Sounds Like a Good Idea

Out of the blue, a PR executive called from the Big Blue's
India office; there is an important announcement that the company intends to
make tomorrow. On seeing Idea Cellular's branding at the event, the nature of
the announcement was quite clear, IBM Global Services had netted another big
fish. Little later, Shanker Annawamy, managing director, IBM India, announced
the signing of a 10-year Business Transformation pact.

The 10-year IBM-India business transformation part is designed
on a risk-reward revenue sharing model and covers all of Idea's existing
operations and potential new additions. According to estimates, the
10-year-pact, depending upon Idea's business revenues and circle expansion,
would be worth around $600 mn to $800 mn. Apart from providing infrastructure
management services, IBM will handle a number of Idea's internal processes
including billing and payments, credit collection, security processes, CRM,
subscriber management, and fraud management.

Raison D'être

The idea behind the deal is not that hard to find. That the Indian telephony
(more so mobile telephony) market is exploding is old story now. The numbers are
there for all to see, at the last count, there were over 156 mn mobile
subscribers in India (GSM and CDMA). Currently Bharti (Airtel) leads the pack
with over 35 mn subscribers, Reliance is close at Bharti's heals with 32 mn
and BSNL stands at around 28 mn. Over the years, as the numbers have exploded,
the rates have in many ways imploded, in the past decade the rates have fallen
from over Rs 16 per minute (incoming and outgoing) to under Re 1 (only for
outgoing). Thus the average revenue per user (ARPU) has been on a constant
decline over the years.

While, the revenues are declining, the costs are increasing day
by day. Telecom companies have invested heavily on infrastructure and as the
number of subscribers go up, they need to invest in more cell sites, more
servers, more customer care, etc. Not to mention, that with all these changes,
the market is also teeming with competing and aggressive players. With the entry
of Vodafone with its international experience and deep pockets, the battle for
the customer is only going to get tougher. In such a scenario, the last thing
they really need to worry about is their IT infrastructure. And this is where
the outsourcing part comes in.

The History of Idea

It was in the mid nineties, Idea Cellular came into existence, initially,
started as a join venture between the Tata Group, Aditya Birla Group and
AT&T. Till a few years back, the mobile operator had limited presence in the
various circles, but with the acquisition of Escotel in 2004, Idea got a pan
India foot-print, having presence in Maharashtra (excluding Mumbai), Goa,
Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttar Pradesh (East and
West), Haryana, Kerala, Rajasthan and Delhi (inclusive of NCR). In 2006, the
company also underwent a major stake reshape, as the Birla Group bought over
Tata and AT&T stake in the company.

With close to 14 mn subscribers, Idea is the fourth largest GSM
operator in India and sitting on the cusp of major expansion as it goes on to
advance it services in the Mumbai and other two circles.

IBM's Servicing Prowess

The history of Indian IT is often clubbed under two heading-pre-IBM and
post-IBM, ie, before and after IBM left India in late seventies following the
socialist policies of the Janta government. Now, a new chapter can be added,
return of the Big Blue.

When IBM returned to Indian shores in the nineties, post
liberalization, it was mainly to make use of the abundance of low-cost
professionals to leverage its position globally. Yet over the years, the company
has focused strongly on the domestic market as well and now its labor is bearing
fruit. Currently, IBM has over 50,000 employees based in India, and is the
largest MNC employer.

In 2004, Bharti signed up with IBM was in many ways a landmark
in the domestic IT infrastructure landscape. Valued at $750 mn, the 10-year
deal, on similar lines to Idea, was the first largest domestic outsourcing
contract. IBM has worked with all major telecom players across the world and now
has the requisite experience in the Indian context as well.

Core or Non-core?

There is an outsourcing thumb rule that has been in place for quite many
years now. Outsource what is non-core and hold on to the core. MNCs over the
years have incorporated outsourcing strategies based on this simple thumb rule.
All a company needs to decide is whether a particular activity or department is
core or non-core and devise the future course accordingly. But sometimes,
simplicity can get tricky. For instance, where does IT operations of a company
fall, is it core or non-core?

Idea Cellular's MD Sanjeev Aga had an interesting bit on it.
"IT is critical for any company's success and this is very true for Idea
as well. It is very much core to us. But then we realize that we are not experts
in technology, and it is best left for experts like IBM. This pact will give us
the operational bandwidth and we do not have to worry about infrastructure and
concern ourselves only with expansion," he stated.

Prakash Paranjape, CIO (IT), Idea, also mentioned that close to
25% of his team would remain on the roll to oversee engagement management,
vertical management and IT strategy while the rest will have the option to shift
to IBM. He also mentioned that in the past, the company had dabbled with
outsourcing by giving out customer care (call center) management to a
third-party vendor.

Foreign Giants, Domestic Duds?

While India has technically become the back office of the world, why are
domestic companies opting for foreign players to outsource their work, is a
thought that troubles our mind. The trouble stems from the fact that most of the
Indian IT giants are export oriented with little or no focus on the domestic
market. The dollar-rupee conversion was the big reason so long. But now the
things are changing, Indian companies are ready to pay for 'quality' of
service and are thus looking at companies that can offer them best services and
not the cheapest ones. This is where IBM scores over other domestic players.

In the telecom sector, TCS won a contract from TTSL, which was
due to it being a group company. Overall, Wipro, with a few deals with Indian
banks is the only IT major making good progress. Whereas, HCL and TCS have quite
a hill to climb and so does Satyam and Infosys. Hopefully things will change in
the coming days, as deals like Idea will be an eye-opener for the domestic
companies. Let the Idea and Bharti deals be a good lesson for the domestic
companies, as the popular proverb in Hindi goes, the ghar ki murgi (domestic
contracts) is not really daal barabar (low value).

Shashwat Chaturvedi

maildqindia@cybermedia.co.in