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Sprint cuts contract with EDS

Sprint scuttles all contracted work with Electronic Data Systems following the IT services company's huge outsourcing deal with Sprint rival MCI WorldCom.

Kim Girard
Kim Girard has written about business and technology for more than a decade, as an editor at CNET News.com, senior writer at Business 2.0 magazine and online writer at Red Herring. As a freelancer, she's written for publications including Fast Company, CIO and Berkeley's Haas School of Business. She also assisted Business Week's Peter Burrows with his 2003 book Backfire, which covered the travails of controversial Hewlett-Packard CEO Carly Fiorina. An avid cook, she's blogged about the joy of cheap wine and thinks about food most days in ways some find obsessive.
Kim Girard
2 min read
Sprint has scuttled all contracted work with Electronic Data Systems following the IT services company's huge outsourcing deal with Sprint rival MCI WorldCom.

Sprint spokesman Bill White said Sprint canceled its contract with EDS after the firm moved last month to buy rival MCI WorldCom's services arm, SystemHouse.

White said Sprint had hired EDS to provide IT services within some of Sprint's older facilities, yet ended that relationship when EDS "reached their deal with WorldCom." Executives from Sprint's services division, Paranet, would not comment further.

"It was the customer's decision and we certainly respect it," said EDS spokesman Reed Byrum. "We hope to work with them again."

"These two companies have had a bumpy history," said Julie Giera, analyst at Giga Information Group.

In 1994, a proposed $30 billion merger between Westwood, Kansas-based Sprint and EDS failed.

When the merger fell apart, "there was a bit of vitriolic parting and [Sprint's] chairman said some negative things about EDS," said Merrill Lynch analyst Steve McClellan.

"They've never had a mega-contract of any dimension," said McClellan, who tracks services contracts of $100 million or more.

However, in 1995, EDS negotiated a deal to service up to 5,000 Sprint desktops, providing upgrades, maintenance, and on-site troubleshooting.

In 1997, EDS, GTE, and Sprint teamed up on a $450 million outsourcing contract with Chevron.

For now, EDS's focus has turned to MCI WorldCom. Under terms of a February 11 deal, Plano, Texas-based EDS paid $1.65 billion for MCI Systemhouse, taking on more than 12,000 MCI WorldCom employees.

Through the pact, EDS, the world's second-largest computer services company, farmed out the bulk of its voice and data communications services to MCI WorldCom.

That contract is valued at a whopping $6 billion to $8.5 billion over 10 years.

While making deals with MCI, EDS's relationship with another telecommications giant, AT&T, remains cozy, Giera said, noting that EDS turned to AT&T to build its original private network. EDS continues to keep the door open to funnel work to AT&T by listing MCI WorldCom as its "preferred vendor" in outsourcing deals.

EDS has contracted with AT&T since 1982, recently building AT&T's Electronic Card Account Management [ECAM] system, which allows customers to manage their own calling card programs.

The relationship has even weathered AT&T's decision to contract with IBM Global in a deal worth $9 billion.

EDS's other telecommunications clients include Bell Atlantic, Mobile Bell South, and SBC.

Communication business represented about 6 percent of the EDS contract revenues in 1997, far lower than the 44 percent the company reaps from its manufacturing business.