Strategic Outsourcing at Bharti Airtel

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Strategic Outsourcing at Bharti Airtel

Telecom market in India
Revenue from telecom sector in 2003 was $8.5bn Growth of the industry was 17% Wireless services contributed about 18% of total revenue Estimates showed wireless service market to grow from $1.5bn to $10.9bn In 2003 over 1.5mn people/month were signing up for cell phones 60% of the mobile services in India was prepaid and 40 % was post paid

Contribution to Indian Telecom Service revenue
International Long Distance, Data, 3% 10% Domestic Long Distance, 20% GSM , 16% CDMA, 2%

Wireline, 49%

Market Competition
Average monthly revenue per customer unit had fallen by 50% in three years There was intense competition among telecom providers to capture new subscribers which led to fall in prices

Wireless market share for top 7 telecom operators
MTNL, Tata, 2 1.5 Idea, 11 Vodafone, 12 BSNL, 16 Reliance, 19.5 Others, 13 Bharti, 25

Bharti’s Relationship with Vendors
Network used 60% to 70% of its capacity Excess capacity cost Bharati $300mn - $400mn

Due to open standard of GSM technology it was easy to change the supplier Initial GSM setup done by Ericsson. By 2003 Bharti also working with Nokia and Siemens Purchased equipment, installation and maintenance services from each of these suppliers

Vendors tried to sell more equipment to Bharti Bharti wanted maximum coverage with least equipment. Hence there was a conflict of interest

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Requirements
Technology
• In order to accommodate demand for services 40000 base stations were required by 2007

HR
• For building and maintaining base stations 2000 to 3000 more technical experts were required

IT
• Scalable and Compatible Telecom network systems and software, Customer management information system and Business support software and hardware architectures 7

Concerns for Bharti
given 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  Budgeting and the tendering process for network expansion was taking a tremendous amount of management time  ARPU was falling to $4- $5 as against $10 in US, Europe  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 8

Advantages of outsourcing
Allows firms to Focus on Core retain their Transform Fixed Competencies entrepreneurial speed costs into Variable and agility, which costs they would otherwise sacrifice in order to become Less constrained by efficient as they large Capital expanded Expenditures for Leverage people or equipment Expertise of that may take years to supplier amortize, may become outdated

Advantages of Outsourcing
Focus on Core Competencies: Company can use its resources and expertise in core areas: product innovation, value-added services, marketing, branding and pricing Transform Fixed costs into Variable costs: Company will not have to bear cost for excess capacity of 30 -40 % Less constrained by large Capital Expenditures for people or equipment that may take years to amortize, may become outdated: i)Lower Human Resources cost due to their transfer to vendor companies ii)Uncertainties in capital expenditures will be low iii)Rapidly changing trends in telecom industry leads to quicker obsolescence of equipments 10

Advantages of Outsourcing
Leverage Expertise of supplier: Improvement of overall industry profitability by reducing conflict between network equipment vendor(like Nokia, Ericsson) and telecom company(Bharti) Can provide world-class mobile services by leveraging Ericsson's expertise Allows firms to retain their entrepreneurial speed and agility, which they would otherwise sacrifice in order to become efficient as they expanded: Rapid Growth is possible

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Disadvantages of Outsourcing
The IT and marketing departments were concerned that...
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