C&W, which partnered with Compaq to launch a-Services in September 2000, said it had simply failed to drum-up enough business for the ASP offering.
A company spokesman said the failure did not undermine C&W's belief that software as a service was "inevitable", just that it is not yet profitable.
Cable & Wireless made significant investments into the project but was forced to conclude market demand was not there. The company has not said what will happen to its existing clients.
Graham Fisher, senior analyst Bloor Research, told CW360.com: "If Cable & Wireless, with all its infrastructure, can't make it go of ASP at the moment, it shows the depth of problems."
The initial burst of enthusiasm about ASP has been replaced by an equal measure of scepticism, he said.
"This is unlikely to be a permanent withdrawal," he added, "Once broadband is rolled out C&W may think again. Delivering IT services over the Internet is flawed. It just doesn't work for an SME with a 56k modem. You really need a dedicated network."