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August 28, 2009 (FinancialWire) (ValueNotes Outsourcing Watch: Insights for Investors) — Beating stiff competition from IBM (NYSE: IBM) and Wipro Technologies (NYSE: WIT), Tech Mahindra managed to win a deal worth $500 million from Swan Telecom. Emirates Telecommunications (Etisalat) has 45% stake in Swan Telecom, and participated in finalization of the deal.

The deal has followed the Etisalat strategy of bundling IT with network equipment contract in most of its greenfield projects. As per reports, the deal with Tech Mahindra spans over 10 years. Tech Mahindra is the fifth largest Indian software company. It was recently voted the country’s top telecom software services provider, by Voice and Data, a trade magazine. The company captured nearly 18% of the Indian telecom software services market in 2008-09. This follows a trend in the Indian IT services industry where companies are including the Indian market as part of their long-term strategies, to diversify risks and keep revenues up even during recession.

Tech Mahindra: Beyond Satyam Saga

Tech Mahindra was established as Mahindra British Telecom, a joint venture between Mahindra & Mahindra Limited (M&M) and British Telecommunications Plc (BT), UK. The company now has presence in more than 10 countries across the globe. After the company’s successful takeover of Satyam Technologies in 2009 and formation of the subsidiary Mahindra Satyam, the company is now looking at developing further on BPO skills. Going forward the two entities are likely to merge owing to the synergies. Mr Vineet Nayyar, Vice-Chairman of Tech Mahindra indicated the possibility of congruence and convergence in operations and a common board of governance.

In an effort to build up on the BPO services, a 1000-seat facility was set up in Chandigarh in August 2009, in addition to its centers in four Indian and two overseas centers. In an interview, Atul Kanwar, president, European Union, Africa, Middle East, APAC and India markets for Mahindra Satyam said that investments in BPO services, especially in the reconciliation and settlement processes will increase further as these are directly related to the company’s ERP and BI applications. Satyam’s ERP capabilities will also be leveraged as part of this growth plan. The company has been aggressively trying to increase revenues from clients other than British Telecom as well as different streams.

Telecom outsourcing: Lucrative Indian market

The telecom sector is abuzz with news of some deals already done, and other potential deals.

– Reliance Communications (RCOM) plans to outsource the management of its broadband and fixed-line services to cut costs. The contract is slated to be close to $1 billion, and a decision is likely to be taken in the next quarter.

– Bharti Airtel outsourced the management of  its broadband and fixed-line services in about 100 cities to a joint venture of Airtel and Alcatel Lucent (ALU) in a 5-year, $500-million contract. The company is a pioneer in network outsourcing model and IT outsourcing.

– Bharti Airtel has announced another deal up for grabs, where it plans to outsource the management and maintenance of its inter-city optic fibre cable network. The 5-year deal is estimated at around $500 million.

According to a recent report released by Ernst & Young, the outsourcing revenues from the telecom sector in India are set to grow at a CAGR of 31% to nearly $2 billion in 2012. The number of new subscribers in the Indian telecom industry is growing by close to 10 million every month to reach 375 million in 2008-09. The telecom outsourcing segment registered about 122,500 employees in BPO firms in 2008.

A number of international companies have also entered India to capitalize on this fast growing market. Accenture is in touch with the top telecom companies operating in India to offer then high value services such as consulting and strategic outsourcing. Accenture had earlier aided Virgin Mobile to establish its Indian Mobile Virtual Network Operator (MVNO) service with consultation on strategy.

With telecom companies looking to outsource all non-core activities, the Indian market offers huge potential as has been established already. Global companies have found this market lucrative enough and are aiming at acquiring a stake in the billion dollar market. In the foreseeable future the telecom industry will continue to move ahead, which offers a lot of scope for all stake holders.

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