T-Systems and AT&T Win Major Outsourcing Contracts with Shell

| Apr 3, 2008 | Business Telecom Services - Europe | Competitive Update


| Analyst: Dustin Kehoe

Current Perspective: Positive
Vendor Importance: High
Market Impact: High

Event Summary

March 31, 2008 – T-Systems and AT&T have won major portions of the $4 billion outsourcing contract with Royal Dutch Shell. AT&T will manage the company’s WAN, voice and IP Telephony deployments, security, remote access and mobility services and over 600 third-party contracts. T-Systems will take over three data centres in Netherlands, and one each in the US and Malaysia as well as 900 personnel. EDS will provide support for operations and integration. The contracts are for five years.

Analytical Summary

• Current Perspective: Positive on AT&T and T-Systems’ winning over EUR 2 billion in outsourcing contracts with Shell because both companies, once invisible in this area, are showing a cunning ability to compete for and win major outsourcing deals across Europe. The deal with Shell gives these carriers new impetus in expanding their global presence.

• Vendor Importance: High as these two deals are the largest both carriers have won outside of their home markets. The wins are also a show of credibility in winning major outsourcing contracts and taking over the responsibility of Shell’s core business and transfer of skilled IT personnel. While T-Systems can prove its ability to take over and manage Shell’s data centres, AT&T can prove its capabilities in managing the WAN and LAN networks, IP services and third party contracts including mobility.

• Market Impact: High on the European managed services market as both companies will be shortlisted as major competitors in large outsourcing deals. While T-Systems will be stronger in taking over data centres and IT services, AT&T can compete for managing global networks and IP services. Competitors are likely to review the way in which they structure such deals, consider new approaches for managing risk and governance, and respond in kind. Outsourcing is a growing area capturing the attention of traditional carriers and IT service providers alike.

Recommended Competitor Actions

• Competitors should be aware that T-Systems is becoming very competitive in winning large outsourcing contracts in ICT related areas. The company has won a contract with Centrica (for around EUR 250 million over ten years) and other deals in Spain (government), Switzerland, South Africa, and the Netherlands worth a combined EUR 70 million. The recent deal with Shell means that T-Systems will take over 900 IT professionals.

• Competitors should be aware that AT&T is becoming more competitive on major outsourcing deals involving the takeover of LAN and WAN management, IP services, third-party contract management and personnel. The company has won major contracts with General Motors, Siemens and IBM. It is also believed to be bidding on as many as ten outsourcing contracts across its global operations. All signs appear that this is a new direction that AT&T has committed to going and is building up market traction and beating out well-established competitors outside its home turf.

• Defensively, competitors should challenge AT&T’s ability to offer professional services (e.g., consulting and system integration) through its own human resources in Europe (as opposed to what it can offer through partners). Many European-based operators have made acquisitions and are further ahead in building up their services organizations than AT&T.

• Global carriers should also point out that T-Systems has a very small footprint, limited in-country networks and is reliant on external partners to fill the coverage gap. They could also stress the benefits of owning and managing a large network on an end-to-end basis as opposed to managing multiple parties.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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