BBC in outsourcing mega deal

The BBC is to sell its wholly owned technology subsidiary to an outsourcer in a 10-year contract worth around £2bn.

The organisation believes that by outsourcing its IT and broadcast technologies it will be able to achieve potential annual savings of between £20m and £30m.

Around 1,400 BBC Technology employees are likely to be transferred to the successful bidder after the completion next autumn of the offical processes required by the EU for public sector deals of this size.

"We couldn't get the economies of scale from an organisation the size of BBC Technology," John Varney, chief technology officer at the BBC, told vnunet.com.

"We would have liked to deploy technologies faster than we could. We need the benefits that we can get from a large-scale operation."

Retaining the division would have entailed the loss of 300 jobs to make cost-cuts required for BBC Technology to be more competitive with other technology providers, the organisation said.

Varney admitted that the decision to outsource technology services had been delayed because of a lack of expertise across both IT and broadcast technology services among external providers. "But now there are enough third parties that understand that," he said.

The BBC spends approximately £200m annually with BBC Technology, which last year earned £6.8m on its £220m turnover, compared with a loss of more than £8m in 2001/02. Revenues from external customers, including Hutchison 3G, BSkyB and US sports channel ESPN, amount to just £20m.

BBC management has pledged to consult fully with staff and has already agreed to meet representatives of broadcast union Bectu on 2 December to discuss the decision, which the union is understood to oppose.

Phil Codling, an analyst at Ovum Holway, said mega deals of this nature were few and far between. He identified a number of large IT services companies, including IBM Global Services, EDS, CSC and Computacenter, as potential suitors.

"This is going to generate a lot of interest in the industry and will be another boost for the outsourcing market," said Codling.

The move could also free up the unit to increase external revenues, he added. "There may be new opportunities to commercialise or add to existing groups within the new parent."