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Telcommunications - Outsourcing upside down
Rank: Elder Joined: 9/15/2006 Posts: 3,905
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I must admit, telcommunications has been the revolution in the last 20 years. What with revolutionaries like Mo Ibrahim and Sunil Mittal. But this Bharti Airtel can offer many lessons for Safaricom, Zain, YU. In 2003, With a 20 percent share, Mittal's firm, Bharti Tele-Ventures, held a slender lead in a crowded field that included rivals backed by deep-pocket Indian conglomerates such as Tata and Reliance. Mittal recalls: "I was meeting with people from Orange, Vodafone, and T-Mobile; and I saw that these were huge companies, hugely resourced. And it began to dawn on me: I have to be like them. But could I afford to be like them? We'd need to hire 10,000 people, maybe 20,000, within two years. Did we have the resources to do that? Were we the best company to attract that kind of talent? The answer, clearly, was no." The AnswerHow did Mittal rise to the challenge of managing breakneck growth? By taking a quintessentially Indian solution - outsourcing - and standing it on its head. Egged on by his CFO and a core of in-house technology specialists, Mittal resolved to give away his network. 1. In 2004 he signed contracts to hand over operation of Bharti's entire phone network to Sweden's Ericsson, Germany's Siemens, and Finland's Nokia. The deal means Bharti no longer has to worry about buying and maintaining equipment. Instead it pays the European vendors a fee determined by customer traffic and the quality of service the firms provide. 2. In 2004 Mittal signed a ten-year contract with IBM, farming out the bulk of Bharti's information-technology services, including billing, management of customer accounts and even operation of the Bharti intranet. The ChallengeSo Kenya landscape is quickly beginning to mirror India, what with Safaricom (Vodafone Essar in India), YU (Essar in India), and now perhaps Zain (Bharti Airtel in India). Have the firms strategically positioned themselves for the next revolution? Wireless WonderIndia's Sunil Mittal wasn't born to wealth. The graduate of Punjab University founded Bharti at 18. At first he made crankshafts for local bicycle manufacturers. Two successive business breakthroughs went to nothing after shifts in government policy. In 1992, he successfully bid for 1 of the 4 mobile phone network licences auctioned in India. http://money.cnn.com/mag...01/22/8397979/index.htm
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Rank: Elder Joined: 9/15/2006 Posts: 3,905
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Quick update: Success is a habit... Bharti has net debt at the moment of NIL Sign of things to come, Zain actually concluded outsourcing of East Africa to Nokia-Siemens in November 2009. Zain’s African operations, after reporting strong growth in 2007 and 2008, deteriorated in 2009. See blood letting http://www.zain.com/down.../reports/zainER9m09.pdf
Bharti value of $10.7b values Zain Africa on 7.7 times and 9.2 times 2008 and estimated 2009 EBITDA
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Rank: Chief Joined: 1/3/2007 Posts: 18,098 Location: Nairobi
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@mugunda - Not nil/zero but 10% which is rare in telecom... that said... Bharti will borrow almost $11-12bn over the next 12 months... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 9/15/2006 Posts: 3,905
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@VituVingiSana  thx for input I'm looking at report ending Dec 09, and I see for last twelve monhts, Net Debt to EBITDA is indeed 0.12 times. Very interesting to compare key KPIs _______________Safaricom__________Bharti (mobile) Customers __________14.51m __________113m Market Share __________77% __________22% EBITDA _____________40.6% __________31.9% %Non-voice __________17.7% __________15.1% Churn ______________27.6% __________10.8%
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Rank: Elder Joined: 9/15/2006 Posts: 3,905
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Ooh just a quick one I came across that shows Bharti is setting their Outsourcing stage for Africa... Excerpt: Bharti Airtel has invited bids to outsource operations worth over a billion dollars for African assets it recently acquired from Kuwait’s Zain Telecom India’s largest mobile phone company has invited bids for IT-related services as well as the management and maintenance of mobile and landline networks in 15 nations as it looks to replicate the success of its low-cost model of operations in Africa. “The three big Indian IT firms (TCS, Infosys and Wipro) along with IBM are in the race as Bharti Airtel is looking for the best deal,” Outsourcing all key operational functions , a concept pioneered by Bharti Airtel, is the key to its low-cost-high-usage business model that has enabled the telco to build a base of over 125 million customers in India and emerge as the country’s largest operator by both customers and revenues. Replicating this outsourced model of operations in Africa will be the key to returning Zain to profitability. http://economictimes.ind...articleshow/5846771.cms
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Rank: Elder Joined: 9/15/2006 Posts: 3,905
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Okay if you allow me to take a walk down memory lane...
Surprising how everything Bharti is doing was just there for us to see as noted above. The only and most effecient way to run a business is to stick - unrelentingly - to the core, and give everything else to someone else.
So Bharti's secret weapon:
No one else in Africa can afford to charge what they charge; everyone else is too fat and has everything in-house, having built mini ICT co, Finance co, Marketing co, Customer Care co, Network companies.
Bharti are the most effecient per minute, erlang, BTS, headcount whatever the measure, and that my friends is their secret weapon.
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Rank: Elder Joined: 9/15/2006 Posts: 3,905
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Just a note on watching full interview of Rene Meza on MoneyMatters; I'm convinced Airtel strategy is down to Safaricom's Achiles heel:
Efficiency, efficiency, efficiency
The solution will be mobile operators modeling 2.00/= calls across network and 1.00/= calls within network and 0.50/= for SMS
Note 01-Jul-11, interconnect reduces further 35% to 1.44 and another 60% for SMS to 0.20
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Rank: Chief Joined: 1/3/2007 Posts: 18,098 Location: Nairobi
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Airtel's strengths are the partnerships it has... A lot of firms outsource to concentrate on core competencies... BTW, I am glad that Airtel is creating a local BPO base in EAC... We need more of such investments... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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But there are people who claim Airtel dont know what they're doing based on the principles of selling sukuma wiki... Don't miss the forest for the trees! What's Vodaphone/Safaricom's debt ratio? Business opportunities are like buses,there's always another one coming
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Rank: New-farer Joined: 6/3/2010 Posts: 96
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It will be interesting to watch how all this plays out. all in all the telecom sector in Africa will definitely never be the same again. Very interesting time for students of Strategy
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Rank: Elder Joined: 9/7/2010 Posts: 2,148 Location: elderville
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Good post @Muganda more so given the time of the first one. It is interesting that whereas Airtel is clearly cutting down on cost with the aim of being efficient such that even 1 bob a minute calls make money for them we find some of the competitors shouting about how such low calls are not sustainable instead of adjusting their operations and strategy to compete against that move by Airtel. So far it seems only YU has a clue on what Airtel is doing. He who can express in words the ardour of his love, has but little love to express. - Petrach, Son. (That men by various ways arrive at the same end. - Montaigne, The Essays of.)
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Rank: New-farer Joined: 6/3/2010 Posts: 96
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Having worked in western multinationals for a while,....can tell you that mentality is usually empire building (not just MNC's, its the natural human tendency to want to control and everything in house especially if you have the resources to do it)
You have to be brave and a little nuts to hand over what you consider to be the core of your business (for mobile firms, the network is usually treated like the holy grail....). Generally MNC's work on maximing margins based on charging highest possible prices...so lets see how all this plays out.
The only challenge to the model is that the partner ecosystem is not as developed as it is in India...IBM did not even have an office in Kenya, no credible BPO in Kenya....so this is a challenge but also presents a great opportunity for Kenya to jumps start this new knowledge areas of the economy
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Rank: Chief Joined: 1/3/2007 Posts: 18,098 Location: Nairobi
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@papainvestor - Well, I hope Airtel business/needs for Africa [well, EAC] forced IBM to set up shop here... Furthermore, I would love to see new or better BPOs setting up shop! BTW, Airtel has made Kenya the HQ for Anglo Airtel... So it would be a shame/blot if they remained a piddling #2 in Kenya!!! Apparently India is becoming 'expensive' for many BPOs so look further afield & we have Kenya with an (sorta) educated population & many English speakers. Even the BPOs TRAINED many Indians to speak like Americans/Brits! Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: New-farer Joined: 8/25/2010 Posts: 97 Location: Kenya
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Low calling rates and outsourcing does not guarantee success. For telecommunications firms to be successful, they need to develop new products and services. This constant need for product innovation is required in order to generate tomorrow’s revenues. With product life cycles for telecommunications products and ser-vices becoming shorter all the time, it is becoming disproportionately critical to success-fully replace revenues generated by today’s products and services with the products and services of tomorrow.
It has often been said that 90% of a product’s success is being first to market.
This is mainly a battle between innovation coupled with diversity against cheaper rates coupled with outsourcing. Time will tell who emerges the winner.
@Kularaha.. My sukuwa wiki seller analogy is a primary business principle just like the law of gravity. If you are disputing that, climp at the top of KICC and jump....
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Rank: Elder Joined: 9/7/2010 Posts: 2,148 Location: elderville
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Abunuasi wrote:Low calling rates and outsourcing does not guarantee success. For telecommunications firms to be successful, they need to develop new products and services. This constant need for product innovation is required in order to generate tomorrow’s revenues. With product life cycles for telecommunications products and ser-vices becoming shorter all the time, it is becoming disproportionately critical to success-fully replace revenues generated by today’s products and services with the products and services of tomorrow.
It has often been said that 90% of a product’s success is being first to market.
This is mainly a battle between innovation coupled with diversity against cheaper rates coupled with outsourcing. Time will tell who emerges the winner.
@Kularaha.. My sukuwa wiki seller analogy is a primary business principle just like the law of gravity. If you are disputing that, climp at the top of KICC and jump.... In your world then one can't have all - innovation coupled with diversity and cheaper rates coupled with outsourcing? It is not an either or situation. He who can express in words the ardour of his love, has but little love to express. - Petrach, Son. (That men by various ways arrive at the same end. - Montaigne, The Essays of.)
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Rank: New-farer Joined: 8/25/2010 Posts: 97 Location: Kenya
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@Elder In your world then one can't have all - innovation coupled with diversity and cheaper rates coupled with outsourcing? It is not an either or situation.
I wonder if your english teacher taught you the bmeaning of the word MAINLY:
My statement clearly reads:
This is mainly a battle between innovation coupled with diversity against cheaper rates coupled with outsourcing. Time will tell who emerges the winner.
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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Abunuasi wrote:
@Kularaha.. My sukuwa wiki seller analogy is a primary business principle just like the law of gravity. If you are disputing that, climp at the top of KICC and jump....
I actually wasn't even referring to you, but to another safcom apologist.Dont take it so personally, your sukuma wiki principle is factual. BUT, there are big successful businesses globally that have "strange" strategies...does not mean they will fold up and close shop tomorrow...wait and watch..............and learn. Business opportunities are like buses,there's always another one coming
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Rank: Elder Joined: 12/6/2008 Posts: 3,548
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For most there is nothing to learn from a sukumawiki seller who takes a business loan uses it to dole out free sukumawiki(he is currently interested in many sukumawiki takers not profit), no lesson at all!, but some are waiting to learn something, i really wonder what? You have to remember these sub-cost calls are being supported by a USD10Billion loan, if it is not working, then what? and it is not working. A New Kenya
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Rank: Elder Joined: 10/13/2009 Posts: 1,950 Location: in kenya
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I think what Airtel has done is an ingenious way of cutting cost but at the same time I think the risk it assumes by this strategy is enormous. outsourcing ur customer care has been a trend all over but when you outsource the infrastructure that is the back bone of your business that is a risk that needs a sound contingency plan. Lets look at safaricom its customer care is dead they hav automated it making it moribund and unresponsive to customer needs. so if I was Bob I would partner with a world leader in outsourcing to make that sector of its business competitive and efficient such that they can leverage on it as a profitable BPO. What I think Airtel has done is separate their business into specialized business units these business units then partner with world players to create an efficient synergistic companies .For instance Airtel has a separate infrastructure company (bharti Infratel Limited) that specializes in building BTS (providers of passive infrastructure services as they call it) '......to the acknowledgment of the mystery of God, and of the Father, and of Christ; 3 In whom are hid all the treasures of wisdom and knowledge.' Colossians 2:2-3
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Rank: Elder Joined: 9/15/2006 Posts: 3,905
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Abunuasi good points, don't loose your nerve.
A classic battle between Innovation v/s Efficiency - we need a strategy missive on this one.
Safaricom is very innovative, there's no need to chase them down this road. But the giant has a weakness, and it is efficiency. Now on this one point Airtel just needs to copy unashamedly all initatives Safricom comes up with and do them much more efficiently.
You tell me what the verdict would be? A slim efficient man begins a 5kms race 2kms behind a fat man who because of innovation started his race early. A friend once told me there are only two types of companies the quick and the dead.
So Safaricom/Orange/YU need to quickly unlearn the bad habits and do better. Heck, see the pace with which KCB/Barclays are chasing efficiency this year.
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