Bharti lines up $700 million investment

Bharti Tele Venture has lined up a $700 million investments towards capital expenditure for financial year 2005. Bulk of this will be for mobile telephony where is company is emerging as a leader. The last year, the telecom comopany spent around $500mn towards capex and the mobility business accounted for two-thirds of the same.

The company is also trying to introduce measure for risk management through outsourcing. For de-risking its business model from issues relating to quality of network / service, Bharti announced various outsourcing arrangements. This include network outsourcing to Ericsson which is likely to improve capital investments effectiveness. Bharti has entered into an agreement with Ericsson for building and managing its networks across 10 existing and three new circles.

The contract is for $400mn over 3 years. The circles encompassed by this agreement include Delhi, Haryana, Punjab, Himachal Pradesh, UP (west), Andhra Pradesh, Tamil Nadu, Chennai, Karnataka & Kerala and the three new circles of Rajasthan, UP (East) and Jammu & Kashmir. These circles currently account for 75 per cent of Bharti''s subscriber base. Bharti is also exploring similar tie-ups for its remaining circles.

As per the agreement, Ericsson will continuously deliver equipment and services based on Bharti''s capacity requirements. Payments by Bharti to Ericsson will be linked to actual capacity utilization and will be subject to achievement of certain service levels. The agreement also provisions for transfer of 250 Bharti employees to Ericsson.

While the agreement is unlikely to yield significant savings in costs or cashflows for Bharti, it should improve the effectiveness of Bharti''s spend given Ericsson''s global expertise in network management. The agreement should also enable Bharti to channelise its own resources towards revenue enhancement in the marketplace. "A key concern over this network arrangement pertains to Bharti''s bargaining power vis-a-vis Ericsson over the longterm," says an analyst at DSP Merrill Lynch Securities. Anlaysts said that their conversations with Bharti indicate that compensation was likely be on a longer-term revenue-sharing basis.

The company also entered into a 10-year agreement with IBM (India) for IT services, hardware and software. Payments by Bharti to IBM (India) would be on a revenue-sharing basis for pre-determined service levels. The agreement would also enable Bharti to leverage IBM''s expertise in working with telecom service providers globally and thereby increase speed-to-market of new IT-related offerings for its customers.