Strategic

Outsourcing at
Bharti Airtel

OVERVIEW
Bharti- Founded by Sunil Mittal in 1995 to take

advantage of the liberalisation of Indian telecom

market
Leading player in Indian Telecom industry
Largest player in growing wireless segment with a

quarter of the market share

Fast growing with a revenue increase of 100% over
2003
Highly competitive market with focus on volumes
against margins
Exponential growth expected in next 18 months

Future Growth Plans

In 2003 Airtel is providing GSM service in 1400

Towns. Plans to provide GSM service in 5161 Towns

by 2007
Increase base stations to 40000 in 2007 from 5000
in 2004
Hire 2000 to 3000 more technical experts
Required for building and maintaining base stations
Scalable and Compatible IT architecture including
Telecom network software, Customer management
information and Business support software

CHALLENGES FOR BHARTI

Network Challenges
Conflict of interest with vendors
Industry practice to purchase 30% excess
capacity to compensate for estimation error in
prediction capacity
Increased costs of purchasing and installation at
more sites, staff and maintenance
Time required for purchasing is very high
HR issues
Difficult to retain best and the brightest as
talented guys preferred MNCs with high
reputation

CHALLENGES FOR BHARTI

I.T. Challenges
IT network scalability to match the size of the

organisation
IT design not Bhartis core competency
Incompatibility in existing and inherited IT

systems
High obsolesce cost
To face huge up-front investments for getting

right architecture

Proposed Solution Network

Vendors
Buildup, maintenance and servicing of telecom

networks equipment's
Payment agreement based on Erlangs used by
Bharti excluding the unused capacity
Ownership of assets rests with Bharti and
maintenance responsibility rests with service
providers
Quality parameters also taken care by SLAs
Three year contract and renewable under mutual
agreement
Transfer of Staff

Proposed Solution IT
Buildup, maintenance and servicing of core IT

infrastructure
Everything from computers to mainframes
excluding telecom specific networks
Sharing of revenue between Bharti and IBM
Percentage of revenues share set to decrease as
overall revenue increases
Five year contract renewable for another five years
SLAs hotline customer satisfaction and application
implementation delays
Transfer of Staff

OUTSOURCING - Pros
For IT services they will always get the updates

services thereby saving their wastage of money on

obsolete software
No need for renegotiating deals every quarter
Can fully concentrate on providing service to
customers
Can avoid the problem of hunting for new resources
(manpower) required as a part of expanding business
This is currently a problem for HR team
End to end management service in case of IT
operations
Transfer of Staff reduces expenses

OUTSOURCING - Cons
Core competency in operations being shifted to

vendors
It will increase their dependence on vendors. After a
period of time they may move on the back foot in
negotiation meetings with vendors
It is very tough decision in a country like India to lay
off or transfer 1000 employees
It is a service providing business and it will add one
more channel level between customers and company
thereby customer satisfaction may get affected
No previous deals of such outsourcing has happened
and hence risk is high

Network Vendor
Concerns
Capacity uncertainty - they will earn nothing if

the network is not utilized, but it may be

necessary for operations
Inability to increase prices to cover the
increased risk
Lean Companies absorbing new employees
Banking on the growth of Bharti
High investment intensive and payment is
based on usage

Analysis- Grammar to describe Bilateral

Clause vis-a-vis Network Vendor*
Objective of the clause

Possible clause alternatives

A
Strategic Coordination

1
Routine

2
Centralized
Authority

3
Decentralized
Authority

**

B
Organizational
Coordination

1
Routine

2
Centralized
Authority

3
Decentralized
Authority

**

C
Operational Coordination

1
Routine

2
Centralized
Authority

3
Decentralized
Authority

**

D
Credible Commitments

1
No CC

2
Unilateral hostage

3
Bilateral hostage

**

E
Supervision Mechanisms

1
Self Enforcement

2
Non-Specialized
Supervisor

3
Contract
Supervisor

4
Specialized
Supervisor

F
Remuneration Systems

1
Marginal
Productivity

2
Fixed Sharing

3
Flat Rate

4
Intensity of Use

G
Contract Duration

1
Spot Contract

2
Short Term

3
Long Term

**

* Framework adapted from: Eric Brousseau, Contracts as Modular Mechanisms: Some Propositions for the Study
of Hybrid Forms

Analysis- Grammar to describe Bilateral

Clause vis-a-vis Network Vendor Explanation
Objective of the clause
A
Strategic Coordination

Clauses in the
contract

Explanation

Centralized
Authority

Airtel will dictate what and where to do

B
Organizational
Coordination

Centralized
Authority

Airtel will tell what to do

C
Operational
Coordination

Centralized
Authority

Airtel will tell what to do

D
Credible Commitments

Unilateral hostage

Payment according to use and SLA makes network

vendors to be held hostage by Airtel

Contract
Supervisor

Airtel the provider of the contract will be supervising

F
Remuneration Systems

Intensity of Use

Airtel pays according to use and SLA

G
Contract Duration

Long Term

The contract is relatively long term

E
Supervision Mechanisms

Analysis- Grammar to describe

Bilateral Clause vis-a-vis IBM
Objective of the clause

Possible clause alternatives

A
Strategic Coordination

1
Routine

2
Centralized
Authority

3
Decentralized
Authority

**

B
Organizational
Coordination

1
Routine

2
Centralized
Authority

3
Decentralized
Authority

**

C
Operational Coordination

1
Routine

2
Centralized
Authority

3
Decentralized
Authority

**

D
Credible Commitments

1
No CC

2
Unilateral hostage

3
Bilateral hostage

**

E
Supervision Mechanisms

1
Self Enforcement

2
Non-Specialized
Supervisor

3
Contract
Supervisor

4
Specialized
Supervisor

F
Remuneration Systems

1
Marginal
Productivity

2
Fixed Sharing

3
Flat Rate

4
Intensity of Use

G
Contract Duration

1
Spot Contract

2
Short Term

3
Long Term

**

Analysis- Grammar to describe Bilateral

Clause vis-a-vis IBM - Explanation
Objective of the clause
A
Strategic Coordination

Clauses in the
contract

Explanation

Decentralized
Authority

Airtel and IBM jointly decides what and how to do

B
Organizational
Coordination

Decentralized
Authority

Airtel and IBM jointly decides what and how to do

C
Operational
Coordination

Decentralized
Authority

Airtel and IBM jointly decides what and how to do

D
Credible Commitments

Airtel gave all its IT to IBM and its main source of income
will be VAS which depends on IT. IBMs newly adapted
on demand strategy banks on this project to
showcase.

Bilateral hostage

E
Supervision Mechanisms

Contract Supervisor

Airtel the provider of the contract will be supervising

F
Remuneration Systems

Fixed Sharing

Percentage Revenue sharing. Percentage will decrease

as the revenue increase making it more or less Fixed
kind of payments

G
Contract Duration

Long Term

The contract is long term

Thank You