to hire and retain the right people

Focusing on core competencies


o Airtels core competency is in operations and not in IT design

Outsourcing Network Infrastructure


Benefits:

Prior experience of working with Ericson, Nokia and Siemens

Time and cost involved in frequent tendering and negotiations could be avoided

Avoiding a possible conflict of interest associated with vendors wanting to sell more
boxes, while Airtels intent to minimize the same

Outsourcing partner would need to bear the burden of the 30-40% excess capacity

Reduction in Airtels capital expenditure

Time-delay of setting of the capacity could be reduced

Penalties and rewards would ensure quality

Possible Concerns:

Operations was Airtels bread and butter

Outsourcing partner might not be willing to invest in excess capacity, in order to avoid
risk of demand fluctuations

Forecasts of the two companies might vary which will affect resource allocation

Strategic objectives of network infra partner and that of Airtel might be different

Under performance of the network infrastructure

Partner might not be willing to absorb Airtels employees, also, different work cultures
and HR policies

Outsourcing IT Infrastructure
Benefits:

Prior experience of working with IBM

Improved scalability

Can focus on their core-competency

Improved IT integration and compatibility

Reduction in up-front investment in IT

Reduced burden of installation, maintenance, integration of IT infrastructure

Penalties and rewards would ensure quality

Possible Concerns:

S/w & h/w applications not supported by IBM would be no longer available

IBM might not be willing to work with other members

Might lead to delayed TTM for IT-based services

Would imply over-dependence upon vendors

IBM might not be willing to make risky IT investments of behalf of Airtel

Under performance of the IT infrastructure, as a result of the reduced control

Would mean losing several IT employees. Partner might not be willing to absorb Airtels
employees, also, different work cultures and HR policies

Vendors Perspective
IT Vendors

Network
Vendors
Opportunities

Leveraging Airtels market


share in fast growing
Telecom market

Opportunities

Increasing equipment
prices to cover risk

Equipment investment
risk

Absorbing Airtels
employees in a different
culture

Revenue share with Airtel

Concerns

Concerns

Executing its intenational


on- demand startegy

Cash flows will depend on


Airtels future

Network
Inhouse Outsourced

Options Available with Airtel


Threat of
obsolescence of IT
technology
High Capex
required for setting
up IT infra

Focus on
Core
Competency
High
scalability and
flexibility

Status Quo
High Capex
Less
Scalability
More Control

Scalability in IT
infra
No threat of
obsolescence of
technology
Still high capex
required for
managing network

Inhouse
Outsourced
IT Capabilities

Outsource Both Network & IT


infrastructure
The main pain point for
Airtel was the budgeting of
ever increasing Capex.
Outsourcing both network
and IT gives them the
liberty to focus on their
core competency.
But the outsourcing
contract should clearly
define KPIs

Thank You