Idea cellular signs a ten year IT outsourcing contract with IBM

IBM has landed a ten-year IT outsourcing contract worth an estimated $600-$800 million from Idea Cellular, India's fifth largest cellular carrier. The exact value is based on Idea revenues, and could potentially grow into the billion dollar range. The deal is believed to position IBM as the number one player in telecoms IT outsourcing in India. If follows a somewhat similar 10-year revenue-sharing deal it snagged in 2004 from mobile market share leader Bharti Airtel Ltd. to manage its core IT infrastructure. That deal was estimated at $750 million when it was signed but, with the Indian cellular market literally exploding estimates are now that it may be worth $1.5 billion to IBM.
Idea had 13.6 million subscribers at the end of February, compared to Bharti's 35.4 million. However the deal with IBM looks to be more extensive than the one signed by its bigger rival. In addition to managing Idea's IT infrastructure, the pact calls for IBM to do an "end-to-end transformation" of Idea's business critical processes including billing, revenue assurance, and credit collection, subscriber management, business intelligence, fraud management, customer relationship management, e-billing and payment, and customer self care.
If all goes as planned, Idea hopes that hiring IBM will spur its growth and, the two companies said, IBM's incentive to see that happen is that the fee it receives is based on a "risk reward" revenue sharing plan. Details of that formula were not disclosed, but IBM will apparently win its biggest payoff if Idea beats a set of revenue predictions included in the contract between the two.
The move to hire IBM comes as Idea begins an aggressive rollout, funded by its recent IPO in which it raised $500 million.
At IBM the Idea contract is part of an effort to win more business within India, where it now employs about 53,000 people - second only to the U.S. where it has around 125,000 workers - and is investing $6 billion over the three years through 2009 to expand service centers in the country. However most of the business at those service centers is from global accounts. Sales to companies in India currently account for less than 1 percent of IBM global revenue.