Airtel Cost Reduction

8/2/2019 Airtel Cost Reduction

1/4

When pushed to the wall due to competitive pressures from the CDMA players in

2003, Bharti Airtel decided to focus on cost reduction as well as prepare itself for

explosive growth. More than the cost reduction, Bharti wanted to ensure that it builds a

world class network and still able to focus on the core, i.e. the customers. In the

lastpost, I had discussed the framework for deciding on outsourcing of different

functions of an operator. In this post, I would focus on the outsourcing of networks the

benefits of network outsourcing and how should it be managed. In order to illustrate my

point, I would use Bharti as a case study as it was one of the first few operators to

outsource and is still ahead of others in terms of its thinking in this area.

What were the reasons for outsourcing of network by Bharti?

Bharti realized pretty early that network is not the core for the company and needs tofocus on customers by providing them a reliable, affordable and best in class service

experience. To be able to do this, it needed more resources and was unsure of the

results due to lack of expertise in this area. Bharti was in no position to manage the

network better then Ericsson or Nokia or Siemens (now Nokia Siemens). It was facing

competitive pressures from CDMA players (Reliance and Tata) and need to have a

single minded focus on cost reduction (referHow can carriers make 40% EBIDTA

margin at 2 cents/min tariff?). They embarked on the outsourcing journey with the

following objectives in mind:1. Focus on the core and outsource the context2. Faster time to market as well as build scalable networks3. Enhanced customer experience through better quality of service4. Get the best people/company across the globe to manage network5. Predictable total cost of ownership (TCO)6. Convert CAPEX to growth based OPEX7. Controlled spending due to optimal capacity planning8. Get access to latest technology, expertise and processes leading to improved

productivity

Accentures report on network outsourcing points towards huge cost advantages -

The potential benefits of a broader use of network outsourcing are considerable.Based on our experience,clients can generate cost savings of up to 40 percent,achieved through lower-cost sourcing of high-quality talent, consolidation offragmented operations and the synergies of leveraging resources acrosscompanies and geographies.
http://www.telecomcircle.com/2010/07/outsource-dilemma-in-telecom/http://www.telecomcircle.com/2010/07/outsource-dilemma-in-telecom/http://www.telecomcircle.com/2010/07/outsource-dilemma-in-telecom/http://www.telecomcircle.com/2009/02/carriers-ebidta/http://www.telecomcircle.com/2009/02/carriers-ebidta/http://www.telecomcircle.com/2009/02/carriers-ebidta/http://www.telecomcircle.com/2009/02/carriers-ebidta/http://www.telecomcircle.com/2009/02/carriers-ebidta/http://www.telecomcircle.com/2009/02/carriers-ebidta/http://www.telecomcircle.com/2010/07/outsource-dilemma-in-telecom/


2/4

However, we should look beyond cost advantages to the other benefits that I have listed

above.

What are the different Levels of Network Outsourcing?

1. Build and manage capacity:

Normally most of the carriers start with outsourcing the designing and deployments of

the networks. This is most simple form of outsourcing with relatively low risk. The risk is

low and so is the value to the operator. This helps the operator in reducing its total cost

of ownership of the network and can get the capacity deployed as and when required.

2. Managed Operations or Services:

In this case, the equipment vendor takes full responsibility for network and service

operation activities. Activities can cover planning and design, as well as the

establishment and deployment of the operators network and management of the day -

to-day activities, including field operations. In this case, the real synergies start to

emerge and can add immense value to the operator.

3. Hosting Services:

In this form of outsourcing, the vendor takes responsibility for management andintegration of the hosted solution and facilitates content distribution as well as content

life cycle management. The typical offering includes entertainment and media services

(music, TV, downloads etc), messaging and communication services (MMS, voice SMS,

video mail and push email etc) and charging and management services (prepaid and

automatic device configuration etc). Hosting enables faster launch and integration with

cost efficient service. This is the most mature form of outsourcing and brings maximum

value to the operators. With the increasing number of VAS offerings, the management

of Value Added Services (VAS) is becoming increasingly difficult leading to manyoperators looking at option of hosting services from the equipment vendors.

What has ensured the success of network outsourcing for Bharti?

Traditionally, the operators have been responsible for building and management of the

network including billing (refer the telecom value chain in the figure below).


3/4

Bharti decided to outsource the management, design, development and deployment ofnetwork including capacity and coverage to players like Nokia Siemens and Ericsson.

The ownership of the assets rested with Bharti while the management and maintenance

of the equipment became the responsibility of the service providers (equipment

vendors). To ensure predictability of the costs, the payment was based on the peak

hour capacity used by Bharti and excluded the unused capacity (capacity is measured

in terms of Erlangs; An Erlang is a unit of telecommunications traffic measurement.

Strictly speaking, an Erlang represents the continuous use of one voice path. In

practice, it is used to describe the total traffic volume of one hour).

To ensure the success of network outsourcing, Bharti prepared a detailed business

case detailing its cost structure and the expected cost structure post outsourcing. It also

prepared the detailed performance indices and incorporated them in the service level

agreements (SLAs). The most important aspect of the contract was clear definition of

the roles and responsibilities of Bharti and the service provider. On its part, it developed

an efficient governance mechanism that ensured its close control on the network

operations. Bhartis employees in the network function were transferred to the roles of

the service provider.

Key lessons from Bhartis case study are -

1. Do not outsource a few tasks in the network operations but outsourced the entireprocess.

2. Do not base outsourcing decision on only the cost considerations but also on the largervalue proposition of being able to provide subscribers a world class experience.
http://www.telecomcircle.com/wp-content/uploads/2010/07/Mobile-Operator-Value-Chain.png


4/4

3. Do not focus on only outsourcing the current process and doing the same thing forless but also look for opportunities to consolidate and transform the entire function. Incase of Bharti, the service providers were able to provide greater value as theyeliminated the manual work and implemented best practices that they followed acrossthe world.

Initially the contract was for three years but it was extended again given the benefits it

was able to give to the operators.

Read more:http://www.telecomcircle.com/2010/08/network-outsourcing-a-case-

study/#ixzz1abQLqnlT
http://www.telecomcircle.com/2010/08/network-outsourcing-a-case-study/#ixzz1abQLqnlThttp://www.telecomcircle.com/2010/08/network-outsourcing-a-case-study/#ixzz1abQLqnlThttp://www.telecomcircle.com/2010/08/network-outsourcing-a-case-study/#ixzz1abQLqnlThttp://www.telecomcircle.com/2010/08/network-outsourcing-a-case-study/#ixzz1abQLqnlThttp://www.telecomcircle.com/2010/08/network-outsourcing-a-case-study/#ixzz1abQLqnlThttp://www.telecomcircle.com/2010/08/network-outsourcing-a-case-study/#ixzz1abQLqnlT

Documents

Airtel Cost Reduction