As a key element of the $17.5bn multi-part deal between Electronic Data Systems and MCI WorldCom, EDS has said it will buy MCI’s Systemhouse IT services subsidiary for $1.65bn, integrating the group’s 120 offices into its infrastructure and tying its 12,000 staff into its global operations. In return MCI will hand over the majority of its IT services to EDS, including the bulk of its applications development, maintenance agreements and infrastructure services in a 10-year agreement valued at between $5bn and $7bn – the largest yet in the telecommunications sector. Some 1,000 EDS employees will be invited to join the carrier as part of the agreement. The two companies also say that they will work together to develop network service offerings aimed at business and government users worldwide from here on in. The long-term future of Ottawa-based Systemhouse, which recorded $1.7bn in revenue for 1998, has been uncertain ever since MCI bought the services company in November 1995. It never looked a comfortable fit from the day the deal was cut. Systemhouse provides so-called Network Enterprise Solutions. The concept is that it will design, build and manage systems that integrate computing with data, voice and internet networks to extend information and application access to remote workers, customers, suppliers and partners. The private and public IP-based networks the information runs across, naturally, is provided by MCI, and its partners, Avantel and Telefonica. Many thought such arrangements could have been achieved through tight partnership agreements: the purchase of Systemhouse by MCI simply added unnecessary financial overhead. There would have been no shortage of buyers for Systemhouse, however. The company has a good reputation among clients and analysts. It shows good pricing and contract flexibility and exhibits strong partnering capabilities with its customers. Its geographical spread touched all of the key markets of North America, Europe and Asia. For the year to December 31, 1997 MCI’s results shows that IT services revenue had increased 30% to $1.83bn out of a group total of $19.65bn. This disguises, however, the $265m charge taken in the fourth quarter of 1997 to upgrade its technology by moving data centers. This is in addition to a $252m charge to restructure the group before the WorldCom merger in mid-1998. During 1998 Systemhouse won 13 new contracts worth at least $266m, with the largest contract being with the YMCA, signed in October 1998 worth $180m. Systemhouse provides a range of IT services in three divisions. IT consulting and systems integration (enabling processes), which saw revenues grow by 51% to $603m in 1997; management systems, for outsourcing of network, applications and systems management, which had revenues in 1997 of $324m, up by 45%; and customer relationship management, which includes call center, e-commerce and business intelligence services and had 1997 revenues of $112m, up 20%. Its customers come mainly from the public sector (emergency response, safety and justice administration systems), regulated industries, such as telecoms and utilities, and commercial industries, for example in the packaged goods, financial services, retail and manufacturing fields. Major clients include Samsung, Amoco Canada, YMCA, PepsiCo’s Taco, Bell and KFC, the US Postal Service, the City of New York and government agencies in Canada, Mexico and Australia.
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