Bharti Airtel-IBM deal valued at $1 billion

Tags: Bharti Airtel, IBM, IT
Information Technology giant IBM is set to make a cool billion dollars in the next five years from the outsourcing contract it has bagged from top telecom services provider Bharti Airtel two days ago.

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

between them.

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

India.

Industry watchers believe IBM is on the verge of clinching major deals

with Bharti Airtel's competitors in Indian markets, viz, Vodafone and

Idea Cellular.

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.

badarinath@mydigitalfc.com

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