IBM scores IT outsourcing deal from Bharti in Africa

Information technology giant IBM made its presence known in the African telecoms market on Friday, having scored a deal with Bharti Airtel to manage the carrier’s technology and services across 16 countries and around 72 million users.

Under the terms of the sweeping ten year collaboration, IBM will manage the computing technology and services that power Bharti’s mobile communications networks, with the aim of lowering the barrier to entry for owning mobile devices in order to drive economic gain.

At the announcement of the deal, IBM chairman and CEO Samuel Palmisano and Bharti chairman and managing director, Sunil Mittal, said that on a continent where mobile communication forms the backbone for commerce (the World Bank estimates that 77 per cent of Africans do not have access to traditional financial services), every ten per cent jump in mobile penetration is estimated to drive a 1.2 per cent gain in gross domestic product (GDP).

The former owner of the African operations in question, Zain, was unable to turn a profit in this environment but Bharti has dealt with similar constraints in India and seeks to apply its “minute factory” model to the new operations.

According to analyst firm IDC, which commented on the deal, this model involves driving OPEX as low as possible while encouraging high network utilisation. Bharti, which intends to bring its African operations under the Airtel banner in October, is fighting on two fronts: First, it needs to shore up network quality, rural coverage, and customer care in advance of the rebranding. Second, it needs to cut debt and operating shortfalls to avoid credit downgrades on top of the ones it incurred when the acquisition closed.

Andy Hicks, research manager at IDC, notes that Airtel hopes to mitigate the debt problem by offloading its cell towers to corporate cousin Bharti Infratel. While its agreement with IBM is designed to address the running cost problem by consolidating and outsourcing IT functions. IBM has had a similar agreement in place with Airtel India since 2004 but the 16 jurisdictions of the African deal will present different challenges than its Indian project, most importantly regulatory fragmentation, a higher level of legacy infrastructure, and the desire of country governments to retain control and keep local jobs. “The ten-year contract term is necessary for IBM to earn a return on this massive investment,” Hicks said.