Idea Cellular extends $700 million outsourcing contract with IBM

Idea Cellular Ltd, one of the major giants in mobile phone operations reported that it had extended its business IT outsourcing contract with IBM (International Business Machines Corp). According to the contract, the companies would work in collaboration till 2020 with an additional cash exchange of $700 million between the same.

The contract for managing Idea’s IT infrastructure and applications was held by IBM, the world’s biggest IT services company for ten years. This contract was however signed by IBM in March 2007.

IT Outsourcing. Image source

The extension of the contract prior to expiry of the term has spared IBM from going into formal neck and neck  bidding with their rivals when the contract expires in 2017. The first executive of IBM said in a statement that the company is looking to negotiate its current 10-year outsourcing contract with Bharti Airtel Ltd which would expire in 2014.

Reflections on the extended contract

Meanwhile IBM’s second executive said that a lot has changed in the telecom industry within the past eight years before expiry of the current contract. With the revenues drastically going down, the telecom companies have pulled up the reins on prices. However the chiefs of IBM and Idea Cellular have remained unavailable for comments.

In 2004, when IBM collaborated with Bharti, the payment exchange was processed with respect to the number of subscribers. As a result, IBM’s revenue for each project rose as Bharti Airtel added in more subscribers. However the intense competition between the telecos has led to the downfall of telecom growth in the country. With call rates constantly on the drop, the companies looking to make profits get under pressure. Mobile communication giant Bharti Airtel is one such company which reported its 11th straight quarter profit fall. The company said that the fall in profits came as a result of continuous rise in costs and higher taxes.

Indian Telcos striving to stay afloat 

Analysts constantly working on telecom research have stated that Indian telecom companies explore new trends as they look to renew their ongoing outsourcing contracts. Though the investment on these changing trends is high, the companies would still have to stick to low costs or tariffs in order to gain the market edge. This in turn, will dissolve the profits of the companies.

Meanwhile, Kamlesh Bhatia, a research director at Gartner Inc. said that the profit in telecom industry no more depends on the number of subscribers. He added that the companies should rather look towards outsourcing and negotiate IT outsourcing contracts that would balance risks and eventually reward them.

Gartner, which is a Technology researcher firm, reported that India’s IT services market is expected to generate revenue close to $10.2 billion next year contrary to the revenue of $9.1 billion generated in 2012. According to the firm, India’s IT market platforms like software and telecommunications, computer hardware and services will see a 7.7% rise in revenues.

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