IBM Globally Links AT&T

<P>IBM Corp. put its network division up for sale last spring, and industry voices whispered that AT&T Corp. (<A HREF="http://www.att.com/">www.att.com</A>) was nibbling. The rumors are now truth.

IBM Corp. put its network division up for sale last spring, and industry voices whispered that AT&T Corp. (www.att.com) was nibbling. The rumors are now truth: AT&T bought IBM’s network unit, and Big Blue will outsource a significant portion of its global networking needs to AT&T. In turn, AT&T will outsource certain applications processing and data center management to IBM.

"IBM didn’t want to be in the business of building and maintaining a network anymore, it’s not their forte," says Jilani Zeribi, a research analyst with Current Analysis (www.currentanalysis.com), a market research firm.

Several companies are jockeying for international presence, and, despite its established global reach, IBM wanted to concentrate on other markets, Zeribi adds. AT&T, on the other hand, is one of the companies vying for a global position. "This announcement supports four areas we’ve targeted for growth: global services, data networking, Internet Protocol technology and network outsourcing," says AT&T chairman C. Michael Armstrong.

A global position, however, includes more than just stringing together the necessary services. Building a global network also entails establishing relationships with the regulators, carriers and customers in every country the network will be in. "Companies can’t just build the kind of presence IBM already owns by throwing money at it," Zeribi says. "It’s the work that goes on behind closed doors that makes IBM’s unit a good investment for AT&T." Big Blue’s network spans 59 countries, supporting several hundred large worldwide enterprises and tens of thousands of mid-sized businesses.

"AT&T gains the reach of the IBM network, which is one of the few truly global networks in the world," Zeribi says. "To be global, networks need to reach all the way to South Africa and some of the obscure Middle-Eastern countries, and IBM’s network is truly an international presence on that front."

The agreement extends beyond the $5 billion exchanged for the network unit. IBM contracted with AT&T for five years to run a large part of its own global network. The contract, which could bring in $2.5 billion to AT&T in the first full year of operation, is expected to double the network outsourcing revenue of AT&T.

In accordance with a 10-year contract valued at about $4 billion, IBM will manage AT&T’s legacy applications processing. This includes billing, service-order-processing, installation and maintenance for customers of AT&T business long-distance service.

"This deal allows both companies to focus on their core competencies," Zeribi says. "And each can still benefit, albeit not financially, from what it is giving up."