Bharti AirTel Case Digest
Bharti AirTel Limited, although in relatively good financial standing, should be very careful in allocating its limited resources. Investments for network installation, maintenance, service and IT systems can cause significant pressure in Bharti’s working capital. As such, investment decisions can make or break Bharti.
There are several key reasons why Bharti should outsource its network and IT systems. The first reason is the rapidly changing environment of the telecommunication industries. If Bharti purchases its own network and IT systems, the systems may be obsolete in no time thus wasting the limited capital resources of this company.
A second reason is Bharti’s should concentrate on its competencies. Its strength is not technology but operations. This firm’s competency is not in IT design or in network systems. Instead, its core competency is branding and customer service. Therefore, it is in these areas that Bharti has to concentrate. Bharti should leave the technology part to its vendors so that it can maintain its competitive edge.
Outsourcing will provide Bharti the option of always getting the best in the field as vendors compete against each other in providing the best offerings at the best cost. Bharti can change networks/IT without worrying about the fixed structures that will become obsolete and useless because of the rapidly evolving technology. Practically, Bharti will in fact be transferring investment risks to the vendors.
Bharti will also pay only for the services it uses and does not have to worry about the additional expenses to maintain unused extra capacity. Accordingly, “the actual payment for the network capacity will be made only when the capacity is up and running and has been used by Bharti’s customers, thereby excluding payment for unused capacity”. Network and IT system outsourcing will practically convert fixed costs in capital expenditure to a variable cost based on usage of capacity. Using this outsourcing model, Bharti will significantly decrease its costs while at the same time ensuring high quality for customers, because its vendors has the highest competencies in their specific fields. There is also the issue of human resources as there is a scarcity of talent in the network and IT development. Vendors already have this pool of talents.
Concerns about Bharti’s control in the network/IT systems should be addressed early on in its negotiations with its vendors. Concerns about Bharti becoming slaves of its vendors should be mitigated and addressed in quality controls/penalties/rewards periodic review. Likewise, concerns about IBM dictating what Bharti can and cannot use (limiting access to creative new applications not supported by IBM) should also be resolved during contract negotiation. Vendor performances will be subject to a number of quality controls. Penalties and rewards linked to quality achieved should be wedded into Bharti’s contracts with its vendors.

Postscript – not part of the argument
Bharti was handsomely rewarded for its innovative arrangements. Bharti was able to offer mobile telecom service at $0.01 to $0.005 per minute, perhaps the lowest rates in the world. It is no wonder that Bharti has enjoyed compounded annual growth in sales revenues of 120% and growth in net profits of 282% per year between 2003 and 2010. Its market cap has steadily grown over the same period and stood at around US$30 billion as of 2010. Its outsourcing model is now being used as a template by other telecom companies and other industries as well.