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India’s largest telecom service provider Airtel is set to extend its outsourcing deal with the US-based IBM for another five years.
The deal is expected to be in the range of $550-600 million, making it the largest outsourced project by an Indian telecom company since the telecom scam broke four years ago.
A person involved in the negotiations told Business Line that the contract is expected to be signed in a few days as the earlier one expires this month. The previous 10-year contract was for about $750 million but was gradually scaled up to about $2 billion because of the accelerated growth of Airtel’s subscriber base. Spokespersons of both Airtel and IBM refused to comment on the deal stating that they do not discuss details of confidential client contracts.
The new deal will involve work in the areas of cost efficiencies, data services as well as better customer experience. The earlier deal was based on the revenue-sharing model and when the contract was signed, Airtel’s subscriber base was about 4 million which has now gone up to 200 million. The primary reason for outsourcing during the original agreement was to have an IT partner, which could help Airtel scale up. Initially, the deal was viewed with some scepticism because of its complexity, but eventually it turned out to be a benchmark for other telcos who were in the market to strike similar deals.
Changes galore Once the deal came up for renewal, the drivers had changed completely. Airtel’s primary concern was no longer about scaling up the number of subscribers but about other needs such as data services, enhanced customer experience and bringing down costs. Also, the software and hardware component of the total outsourcing is no longer part of the new round of negotiations as they have already been set up and the requirements may be only incremental. Hence, the deal size will be between $100 million and $125 million a year compared with about $200 million earlier.
The earlier deal, signed in 2004, was for a period of 10 years but Airtel had the option to walk out after five years. Both the companies are learnt to have decided to stick to the same parameters and keep the tenure of the contract initially for five years.
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