In a manoeuvre worthy of world-class chess players, Electronic Data Systems (EDS) and MCI WorldCom have unveiled a $US17 billion outsourcing partnership and acquisition intended to align their respective resources to better pursue large-scale services deals.
The complex deal, which follows a similar transaction between IBM Global Services and AT&T late in 1998, creates another professional services powerhouse capable of handling a comprehensive global network and systems service engagements. With the increased competition, large companies and some mid-market firms could benefit from lower costs.
"If I want to get the best deal for bandwidth, network, and IT services, and if I go to two guys who are in cahoots and bid them against two guys who are in cahoots, I should get the best price," said George Logemann, an analyst at the Yankee Group, in Boston.
But pricing is not usually the primary concern of companies weighing outsourcing deals, according to Cindy Murphy, an analyst at International Data Corporation.
"It's a matter of strategic fit, and this kind of partnership can allow customers to get that from multiple vendors without having to deal with all of them individually," Murphy said.
The deal may also push second-tier players, such as Computer Sciences and Sprint, to seek similar partnerships, possibly with each other, analysts said.
The EDS-MCI WorldCom pact entails reciprocal outsourcing deals, the purchase by EDS of MCI WorldCom's MCI Systemhouse IT services arm for $US1.65 billion, and mutual status as preferred partners. The aim is to better position EDS and MCI WorldCom in the electronic business and global communications services arenas, according to executives.
MCI WorldCom will outsource much of its IT services to EDS, including the bulk of all applications development, maintenance agreements, and infrastructure services.
EDS will outsource most of its global network to MCI WorldCom, with the communications company responsible for the management of voice and data communications services for both EDS and its customers.
The tandem will first focus on large-scale deals on a generic basis, and later venture into vertical markets, Sidgmore said.