New Delhi: Vodafone India Ltd, India’s second-largest mobile phone services company, on Tuesday renewed an agreement with International Business Machines Corp. (IBM) to manage information technology (IT) services support for its infrastructure and applications—a deal one research firm estimated could be worth as much as $850 million.
By bringing together Vodafone India’s enterprise data and cloud-ready applications into a scalable environment that keeps data local, private and secure, the new IBM hybrid cloud platform will enable delivery of faster and more insightful data intelligence and faster decision-making.
Hybrid cloud is the combination of public cloud services and private cloud infrastructure and has seen growing adoption in the enterprise segment for its flexibility and ability to handle variable workloads.
IBM was recently named the No. 1 company in hybrid cloud environments and private cloud adoption in research firm Technology Business Research’s Cloud Customer Research survey.
IBM India refused to comment on the deal size, but estimates by research firm Greyhound Research put the value in the range of $750 million to $850 million and expected to cross $1 billion by 2023.
“It is critical to note the current contract is 25% bigger compared to the first one signed in 2007 ($600 million)—but there’s more to it. In 2007, the value of $600 million stood at Rs.2,364 crore (calculated using the rate of $1=Rs.39.4). Per current exchange rate, $750 million stands at Rs.5,000 crore (calculated using the exchange rate of $1=Rs.66.7),” said Sanchit Vir Gogia, chief analyst and CEO of Greyhound Research.
The deal is for five years, and allows for extensions and additions that may be built over time.
According to the deal, IBM will support Vodafone India’s IT transition to the IBM hybrid cloud, allowing the company to leverage and integrate existing IT resources and data assets with private cloud environments.
It will support Vodafone India’s speed-to-market and improve the efficiency of its network and IT operations.
“We are a technology driven organization and introducing the latest advances is key to delivering the best of experiences to our customers. Partnering with IBM will help us enhance customer experience with intuitive capabilities and build a cost optimized, flexible and scalable IT infrastructure,” Vishant Vora, director (technology and network) at Vodafone India, said in a statement.
The benefits of this new partnership includes enhanced customer experience, cost optimization, scalability of IT infrastructure and overall improvement in efficiency of network operations.
“We are delighted to continue our relationship with Vodafone India. IBM’s leading-edge capabilities will help strengthen Vodafone India’s vision of delivering differentiated client experiences. I am grateful for Vodafone India’s continued trust in IBM and look forward to an enduring partnership with them,” said Vanitha Narayanan, managing director at IBM India.
The agreement builds on the existing eight-year relationship between Vodafone and IBM. The Indian unit of Vodafone Group Plc had agreed to a five-year IT outsourcing deal with IBM in 2007 and the partnership was later extended for another three years. While the companies had not disclosed the size of the deal, it was estimated to be around $1 billion.
In 2004, IBM had signed a similar deal with rival telecom company Bharti Airtel Ltd for roughly $1 billion over 10 years—which was renewed for five years in 2014 for roughly half the original amount.
So, has the mindset at large tech-dependent companies like Bharti Airtel and Vodafone India changed?
Yes, says Anshoo Nandwaani, vice-president and principal analyst at Greyhound Research.
“Strategic outsourcing is dying a natural death and being replaced by cloud and managed services delivery methods to leverage the cost and delivery benefits arising out of these delivery models—this impacts both deal size and term,” she adds.
This means the focus for most end-user organizations is now increasingly on automation, intelligence and delivering differentiated customer experiences. In addition, there has been a rise of fixed-price contracts.
In the fast evolving IT market, companies do not want long-term attachments; they prefer to obtain smaller contracts that enable them to renegotiate more frequently in order to reduce costs.
Even in the Bharti-IBM deal, Airtel leveraged these newer delivery models to better manage money and time spent on servicing its existing infrastructure and application portfolio. The deal focused on the customer experience (read analytics) to help Airtel launch new products and services. Analytics and big data have been proven to add significant business value for telcos globally.
With the renewed deal, IBM India will be expected to help Vodafone India deliver multiple digital transformation outcomes in the areas of automation and efficiency, experience and engagement, and sales and revenue.