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EOS SECTI ON B

GROUP 2
ANKI T GOEL ( PGP/ 1 7 / 3 09)
ARUN RAJ ( PGP/ 1 7 / 3 1 2 )
GOMATHY A ( PGP/ 1 7 / 3 1 9)
P V SRAVANTI ( PGP/ 1 7 / 3 3 0)
RACHNA RAVI ( PGP/ 1 7 / 3 3 9)
Bharti Airtel
Case Background
Industry Overview
1991 opening sector to private
competition and foreign investment
1989 4.2 Mn -> 2003 54 Mn
Low ARPU $ 5-6/month, 7 major
competitors + regional players
8
th
largest telecom network in world
$ 8.5 Bn @ 17% p.a growth
Per-capita phone penetration <6%
Generic technology shifting to 2.5/3 G
1.5 Mn new subscribers added every month
Top competitors lowered costs by
acquisitions/bankruptcy of small players
Focus on expanding basic telephony + VAS
Company Overview
Family run started in 1995
Attracted institutional & foreign investors
1
st
profitable private provider
Industry leader in wireless 25%
Mobile license in 15/23 circles, fixed line
6/23
Pan India coverage by 2005


Bharti Operations
3 SBUs
Mobile services 64% of revenues
Long distance, group data & enterprise
30%
Broadband & telephone 16%
(10% as intersegment eliminations)
Core competency in operations
Rapid technology obsolescence creating
dead assets
Network equipment vendors easily
changeable due to generic technology
30-40% excess capacity blocking capital
High transaction frequency & costs for
equipment purchase
International partnerships with SingTel &
others
USP: Error free service, efficient network
management & Low cost services



Decision Drivers
Network Equipment
Rapid change in technology
Rapid growth: Town coverage - 1400
(2004) -> 5161 (2007); Base stations to
increase to 40,000 from 5000
Numerous vendors transactional
business till now (plug & play) , high
frequency, time & costs
High upfront fixed costs need to attract
large capital
Acquired networks don't have
interoperability
Delay between firm growth and capacity
addition
Excess capacity adding to over heads ($
300-400 Mn)
IT Infrastructure & Services
Need to scale up IT to match the
organization size by 2007
No expertise in IT decision making is
difficult
Rapid change in technology &
requirements for VAS
Acquired networks don't have
interoperability
Requirement in 3 categories:
Telecom network systems & software
Customer management information
systems
Business support software
Huge upfront investments to support
growth

Talent acquisition an issue employees prefer to work for specialized equipment firms
Need for a predictable cost structure to enable cheaper service rates
Network Equipment Contract A1B1C1D3E1F4G2
Clause A: Strategic Coordination Routine
Goals defined ex ante capacity addition as per projected requirements
Clause B: Organizational Coordination Routine
SLAs defined with performance based incentives & punishments
Clause C: Operational Coordination - Routine
Unused capacity - redeployment or payment to vendor defined ex-ante
Payment for erlang capacity based on user density defined ex-ante
Clause D: Credible Commitments Bilateral Hostage
Investment in specific assets by both parties Bharti in passive assets & vendor in network
assets
Clause E: Supervision Mechanism Self enforcement
Parameters defined in contract & SLAs performance based incentives & penalties
Clause F: Revenue System Intensity of use
Bharti remunerates the vendor based on erlang capacity installed & used
Clause G: Contract Duration Short term
No time for changing the characteristic of assets, no asset specificity


# Changes in contact suggested in slide 6
IT Contract A3B3C3D3E4F2G3
Clause A: Strategic Coordination Decentralized
Scope cannot be specifically defined not every detail can be written in contract
Clause B: Organizational Coordination Decentralized
Scope, technology, scale changes will bring different contingencies
Clause C: Operational Coordination - Decentralized
Joint governing body setup to manage the arrangement
Clause D: Credible Commitments Bilateral Hostage
Investment in specific assets by IBM Bharti will incur high exit costs
Clause E: Supervision Mechanism Contractor Supervision
Joint governing body executors from both parties, specialized
Clause F: Revenue System Fixed sharing
Intensity of use cannot be defined, profit sharing mechanism defined ex-ante
Clause G: Contract Duration Long term
Assets will be modified to suit future requirements


# No changes in contract suggested Both parties have large commitments
Network Equipment Contract Modifications
A1B1C2D3E3F4G2
Clause A: Strategic Coordination Routine
Clause B: Organizational Coordination Routine
Clause C: Operational Coordination Centralized (*Suggested)
Future contingencies about unused capacity & user density cannot be fully anticipated
Clause D: Credible Commitments Bilateral Hostage
Clause E: Supervision Mechanism Specialized supervisor (*Suggested)
To have a mutually agreed arbitrator to resolve disputes
Clause F: Revenue System Intensity of use
Clause G: Contract Duration Short term

THANK YOU

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