Its advantage Bharti, once again

Bharti moving

at supersonic speed

Bharti Cellular

has many firsts to its credit and even on the outsourcing front, the company is

moving at a supersonic speed with a vision to provide world-class service.

According to inside information, the company recently signed an

IT-outsourcing deal for 10 years with IBM worth $350 million. On the network

front, things are well set for signing an outsourcing deal with Ericsson and

Motorola. For Ericsson, things are at an advanced stage, but for Motorola things

are moving at a slow pace and it seems the deal will take some more time.

Experts believe that the network outsourcing deal will be the biggest deal in

Asia-Pacific, considering Bharti’s large network and its large spread in 15

circles. The biggest deal in Asia Pacific, so far, has been that of Telecom New

Zealand signing a managed mobile network deal with Ericsson, worth $100 million.

It is expected that this new outsourcing deal of Bharti (which has been adding

an average of 10 sites per day) will be several times that of Telecom New

Zealand’s one.

Industry insiders feel that Bharti’s deal will be a litmus test for both

service providers as well as equipment vendors operating in India as well as

outside. The industry is eagerly waiting to see how the deal takes off both in

the short term as well as long term.

The success of this partnership will open up new vistas for equipment vendors

and failures, if any, will provide a learning curve for service providers. Many

service providers might opt for this model as many of them are under severe

revenue constraints with the entry of Reliance Infocomm in the market.

The Bharti

advantage

How does this deal

help Bharti Cellular? On the GSM front, Bharti has been the number one player

right from the beginning. But with the coming of the unified access (basic and

cellular) service license, Reliance has taken the lead. With all the operators

focusing on the numbers game, service providers have been lowering prices on a

regular basis. This has affected both the topline as well as the bottomline of

service providers.

The outsourcing deal will help Bharti to focus more on its core strength–marketing–and

leave the core–the network–to specialists like Motorola and Ericsson. This

will enable Bharti in concentrating on its core business of meeting its customer

needs and increasing its market share. Till date, Bharti’s success can be

attributed to its good marketing plan and if they can focus more on marketing

without worrying about the network, things are bound to change for the company.

Outsourcing helps in cost savings as well as increase in network uptime.

Bharti need not bother about network, as the entire onus will be on Ericsson and

Motorola to provide high quality service. According to industry insiders,

outsourcing will help Bharti in moving employees (IT and network), IT and

network-related assets, and equipment to the equipment vendor. A corollary to

this is that the equipment vendor will pay Bharti for acquiring these assets.

According to industry analysts, IBM is paying somewhere around Rs 250 crore

for acquiring the IT assets and this figure will be very much on the higher side

for the network part. All this will help Bharti in improving its turnover as

well as operating margin and thereby increasing its valuation. On the other

hand, it helps in getting enough money for cellular expansion (both green field

as well as the acquisition route) for new as well as existing circles. It seems

Bharti is pushing an outsourcing model based on "Revenue per Erlang".

So, it will not pay for the excess capacity, but for the capacity used

thereby lowering its capex and improving quality at the same time. This improves

the cash flow for Bharti and in future the balance sheet will look more

attractive.

The vendor advantage



For equipment vendors, it is a blessing in disguise. With product margins
decreasing due to decrease in cost, service providers are increasingly looking

at the service revenue.

First, with vendors moving into services arena, the overall infrastructure

market increases significantly. Second, with services under its belt, there is

an increase in both top line as well as bottom line for vendors. Third, it helps

in regular intake of equipment from service providers thereby providing assured

revenue.

The outsourcing vendors will look at coverage, capacity, and quality and will

cover aspects of planning, designing, and optimization for the existing cellular

network of Bharti. With Bharti Cellular moving out of the network domain, one

has to see whether Bharti will be able to regain its earlier number one status,

under the new unified access service regime.