Bloomberg News

Deutsche Telekom Said to Win Extension of Shell Data Deal

July 06, 2012

Deutsche Telekom AG (DTE)’s T-Systems unit won an extension of a 1 billion-euro ($1.2 billion) contract to manage Royal Dutch Shell Plc (RDSA)’s data centers, two people familiar with the matter said.

The initial outsourcing deal, signed in March 2008, will be extended by at least another five years, the people said, asking not to be identified as the agreement hasn’t been announced. Under the new pact, T-Systems is moving data into a cloud- computing infrastructure, meaning Shell can access information and services remotely, without having to maintain its own servers, one of the people said.

T-Systems, whose sales of 9.2 billion euros accounted for about 16 percent of Bonn-based Deutsche Telekom’s revenue last year, is using cloud services as a way to help clients cut technology spending and facilitate data access. The unit is trying to standardize and speed up its processes, meaning employees won’t have to start from scratch on new projects, after the division’s profitability dropped last year.

“The larger the deal, the larger the prestige, and that usually means harsher competition and lower margins,” said Joeri Sels, an analyst at DZ Bank AG in Frankfurt, who recommends investors sell Deutsche Telekom shares. T-Systems’s earnings before interest and taxes dropped to 2.7 percent of sales last year from 3.7 in 2010.

Old Mutual

Deutsche Telekom shares fell 0.4 percent to 8.62 euros in Frankfurt, compared with a 0.2 percent decline in the 19-member Bloomberg Europe Telecommunication Services Index. The shares have fallen about 18 percent in the past 12 months, valuing the company at 37.3 billion euros.

T-Systems, whose competitors include International Business Machines Corp. (IBM:US), Hewlett-Packard Co. (HPQ:US) and Accenture Plc. (ACN:US), this year announced outsourcing contracts with companies such as U.K. insurer Old Mutual Plc (OML) and British American Tobacco Plc. (BATS) When T- Systems announced the Shell deal in 2008, it said it would take on about 900 employees of the oil company and five data centers and turn the data center in Malaysia into its operational hub for the Asia-Pacific region.

Shell last year asked the Deutsche Telekom unit to host Microsoft Corp. (MSFT:US)’s SharePoint software, which lets Shell employees communicate and collaborate via the Web.

Stefan Koenig, a spokesman for T-Systems, declined to comment.

T-Systems, Europe’s largest provider of cloud-computing services, is also taking over the management of its parent’s internal computer and communications systems.

The Deutsche Telekom unit, whose European operations include sites in Debrecen, Hungary, and St. Petersburg as well as in the Czech Republic, partnered with Cognizant Technology Solutions Corp. (CTSH:US) in 2008 to expand its reach and cut costs.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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