Indian software major Infosys has signed a five-year $50 million contract with Australian telecom and information systems giant Telstra for software development and maintenance and is planning to open a development centre down under.

Telstra's chief information officer Jeff Smith on Tuesday said the company would pay Infosys Aus$15 million (US$10 million) every year to maintain its business systems.

The company expects that the contract would yield cost savings of up to 40 per cent.

"It is all about excellence in execution and predictable delivery. If systematic processes are followed to manage all IT layers, 40 per cent savings overall is definitely possible," Infosys' Australia manager Ananda Rao told PTI.

Infosys will be taking over the work, which was earlier carried out by IBM Global Services Australia, formerly a joint venture between Telstra, IBM and Land Lease.

On why was Infosys chosen over IBM, Rao said, "Perhaps in this case, our value proposition was better."

Smith said, "We are going to work with the best company and Infosys is one of the best in software engineering. We chose them for the strength of their leadership, quality and expertise."

Infosys is also looking at office space for a development centre in Australia for which it plans to hire 250 employees.

"We will be hiring a fair percentage of local people based on skills," Rao said.

Rao said there was likelihood that Infosys and Telstra would sign more contracts in the next few months "if and only if we perform. To this extent all of us know that there are no guarantees.

"The work we do must provide more and more business value and impact," he added.

The first contract has, however, raised fears about loss of jobs among Australian workers.

An IBM GSA spokesman was quoted as saying by the Australian Financial Review that up to 180 Australian jobs could potentially be affected by the contract.

The Community and Public Sector Union said Telstra's deal with Infosys would cost several hundred Australian jobs. CPSU national secretary Adrian O'Connell called on the politicians and the community to voice their disapproval at the "exporting" of Australian jobs.

"Let's not forget that Telstra is Australia's biggest and most profitable company and the federal government is Telstra's largest shareholder," he told Associated Press.

However, Rao dismissed the charges that jobs were being shipped off to India.

"It is not about exporting jobs. I think the message from Telstra is very clear that it is about reducing cycle times, improving quality, bringing in repeatability, fostering knowledge re-use and lowering Total Cost of Ownership: totally transforming the way IT gets delivered.

"It is not about cost or cheap labour. It must be remembered that any vendor or partner is only as good as the last project," Rao said.