Banc One Corp. announced a major outsourcing decision Wednesday, saying it will turn telecommunications and data processing responsibilities over to AT&T Solutions and IBM Global Services through contracts totaling $1.82 billion.
The bulk of the spending-$1.4 billion over six years-goes to the AT&T Corp. unit for voice and data network management. The remaining $420 million over seven years covers IBM's management of most Banc One data centers and support of efforts to meet year-2000 software requirements.
The move coincides with preparations to combine Banc One with First Chicago NBD Corp. in one of the major megamergers of the year, but technology experts said the telecommunications outsourcing trend has been taking hold independent of merger and year-2000 pressures.
Banc One is joining other major banking companies that have turned to AT&T Solutions. For one, Citicorp expects to save $250 million from a $750 million telecommunications deal, announced last year.
AT&T Solutions was also part of J.P. Morgan's two-year-old vendor consortium, the Pinnacle Alliance, along with Andersen Consulting, Bell Atlantic Network Integration, and Computer Sciences Corp.
Martin Molloy, research analyst at Mentis Corp., Durham, N.C., said 25% of large banks outsource their telecommunications. In 1995, when Mentis surveyed a larger "universe" of bank sizes, the figure was 15%.
"Outsource vendors bring better technical capabilities and implementation" skills, said Lawrence A. Willis, executive vice president of First Manhattan Consulting Group, New York. "It takes people who are way up the learning curve in the use of these tools to get them operational."
AT&T Solutions is to upgrade Banc One's current communications networks to a single, state-of-the-art platform based on Internet protocols. The network, expected to be fully operational within 18 months, would let Banc One "gracefully" add electronic banking services, said Rick Roscitt, president and chief executive officer of AT&T Solutions.
With the advent of electronic commerce, "the financial services industry faces an enormously challenging and complex range of networking requirements," said Marvin Adams, chief technology officer of Columbus, Ohio-based Banc One.
He said the outsourcing would help the bank "recognize well in excess of $100 million in savings over what it would have cost us to manage and build the infrastructure."
Only three other banking industry outsourcing contracts are thought to be larger than Banc One's combined $1.8 billion: Electronic Data Systems Corp. with Commonwealth Bank of Australia, $3.8 billion; Perot Systems Corp. with United Bank of Switzerland, $2.5 billion; and the Pinnacle Alliance, $2.1 billion.
AT&T's $1.4 billion deal with Banc One is "the largest we have ever done," said Mr. Roscitt. He said he believes it is "the largest networking contract that has ever been let."
AT&T Solutions said its "backlog of long-term business" is approaching $5 billion.
Banc One and its partners, calling themselves the Technology One Alliance, are paying significant attention to recruiting and retaining skilled networking and information technologists. They will develop academic programs with local universities and community colleges, aimed at cultivating a future talent pool.
"This creates a magnet, an environment that attracts the best technology people," said Mr. Adams.
Banc One officials cited a January 1998 study by the Information Technology Association of America that said one in 10 computer-related jobs in the United States is unfilled. That amounts to 346,000 vacancies this year.
IBM's $26 billion outsourcing company plans a Technology Center of Excellence in Hilliard, Ohio, for customer service, operations command and control, technical support, and education and training.
Employment opportunities will be extended to First Chicago NBD people. Approximately 550 Banc One employees will join the AT&T Solutions or IBM Global Services payroll.
