Bangalore/Mumbai/New Delhi: Idea Cellular, India’s fifth-largest cellphone services firm, is close to signing an information technology outsourcing deal worth $500 million (Rs2,200 crore) with a local unit of IBM, the world’s biggest tech services vendor. The deal will be spread over seven years.
The contract, expected to be concluded shortly, will be IBM’s second such deal in India. It already services Bharti Airtel, the country’s largest mobile phone services firm, in a deal valued at $1 billion.
IBM executives confirmed the deal preferring to stay off the record. The company, based in Armonk, New York, will maintain Idea’s personal computers and servers, develop customized software and service them, ensure different applications work together, and provide billing and customer support.
Idea’s chief executive Sanjeev Aga declined to comment on the deal saying the company had nothing more to add at this stage than what it had disclosed in regulatory filings in a recently closed initial share sale. “We seek to find the right source for each IT solution and service we use, whether in-house or outsourced...,” Idea has said in its share-sale prospectus.
Another senior executive at the company said Idea was still in talks with IBM, Hewlett- Packard and other service vendors. “The company is in talks with five to six IT companies for outsourcing its IT requirements,” the official said, adding he did not want to be identified. H-P India did not comment.
Payments to IBM in the deal will be linked to Idea’s growth in mobile customers and revenues. “It is a profit-sharing deal; billing will depend on Idea’s operating numbers,” a source close to the development said.
Idea’s tech staff, numbering 200, will likely be transferred to the rolls of IBM India.
Idea, part of the Aditya Birla conglomerate, has operations in 12 Indian states and the national capital region, has applied for licences in the rest of India and intends to roll out services in Bihar and Mumbai by the middle of the year. Analysts say outsourcing makes for a sound strategy for smaller companies such as Idea.
“As companies move more and more towards value-added services and away from being purely voice-based players, they will need a very strong infotech team to deliver and keep a track of such complex data-based offerings,” said Kamlesh Bhatia, tech research firm Gartner’s principal analyst. Romal Shetty, director of the telecom practice at consultant KPMG India, says outsourcing moves will allow Idea to focus more on its product and marketing strategies and less on the technical aspects of running its cellular service.
“The emerging situation is one where the telecom operator thinks of the service and the IT partner implements it,” he said. “While the telco will be better in touch with the consumer’s needs and requirements, having a scalable and experienced IT partner will help ensure that the needs and requirements are met through timely roll-out of innovative services.” Shares of Idea, which raised Rs2,150 crore in the share sale last month, list on the Bombay and National Stock Exchanges on Friday.
Regina Anthony contributed to this story.