IBM set to land $1.6 billion India telecom deal

IBM loves outsourcing in India. The company is on the verge of signing a rumored $1.6 billion outsourcing agreement with India’s fourth largest wireless telecom vendor Hutchison Essar – marking the second such deal Big Blue has inked with Indian telcos this month and the third in as many years.

If the Hutchinson deal comes through, the contract will be the largest outsourcing deal to be signed by an Indian operator. It will also be the biggest win in India for Big Blue, which saw 37% growth in revenues here last year, according to an Economic Times story today.

Hutchison, which has 25 million cell phone subscribers, is looking to outsource its IT infrastructure and possibly its data management to cut costs, the newspaper reports. Hutchison, which is in the process of selling a majority stake in itself to Vodafone Group, expects to save $20 million annually by letting IBM handle the company's IT. Neither company has commented on the deal, which sources say could be weeks away from fruition.

Meanwhile IBM this month announced a 10-year business transformation order, valued between $600 million and $800 million, from Idea to integrate and transform Idea’s business processes and IT infrastructure. In 2004, IBM inked a similar $750 million revenue-sharing deal, spread over 10 years, with Indian mobile firm Bharti Airtel to manage its core IT infrastructure. IBM's deal with Bharti is estimated to have increased to more than $1.5 billion.

In March 2004, Bharti became the first Indian telco to outsource IT operations when it entered into a $750 million pact with IBM. That seven-year deal is now valued at more than $1.5 billion. Its value is expected to increase as Bharti’s user base grows and the same is true of the Idea deal. Currently, Bharti has more than 35 million mobile users while Idea has more than 13.6 million.

India has become IBM’s home away from home, financially speaking. Last year’s 37% growth was lower than the 55% reported by IBM for 2005, but that was because the revenue base in 2004 was smaller, Shanker Annaswamy, IBM’s regional general manager for India and South Asia, told reporters recently. Revenue from India has grown faster in the last two years than in Brazil, Russia and China, Annaswamy said. The key markets in India were financial services, small and midsize businesses, pharmaceuticals, telecommunications, automotive and government.

Besides being a large market for IBM, which has won a number of key outsourcing contracts from Indian customers, IBM also has a large global services delivery operation in India. The company had 53,000 employees as of Jan.1, compared with 38,500 a year earlier.

And telecom contracts aren’t the only deals IBM is taking on. DLF, India’s largest real-estate development firm, this week awarded IBM India a 10-year, $29 million contract to transform and manage DLF’s IT infrastructure. With this deal IBM will undertake security and disaster recovery planning, deploy a complete organization security framework and check security readiness for ISO 27000. IBM will be responsible for help desk and desk-side support to DLF users across India and be responsible for all IT Infrastructure operations.