Trio Battle for Monster UK VPN

British Telecommunications plc (BT) (NYSE: BTY; London: BTA), Cable & Wireless plc (NYSE: CWP), and Electronic Data Systems Corp. (EDS) are battling for a U.K. government IP VPN contract potentially worth hundreds of millions of dollars.

Britain's National Health Service (NHS) is spending £11.6 billion (US$21.3 billion) to revamp its electronic infrastructure, £2.3 billion ($4.2 billion) of which is to be spent during the next three years.

The NHS has already awarded a number of lucrative IT contracts, some of them to BT (see BT Wins Big IT Deals). It now wants a new, national IP infrastructure (dubbed N3) to tie together all its hospitals and surgeries.

BT and C&W are the incumbent providers of the NHS's national network, known as NHSNet.

The NHS won't provide details of the impending deal, other than confirming the shortlisted companies and saying that the contract negotiations are somewhat delayed. The winner is to be announced in February.

Whoever wins the deal, Cisco Systems Inc. (Nasdaq: CSCO) looks set to benefit. The IP equipment vendor is a key partner of all three shortlisted firms, and the deal will involve the provision of IP kit to thousands of NHS sites around the U.K.

So what's up for grabs? If a presentation given last July to bidders is still accurate, the winner will be handed a 7- to 10-year deal that will involve the provision of IP capacity, security, support, local connections, and hardware for NHS sites. The NHS also stressed that ownership of the underlying infrastructure was not important ("we're not buying wires in the ground") and that the deal would be awarded to the bidder that best met the NHS's service requirements.

In addition, a great deal of emphasis is being placed on the winner's ability to migrate sites from NHSNet to the new N3 services, with the NHS demanding that all 7,000-plus sites be linked to N3 some time in 2005.

While a value has not been specified, the long-term deal could be a monster. Last January BT was awarded a three-year contract worth £168 million ($309 million) just to upgrade NHSNet connections from narrowband to broadband.

BT declined to comment on the N3 deal; C&W failed to respond to questions; and an EDS spokeswoman declined to comment, saying that the NHS had asked the shortlisted companies not to talk to the media regarding the contract.

While BT is regarded as the favorite to land the deal, one analyst who tracks U.K. government technology deals says it could go to any of the three players. "It's impossible to say whether BT is in a good position, having won some of the key IT deals, as the NHS may not want to put too many of its eggs in one basket," says Ovum Ltd. analyst Tola Sargeant. "And while BT and C&W are the incumbent service providers, there has been a greater willingness by government agencies to break away from incumbent suppliers in recent times."

Although EDS has a long history of winning U.K. government deals, its star appears to be waning. "EDS still dominates public sector deals in the U.K., but it has lost some key contracts lately, most notably at the Inland Revenue," adds Sargeant.

— Ray Le Maistre, International Editor, Boardwatch