Reliance Communications Ltd (RCoM) on Wednesday signed an eight-year end-to-end network managed services contract with Alcatel-Lucent for $1 billion (around Rs 5,481 crore), covering India's eastern and southern markets.
The move is expected to be followed by a similar contract with Ericsson for the northern and western markets, to be announced soon.
The comprehensive managed services deal covers wireless, wireline and utilities. It is different from other contracts signed for managed services in the country by competing telcos, which have been limited to wireless services. The deal will also help RCom to dramatically trim its work force, with a little over 4,000 or 15 per cent of its total of around 26,000 shifting to Alcatel within the next 90 days.
Once the Ericsson deal is also sealed, 9,000 to 10,000 employees involved in the network business are expected to shift to the two companies.
Currently, RCom has a 33:67 joint venture (JV) with Alcatel-Lucent, announced in 2008 for managed services but was restricted to only wireless. After this deal, the JV will cease to exist. Explained Gurdeep Singh, president and chief executive for the wireless business: "The deal will mean that we do not have to deal with multiple vendors, which is essential as the market moves towards high quality data services. Also, it will ensure predictability in our cost structure, as it will be linked to quality of service and customer satisfaction."
He declined to comment on the proposed deal with Ericsson, saying an agreement with another equipment company would be announced soon.
Sources in the know say the savings in cost after both deals get through could 15-20 per cent, significant in the business. Especially when the company has Rs 36,000 crore of debt. RCom had earlier thought of giving the contract to just one vendor but decided it would be strategically better to have two. Nokia Siemens Network, Huawei Technologies and ZTE were also in the race for the project.
The contract would entail outsourcing end-to-end management services, including operational planning of the network (which most companies keep to themselves), management and maintenance of GSM, CDMA and wireline networks, fibre, utilities, internet protocol and field assurance (quality control). Munish Seth, managing director of Alcatel-Lucent India, said this was one of the largest and most strategic contracts till now for the unit. The managed services model was introduced in the country by Bharti Airtel, which has signed long-term contracts with Ericsson, Nokia Siemens Network and Huawei for second-generation and third-generation services.
Bharti also had a comprehensive outsourcing deal with IBM for information technology solutions for a few years. Vodafone has managed services contracts with Ericsson and Nokia Siemens.