Download Strategic Outsourcing at Bharti Airtel Limited PDF

TitleStrategic Outsourcing at Bharti Airtel Limited
TagsTechnology Investing Economies Mobile Phones
File Size94.2 KB
Total Pages6
Document Text Contents
Page 2

o Bicycle Components business
o Portable Generator Import business
o Venture with Siemens to produce telephone
equipment

GROWTH

• Existence of first eight years: Growth because there was a “Single minded
devotion to the
project and the industry.” Basically, there was FOCUS.

o Mittal stated, “Our business is telecom and nothing else.”
o Bharti- first private provider in the Delhi market
o In 1998, first private provider to make a profit
o Drive for continuous expansion- Aggressively pursued acquisitions

of licenses for mobile operations in other geographic regions or
“Circles.”

• Circles- Telecom service in India was divided into
geographical areas, called circles, for the purpose of
awarding mobile and fixed-line telephone licenses.

CAPITAL INFLOWS
• Acquisition strategy required greater capital inflows- In

1999; Bharti sold 20% equity interest to the private equity
firm Warburg Pincus.

• Soon after, NY Life Insurance Fund, Asian Infrastructure
Group, the International Finance Group, and SingTel, all
acquired equity interest.

• 2002- Bharti went public raising $172 million in IPO
o Indian National Stock Exchange
o Mumbai (Bombay) Exchange
o Delphi Stock Exchange

• 2002 year-end: Bharti raised over $1 billion through FDI

• Capital Inflows financed next stage of growth
o 2001-2002: obtained mobile licenses for 15 out of India’s 23 total

circles
o 6 Fixed-lined licenses of the 15
o Leverage with SingTel, licenses to be 1st private telecommunication

service provider in India to launch national and international long-
distance service.

o By 2003- Bharti present in all major economic and industrial
centers- 91% of all mobile users in India; Full coverage expected by
2005

FINANCIAL PERSPECTIVE

• March 2004 year-end:
- Revenues- $1,113.4 million; 100% increase over 2003
- Economies of Scale advantage
- Improved Operating Margin: (2003) -2.25% to (2004) 16.9%
- Net loss (2003), (2004) Net income of $117 million
- 2004 ROE: ~ 12%

Bharti’s Management and Organization

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• FAMILY RUN BUSINESS
- Sunil Mittal: Chairman and group managing director
- Rakesh Mittal: board director
- Rajan Mittal: joint managing director, overseeing the functional
directors

• Gupta- a chartered accountant with a degree from the Delphi University
- CFO from 1995-2000; becoming joint managing director in 2001

Indian Market for Telecommunications
• Prior to 1990- little change in the Indian telecommunication environment
• Installation is slow- several months
• Mobile phones a foreign luxury
• 1991- India policy of Economic Liberalization- opening the sector to private

competition and foreign investment. Private telecom firms could tender for
licenses.

• 2003- Total Indian telecom revenue was $8.5 billion with wireless contributing to
18%; Growing at 17% annum; Estimates through 2008 growth from $1.5 billion to
$10.9 billion US dollars

• Adaptation of 2 G technologies (GSM or CDMA) throughout India. 2003- India will
jump to 3 G technologies.

• Huge potential growth in development of basic phone services.
• Customer demand increased daily; in 2003, over 1.5 million people signing up for

cell phones.
• Indian operators sell mobile phones and mobile telephone services separately.

o Mobile services- sold either postpaid (40%) where customers were
billed for their telephone usage monthly or prepaid (60%) where
customers were allowed to recharge telephone with additional time
via kiosks, drugstores and convenience stores

Market Competition
• The Indian market was highly competitive by 2002-2003.
• Rates low as 3 to 4 per US cents per minute
• Average monthly revenue per customer unit- fallen by three years as telecom

providers fight for subscribers
• In 2003, 7 major operators in India: Bharti (Operations in Fixed & Mobile), BSNI,

Hutchinson, Reliance, Tata, Idea Cellular, and MTNL.
• Strong regional operators- Spice and BPL.

Industry consolidation caused the switch from having national footprints to
having the ability to provide value-added service.

• Operators now needed 2.5 G or 3 G technologies to
accommodate those services

• Now, there is a major CAPITAL INVESTMENT
CHALLENGE

• Competitive advantage possibly with Tat or Reliance
because of their
“STRONG CAPITAL RESOURCES”

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Bharti’s Telecommunication Network
• 2003- Licenses obtained for 15 of the 23 total circles serving a 25% market share

of total Indian mobile market and 6 million subscribers
• Fixed Line services- 1 million customers and licenses for six circles.
• New Regulations would allow Bharti to offer wire—line services into any circles in

which it held a wireless license.
• Growth expected to be exponential over the upcoming 18 months as Bharti

obtained licenses

Operations and Service
Structured into three strategic business units:
1. Mobile Services- 64% of Bharti’s revenues. Bharti achieved the most in

terms of market dominance and customer service by implementing “error
free” service.
a. Out of six of 15 regions, had over 40% of market share,

2. Long Distance, Group Data, and Enterprise- 30% of Bharti’s revenues.
Services leveraged its recently completed high-speed fiber-optic network
spanning out to 24,000 kilometers

a. Provided “end to end service”, broadband. Long-distance, video-
conferencing, and dedicated data and voice line services

3. Broadband and Telephone Services- 16% of Bharti’s revenues. This unit
provided wire-line based telephone service in six circles and broadband in
all major economic centers.
a. Broadband included DSL, Wi-Fi, VPN, and video surveillance.

Technology and Development
• 2004- Mobile network connected 1,400 towns using GSM technology
• 2007- Running in all the 5,161 census towns; 100 towns/month on average
• 5000 base stations by March 2004
• Required demand service would require a jump to 40,000 and also require

hiring over 2,000 additional people to build and maintain them.
• Deployed EDGE in Mumbai
• Long-distance network used fiber-optic cables

o Joint venture with SingTel- with (i2i undersea cable system) used in
the international carrier business

Bharti’s Relationship with Its Vendors
As Bharti’s market share grew so did its network supplier relationships.

• GSM technology was very openly standard: Bharti was comfortable with working
with several suppliers.

• If a supplier proved to be unsatisfactory- change or switch was painless
• Vendors would try to oversell their supplies- i.e. base stations, switching stations

o This is a problem because operators wanted maximum
coverage and capacity with as little equipment as
possible.

o Typical networks used only 60% to 70% of its installed
capacity at any point in time

o Need capacity-erlangs (Erlangs- were a measure of
telecom traffic. One erlangs a circuit occupied for 60
minutes)

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