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IBM, Sprint expand on major outsourcing deal

The multi-million outsourcing deal with Sprint secures IBM's foothold in the telecommunications market.

IBM Global Services has expanded a five-year outsourcing contract with telecommunications service provider Sprint.

The $400 million deal, an expansion of a multibillion-dollar agreement the companies forged in September 2003, will provide application development and maintenance support for Sprint.

IBM is clearly cultivating this market.
Clay Ryder
analystSageza Group

In February, Sprint and IBM announced a five-year multibillion customer service agreement, which included IBM taking over the operation of Sprint call centers.

The deal announced this week further expands IBM's hold on the telecommunications market. Now, IBM has outsourcing deals with most of the major telecommunications companies, such as Nextel.

IBM has also been pushing products specifically designed for telecos. In March, IBM introduced a line of blade servers that meet the unique requirements of the telecommunications industry.

"What we've announced today is not just another outsourcing engagement," said Dean Douglas, vice president of telecommunications, IBM Global Services. "It's going to transform the way Sprint manages its legacy applications."

The overall IBM/Sprint initiative is expected to help save Sprint about $550 million over the next three years, while at the same time, Sprint's customer care operations will become significantly more flexible and responsive to real-time market and customer variables.

As part of the agreement, approximately 1,000 Sprint IT employees will transfer to IBM to support Sprint applications.

This agreement is part of a bigger movement by telecommunications companies to outsource the major non-core components of their operations in order to cut costs and increase efficiencies.

"IBM is clearly cultivating this market," said Clay Ryder, executive vice president of Mountain View, Calif.-based Sageza Group Inc.

IBM can make a lot of money in the telecommunications market, Ryder said.

Telcos are under increasing pressure to cut costs, as well as improve customer satisfaction, making a ripe opportunity for outsourcing. IBM not only gets to sell the telecos on services, but also on equipment.

"Telecommunications is more than just a telephone," Ryder said.

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