EDS has sacked about 50 staff after Telecom cut the amount of work it requires from the outsourcing giant.
Most of those laid off were involved in maintaining and developing ICMS, the huge billing application IBM wrote for Telecom in the early 1990s.
Telecom has been trying to reduceits reliance on ICMS for functions other than core billing, meaning staff developing new applications on the platform are no longer needed.
About 660 Telecom staff moved to EDS when the 10-year outsourcing contract was signed in 1999.
EDS spokeswoman Adrienne Perry could not say how many of those staff remain, or how many staff did Telecom-related work.
She said the number of positions affected was relatively small compared to the 2300 staff who work for EDS New Zealand.
"Work is constantly ebbing and changing. We don't expect 50 redundancies. We don't know how many people will be redeployed or will go, but it will be under 50."
Sources indicate the final number could be very close to 50.
EDS has contractual obligations with the Government to generate 360 new jobs by March 2006 as part of its Best Shores scheme. EDS won a $1.5 million grant, payment of which is linked to the new employees starting work.
EDS will also be looking closely at the costs of servicing the Telecom contract.
Usually in such long-term contracts many of the costs are loaded in the early years, as the outsourcer buys existing infrastructure from the customer.
This is theoretically offset by higher earnings and lower costs in the later years of the contract, but if the work isn't forthcoming from Telecom, EDS might struggle to make its expected profits.
The problem was highlighted by the adoption of more conservative accounting standards for reporting last year's results, when EDS New Zealand declared a $78 million loss on revenue of $307 million revenue after subtracting a $56.5 million "unbilled revenue adjustment" because it now books revenue only when it is received.
