The Newbury, UK-based mobile operator, which recently revealed the biggest-ever corporate loss in British history to the tune of 14bn pounds ($26bn), said it has decided to outsource its application development and maintenance functions, with expected cost savings of between 25% to 30% within three to five years.
Vodafone currently spends 560m pounds ($1.1bn) on developing and running systems covering systems such as billing and customer relationship management.
The operator expects the regional consolidation of its data centers to provide savings of 25% to 30% within three to five years, against a 320m pounds ($600m) annual cost today. It also plans to centralize its network supply chain management activities in order to reduce the 3.3bn pounds ($6.2bn) it currently spends annually by 8% within two years.
Vodafone has been considering outsourcing its IT and network functions for several months, and said it has yet to decide on a supplier or suppliers to handle the engagements, despite IBM Global Services being named as a likely victor by the UK press earlier this year.
Vodafone does not currently have any major global IT outsourcing engagements, but it does work regularly on projects with suppliers including LogicaCMG, Atos Origin, and Computer Sciences Corp. The operator also outsourced the management of its data centers in Australia to Hewlett-Packard. On the network equipment supply and management side, Vodafone has engaged on a regional basis with vendors including Ericsson, Nokia and Alcatel.
India’s major software services firms will be bidding aggressively for a share of Vodafone’s applications outsourcing expenditure, where they will go head-to-head against large western players. Vodafone is likely to either outsource to a consortium of best-of-breed suppliers including offshore vendors following a similar route to Dutch financial services giant ABN AMRO or it will contract with a single, established western player seen as a safe pair of hands such as IBM, EDS or Accenture. The applications outsourcing plan alone would be worth well over $1bn to the selected vendors over a five-year period.
IBM already manages the IT infrastructure of Vodafone’s UK rival O2, in what is one of the few major IT outsourcing contracts signed by the world’s 10 largest mobile operators to date. So far, much of the operators’ engagement with third-party services has focused on the network infrastructure level, with equipment manufacturers such as Lucent, Alcatel, Nokia, and Ericsson winning big deals to implement and manage mobile operators’ GSM, GPRS, and UMTS networks.
Vodafone’s announcement does suggest that there is a growing appetite for outsourcing among mobile operators. T-Mobile outsourced the management of its desktop infrastructure in the Czech Republic to T-Systems in a $130m deal announced in February 2006.
More of the established players will follow suit, driven in part by new entrants to the mobile space such as India’s Bharti Tele-Ventures and 3 in Europe, gaining lean operating models by aggressively outsourcing anything they consider as being non-core.
Bharti outsourced its IT infrastructure to IBM in a $750m deal in March 2004, and last year signed a $230m contact center outsourcing contract with a consortium of four suppliers, as well as two network-integration and management deals with Nokia worth a combined $400m, and one with Ericsson worth $250m.
