IBM-Bharti Airtel Deal: Who's The Real Winner?

by CXOtoday News Desk    Apr 03, 2014

deal

Bharti Airtel and IBM announced a new agreement to manage Airtel’s infrastructure and application services in India over the next five years. While the agreement extends the 10-year outsourcing relationship that the two have had, which ended on March 31 this year, sources reveal that unlike before, when Airtel outsourced its entire IT, the company is now some of the Indian IT companies have taken a large technology outsourcing contract that has been sliced up by Bharti Airtel into several parts. This, according to an ET report leaves IBM with only a portion of a deal it completely owned for a decade. So the question remains in this deal, Who is the Real Winner?

Under the contract signed in 2004, IBM took over the management of Airtel’s IT infrastructure and worked to transform its processes and integrate channels. The contract is said to have grown to $2 billion as Airtel expanded into other regions, including Africa. While reports earlier cite that Airtel might move significant portions of the contract to companies like TCS and Tech Mahindra, an IBM source informed TOI that a bulk of Airtel’s total IT outsourcing is still with IBM, and the rest is shared by companies including Tech Mahindra, Infosys and Wipro. 

IBM said that the company’s analytics capabilities have helped Bharti extend into Sri Lanka, Bangladesh and Africa had contributed to IBM retaining most of the contract. However, the report said, quoting anonymous sources from Airtel that mentions some substantial changes to the contract conditions with IBM. “Sources close to Airtel said it has moved from a revenue sharing model to a fixed price model, with stringent penalties for not meeting targets. Airtel is also said to be simultaneously trying to reduce its dependence on IBM over the coming years.”

The companies are officially upbeat about the deal. “In the last decade, Bharti’s customer base has increased from a few million to over 285 million. Airtel partnered with IBM to drive this growth, by using technology to respond with intuitive offers for customers, managing service delivery, and improving organizational efficiency,” said Vanitha Narayanan, Managing Director, IBM India in a recent press release. 

Gopal Vittal, MD & CEO, Bharti Airtel (India & South Asia)said,“As we embark on the next phase of Airtel’s growth journey, I am confident that the agreement with IBM will help us offer innovative and cutting edge products and services to our customers, enabling us achieve our vision of being the most loved brand.”

From a deal perspective, Bharti Airtel is following a trend that is being witnessed globally, where large deals are being broken into smaller sizes, as companies prefer to work with more than one vendor, believe experts. This way, not only do companies manage to get a good pricing advantage, but also access to niche technology firms.

For IBM, the Bharti contract was a showcase deal. Not only was it a landmark deal in terms of the size, but was also the first IT outsourcing deal from the telecom sector in India, mentions a Business Standard report. The deal is estimated to be between $500 million and $600 million, according to several media reports.  Reportedly, IBM also signed a contract with Idea Cellular worth $800-900 million, which comes up for renewal in 2019-20, and with Vodafone, which is worth $1 billion.