Gen-i faces fight for $120m-a-year CBA deal

Aussie bank CBA goes to market for telecommunicsations services

Commonwealth Bank of Australia is preparing a 10-year telecommunications services contract tender estimated to be worth A$1.3 billion.

The unexpected length of the proposed contract has sparked speculation that the deal will add to the pressure on bid teams within Australia's largest telcos.

The bank had previously been tipped to be considering a three-year to five-year contract to replace its existing voice and data carriage contracts with Telecom NZ subsidiary Gen-i that expire in the first quarter of 2009.

It is understood CBA is courting a deal in the vicinity of about A$130 million a year for the provision of voice and data services, as well as network routers, with a view to awarding the deal by year-end.

The mobile services, presently with Optus, do not appear to be included in the scope of the contract at this time.

Aggregated spending on communications at CBA was last year pegged at A$192 million according to figures in the company's 2007 annual report, and this was a sum that accounted for 21% of the bank's total operational expenditure on information technology services.

CBA spokesman Bryan Fitzgerald declined to give details surrounding the request for the proposal, citing commercial confidentiality, but confirmed the bank was in the process of seeking offers.

However, industry sources confirmed the bank had now formally activated the process for its request for proposals and spelled out details of the scope of the contract to suppliers.

Previous estimates of specifics within CBA's telecommunications spend have put the value of Gen-i's contract at between A$110 million and A$120 million; the remainder shared between local rivals Optus, Telstra and specialist provider BT-Syntegra, which provides market trading platforms.

A probable reason for the longer term approach taken by CBA is the recent data-hungry systems overhauls chief information officer Michael Harte has put in train over the past two years to replace ageing and costly legacy systems with web-based platforms.

They include a A$580 million core banking system replacement, an overhaul of the NetBank online banking portal, and upgrades to the CommSec online equities trading platform to offer high-interest cash accounts and online payments.

The continued demands of the $300 million web-based CommSee customer information portal, which allows staff to see easily all the services a client uses, are also certain to factor into the equation.

While such upgrades have slashed maintenance costs and boosted productivity for the bank, their intensive consumption of data risks choking the limited bandwidth of lines flowing into hundreds of CBA's branches in regional Australia.

Better bandwidth into regional areas is regarded as crucial to cost reductions within the retail banking sector because it gives institutions a greater capacity to deliver their services online, either through local bank branches or directly into customers' homes.

But the scenario has been complicated by regulatory uncertainty surrounding the federal government's national broadband network, which has seen Telstra critics demand that the company's retail and wholesale businesses be separated to create a so-called open access regime for buyers.

At the same time, CBA is understood to have flagged its intention to standardise the bulk of its corporate phone services onto voice over internet protocol (VoIP), a move that would allow the bank to rein-in call costs because they would be charged on data consumption rather than traditional tolls.

CBA rival Westpac Banking Corp has already moved the vast majority of its phone services to VoIP under a five-year deal worth $400 million that was inked with incumbent supplier Telstra in 2005 without a competitive tender process.

Although Westpac chief executive Gail Kelly is yet to indicate the timing of any contest for that contract, it is certain to be part of a wider review looking for operational efficiencies that could stem from the bank's proposed merger with St George Bank, which has also already largely moved to VoIP.

— Australian Financial Review

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