Airtel Business Model Stgy Essay

704 Words Sep 11th, 2011 3 Pages
CASE HIGHLIGHTS
Bharti Airtel, in 1995, won govt tender to launch mobile telecom services in Delhi Initial investment was high
Spectrum License, Towers, Telecom networks, supports systems Funded through debt – this meant high charges for subscribers 2002 – Running out of money + New entrants

Shifted focus from ARPU to:
A. Gross Revenue and Profit B. Operating Efficiency C. Capital Productivity

Potential market then expanded to entire Indian population

Cost reduction targeted by way of outsourcing
Economies of scale ; converted fixed costs and capital expenditures into variable operating expenses. IT services, n/w equipment, apps, distribution.

Rural market penetration – partnership with SKS Microfinance and IFFCO.
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• Performance-based partner payment system

Key Resources
• Shared passive infrastructure through competitor collaboration, open developer community, strategic partnerships

Key Processes
• Competent in customer management, people motivation, financial management, regulatory affairs, brand management, and strategy creation

AIRTEL BUSINESS MODEL – DEFINITION 3 – Casadesus – Masanell & Joan E. Ricart
Choices Rationale

Shift focus from ARPU
Cost reduction by outsourcing Performance based payment

In India, customer attractiveness is not indicated correctly by ARPU
Focus on core competencies Converts cap-ex into variable operating expenses. Increases cashreserve and also provides partner with incentive to increase performance

Open application platform
Distribution via piggybacking Rural penetration via SKS and IFFCO

Large number of applications sourced at low cost
Eliminates time required to establish own channels Leverage on existing connections to increase customer base and add value

Competitor Collaboration

Share passive infrastructure costs and minimize risk

ANALYSIS OF BUSINESS MODEL - BEFORE
Airtel’s Initial Business model was characterized by High Fixed costs & High Prices
Low Bargaining Power

High Fixed Costs of Equipment, Network Setup

Restricted Customer Base – Vulnerable to Competitive Forces

Virtuous Cycle - 1
High Cost of Servicing the Debt - Strained Cash Flows

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