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Bharti Airtel (B)
case1-428-864revised December 19, 2011
Published by GlobaLens, a division of the William Davidson Institute at the University of Michigan.
2012 C.K. Prahalad and M.S. Krishnan. Sam Bryson, Joshua Katz and Sheel Mohnot prepared this case under the
supervision of University of Michigan Ross School of Business Professors C.K. Prahalad and M.S. Krishnan.
Bharti Airtel was one of the most profitable wireless telecommunications companies in the world even
though it was based in India, one of the poorest countries on Earth. Despite the limited economic means
of its customers and the lowest per-minute pricing in the telecom industry in 2005, Airtel created an
innovative business model. Airtel had produced robust revenue growth and profitability since its founding in
1995, and achieved strong financial results in international performance indicators (see Exhibit 1). How did
the company do it? What were the innovations that propelled Airtel to the dominant position in the fiercely
competitive Indian wireless market?
We have broken all the paradigms of telecom, said Airtel Joint Managing Director and CEO Manoj
Kohli. Airtel invented a new measure of success in the global telecom industry when it moved away from
average revenue per user (ARPU) toward its low cost/high volume minutes factory model. At the same
time, the company adopted an outsourcing strategy to transform itself into a lean marketing and supply
chain management firm. Airtel saw these steps as necessary to becoming a low cost provider in the Indian
cell phone industry. This departure from conventional wisdom in the industry could be traced to a 2002
executive gathering, where two major decisions were made. First, the Airtel management team pledged to
pursue achieving the lowest per-minute cost in the industry and, second, the company decided to outsourceall areas of the business that were not core competencies.
To pursue the lowest pricing, Airtel introduced a health indicators graph (see Exhibit 2) that was
developed in-house as a component of the companys performance dashboard. The graph plots three lines.
The first line represents gross revenues; the second, operating expenses to gross revenue, or operating
efficiency; and the third, revenue to capital expenditures, or capital productivity. The team adopted this
new measure to replace the industry standard metric of ARPU and began to circulate it throughout the
organization and externally to its suppliers and partners. In Kohlis words, Airtel has become agnostic of
ARPU. Going forward, it would focus on per-minute margins.
In making the decision to outsource Airtels non-core functions, the executive team first identified five
areas that it considered fundamental to its success: Customer management
People motivation
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Financial management
Regulatory management
Brand management
Airtel began to outsource its non-core functions in an effort to trim the company from a capital- and
people-intensive business to a leaner organization. This included outsourcing the network, informationtechnology (IT) services, retail stores, call centers, and passive infrastructure divisions. According to S.
Asokan, Airtels director of supply chain, Many people think outsourcing is our strategy. However, it is, in
fact, a byproduct of the decisions we made at the 2002 conclave to focus on per-minute margin.
Becoming the low cost provider in a capital intensive industry presented significant challenges, which
Airtel addressed with an innovative outsourcing model. Airtel successfully negotiated a new compensation
structure with outsourcing partners based on revenue sharing instead of the traditional system of upfront
payments followed by annual maintenance contract payment. In effect, this allowed the company to convert
much of the capital expenditures necessary to run a telecom company into operating expenditures. As per-
minute pricing went down, Airtel reduced the amount of related fixed costs, allowing it to remain highly
profitable as prices decreased.
Implementation
Given Airtels reliance on outsourcing, the company had a number of overarching principles that defined
its approach:
1. Ensure that any agreement is a well thought out arrangement.
2. Institute constant planning and review.
3. Adhere to transition management.
4. Create a win-win situation for Airtel and the outsourcing partner.
5. Ensure that there is skin in the game on the part of all players.
6. Ensure that the outsourcing contract motivates the partner to come up with new products and
services.
7. Implement outstanding contract governance.
8. Ensure trust, transparency, and involvement of the partner at all stages of the process.
9. Define clear processes for escalation management, with any non-compliance, cost, or quality issues
to be raised to the next senior level at the earliest.
Using these criteria, Airtel developed a unique approach to outsourcing various functional areas, such
as IT services, value-added services, network deployment, customer care, and distribution.
IT ServicesAirtel outsourced its IT services to IBM in the summer of 2004. Under the agreement, IBM was paid
through a revenue sharing model or a percentage of Airtels revenue each month. IBM was guaranteed a
minimum monthly payment. If Airtel revenue were to dip below a certain amount, IBM would receive a
minimum flat fee instead of a percentage. As Airtels revenue grew, the percentage paid to IBM decreased,
which allowed Airtel to share in the economies of scale on IT costs. With the tying of IBMs compensation
to Airtels performance, this essential partner was incentivized to help Airtel grow. It created a win-win
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situation for both parties when Airtel succeeded. In addition, IBM had the flexibility to choose the specific
hardware and software vendors in Airtels information infrastructure to meet Airtels business requirements.
The arrangement was the brainchild of Airtel CIO Jai Menon, who had spent much of his career at
telecom companies in the US before returning to India, his native country, to work for Airtel. The model
offered Airtel significant cost and usability advantages. My IT shop is a buffet, Menon says. He said
outsourcing was done exclusively on a revenue share basis to ensure that IT was aligned with the needs ofthe business. The arrangement also harnessed the creativity of both parties, creating incentives for IBM and
Airtel to work together to develop new products. Menon saw the new role of IT within Airtel as building
application platforms that exposed application programming interfaces (APIs) to third-party developers
who would then develop new value-added services and internal IT applications, allowing the company
increased flexibility and cost savings. In addition, Airtel had the freedom to seek other IT partners. For
example, the company worked with Wipro and Infosys.
While there were many benefits to the revenue sharing arrangement, it also presented some
implementation challenges. Organizationally, mirror teams had to be created for specific IT components
within Airtel and IBM. These teams had to interact on a continuous basis to ensure that both sides were
aware of the Airtel user experience with the IT system and with any IBM technical challenges.
Value Added Services (VAS)
As with any wireless operator, Airtel relied on value-added services (VAS) to drive revenues. In the
words of Menon, India has been on a quest for a (universal) dial tone. However, we at Airtel see dial tone
evolving into information tone, meaning we get much more than a simple telephone conversation from
our handsets. Airtels approach to VAS also relied on outsourcing. Through its IT relationship with IBM,
the company built a service delivery platform (SDP) for VAS that exposed APIs to third-party developers.
With the SDP, developers could access Airtels short-message service and application gateways, content
management system, transcoding, digital rights management, and network directory server for the purposes
of developing, releasing, and updating various value-added services. A planned future version of the SDP
would allow access to additional functions such as commerce enablement, advertising, search, gaming, and
location-based services for more sophisticated VAS.
While Airtel solicited developers for specific applications that management identified from customer
data, the company was also working to create a self-perpetuating community of developersthe Airtel
open community. Airtel set up an extensive process for vetting potential value-added services, providing
data to developers, and managing the life cycle of individual VAS, all of which utilized the companys
extensive data and analytics tools. This enabled Airtel to create a true partnership-based platform with the
alignment of incentives and promote better governance. In terms of security and trust, Airtels policy was
to share only data that was absolutely necessary with partners. However, partners and Airtel were aligned in
their desire for Airtel and VAS to succeed. Airtel did not simply purchase VAS from providers outright; rather,
the VAS providers were paid based on revenue generated by their services over time.
For new value-added services, a cross-functional tollgate process was set up between new productdevelopment and the marketing department. The process was aimed at identifying potential new services,
which were then analyzed using marketing data to determine their viability. Once VAS products were released,
the marketing team would meet monthly to review the VAS portfolio and identify high- and low-performing
VAS. Based on the performance review, promotion and other product management decisions were made.
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2011, the average Indus Tower had two operators sharing a tower and there were plans to increase this
significantly.1
Customer Care
Airtel wanted to work with a single supplier to put a utility computing model in place, which would allow
it to provision contact center technology on a cost-per-call basis and would cover all elements from simple
support calls to troubleshooting across approximately 10 technology providers. We knew we needed to dosomething different in the Indian market; this is the first relationship based on cost per call, said Menon.
Airtel selected Nortel as the provider, which supplied:
1. A conversational interface with an interactive voice response (IVR) machine that resolved queries.
2. The technology to integrate all of the companys in-house call centers.
3. The technology to support the companys in-house customer service agents, including automatic call
distribution, voice logger, and voice analytics.
4. The infrastructure for all of the above activities.
Airtel estimated that by 2010 its more than 100 million customers would be making 250 million calls
a month to the call center. The IVR, which played information back to the customer, handled 60% of all
incoming calls. Nortel programmed the IVR to answer the top 10 reasons for calling, such as What is my
current bill? The IVR answered questions in English and Hindi as well as regional dialects. Rates charged to
Airtel were on a per-call basis. Nortel was paid more when calls were successfully addressed within the IVR
system, since it saved Airtel the cost of agent time.
Distribution
Wherever matchboxes are sold, Airtel should be sold, said Airtel CEO Kohli. This vision was nearly
true, as Airtel minutes were sold at more than 1 million retailers across India with that number expected
to double soon. Of these retailers, about one-third could help customers with new accounts, while the
rest simply fueled the minute factory. Airtel achieved this broad reach by outsourcing the bulk of the
distribution. Each of the roughly 10,000 distributors was responsible for a specific territory and was barredfrom distributing another carriers product. Airtel sought out distributors with established networks, hoping
to piggyback on their existing distribution of other goods, especially fast-moving consumer products.
The distributors paid Airtel up front for the recharge value and SIM cards, and were issued the recharge
credit after the payment cleared into the Airtel account. The distributors then provided credit to their retail
networks. Retailers were allowed to sell minutes and products from competing carriers. Roughly 4% of
revenues that Airtel earned through the distribution network were shared between distributors and retailers.
In several rural areas, the distribution channel had an additional layer to ensure the required reach. In
Rajasthan in North-West India, for example, rural distributors were serviced by rural stockists, or suppliers,
who had to maintain a five day stock of product. The rural stockists employed field service workers who
were expected to service each rural distributor three times per week. Rural distributors were generally basednear a tower and distributed to the small towns served by that tower. In rural areas, the revenues that were
typically reserved for distributors were shared between the stockists and distributors. Both the stockists
and distributors had to commit to exclusively selling Airtel mobile products. The retailers revenue was set
at percentage of sales.
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Analytics at Airtel
In addition to outsourcing many functions, a key part of Airtels success was its adoption of analytics.
Airtel initiated the deployment of analytics throughout the company with the goal of improving operations,
customer management, and, eventually, employee performance. Analytics underpinned the ongoing review
of all functions at the firm, especially performance of its outsourcing partners in tracking delivery in cost
and quality parameters. All the information systems required across the units were largely covered in the IBMIT outsourcing contract and virtually all the captured data was stored in a single IBM DB2 data warehouse.
The vast majority of data in the analytics database was generated by customer use. Each time a call was
placed, the incoming and outgoing phone numbers, the duration of the call, and the tower locations were
logged. In addition, customer details (captured at SIM-card purchase), billing information, and product
use by the customer were logged. There were three primary uses of the data: 1) business intelligence,
used largely to develop marketing and sales; 2) campaign management to better target advertisement and
product offerings; and 3) customer churn assessment, determined either by a requested disconnect or a
certain duration of inactivity.
Moving forward, Airtel expected to use customer data to forecast churn (the percentage of customers
that exit a service over a given period of time.) In addition, analytics would play a larger role in decision
making inside the company. Both the supply chain and the human resources groups were aligned to capture
and analyze pertinent data about their operations. For instance, in the IT organization, analytics was used
to determine utilization rates for new applications and/or functionality requested by the business units.
This data could then be used in cost-benefit analyses, driving the cost control decisions that were vital to
Airtels success.
Governing Win-Win Supplier Contracts
Similar to the fundamental shift from ARPU to the minute as a measure of success as described by
Kohli, Airtel introduced a paradigm shift in the governance of supplier contracts from input-based measures
to Airtels business outputs. For example, the incentives for IBM or Ericsson were based on the number of
minutes sold by Airtel. This was in contrast to the normal practice of IT service vendors being compensated
based on the quality of services they provided. These contracts ensured that Airtel was operating near
the best service levels and cost structure in the industry for these services, and allowed its suppliers the
flexibility to choose the appropriate equipment and subcontracting partners. These contracts were initially
set for five or seven years and were open for renegotiation based on any concerns on either side. The win-
win for both parties was clearly defined with various scenarios of future growth in Airtels business (i.e.,
20%, 30%, 50%, etc.), leading to more vendor payments in proportion to Airtels revenue growth. The exit
clauses for both parties also were clearly defined, such that Airtels business was not overly dependent on
the vendor and Airtel could opt for an alternate vendor if the need arose.
Partnerships
In addition to harnessing internal capabilities and outsourcing non-core functions, Airtels model
relied on establishing strategic partnerships with other organizations. One partnership that was aimed at
expanding Airtels footprint in rural India was with Nokia. Airtel and Nokia piloted a program in which 85
vans traveled to rural areas, educating people about mobile phones and offering a basic Nokia 1200 series
phone bundled with an Airtel SIM card for 1,500 rupees (30 USD). The Airtel and Nokia representatives drove
into the villages, attracting crowds with prizes and entertainment. Many rural customers were not literate
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in English and had limited experience with technology, so the representatives also taught them how to use
the phone. The instructions included the basics, such as pressing the green and red buttons to start or end
a call, and how to navigate the menus by memorizing rather than reading. The pilot was a success and Airtel
planned to add 800 vans to the program. Airtel and Nokia went on to significantly expand their partnership,
especially in rural India. In February 2010, Airtel signed a $700-million network expansion partnership
contract with Nokia, which would aggressively expand its presence in rural India. Rural customers accounted
for 60% of Airtels customers.2
Airtel also partnered with Indias largest microfinance group, SKS Microfinance Limited, to help customers
obtain loans to buy a Nokia phone on a 25-month installment plan of 85 rupees per month (1.5 USD). Airtel
also became one of the largest sellers of digital music and ringtones in India. Sales of ringtones and songs
on phones accounted for 30% of the annual 7.5 billion rupees (168 million USD) spent in the Indian music
industry. In 2009, Airtel customers completed more than 200 million downloads on their mobile phones.
According to news reports, Airtel retained a significant part of this revenue.3
To target farmers, Airtel partnered with the Indian Farmers Fertilizer Cooperative Limited (IFFCO) to
allow IFFCO to sell IFFCO/Airtel-branded SIM cards through its retail outlets. Airtel created a value-added
platform to offer voice updates on market prices, farming techniques, weather forecasts, and fertilizer
availability. IFFCO customers received three free voice updates per day.
Global Expansion and Challenges Going Forward
Kohli saw two main challenges to Airtels success going forwardkeeping the companys culture intact
and satisfying customers. You cant Xerox your culture, said Kohli. The challenge is to retain the culture
of a small company as we become a big company. We cant become complacent or arrogant. He described
the company as having middle class values, specifically, a willingness to work hard, honesty, humility, and
cost consciousness. As long as Airtel remained committed to these principles, it could remain competitive.
With regard to customers, Airtel made an important qualification to the typical customer satisfaction
mantras: Service should be commensurate with pricing levels. As the company continued to grow, the
board of directors and management team would be actively involved in the company transformation intoa professionally managed firm. The ongoing challenge, therefore, was to strengthen its business model
through rapid expansion and continue to deliver superior results.
Following unsuccessful attempts to buy MTN, a major telecom service in Africa, in March 2010,
Airtel struck a deal to buy mobile operations from Zain) (a Kuwait firm) in 15 African countries. The
10.7-billion (USD) acquisition made Airtel the worlds fifth-largest wireless carrier by subscriber base. For
the fourth quarter of 2010, Airtel reported its revenues from the Zain Africa division were 911 million (USD),
contributing 28% of the total revenues of 3.2 billion (USD).
Airtel then operated in 17 African countries: Burkina Faso, Chad, Democratic Republic of the Congo,
Republic of the Congo, Gabon, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Rwanda, Seychelles, Sierra
Leone, Tanzania, Uganda, and Zambia. Airtel faced several challenges in Africa that countered its risk-
sharing vendor partnership strategy. For example, fragmented government policies across different countries
in Africa presented challenges in importing telecom equipment and taxation problems. In addition were
challenges to build a centralized vendor model and investment of more time and resources to work with
different vendors. The shared infrastructure model across various technology providers that worked for Airtel
in India was not applicable in Africa due to the limited overlap in coverage footprint across various service
providers in different countries.
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However, Airtel was taking its time to repeat the strategy that worked in India. It engaged global and
local outsourcing partners such as IBM, Tech Mahindra, Ericsson, Spanco, and Nokia. Airtel overhauled its
distribution and launched a new channel partner program to align incentives of dealers and retailers. It
also planned some major restructuring to leverage the synergies across various markets. This included the
extension of the One Airtel concept to all geographies globally to facilitate decision making.4 While some
of the results from these initiatives were positive, it was still an open question how long Airtel would need
to replicate its impressive growth in India to opportunities in the growing African economies.
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Exhibits
Exhibit 1
International Telecom Performance Indicators
Airtel
Net debt/Equity 1.23
Total capital expenditure 21,743.6 million
Capex/subscriber 122.88
Number of subscribers 176.95 million
Book value of debt 11,990.2 million
Book value of equity 9,753.36 million
Net FCF (1,787.27) million
All monetary figures are in US Dollars
Source: Bharti Airtel Annual Report 2011. http://www.airtel.in/AnnualResults/Bharti_Airtel_annual_report_full_2010-2011.pdf
Exhibit 2
Airtel Three-Line Graph (Health Indicators)
Source: BhartiAirtel Annual Report 2011 http://www.airtel.in/AnnualResults/Bharti_Airtel_annual_report_full_2010-2011.pdf
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Exhibit 3
Airtels Value Added Services
Value Added Service Description
JobsJob alert for mobiles based on profiles and powered by Naukri.
com, Monster.com, and clickjob.com
Hello TunesEnables callers to hear the customers favorite tune instead of
standard dial-tones
Airtel Radio
Enables a user to hear favorite songs all the time with a
monthly subscription of Rs. 30. Available are 20,000 songs in
17 languages
Night RadioOffers music services across various radio channels from 10
p.m. to 8 a.m.
Friendz Chat Enables chat with unknown people and make new friends
Special 5
Enables special connection with five closest friends, lowering
the call charge to a per-day per-number basis rather than
regular per-minute
Voice Search and RequestsEnables a caller to speak out requests and searches.Subscribers can download ringtones, dedicate songs, check
scores, etc.
Speak English Helps to learn spoken English based on Indian user contexts
Missed Call AlertsProvides updates on all missed calls if phone is switched off
or unreachable. An SMS notification is provided
Voice SMS Helps to send a recorded voice message for 30 seconds
Audio CinemaHelps to hear the audio of any movie for a total of 60 seconds
with forward or rewind facility
Cricket UpdatesComes with different plans based on the schedule of national
and international cricket series
Jokes Enables download of jokes from Airtel menu on variety oftopics
Devotional ServicesE.g. Quran services with quotes sent per day or at different
times
Matrimonial Enables finding a suitable match based on specific preferences
Live Aarti on Mobiles
Enables virtual participation to live Aartis at Siddhivinayak
temple and Tirupati. The cost increases by folds per addition
of shrine and the count of Aartis
Astro LiveEnables horoscope reading, future telling, etc., by qualified
astrologers
Shayaris
Enables download of various type of shayaris (poems from
renowned Urdu poets)
Source: http://todayontech.com/airtel-value-added-services-start-stop-and-info-guide/
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Endnotes
1 Indus Towers. Indus Towers to Add 5,000 Towers This Fiscal Year. January 2011.
2 Airtel. Bharti Airtel awards USD 700 million network expansion contract to Nokia Siemens Networks. 11 February 2010.
3 Mobile, Not Net, Drives Indian Music Sales. The Wall Street Journal.22 Oct. 2010
4 Philip, Joji Thomas. Bharti Airtel may merge India & Africa operations by mid 2013.15 October 2012. Economic Times.
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