Proceedings of the International Conference on Business Management & Information Systems, 2012

Indian Telecom Sector Challenging Core Competency (Case Study with Reference to Airtel)
Shriram Mahadu Patil
Business Excellence, Asia Motorwork Ltd., Mumbai
E-mail: shrirampatil21@gmail.com

ABSTRACT
Indian Telecom Sector has grown exponentially over last 5 years with Year on Year growth of 45%, from 98.45 million in 2005 to 900 mn in 2012. It is the second largest market and only next to China. Indian Telecom Market has penetrated to the Teledensity of 76%, while our literacy rate is 74% (as per 2011 provisional census data). Indian telecom Industry has given some unconventional perspective to the world. While the other operators like TATA, Reliance and New comers are Bleeding, due to fierce Price War, Airtel still has the strong EBIDTA at 40%. Furthermore Airtel is clear Market leader with Revenue Market Share (RMS) of 33% and the Customer Market Share (CMS) of 21%. The Interesting part which is less known to the world is, Airtel dont have the core competency in Telecom Network. Airtel has purchased Spectrum from Government of India. Airtel gives this Spectrum to Nokia Siemens Networks (A Foreign Equipment Manufacturer). Nokia Siemens Networks (NSN) puts the equipments on the Passive infrastructure provided by Airtel through another Managed Service provider, INDUS (Passive infrastructure provider, in laymans language, Tower company). NSN puts the radiating equipments as needed (as per the survey and Market demand) and convert the Spectrum into Airtime Minutes. Airtel Sell these Minutes through its Sales and Distribution Network (Part of which is through Dealers, Franchisees and Channel partners). All the IT services are managed by IBM. Customer service is outsourced. Considering the above fact, the Scenario Challenges the popular Golden rules of Business: Necessity for Core Competency in the operating Sector Classical theory (by Late Shri C.K. Pralhad and Gary Hamel) The present study focus on the market study of Indian Telecom market so as to study whether business can sustain its financial and market competencies by out sourcing the core processes. The study also makes an attempt to study the factors contributing to the failure and success of the strategies. The research methodology adopted is the market study and the case study of Airtel major player in Indian Telecom Market. The present study is based on Secondary Data from Published reports by Regulatory Bodies like TRAI (Telecom Regulatory Authority of India, COAI (Cellular Operators Association of India), AUSPI (Association of Unified Telecom Service Providers of India. Publications like Telecom Watch, Published Financial Reports on Respective operators website and other sources from Telecom Industry. The findings of the study reveal that the Bharti Airtels collaboration with ERICSON, NSN & IBM has drawn an IT roadmap with a state-of-the-art infrastructure to support its existing and new business operations. The result is a strategic, on demand, scalable business transformation agreement capable of diligently servicing the needs of millions of customers. With proper governance framework, implementation and monitoring core processes can be outsourced without hampering the sustainability of the business.

Keywords: Telcom, Core-Competency

Introduction
Indian Telecom Sector has grown exponentially over last 5 years with Year on Year growth of 45%, from 98.45 million in 2005 to 900 million in 2012. It is the second largest market and only next to China. Indian Telecom Market has penetrated to the Tele-density of 76%, while our literacy rate is 74%

90

Business Management and Information Systems

(as per 2011 provisional census data). While achieving such growth rate, there is tremendous pressure on the Industry. It is said that innovations happens under pressure.

Objective of the Study

1. To find if Business can sustain its financial and Market Position in long term even after out sourcing core processes. 2. To study the factors contributing to the success and failure of these Strategies.

Hypothesis
Business can be made sustainable even after outsourcing Core Business processes.

Research Methodology
Following research methodology was adopted for the study:

Market Study
Market Study of Top 5 Indian Telecom operators, Their Revenue Market share and Customer Market Share is carried out on the basis of secondary data publish by TRAI, DoT ( Department of Telecom, India) and various telecom magazines like Telecom Watch and Voice and Data. Available financial results of various operators are studied.

Data Collection
Secondary data is collected from published reports by Regulatory bodies like TRAI, COAI (Cellular Operators Association of India), AUSPI (Association of Unified Telecom Service Providers of India). Publishers like Telecom Watch, published Financial reports on respective operators website and other sources from Telecom Industry are studied. Earlier Papers published on related topic are studied. Personal interviews of senior personnel from Airtel were conducted to access the qualitative aspect of the case study.

Scope of the Study

The geographical scope of the study is confined to Indian Telecom industry with Top 5 national telecom operators like Airtel, Vodafone, TATA, Reliance and Idea. The time span of the study is 2005-2011 (based on data availability). Cancellation of 2G licenses of all new operators in 2011 has resulted in skewed market results, hence 2012 is not considered for study.

Indian Telecom Industry

Various Phases of Indian telecom Industry: Following charts provided to cut short the lengthy verbose. Chart 1 display the comparative strength of the Telecom operators (All of the Incumbent operators constitute 95% of the market share. Only Uninor, MTS and Aircel were faring well in terms of sustainable growth. Rest of the new operators were just grappling to meet the mandatory rollout obligation. In terms of customer market share, Airtel is leading with 20% market share followed Reliance and Vodafone. The trend also depicts how Govt. undertakings like BSNL and MTNL have lost its market share to Pvt Player like TATA and Reliance. Airtel managed to retain its market leadership.

Indian Telecom Sector Challenging Core Competency (Case Study with Reference to Airtel)

91

In the below chart, again Airtel has maintained its Market leadership with 33% Market leadership followed by Vodafone and Idea. Chart 1. Customer Market Share of Major Telecom Operators in India
Operator Airtel Vodafone Idea Loop Reliance TATA BS NL MTNL All India 18% 2% 100% 20% 1% 100% CMS Fy- CMS Fy- CMS Fy- CMS Fy- CMS Fy- CMS Fy- CMS Fy- CMS -Fy- CMS -Fy03 04 05 06 07 08 09 10 11 24% 17% 10% 9% 4% 25% 20% 10% 7% 3% 21% 15% 5% 3% 20% 2% 19% 2% 100% 20% 14% 11% 2% 19% 6% 21% 2% 100% 22% 15% 10% 2% 18% 8% 19% 2% 100% 22% 16% 10% 2% 18% 10% 15% 1% 100% 22% 17% 11% 2% 18% 10% 13% 1% 100% 22% 18% 11% 1% 17% 11% 11% 1% 100% 20% 17% 11% 0% 17% 11% 11% 1% 100%

Source: TRAI Telecom Regulatory Authority of India.

Chart 2. Revenue Market Share of Top Telecom Operators

Operator Airtel Vodafone Idea Loop Reliance TATA BSNL MTNL Grand

RMS Fy-08 22.2% 11.8% 7.3% 0.6% 11.0% 6.1% 33.5% 5.3% 100%

RMS Fy-09 30.2% 21.1% 10.0% 0.6% 14.8% 7.6% 11.4% 0.9% 100%

RMS Fy-10 33.4% 20.5% 12.8% 0.6% 10.3% 7.8% 9.8% 0.6% 100%

RMS FY-11 32.3% 20.8% 13.4% 0.6% 8.8% 9.0% 8.3% 0.5% 100%

RMS Q1-12 32.3% 19.7% 14.3% 0.6% 7.5% 9.4% 8.0% 0.5% 100%

Source: TRAI Telecom Regulatory Authority of India.

Core Competencies
A core competence is a bundle of skills and technologies that enables a company to provide a particular benefit to customers. The commitment a firm makes to build a new core competency is a commitment to creating, or a further perfecting a class of customer benefits, not commitment to a specific product/market opportunity. Sonys commitment to pocket-ability preceded the Walkman, the portable CD player, and the pocket television. The core competency comes first. The products come as a result of it. Any top team that fails to take responsibility for building and nurturing core competencies is advertently mortgaging the companys future. To be core, it must pass three tests: Customer Value, Competitor Differentiation, Extendibility At any time or space, the customer will need three important services from the Telecom operator: 1. Availability of Network for making or receiving calls.

92

Business Management and Information Systems

2. Able to activate various value added services (through IT provisioning system). 3. Get the help from the Customer service agents any time. The Telecom Operators try to differentiate themselves by trying to give the full coverage of their Network, providing innovative services and giving the unmatched customer services. Hence it is considered, and proved through various researches that these are the differentiating factors and Telecom organization try to achieve the core competencies in these areas.

Case Study
Bharti Tele-Ventures was incorporated on July 7, 1995 as a company with limited liability under the Companies Act, for promoting telecommunications services. Bharti Tele-Ventures received certificate for commencement of business on January 18, 1996. The Company was initially formed as a whollyowned subsidiary of Bharti Telecom Limited. Dr. Menon is currently the Group Director IT for Bharti Enterprise Group is the innovator of the business strategy currently under study. He was involved in establishing group IT architecture and security standards and develop appropriate partner governance mechanism. In March 2004, Bharti signed a deal with IBM for a 10-year partnership arrangement for an ondemand business transformation with payments based on a predetermined percentage of Bhartis revenues. In July 2004, Bharti signed the last of three successive deals with its telecom vendors arranging for the transfer of the build-up and management of its telecom network to vendors Ericsson, Nokia, and Siemens. Following the deal, around 250 Bharti employees, working on planning and designing of the companys network were transferred to NSN. Bhartis arrangement with the telecom vendors was made on the basis of installed erlang capacity and was structured in two parts. The first outlined the network design and installation. The second concerned the maintenance and running of the network once it was installed. The vendors also committed to meeting network service levels, which guaranteed a high quality of service for Bhartis customers. Financial penalties for underperformance as well as rewards for exceptional performance were written into the agreement. An example of several of these SLAs (service level agreements) is provided in Exhibit 1. Bhartis agreement with IBM was based on revenue sharing. Over a period of 10 years (five years plus a five-year renewal clause), IBM would design, build up, and maintain Bhartis IT network in exchange for a portion of Bhartis revenues.. To ensure that the benefits arising from economies of scale would be shared by both parties as Bhartis revenues grew, the percentage payable by Bharti would decrease while the absolute amount receivable by IBM would increase. IBM also accepted an SLA-based measurement system to monitor performance. An example of several IBM SLAs is shown in Exhibit 2.

Implementation
All sides expected some complications in implementation. One problem they encountered, for example, was related to material imports. Under normal circumstances, the government monitored imports on the basis of invoices. Under the arrangements Bharti had with the telecom vendors and IBM, no such invoices existed. Billing was separate from the importation of material. To accommodate the requirement, Bhartis purchasing department created invoices and then reconciled the invoiced amounts with the bills calculated on the basis of the new agreements.

Example of Telecom Service Level Agreements

Service level agreements refer to a series of measures that the partiesBharti and a vendoragreed

Indian Telecom Sector Challenging Core Competency (Case Study with Reference to Airtel)

93

would be used to monitor performance and set levels of performance necessary to fulfill the conditions of the contract. If performance fell below the prescribed levels, then the vendor would be subject to penalties. In some cases, rewards were given if performance exceeded expectations. The following Is an indicative list of some of the performance measures that were included: Exhibit 1. SLAs for Network
1. Average number of blocked calls during the bouncing busy hours (BBH) due to insufficient traffic channel resources (TCH blocking) 2. Average number of blocked calls during the BBH due to signaling channel resource (SDCCH blocking) 3. Dropped calls during network busy hours (NBH) or BBH

The above are network specific. In addition to these, t h e r e m a y b e few customer-focused SLAs, such as: 1. Availability of the network 2. Accessibility to make the call (how many customers fail to make a call in the first attempt) 3. Retain ability index (how many customers are able to retain without dropping calls) 4. Voice quality experience by the customers

Broad Framework of IBM Service Level Agreements

All the SLAs have been classified into two categories: 1. Critical SLAs: The critical service levels are defined to address business-critical eventualities. In the case of a failure of such service level agreements indiscrete jumps, a very high penalty is incurred. These service levels do not carry any bonus. 2. Functional SLAs: These are service levels defined for functional areas and are further categorized as per the table below. These carry bonuses and penalties as per performance sensitivity curve along a continuum. Exhibit 2. Passive Infra-structure SLAs (service level agreements)
Anchor Major Enabler Anchor SLAs are crucial to the business and pertain to areas such as billing timeliness and provisioning. Contractually, these SLAs have high weight for rewards and penalty calculations. Major SLAs have a lower impact on business and medium weight for rewards and penalty calculations. Enabler SLAs are similar to major SLAs but have low weight for rewards and penalty calculations.

A total of over 100 SLAs had been designed and implemented and are being measured and audited every month.

One Year Later

One of the most unique features of this partnership with IBM has been that Bharti Airtel not only benefited from getting a robust IT platform to handle scale but also drew a lot of value from IBM expertise in expanding its business capabilities across the board. For example, a very comprehensive business intelligence and data warehousing capability has been introduced to help businesses understand market segmentation and customer usage pattern. For IBM, the relationship with Bharti was a successful example of On Demand, the new model of customer relationship it wanted to implement.

94

Business Management and Information Systems

Financial Analysis
Chart 3. Comparison of Airtel and Industry
Trends in Cost Revenues & EBITDA Industry Airtel Airtel Industry Airtel Industry Airtel Airtel Industry Airtel Industry Airtel Industry Airtel Industry Airtel Industry Revenue( billion) Revenue( billion) RMS EBITDA Margin EBITDA Margin Sub-base in Millions Sub-base(Mobile ) CMS Operating cost Network Cost Network Cost Sales and MKT Cost Sales and MKT Cost Personnel Cost Personnel Cost Administrative Cost Administrative Cost Fy-05 202 23 12% 34% 35% 59 25% 59% 36% 16% 35% 23% 17% 11% 12% Fy-06 311 34 11% 35% 36% 87 20 23% 37% 58% 40% 17% 35% 23% 12% 12% 13% Fy-07 474 54 11% 37% 42% 154 37 24% 36% 57% 44% 19% 30% 23% 11% 11% 15% Fy-08 796 177 22% 42% 253 62 24% 39% 55% 51% 23% 24% 22% 8% 9% 17% Fy-09 797 254 32% 41% 384 94 24% 60% 29% 21% 8% Fy-10 809 267 33% 29% 567 125 22% 61% 32% 25% 7% Fy-11 871 280 32% 34% 814 159 20% 47% 37% 23% 6%

Source: Published financial statements and PWC study.

The balance sheet and financial results of Airtel and other operator like Vodafone, TATA, Reliance and Idea is studied from 2003 to 2011. The available data from the various studies done by organisation like Price Water Cooper (Financial Auditors and Consultants) have been used for comparison and benchmark. The above table displays critical aspects on how Airtel as the Telecom Operator faired after adopting the Managed service Model. Following inferences can be taken out: 1. While Industry subscriber base had grown exponentially through some disruptive pricing strategies adopted by competitors and new entrants, Airtel has managed to maintain its Market leadership in terms of Customer Market share and strengthened it Revenue Market share (tripled) by maintaining premium brand image and adopting innovative Sales and Marketing Strategies. 2. Although the general expectation from so called managed services is cost saving. Facts and figures indicate Airtel has not saved the cost (Network cost). But the take out is, by partnering with the high profile Industry best vendors, Airtel relived itself out of the day to day operations and concentrated on innovative marketing strategies and revenue streams. Airtel targeted revenue generating corporate sector and made tie-ups with builders and developers to put IBS (In Building Solutions) while the commercial complex are constructed, so that, when the commercial complex is ready all the corporate office can be easily acquired by demonstrating Network readiness and service superiority. 3. Rather on concentrating on technology, in the technology intensive sectors, Airtel concentrated on the Business. e.g Market and customer requirements, and left the technology to be handled

Indian Telecom Sector Challenging Core Competency (Case Study with Reference to Airtel)

95

by the vendors (who can handle it best). This was achieved by devising the innovative Business Model with Win-Win situation and putting stringent controls for Cost, Quality and Delivery, Consistency and Sustainability aspects in the contractual arrangement. 4. Cost aspect is controlled by economy of scales. By acquiring the large customer base Airtels Operational cost is distributed over the large customer base making them efficient in terms of Personal/Administrative/Network cost per subscriber, Subscribers per Tower etc. Also Airtel didnt have to adopt disruptive pricing strategies to acquire the customers desperately. This has helped Airtel to maintain the ARPU (Average revenue per user per month) above industry average.

Qualitative Analysis
In personal Interviews and market research hidden aspects of the factors contributing to the successful implementation of this business model was unearthed. Following are some of the factors which are critical in success of Managed service business Model 1. Careful design of the SLAs: The Service Level agreements should be carefully designed by identified to put necessary control both the parties. It is very important to identify the vital few critical parameter which need to be checked periodically to confirm that the work/ assignment is carried out correctly to ensure customer satisfaction. Careful workout of Business Model: Airtel by implemented the revenue sharing Model with Network Equipment, IT, sales and customer service vendors rather than cost model. This way Airtel has achieved 3 Objectives: Hedged its business risk with vendors so that vendors partner with Airtel to drive the business. Incentivized the vendors to deploy the equipment and software to drive more business and revenue so that they get more revenue. Removed the point of conflict between vendors and Airtel which is vendors want to sell more equipment to drive their business and Airtel want to optimise their capacity to control the cost 2. Discipline: Periodic review of the implementation (daily, weekly, monthly) at various levels, within Airtel and along with Vendors and timely resolution of problems and obstacles in implementation. Airtel has the culture of Professionalism and ruthlessness in implementation of strategies.

Conclusion
To summaries Bharti Airtels collaboration with IBM& NSN has drawn an IT roadmap with a stateof-the-art infrastructure to support its existing and new business operations. The result is a strategic, on demand, scalable business transformation agreement capable of diligently servicing the needs of millions of customers. With proper governance framework, implementation and monitoring core processes can be outsourced without hampering the sustainability of the study Similar business models have been successfully replicated by traditional and upcoming sectors like Pharmacy, Retail, Automotive, Travel, Hospitality, ITES (IT enabled services), etc.

References and Bibliography

[1] TRAI Quarterly PMR Reports, 2004 to 2011 on www.trai.gov.in [2] Telecom Watch Monthly reports from www.telecomwatch.in [3] COAI Subscriber and Revenue Report, 20032011 on www.coai.com [4] AUSPI Subscriber Reports, 20032011 on www.auspi.in [5] COAI PwC Cellular Benchmarking Study 2008.

96

Business Management and Information Systems

[6] TATA Annual Report, 20042011 on www.tatateleservices.com [7] Reliance Annual Report, 20052011 on www.rcom.co.in [8] Idea Annual Report, 20042011 on www.ideacellular.com [9] Bharti Airtel Annual Report full 20042011 on www.airtel.in [10] Competing for the Future, by Gary Hamel and C.K. Prahalad on www.altfeldinc.com [11] The Core Competencies of the Corp, by C.K. Prahalad, Gary Hamel on hbr.org [12] Jai Menon on Wikipedia on en.wikipedia.org [13] Five Traits of World Class Managed Service Provider on www.avaya.com [14] Comviva on Airtel Managed Services on www.comviva.com [15] Airtel Strategy, Amartya Ghosh, IIM Lucknow on www.crisil.com [16] Managed Services Demystified on www.alcatel-lucent.com [17] Strategic Outsourcing at Bharti Airtel Limited: One Year Later, F. Ass Martnez-Jerez V.G. Narayanan, Harward Business School on hbr.org