Bharti Airtel-IBM deal valued at $1 billion
Apr 07 2014 , New Delhi
Both the companies have been tightlipped on the deal value. IBM has been contracted to manage Bharti Airtel's information technology infrastructure and application services, including big data and analytics in India till 2019.
The deal, billed as the largest in the industry, was clinched after a lot of haggling over the past few months.
The two companies have been in a deal for over 10 years beginning with 2004 that was later renewed in 2009. The latest deal was entered into on April 3 for five years.
Company officials who did not wish to be identified divulged that Bharti Airtel was not very comfortable with "over-dependence on just one IT company" for managing its IT infrastructure and services. The top leadership at Bharti Airtel favoured spreading the company's risk by splitting the deal among two-three vendors.
The officials conceded that Bharti Airtel had very limited success while bringing on board two more companies for managing its IT backbone and services.
Initial reports valued the deal at $500-$550 million. But officials privy to the contract confirmed that it was worth over $750 million to
$ 800 million up front, or roughly of the size of the 2004 deal
As IBM refused to continue several free services hitherto given in
earlier two deals, Bharti Airtel would end up forking out as much as
$1 billion with increased focus on big data and analytics.
Most officials privy to the deal concede that the latest contract was
not as big in scope or valuation as the earlier decade-long deal that
ended with a total bill of $2.5 billion for Bharti.
Bharti Airtel has grown several times since it first contracted IBM,
when it had barely 4 million customers in 2004. It has 285 million
plus subscribers now.
Independent agency Greyhound Research pointed out in a note on
Thursday that talk of Bharti Airtel splitting its IT infrastructure
maintenance and application services between three vendors was
"misplaced and the deal remains intact with IBM India". But the note
also said for most end-user companies in general, "derisking is a
priority". It also pointed to other delivery models taking centrestage
like cloud and managed services.
Other analysts believe IBM could secure only 50 per cent of the
contract as it was facing competition from Indian IT companies that
were more structured, cost competitive and spanned lesser timeframe.
Several officials that Financial Chronicle talked to hinted at Wipro
and other IT Indian companies being retained by Bharti Airtel. FC
could not independently confirm whether Wipro has bagged a chunk of
the deal worth $300 million. When contacted by this correspondent,
Bharti Airtel spokesperson refused to comment beyond the official
press release. IBM did not respond to queries mailed to the company.
Officials also say engaging multiple vendors to spread the risk, Sunil
Bharti Mittal-led Bharti Airtel had tried out splitting an IT
outsourcing deal in Africa between three IT vendors.
Bharti Airtel has also not given up on building in-house world-class
IT services platform as the company was aggressively pursuing growth
in data and voice.
Bharti is reportedly uncomfortable with "near monopoly of IBM" in
managing IT infrastructure and services of major telecom operators in
Industry watchers believe IBM is on the verge of clinching major deals
with Bharti Airtel's competitors in Indian markets, viz, Vodafone and
Hemant Joshi, telecom partner at independent consultancy Deloitte
Haskins & Dells, told Financial Chronicle, "Large telecom players do
outsource their IT infrastructure, maintenance and services to more
than one company".
Joshi said, "Telecom companies tend to focus more on their core
function of providing services and adding business. They prefer to
outsource IT-related infrastructure and applications to ensure
predictability and scaling up operations in a short timeframe".
While there were very few players to maintain core telecom network,
there were more options for IT infrastructure and application
services. In core telecom network, the option was between likes of
Ericsson, Huawei or new entrants like Samsung.