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The NHS Information Authority is extending its existing NHSNet contract with Cable & Wireless and BT to support the new national programme for overhauling health service IT.
However, last year C&W announced 3,000 job cuts and a £1.5bn hole in its cash reserves, prompting concern from both customers and analysts.
Customers have criticised C&W for poor account management and communication, while analysts advised C&W users to look elsewhere for telecoms services because of questions over the company's financial viability.
Ahmed Siddiqui, an analyst at Datamonitor, said, "The NHS needs to do a very thorough financial audit of how C&W will roll out the NHSNet infrastructure and how it intends to finance it."
But Richard Handley, e-business manager of C&W's health division, said, "The Department of Health has done its research on our financial stability and there is absolutely no doubt about what we are doing." The Department of Health can sleep easily, he added.
According to Handley, the telecoms giant is "fully funded" and last year's job cuts affected mainly the US and mainland Europe.
The Department of Health would only say that it was pleased with its choice of suppliers. A spokeswoman said, "We are happy that both C&W and BT will manage the upgrade they have been appointed for."
C&W has been an incumbent supplier of NHSNet, the health service's private IP intranet, since 1995, and connects more than 4,000 NHS offices, hospitals and GP surgeries to the network. During this time both BT and C&W have been criticised for service level failures on the network.
C&W will now upgrade more than 2,000 connections. All GP surgeries in England will be upgraded from ISDN2 to 256kbps, and all Acute and Primary Care Trusts will get links of at least 2mbps.
The NHSNet upgrade is scheduled to start immediately and is due for completion by March next year.
The upgrade aims to allow information to be exchanged much faster and more reliably between NHS bodies, giving staff easier access to essential information such as patient and case notes, as well as distance learning. It will also support key national programme applications such as e-bookings, e-prescriptions and e-records.
NHS boost for IT jobs >>