Will consolidate IT environments to lower cost of ownership.
Telecom service provider Bharti Airtel on Friday strengthened its six-year relationship with IBM by assigning the global IT major to manage its computing and mobile network across 16 African countries. The 10-year deal, according to industry sources, is estimated to be worth $1-1.5 billion — one of the largest outsourcing deals signed by Bharti.
Industry sources said IBM bagged the contract in the teeth of tough competition from both Indian and international rivals such as Accenture, Hewlett Packard, Wipro and Tech Mahindra. Bharti had initiated the process of appointing an outsourcing partner in April.
The final details of the agreement with IBM are expected to be finalised in the fourth quarter of this fiscal, a Bharti statement said.
“We would like to bring a very successful, affordable, low-cost model here to Africa. This can be possible only by carrying forward our wonderful partnerships that we have forged with world leaders. Increasingly, in the last few years, IT has become the core of businesses,” said Bharti Airtel Chairman and MD Sunil Bharti Mittal.
In March, Bharti acquired Zain Telecom’s African operations at an enterprise value of over $10.7 billion. The group is already planning to change the name of the brand in a few months to Airtel across various markets on the continent.
The strategic partnership with IBM will also enable Bharti to scale up its network and systems to cater to more than 100 million subscribers by 2012, the company said. Currently, Bharti has a customer base of 42 million in these countries.
In 2004, Bharti had struck a 10-year deal worth $750 million with IBM to outsource its Indian IT operations. However, industry sources say that with the scope of the deal expanding, it is expected to be worth $2.5 billion by the end of the term.
| TWO-WAY CALL | ||
| Operator | IT partner | Deal size ($ bn) |
| Airtel (Afr) | IBM | 1.50 |
| Vodafone | IBM | 1.20 |
| Idea | IBM | 0.80 |
| Airtel (Ind) | IBM | 0.75 |
| Aircel | Wipro | 0.60 |
| Uninor | Wipro | 0.50 |
| Etisalat | Tech Mah | 0.40 |
| Tata Tele | TCS | 0.25 |
Bharti is not IBM’s only Indian telecom partner. It tied up with Vodafone-Essar in 2007 in a deal worth $1.2 billion. The US major has also signed an outsourcing contract with Idea Cellular for $800 million.
Indian telecom operators have been a lucrative hunting ground for large IT outsourcing deals. Wipro, for instance, has tied the knot with Aircel ($0.6 billion) as well as Uninor ($0.5 billion), while Tata Teleservices has given its IT contract to group company TCS for $0.25 billion.
Tech Mahindra has snapped up a contract from Etisalat DB (Swan) for $0.4 billion. Industry experts say only HP and Accenture have still to gain a foothold in the telecom outsourcing space.
Under the deal, IBM will consolidate 16 different IT environments across Bharti's African operations into an integrated system and will oversee the management of all applications, data centre operations, servers, storage and desktop services. Bharti said it plans to replicate the success of its relationship with IBM by lowering the cost of owning a mobile device for subscribers in Africa.
Bharti has already kicked off a tariff war in Kenya to take on rival Safaricom, in which Vodafone has 40 per cent stake and which controls 80 per cent of the local mobile market. To grab marketshare in a country where it is not a dominant player, Bharti has slashed tariffs by 50 per cent.
But, according to equity research firm Ovum, which tracks the Kenyan market, Safaricom has countered this by cutting the cost of SMS messages for prepaid customers by as much as 94 per cent.
"There are huge opportunities throughout Africa to transform how people communicate and how communities interact. Delivering on that opportunity through affordable mobile communications for everyone is our focus," Mittal said.
