Why Airtel changed IT outsourcing strategy that impacted IBM

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Indian telecom service provider Bharti Airtel has changed its IT outsourcing strategy that impacted enterprise IT major IBM in a big way. But the deal announced on Wednesday did not surprise many infotech analysts.


Sanchit Vir Gogia of Greyhound Research

Strategic Outsourcing (SO) is dying a natural death and being replaced by Cloud and Managed Services – this impacts both deal size and term. Strategic outsourcing deals are increasingly being replaced by cloud and/or managed services delivery methods to leverage the cost and delivery benefits arising out of these delivery models.

This deal is a classic example where the end-user organization – Bharti Airtel in this case – is leveraging these newer delivery models to better manage money and time spent on servicing its existing infrastructure and application portfolio.

The deal focuses on the customer experience (read analytics) to help Airtel launch new products and services. Analytics and Big Data capabilities have been proven to add significant business value for telcos globally.

IBM India is expected to use its analytics portfolio spanning Unica, SPSS, Cognos among others to help Bharti Airtel enhance customer experience and launch new products and services. While this is surely a lofty task but one of the key reasons that makes this ‘a winning deal’ for IBM India.

Though IBM has refused to comment on the deal size, Greyhound Research estimates the deal has been inked in the range of $750 – $850 million for a period of five years. Greyhound Research predicts the deal to touch $1 billion over the next five years with incremental focus on Analytics and Big Data.

Let’s compare this deal in the right context – Bharti Airtel of 2014 is not the same organization as 2004. At the time when this deal was inked in 2004, Bharti Airtel was in a hyper growth mode and needed extensive support from an external IT vendor to support the rapid growth and also build internal capabilities to support the IT setup.

Bharti’s business has grown 10x over the past decade India (remember, this renewal only impacts the IBM Bharti deal in India and not other international markets) – between 2004 and 2014, the subscriber base has grown from 4 million to 200 million. The company is now in a relatively mature stage where it needs to effectively run (read maintain) what it has built as part of its IT setup over the past decade and only add incrementally.

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