Telecom pulls plug on GDC again

By PETER GRIFFIN, Telecoms Writer


Ailing listed telecoms company GDC Communications has been struck a second major blow with the cancellation of another major deal with Telecom.

The two companies have prematurely ended a contract, signed in October 2002 and intended to run for at least two years, that had Telecom re-selling GDC's IT outsourcing services, relabelled Officeware.

It follows GDC's loss in December of long-running contracts to service large parts of Telecom's phone network, a development that effectively wiped $40 million in revenue from GDC's books each year and will require it to shed dozens of staff.

That news put GDC shares into freefall, dropping 59 per cent, or 44c, the day of the announcement. The share price has dropped even further since then.

The latest cancellation largely ends the close relationship between Telecom and GDC.

Telecom's business manager for commerce services at Telecom Advanced Solutions, Hugh McKellar, said GDC's iVASP services had not sold well and Telecom could offer a better package of services itself at lower cost.

"We just weren't selling it. We think the demand is for a fully integrated solution," he said.

Application service providers such as GDC distribute software packages to companies over a network from a central data centre.

In doing so, customers can spend less on buying hardware and software, instead leasing the services for a monthly fee.

Telecom has become more aggressive in the IT services market, and the launch of its own ASP services, still to be called Officeware, puts it in competition with GDC.

GDC managing director Geoff Lawrie said he was "relaxed", as the Telecom deal had produced negligible benefits for GDC and had been expensive to put together. The iVASP products had sold well through GDC's direct sales channel.

McKellar estimated the ASP market to be worth $12 million a year, projected to increase to $50 million a year by 2007.

The trend by companies to outsource their communications and IT needs had made them more accepting of having their software packages provided by a third party.

"A medium-sized business with $100,000 to spend on its business for the year doesn't really want to spend $25,000 on hardware and software. It's better off paying a few hundred dollars a month."

Only last month, Advanced Solutions boss Chris Quinn outlined a plan to use GDC's services to target companies with fewer than 200 desktop PCs. Those plans are now dead. GDC's share price closed down 2c at 19c.