Bharti airtel: Shifts from Outsourcing to Insourcing

Bharti Airtel has taken a decision to acquire the entire stake of Alcatel Lucent India in Alcatel Lucent Managed Network Service India (ALMNS), a joint venture between Bharti and Alcatel Lucent India to manage and deploy the former's fixed line and broadband network in India thereby making a paradigm shift from outsourcing model to insourcing model. And this is applicable from immediate effect. So the big question is: Why is Bharti Airtel shifting from outsourcing to insourcing?

The joint venture for fixed and broadband services was formed in April 2009 and the focus was on managing Airtel's migration to Next Generation Networks (NGN) to offer advanced services like high-speed internet, triple play, media-rich VAS, MPLS, VPN for both retail and business customers. This was the first managed services partnership for broadband and telephone services in India.

ALMNS manages 3.3 million fixed line and 1.4 million broadband/internet subscribers of Bharti Airtel, spread across 87 cities across India.

Under the JV, Alcatel-Lucent was taking care of designing, planning, deploying, fault repair, optimizing and managing Bharti Airtel's broadband and telephone network across India. In the JV, Bharti Airtel had 26% stake and Alcatel-Lucent had 74% stake.

With Bharti buying Alcatel-Lucent stake in the joint venture, ALMNS would now be a 100% subsidiary of Bharti Airtel. And the company will not be able to leverage on Alcatel-Lucent's global expertise in IP transformation, managed network services, and network transformation. Also the onus of customer delivery and market growth will be now on Bharti Airtel only.

Sanjay Kapoor, CEO (India & South Asia), Bharti Airtel said, "This new model, along with our recently launched network experience centre, will provide us greater control over the delivery of a world-class data experience to customers across our portfolio of networks."

Munish Seth, president and managing director, Alcatel-Lucent India said, "We are extremely proud that the joint venture was a catalyst in transforming Bharti's Telemedia business at an accelerated pace and setting the stage for the next stage of transformation."

Earlier the joint venture was headed by Sanjay Pandey, an Alcatel-Lucent nominee. With this transition, Bharti Airtel has appointed Shishir Kumar, CEO, Upper North, Bharti Airtel as the CEO of ALMNS.

The operations of the ALMNS will be strengthened by the transition of proven tools, processes and 4,000 skilled resources from the existing joint venture. It will operate independent of Bharti and, going forward, will invite other operators to join in with equity participation and bring the management of their broadband and fixed line networks under its fold.

As Vodafone and Idea Cellular have a small presence in fixed line and wireline broadband this would be a non starter unless and until the focus is on any additional component apart from fixed line and wireline broadband services.

With respect to investment made by Bharti in ALMNS, Bharti and Alcatel-Lucent spokesperson didn't share any further details in this regard.

One of the early adopters of managed services in India, both in mobile and fixed services, the shift in business model, according to industry experts, is related to a flat growth in fixed line which has been stagnant fot the last eight quarters, and broadband numbers, which has been flat for the last six quarters. Even the cost of maintaining these networks was increasing and Bharti Airtel was in no mood to renegotiate the rates upwards, so the best option was to buy out Alcatel-Lucent's stake in ALMNS.

The shift towards insourcing would also lead to some cost saving for Bharti Airtel as the company is focusing in a big way on increase net income which has fallen to Rs 280 crore in Q4 FY 2012-13, a drop of 72% year-on-year, but in the long run it will increase its complexity which the company has to tackle as they move forward.