Swan to outsource IT, back office work to Tech Mahindra

New telecom entrant Swan Telecom is set to outsource its IT and back office functions to Tech Mahindra and award a network equipment
deal to Ericsson together in a transaction worth about $250 million. The deal, the first of its kind in the telecom outsourcing sector, is aimed at bringing down operational costs and compete more effectively with incumbents such as Bharti Airtel and Reliance Communications.

"Swan has decided to retain the computer hardware part, and decided to bundle its IT and network management contract in order to avoid a high value outsourcing deal and retain many of these functions in-house," said a person familiar with the matter on conditions of anonymity.

Traditionally, telcos such as Bharti Airtel, Idea Cellular, Unitech Wireless and Aircel have outsourced their entire IT and network infrastructure to vendors as separate contracts. However, Swan plans to retain the control of its computer hardware systems, and will make Ericsson responsible for the entire network with an IT vendor working in tandem for application development, maintenance and integration work. For instance, IBM manages Bharti Airtel’s entire outsourcing of IT, back office and network management along with Nortel and Ericsson.

Officials from Emirates Telecommunications, or Etisalat, also participated in the decision making, the person added. Etisalat had acquired 45% in Swan for $900 million last year.

A senior official from one of the companies bidding for this contract confirmed on Wednesday that Tech Mahindra and Ericsson have indeed won the deal. "Swan has already finalized Ericsson as its network equipment vendor. It’s a matter of time before they announce Tech Mahindra as their tech vendor," he said.

Swan, which will have to compete with established rivals like Bharti Airtel and RCOM, aims to start lean and focus on its core telecom business. "Etisalat has adopted this strategy of bundling IT with network equipment contract in most of its greenfield projects, and India is no exception," another person familiar with the matter said.

For instance, the outsourcing contract for Etisalat’s greenfield project in Egypt, Nigeria and Tanzania were structured in a similar fashion. In fact, Tech Mahindra along with Ericsson won Etisalat’s Egypt contract in February last year.

Wipro, which won Rs 2,500 crore outsourcing contract from another new entrant Unitech Wireless last month, was also in the shortlist, but Swan decided to opt for bundling its IT and network management, equipment contract in order to avoid additional upfront costs.

When contacted by ET on Wednesday, a senior Wipro official declined to offer any specific comments. A Tech Mahindra spokesperson also declined to comment.

Ericsson and Swan Telecom had not responded to the query at the time of going to press.

Swan’s outsourcing contract, which has witnessed aggressive bidding from IBM, Wipro and Tech Mahindra, comes at a time when Tech Mahindra is attempting to establish itself in the domestic market, as part of its long-term strategy to derisk its revenues from BT.

Source: http://economictimes.indiatimes.com/Infotech/ITeS/Swan-to-outsource-IT-back-office-work-to-TechM/articleshow/4558029.cms