Bangalore/Hyderabad: Wipro Ltd’s win of a $500 million (Rs2,465 crore) strategic outsourcing contract from Unitech Wireless Ltd is seen by analysts as the Bangalore-based company’s emergence as a formidable competitor to International Business Machines Corp. (IBM) in the fast growing Indian telecom services market.
To be sure, this isn’t the first deal that Wipro has won in this space; in January 2008, it won a similar $600 million contract from Aircel Ltd. What the Unitech win means, say analysts, is that Wipro’s earlier win was no fluke—that the company has now acquired the expertise to counter the might of Big Blue, as IBM is known. Until the Aircel deal was won, IBM had a near-stranglehold on the market for outsourced information technology (IT) deals in the telecom sector.
Formidable competitor: The Wipro campus in Bangalore. Analysts say Wipro’s Unitech win means that the company has now acquired the expertise to counter the might of Big Blue, as IBM is known. Hemant Mishra / Mint
Anil Jain, vice-president, corporate business unit, Wipro Infotech—the division that handles such business—lists three reasons for the company’s recent successes in IT-for-telcos deals: “We have built competencies in the recent past, have deep understanding of the Indian market and have strong relationships with our partners.”
An executive at IBM seemed to suggest that the company had walked away from the deal because it wasn’t worth it in terms of price. “There is good business and not so good business. IBM will do deals where we are confident of meeting our own metrics…,” said Avinash V. Joshi, director of communications sector at IBM India and South Asia. According to Joshi, IBM had “signed off” on the Unitech deal months before it was announced.
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Jain, however, said Wipro did not win the deal on the basis of price alone. “We were never the L1 (lowest bidder). Somebody like Telenor would not look at (price alone).”
Norway-based telecom company Telenor ASA has a 67.5% stake in Unitech Wireless.
The outsourcing business
The trend of telcos outsourcing their IT departments began in 2004 when Bharti Airtel Ltd did so to IBM in a $750 million deal. The deal, among the first such in the world, set off a trend—more telcos wanted to outsource their IT function and more IT firms wanted a piece of the action. In the five years since the IBM-Bharti deal was signed, its value is estimated to have soared to $2.5 billion—largely a result of Airtel’s rapid growth; the firm is closing in on its 100 millionth subscriber.
Since that deal, IBM has signed similar contracts with Vodafone Essar Ltd and Idea Cellular Ltd. The attractiveness of such deals has been increased by the growth of the Indian mobile phone market. And the growth has made such deals a necessity for the telcos.
According to industry lobby group Cellular Operators Association of India, there were 410 million mobile phone subscribers in India (as of March 2009). India is the second largest wireless telecom market after China and the fastest growing. In March alone, for instance, India added a record 15.87 million subscribers. As their subscriber numbers have grown, telcos have focused on building their brands and garnering market share even as they have outsourced network development and management, billing, IT, and other functions to companies such as Sweden’s Telefon AB L.M. Ericsson, Nokia Corp., IBM, Wipro and Tata Consultancy Services Ltd (TCS).
The entry of new telcos has also made the market an attractive one for IT firms. New telcos such as Unitech Wireless, Loop Telecom Pvt. Ltd, Swan Telecom Pvt. Ltd, Datacom Solutions Pvt. Ltd, S-Tel Ltd and Sistema Shyam Teleservices Ltd will start offering their services across India in the next few months.
While Unitech has already announced its outsourcing strategy, Swan may be the next one to do so.
Kamlesh Bhatia, principal research analyst at consulting firm Gartner Inc.’s Indian arm, said there are ample opportunities even without the new operators coming in. The roll-out of data-intensive services, called third generation (3G) services, is also expected to increase IT spends by telcos. Licences for such services will likely be issued later this year or next year.
“On average we are seeing 8-10 million monthly subscriber additions across operators with occasional peaks of even 15 million. At this rate, the back end that supports this expanded subscriber base also will need expand and become efficient,” said Bhatia.
That provides enough reason for multinational and Indian IT firms to work towards developing skills required to handle such deals for telcos.
Wipro’s wins in the business are neither surprising nor sudden, said Jain: “We have been building competencies by doing small deals in the global telco market. For instance, we did a $2 million billing solution for a European telco client.”
Jain added that unlike some of its peers, Wipro, through Wipro Infotech, has always been focused on the domestic market and has been a major system integrator (a company that brings together software and hardware to deliver a solution to a client) and has had partnerships with firms such as Sun Microsystems Inc. and Cisco Systems Inc.
IBM, however, is unfazed by Wipro’s recent wins. “The combination of technology, services, hardware, software and research which IBM brings to the table is unmatched. We might have lost a deal or two, but we are confident of winning more as the Indian market has huge potential,” said Joshi.
Earlier this week, the company opened in Bangalore a dedicated telecom solutions lab for emerging markets.
“We might have lost the Aircel deal to Wipro last year for instance, but a few months later, Maxis the Malaysia-based parent company of Aircel awarded us a SO (strategic outsourcing) deal there,” Joshi added.
Big Blue does have several things going for it, said an analyst. “Indian firms are putting together dedicated talent to tap opportunities in the Indian telecom sector, but IBM’s reach and influence in that sector is significant,” said Praveen Sengar, lead analyst, software, services and enterprise solutions practice, IDC India.
It’s too early to call, added Sengar, referring to the brewing competition between IBM and Wipro. And cost is unlikely to emerge as a major advantage for Indian firms, he said.
According to Gartner’s Bhatia, it isn’t just size or scale but the ability of an IT firm to offer “transformational services” that help operators reduce the cost of ownership on an expanding subscriber base which will ultimately be the key in winning large deals in the Indian telecom sector.
The wins of TCS and Wipro would also give them “CIO (chief information officer) mindshare”, added Bhatia, a reference to the fact that CIOs of telcos would then consider them serious contenders for IT outsourcing deals. “Huge outsourcing potential still remains at operators like BSNL, MTNL and Reliance (Communications).”
Graphics by Ahmed Raza Khan / Mint