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To: Maurice Winn who wrote (35184)	7/15/1999 11:58:00 PM
From: Ruffian	Respond to of 152472

Maurice> Top Financial News Thu, 15 Jul 1999, 11:47pm EDT Electronic Data Secures NZ$1.5 Bln Telecom N.Z. Contract, to Form Alliance By Jonathan Underhill and Gavin Evans EDS Wins NZ$1.5B Computer Contract From N.Z. Telecom (Update1) (Adds comment from Deane, investors, rewrites first four paragraphs and adds prices) Wellington, July 16 (Bloomberg) -- Electronic Data Systems Corp., the No. 2 U.S. computer services company, won a 10-year contract worth NZ$1.5 billion (US$800 million) to manage Telecom Corp. of New Zealand's information systems, beating a bid by International Business Machines Corp. The contract, which covers everything from Telecom's billing system to Internet services, cements EDS' New Zealand unit as the nation's No. 1 information technology company. Telecom said Microsoft Corp., the world's biggest software maker, will also join it in an alliance with EDS, to help Telecom develop its online businesses. The value of the work to Microsoft is confidential, the companies said at a briefing. ''We can't develop these systems domestically at the same pace they can internationally,'' said Roderick Deane, Telecom's managing director. He declined to detail expected cost savings, saying they will be modest at first though ''over a period of several years they will certainly be substantial.'' Telecom New Zealand, the nation's No.1 ranked phone company, will be able to cut costs and tap into EDS' and Microsoft's technology as it tries to boost its Internet and data businesses after reporting the weakest sales growth in five years. Picking Up Work Deane said as part of the agreement, Telecom has a four-year option to buy up to 49 percent of EDS New Zealand and expects to buy 10 percent shortly for an undisclosed price. If EDS doesn't perform well enough, Telecom has the right to sell back the initial 10 percent or delay taking up the rest of its option. For Plano, Texas-based EDS, rated a ''buy'' by 14 of 20 analysts covering the stock, the Telecom contract comes after it has won a number of contracts in the U.S. and elsewhere the past two months worth as much as US$5 billion. EDS reached a record 64 1/2 Thursday having gained 28 percent this year, helped by Chief Executive Richard Brown's cost cutting measures. IBM fell 15/16 to 136 5/16. EDS New Zealand rates hardly a mention in the parent's annual report. It doesn't separately disclose the local unit's results. Telecom's earnings growth has stalled as it faces intense competition in the long-distance call market and more competitors in everything from mobile phones to the Internet. Its 1998 earnings of NZ$822 million dwarf the NZ$9.2 million profit of the No. 2 carrier, Clear Communications Ltd., in its latest year. Telecom has cut its prices on all but its local call charges, where it has a virtual monopoly and bought nearly 20 percent of AAPT Ltd., Australia's No. 3 phone company, as it looks for growth in a larger, faster growing economy. Stronger Relationship Deane said Telecom has been talking to AAPT's directors and management about building a stronger relationship. Telecom has indicated it would like to buy 50 percent of AAPT. ''We're keen to build that relationship into a stronger one but that will take a little time,'' Deane said. ''We're still really considering our options. We've had useful and productive conversations, both with AAPT board and management, and (major) shareholders.'' Telecom, which is about one-quarter owned by Bell Atlantic Corp., fell 0.4 percent to NZ$7.91. The stock has dropped about 11 percent since late May when it announced it had acquired a stake in AAPT and reported flat earnings, slicing about NZ$1.6 billion of its market capitalization. ''You would have to conclude its positive Telecom can form an alliance with both EDS and Microsoft for online services,'' said Neil Paviour Smith, head of research at Forsyth Bar, who rates Telecom a ''buy'' at current levels. Both are leaders in online business though its difficult to assess the additional revenue the alliance will generate for Telecom, he said. Telecom said the 600 staff it has managing its information services now will be offered work by EDS.