India's Bharti Airtel and IBM agree scaled-down contract

Indian telecom operator Bharti Airtel has restructured its IT services contract with IBM following changes to its business

Indian telecom operator Bharti Airtel has restructured its IT services arrangement with IBM following major changes to the business over the past decade.

IBM and Airtel have agreed a five-year IT infrastructure and applications deal, to replace a broader, 10-year IT services agreement.

The new deal will see the company use other IT services suppliers and reduce its revenue-sharing model with IBM, according to sources.

In a statement about the original deal, which was signed in 2005, IBM said: “Bharti Airtel signed a 10-year agreement with IBM to transform its processes and take on management of its IT infrastructure. IBM helped integrate channels and customer-facing processes, enabling higher customer satisfaction and more profitable growth.”

Manish Bahl, India country manager at Forrester Research, said the new deal is probably worth between $600m and $700 million over five years. The original deal was worth $2bn over 10 years.

“Bharti Airtel has taken a pragmatic approach for the new contract with IBM,” said Bahl.

He said the revenue-sharing model that was part of the original deal is no longer appropriate. “The operator had about 4 million subscribers when the revenue-sharing-based contract with IBM was signed in 2004. The main objective for Airtel at that time was to scale up operations to support a rapidly increasing subscriber base.” 

But Bahl said Bharti Airtel has increased its customer base by more than 60 times since 2004 and is now too big for a revenue-sharing model.

He said the new deal is more about cost containment than subscriber growth for the operator. “As a result, although not disclosed, we believe the revenue-sharing component must have reduced significantly as part of the new contract,” he added.

“The decision to restrict IBM to IT management services highlights the growing realization within Bharti that it needs to broaden its partner ecosystem to better win, serve and retain customers,” he said.

“While IBM continues to be a strong IT partner for Bharti Airtel, the operator sees an opportunity to mitigate the potential risks of working with a single supplier by introducing new partners into the ecosystem and ramping up its own technology management capabilities.”

Bharti Airtel recently signed a deal with Mahindra Comviva to deploy its enterprise communications platform in 16 countries across Africa.

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