MCI, EDS swap outsourcing

MCI WorldCom and Electronic Data Systems announced a four-part agreement last week under which MCI will outsource portions of its information technology services to EDS while EDS takes on applications development and maintenance services for most of MCI's infrastructure services. The deal, which amounts to about $17 billion in IT services, also includes the exchange of 12,000 MCI Systemhouse employees to EDS's ranks while MCI picks up 1000 EDS employees.

Both companies were quick to point out that the deal, expected to be final in May, is non-exclusive.

"We still have big relationships with AT&T, Sprint and other carriers," said Charles Ansley, president of EDS' Communications Industry Group.

"Companies may not want to deal with EDS [or us], and this agreement gives us the ability to bid with other IT companies," said John Sidgmore, vice chairman of MCI.

The second part of the agreement, expected to generate $6.5 million to $8.5 billion for MCI , involves EDS outsourcing the bulk of its global network to MCI. Third, EDS will acquire IT services provider MCI Systemhouse for $1.65 billion in cash. Finally, the two companies will work as "preferred partners" to bid on potential clients.

"The agreement is welcome and timely in the industry as it moves to more strategic deals," said Pascal Aguirre, principal at Business Strategy Group, Renaissance Worldwide. "The strategy is sound and departs from the tactical movements of the past. But seeing the execution will be interesting."

"We will both be much more competitive if it is a success," said Sidgmore. "This will make each of us more effective. Additionally, it allows both core businesses to grow immediately."