By Chris Barton
Telecom has signed a 10-year, $1.5 billion contract for EDS to supply all its information systems (IS) services.
It described the deal as the partnership of the millennium and the largest outsourcing contract in Australasia.
Telecom has also cemented in the long-term nature of the relationship by taking a 10 per cent equity in EDS New Zealand, with an option to increase its shareholding to 49 per cent over four years.
"It means we have a joint financial stake in the outcome in respect of the online solutions area and the e-commerce world," said Telecom chief executive Dr Roderick Deane.
However, the deal also involves an option to sell the 10 per cent stake back to EDS in the event of inadequate performance.
Dr Deane said EDS and Telecom both aimed to grow shareholder value.
A third, but less clear part of the deal involved an alliance with Microsoft, which would work with EDS to provide Telecom with "online solutions capability."
Asked if the arrangement with Microsoft was predicated on an internal commitment to Windows 2000 at the expense of incumbent computer network supplier Novell, information services general manager Karyn Devonshire said Telecom's strategy was always to move to Windows 2000 and she expected rationalisation in the future to provide "a common office desktop" for its 7500 PCs.
The information systems outsourcing contract included the management of Telecom's data centres, its SAP enterprise system running on Sun hardware, Novell GroupWise software, print/mail functions, Xtra infrastructure and IS assets used by other Telecom businesses such as ConnecTel and Directories.
Significantly, the deal also covered the facilities management of Telecom's ICMS billing system previously held by IBM, which also bid for the outsourcing contract.
Asked if the arrangement signalled an end to ICMS development, EDS managing director Steve Smith said IBM would have an ongoing role for some time and that both companies would collectively put a plan together.
About 600 Telecom IS staff would become EDS employees. No redundancies were envisaged. Telecom would retain about 400 of its own IS staff - mainly on the telecommunications network side of its business, which was to remain under Telecom operation, but also for IS strategy and business analysis.
Telecom would not reveal the savings it expected to achieve from outsourcing, nor would it say how much it was paying for its 10 per cent EDS stake. It had budgeted to spend $290 million on IS this financial year.
Assuming EDS is not getting a large portion of that sum, the company has rocketed from fourth to number one New Zealand IT company with annual revenues in excess of $350 million.
IBM, on the other hand, suffers. If reports that its contract with Telecom accounted for a third of its $331 million revenue last year are correct, the loss to EDS will add considerably to IBM's woes.
The company lost $33.6 million last year, $28 million in 1997 and $9 million in 1996. A week ago it laid off a software project team at its Petone research and development facility, and it is in talks with the Government over the troubled police Incis contract.