Vodafone Essar Agrees IT Outsourcing Deal with IBM

Mobile phone giant Vodafone Group has agreed an IT outsourcing deal for its Indian unit withIBM, it said on Monday, in the latest deal aimed at cutting costs and managing its fast-growing business.

Under the five-year deal, Vodafone Essar will outsource all its information technology operations to IBM India to boost efficiency and to ensure a faster rollout of more varied services to customers.

IBM India will manage all of Vodafone Essar's IT operations including key applications such as billing and financial systems, with the exception of network service platforms.

The agreement follows an infrastructure sharing deal which was announced on Saturday between Vodafone, Bharti and Idea Cellular to share 70,000 tower units in India, in order to help operators save costs and capital.

The new company, Indus Towers, will prove passive infrastructure services to all operators on a non-discriminatory basis.

The deal is part of a bid by telecoms operators in India, the world's fastest-growing mobile market, to share infrastructure to keep costs down amid fierce competition and a surge in low-income subscribers from rural areas.

Towers

Vodafone, the world's largest mobile phone company by revenue, has also struck network-sharing agreements in Britain, Italy and Spain in a move to cut costs and ensure the company remains as "asset light" as possible. But the deal in the vast Indian market goes a little further. Rather than share mobile phone masts with rival operators, Vodafone is sharing the towers, which are built on the base stations that form the backbone of a mobile phone network.

Vodafone has bought a controlling stake in now renamed Vodafone Essar, one of India's top cell phone groups, a company Vodafone said last month was winning 1.6 million new customers per month and now clocked up a subscriber base of 35 million.

But to meet such customer growth, telecoms operators in the world's fastest-growing markets are facing vast capital expenditure needs.

Consequently, the Indian government has been encouraging companies to share infrastructure to expand coverage in rural areas, where installing towers is costly.

Vodafone had previously signed a memorandum of understanding with India's mobile phone market leader Bharti Airtel's Infratel unit to share infrastructure.

Shares in Vodafone were up 0.4 percent, as its management held an Indian investor day in London.

"We would characterize this as a small, net positive," Collins Stewart analysts said in a note to clients.

"Terms have not changed materially from the (memorandum of understanding) stage, and the saving needs to be put in the context of an annual capex bill at Vodafone of around 5 billion p.a.

"What it might do, however, in conjunction with this morning's presentations, is encourage investors to pencil in higher medium term growth rates."