Indian Institute of Management, Indore

Introduction 1
Bharti Management 2
Market Share : Telecom Operator 3
Issues being faced by Bharti 4
Q & A 5
References 6
Formerly known as Bharti Tele-Ventures Limited
Founded by Mittal with $900 in Start-up Capital
Year of Birth : 1995
F.Y. 2004 Financial Figures:
Revenue - $1113.4 million , a 100% increase over 2003
Operating Margin 16.4%
Income of $117 million
ROE : 12 %
Companys services:
Mobile Services - 64% of total Revenue
Long Distance, Group Data and Enterprise - 16 % of total Revenue
Broadband and Telephone Services - 25% of total Revenue
Licenses for Mobile operations in 15 out of total 23 circles
B
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Chairman and Group
Managing Director
Joint Managing
Director
Marketing
Business
Development
Corporate affairs
Corporate
Development
Joint Managing
Director & CFO
Finance
IT
Special Projects
Regulatory and
Secretarial Concerns
Sunil Mittal
Akhil Gupta
Rajan Mittal
Rakesh Mittal
Company
Wireless
Market
Wire-Line
Market
Bharti 25 1
BSNL 16 86
MTNL 1.5 4.6
Hutch-Essar 12 -
Tata 2 -
Idea 11 -
Reliance 19.5 1
Others 13 -
Source : From Exhibit8, Case material
Solving the Capital expenditure nightmare by outsourcing to :
Bhartis key telecom network equipment
vendors- Ericsson, Nokia, Siemens
IT equipment Vendor, IBM
Managing the firms IT capital expenditures.
Yes
Bharti should
go ahead with
the proposed
outsourcing
agreement.
It can use its resources and expertise
to its core areas of product innovation,
value-added services, marketing,
branding and pricing
Company do not have to keep investing
in maintaining excess capacity of 30 -40
%
Improvement of overall industry
profitability by reducing conflict
between network equipment
vendor(like Nokia, Siemens,
Ericsson) and telecom
company(Bharti) Can provide world-
class mobile services by leveraging
Ericsson's expertise
Rapid Growth is possible
Cost reduction for Bharti: Rapidly
changing trends in telecom industry
leads to quicker obsolescence of
equipment's
Yes


Bhartis initial GSM network was setup with the help of Ericsson. By early 2003
Bharti was also working with Nokia and Siemens.
Bharti purchased equipment, installation and maintenance services from each of
these suppliers in one or more of the regional circles in which it was present.
Due to open standard of GSM technology it was easy to change the supplier.
There was a conflict of interest with the vendors as they tried to sell more
equipment while Bharti wanted maximum coverage with least equipment. A typical
network used 60% to 70% of its capacity.
The following are the ways in which Bharti managed its existing
Network and IT needs.
This excess capacity used to cost Bharati in range of $300 million to $400
million.
Till 2003-2004 Bhartis IT need was met internally. But it was not integrated. Also most of the
times the IT systems of the acquired companies were not compatible with the Bhartis
system.Bharti did look out for outside vendors for certain applications like fraud
management. These were known as fragmented bubbles of outsourcing.
Bhartis core competency was in operations not IT designs.
There was a dearth of qualified employees

:


As per the new
deal the Bharti
will pay the
network
vendors for
erlang
requirements
only when the
capacity was up
and running
and has been
used by the
Bhartis
customers and
hence no
payment for the
unused
capacity.
The
maintenance of
the equipment
would be
provided by the
network
suppliers. For
this the existing
Bhartis
employees
would work for
the vendors.
To ensure
quality of
Bhartis service
to its end
customers ,the
agreement
provided for
quality controls.
Bhartis
proposed deal
with IBM was of
revenue sharing
rather than
paying a fixed
amount.
The outsourcing
to IBM included
everything from
computer on
the desktop all
the way to the
main frame
Yes IBM should
enter in
agreement with
the proposed
contract by
Bharti.
As total Indian
telecom revenue
was growing at
17% per annum
in 2003.
Due to upcoming
regulatory
changes Bharti
was well placed
to take the
advantage.
Growth in both
sectors- wire line
and wireless-
was expected to
be exponential
over the coming
years
Turning down
Bhartis offer can
hamper IBMs
future growth in
Indian market
Financial health of
Bharti was improving
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)
While it had suffered a net
loss in 2003, the next year
saw a net income of $117
million
Return on equity in 2004
was nearly 12%
HBS Case Study: Strategic outsourcing at Bharti Aritel Limited Dec
42007 by F Asis Martinez-Jerez, VG Narayanan.

http://airtel.in/Airtel3G/
Group 2 | Section E
Indian Institute of Management, Indore