Telecom counters contract concerns

By PETER GRIFFIN and NZPA

Telecom has brushed aside speculation that its contract with the Commonwealth Bank of Australia is in trouble, saying all is well across the Tasman.

Telecom's share price slumped 18c to close at $5.32 last night as the industry absorbed Australian media reports that the company had been struggling to meet its performance obligations and was barely managing to break even on the $A500 million ($610 million) deal signed in August 2000.

But Telecom spokesman Martin Freeth said the Commonwealth Bank had reviewed its contract with Telecom in December and found "no issues of significant concern".

"There are no problems with supply of telecommunications services to the bank or with our contract," he said.

A network linking the CBA's 1100 sites had been constructed ahead of schedule.

Integration of the CBA network and that of Colonial, its fund management arm, had also been finished before the deadline, Telecom said.

But the Australian reported Telecom sources as saying the company had sustained higher-than-expected short-term costs because it was still using Telstra's networks rather than carrying calls through its Australian subsidiary, AAPT.

Telecom was believed to be billing about $A10 million a month to the Commonwealth Bank, but was still struggling to break even.

The Australian also said Telecom's main information technology partner, US giant EDS - a long-term supplier to the Commonwealth Bank - had come under fire for two severe nationwide system stoppages last week.

On Wednesday last week, the bank's eftpos and ATM networks were disrupted.

Two days later, its internet and telephone banking services were down for two hours.

Industry analysts believed the problems could heighten tensions between Telecom and EDS, the Australian said.

Concern about Telecom was expressed at Colonial, which had criticised EDS.

Some Colonial sources had complained of frequent technical breakdowns.

"We were not getting the service levels we needed," one source said.

"We couldn't even get on the internet.

"The system was simply not robust enough."

This week, Telecom was reported as having been shortlisted for another lucrative contract in Australia, with Insurance Australia Group.

The Australian said Telecom insiders alleged Telstra and Optus, its rivals for that bid, were stirring up rumours to hamper Telecom's chances.

Industry sources had put Telecom's bid at $A100 million, significantly below Telstra and Optus' bids of about $A170 million and $A140 million respectively.

Telecom said a further contract win in Australia was expected to be announced in the "next few days" - a possible hint of success in attracting IAG's business.