IBM, EDS Share Vodafone Spoils
A month ago, Vodafone announced IBM and EDS as the companies that will take over the development and maintenance of certain IT functions, "which focuses on writing code for and maintaining systems such as billing and Customer Relationship Management applications." Now, the carrier has concluded the terms, with each company taking responsibility for a Vodafone business that serves more than 50 million subscribers. (See Vodafone Outsources to IBM, EDS.)
Financial terms have not been disclosed, but Light Reading estimates the deal will save Vodafone up to £1 billion (US$1.9 billion) during the next seven years. The carrier, which declined to comment on the potential savings, says the move, which involves the transfer of some staff to the IT services firms, is part of its "strategic commitment to reduce costs while leveraging its regional scale."
The carrier, which first announced its group-wide cost-cutting strategy in 2004, said in May this year it will boost its reliance on IT outsourcing to help cut costs, and is aiming to cut its annual operating expenditures by up to £200 million ($381 million) by 2007/2008. The deals with IBM and EDS will go a long way towards that goal. (See Vodafone Unveils Convergence Plans.)
In 2005 Vodafone spent £560 million ($1.1 billion) on the functions it is outsourcing, and says it has "identified the potential to reduce unit costs by 25 to 30 percent within three to five years." Back-of-the-envelope calculations show that, should IBM and EDS manage to achieve these savings, Vodafone should see its operating costs on the outsourced functions drop by as much as £160 million ($305 million) a year, and, during the course of the seven-year deal, save about £1 billion.
Some of those savings will come from reducing the number of external billing and CRM suppliers currently used, a task that will be left to IBM and EDS, says a Vodafone spokesman. The two partners will be able to get a good view of the various current relationships, he says, and "extract value from rationalization." Vodafone has a number of relationships in place with billing and CRM vendors that provide both services and software products. (See Vodafone Portugal Picks Kenan, Vodafone Gets Closer to Portal, and Amdocs Lands V'fone Deal.)
And those relationships may cause friction between Vodafone's local operations and the outsourcing suppliers. In a research note about the deal, Ovum Ltd. analyst Eirwen Nichols states that handing responsibility for systems rationalization and general cost-cutting to the IT service companies "may have been the only way to break free of the internal politics" that have held back the carrier's ability to reduce its opex during the past couple of years.
Nichols also notes that the move is "a significant step for a major telco to take, but one that acknowledges the realities of a mature telecoms market where cost reduction must be a way of life."
Dividing the spoils
IBM will work with Vodafone in Spain, where it has 14 million subscribers, the Czech Republic (2.3 million subs), Australia (3.1 million), New Zealand (2.1 million), Portugal (4.4 million), Ireland (2.1 million), Greece (4.6 million), and, "subject to board approval," Italy (18.6 million). Those territories, including Italy, cover 51.2 million Vodafone customers.
EDS, meanwhile, has fewer territories, but will work with Vodafone in two of its biggest markets, the U.K. (16.2 million subs) and Germany (30 million), as well as Hungary (2 million) and the Netherlands (3.9 million). Those territories cover 52.1 million Vodafone customers.
IBM and EDS declined to comment on the value of their individual deals.
The Vodafone spokesman says the territories were divided between the two suppliers, which were chosen from a shortlist of 11 companies, "based on the common features of the systems" used by the carrier in each country.
Vodafone's operations in Romania (6.8 million subs) and Turkey (12 million subs) are not included. The spokesman says there's no particular reason for this, and that the carrier will evaluate the progress of the agreed deals and see if "there is more value" to be gained from expanding the current arrangements.
The carrier recently outsourced the "responsibility for Vodafone Netherlands wholesale and retail billing, provisioning and partner settlement operations" to Amdocs Ltd. (NYSE: DOX). It has also just awarded Nokia Corp. (NYSE: NOK) a seven-year, $230 million managed services contract "that includes engineering, operations and maintenance of Vodafone's HSDPA, 3G, GPRS and GSM networks" in Australia. (See Nokia Manages V'fone Net and Amdocs Lands Vodafone Deal.)
So are there plans for further IT/OSS outsourcing deals? The Vodafone spokesman says, while there's nothing planned just yet on a global scale, individual Vodafone operators are empowered to make autonomous, local decisions.
— Ray Le Maistre, International News Editor, Light Reading