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Is Bharti’s virtual MNO model a glimpse of the future?

Tony Chan | December 11, 2008 | 0 Comments

One of the most radical developments in the mobile phone industry was revealed during the GSMA Macau show last month, with Bharti Airtel CEO Manoj Kohli saying that the operator has literally outsourced everything except the marketing of services.

Faced with limited disposable income from India’s population, Bharti Airtel has had to develop a new business model to drive down costs to support new subscriber adds.

“The lowest tariffs in the world needs the lowest costs in the world,” Kohli said adding that: “The lowest cost needs the highest degree of innovation to sustain growth.” The basic premise of Kohli’s strategy is not to optimize its own operations and streamline its cost base, but instead to go to its vendors for the task. Instead of buying equipment, building networks and the maintaining services, the operator now let its vendors do all the work, while ironing out a new model for payments.

Leveraging the size of its customer base – and the potential customer base offered by India, Bharti has managed to negotiate a whole new model for outsourcing services, one that is based on usages, quality and performance KPIs, one that also encompasses its entire backend infrastructure, including IT and customer service.

According to Kohli, the network is outsourced to Ericsson and Nokia Siemens Networks, the IT infrastructure is outsourced to IBM, customer service is outsourced to six firms across the nation, while the passive infrastructure and distribution also relies on third party partners and service providers.

USAGE, QoS-BASED PRICING
What makes Bharti Airtel’s outsourcing arrangements different is that it essentially buys capacity from each of its service providers, and has managed to convince its vendors to accept at least some margin of SLA (service level agreement).

The exact commercial terms of those contracts were not revealed, but the core concept is that Bharti will buy the physical network from the vendor, but the vendor will be responsible for building and maintaining that network, while Bharti pays for ongoing usage on the infrastructure on a per minute basis – a kind of post paid mobile network.

The model is even more radical when it comes to IT and customers service operations that the operator outsources to third parties. While there is no doubt a basic price for maintaining those operations for Bharti, the deals now include a service quality component. For the customer service operations for example, which handles 80 million calls a month, the actual payment to the vendor is determined by the quality of service provided by those operations.

The model has transformed Bharti’s role from operator, to manager and strategists, Kohli said.

“We now spend our time writing KPIs, monitoring KPIs.” Of course, that’s not the whole reason that Bharti has managed to gain and maintain its market share lead in India’s ultra-competitive mobile sector, where each market now has 7-8 players, where major international operators, including NTT DoCoMo and Telenor, have entered the market in anticipation of the introduction of 3G next year.

Bharti also shows an acute understanding of its markets, developing features and service plans that cater to the lifestyle of its users, particularly in rural India where cash is the primary mode of economic activity. One such service is its Lifetime Prepaid offering, which allows users to maintain the same prepaid number by using up a portion of the card’s value every 3 months, instead of having to recharge the entire card.

All this should hit some chords with mobile operators worldwide. Not only does the outsourcing alleviate a lot of complexity within an operator’s environment, but also turns capex into opex, an important advantage in today’s credit-constrained market – a trend that we are already seeing with the recent announcement that T-Mobile and 3 UK have outsource the management of their network to Ericsson.

But can the industry take a step further, where it doesn’t buy the network, but only minutes from vendors? After all, that’s essentially what is being proposed by some of the national broadband infrastructure projects around the region.

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