Are Mega Telecom Deals a Sign of Recovery for the IT Sector?

Telecom Sector Rings Busy Signal for Top Indian IT Services Companies

The telecom sector has been a mixed bag for leading Indian IT services companies like Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro over the past year and a half. Despite a sector-wide slowdown, these giants have secured significant mega-deals.

Big Wins Amidst the Slowdown

Earlier this month, Wipro secured a $500-million, five-year deal with a leading US communication service provider. Over the last year, TCS clinched a $1-billion contract from BSNL, Infosys inked a $2.5-billion deal with Liberty Global, and HCLTech won a $2.1-billion contract from Verizon.

Market Recovery or Vendor Consolidation?

While it might appear that telecom companies are ramping up their technology spending, industry experts suggest otherwise. Phil Fersht, CEO of HFS Research, attributes the surge in large telecom deals to vendor consolidation rather than market growth. He explains, “A telecom provider will reduce its IT service vendors from 12 to three, leading to fewer but larger deals.”

Pareekh Jain, founder and CEO of EIIRTrend, notes that these are mostly cost-saving and transformation deals. “Telecom companies are investing the savings from these deals into transformation programs, benefiting large service providers, including Indian IT companies,” he adds.

Driving Deal Wins

Hansa Iyengar, senior principal analyst at Omdia Research, highlights the telecom sector’s focus on digital transformation to enhance network capabilities, customer experience, and operational efficiency. “The global rollout of 5G technology demands extensive IT support for infrastructure development, network management, and service innovation. Many services are being outsourced to streamline operations and reduce costs,” she explains.

Top Telecom Mega Deals (2022-2024)

Interestingly, Tech Mahindra, which derives nearly 40% of its revenue from the communications, media, and entertainment vertical, has not won any $500-million-plus mega deals. Fersht describes this as Tech Mahindra’s ‘defense play,’ citing regulatory uncertainties and a challenging business environment as contributing factors. The prolonged transition between former CEO C P Gurnani and Mohit Joshi also impacted the company’s momentum. However, with Joshi now at the helm, a refocusing of priorities is expected.

During the Q4 earnings conference, CEO Joshi unveiled Vision 2027, emphasizing the company’s commitment to strengthening its telecom, manufacturing, BFSI, healthcare, life sciences, and AI verticals. Jain notes, “Tech Mahindra is undergoing internal transformation and lacks the margin leverage to pursue very large deals. Their established footprint in telecom means customers are also exploring other challengers.”

Iyengar adds that while Tech Mahindra has been relatively quiet in announcing major telecom deals, it continues to focus on strategic partnerships and innovative solutions to maintain its market presence.

No Short-Term Respite

The telecom sector has struggled with the underwhelming performance of 5G technology, which failed to deliver expected new revenue models. This led to reduced IT spending by telecom companies. Corporate restructuring, layoffs, and cost-cutting by major players like AT&T and British Telecom (BT) further delayed decision-making in the sector.

Industry experts agree that while large deals are still emerging, they do not indicate a full recovery in telecom tech spending. Fersht anticipates at least two more years of challenges before the sector stabilizes, with smaller players continuing to erode the margins of larger ones. Jain concurs, predicting that discretionary spending will remain limited until FY25, with tangible benefits from 5G rollouts still a couple of years away.