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Our Bureau

$800-m, 10-year pact has revenue sharing component

Mumbai March 21 Idea Cellular has signed a 10-year agreement with International Business Machines Corp for outsourcing a part of its IT operations. The deal will be worth between $600 million and $800 million (Rs 2,700 crore - Rs 3,600 crore), depending on Idea's business revenues and circle expansion, said Mr Sanjeev Aga, Managing Director, Idea Cellular, at a news conference here on Wednesday. The contract covers all of Idea's existing operations and potential new ones.

"Apart from managing Idea's IT infrastructure, IBM will also provide technology to help the mobile operator handle billing and credit collection, manage frauds and customer relationships, and provide self-care to customers," said Mr Aga.

IBM will integrate the mobile service provider's business processes, IT and IT infrastructure to help it reduce operational costs and minimise technology risks.

For IBM, it is the second large engagement with a telecom operator in India.

In 2004, Bharti Airtel had awarded a $750-million contract to IBM for equipment and network management services. "Worldwide we work with players in the same space but on different models. As we have different teams for both Airtel and Idea, I don't think there could be a conflict of interest," said Mr Shanker Annaswamy, Managing Director, IBM-South Asia.

As per the modalities of the contract, Idea and IBM will share a percentage ("of rewards and risks" ) of Idea's total revenue on a quarterly basis over the contract term, Mr Aga said without giving further details.

Analysts believe outsourcing of non-core processes is a pressing industry need owing to the fast-paced growth of the telecom sector. "Companies have to focus more on core functions such as marketing, branding of telecom services and expansion of network to ensure customer acquisition on a national front. Hiving off of non-core functions such as network design and network management to third-party vendors will be done by more and more companies as a competitive weapon," said Mr Harit Shah, research analyst, Angel Broking.

About 70-75 per cent of Idea's employees will be transferred to IBM, after the contract is put in place on April 1.

Mumbai circle

Separately, Mr Aga said that Idea is expected to begin operations in the Mumbai circle from November. The Department of Telecommunications' approval has been obtained.

The Idea stock did not respond to the development, falling by 0.85 per cent on the BSE on Wednesday.

More Stories on : Telecommunications | Outsourcing

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