Ending months of speculation about which suitor would step up to buy IBM's Global Network business, AT&T announced yesterday that it will acquire the division for $US5 billion in cash.
The deal also entails the two companies entering into outsourcing contracts with each other. IBM will outsource a large portion of its global networking needs to AT&T under a contract valued at $5 billion, while the US telecommunications giant will outsource certain applications processing and data centre management functions to IBM in a separate $4 billion deal.
AT&T is counting on the acquisition to bring $2.5 billion in additional revenues in the first full year of operation and will accelerate its ability to offer IP (Internet protocol)-based managed network services to global customers, company officials said. IBM's network will complement AT&T's existing plans to build a 100-city IP-based network as part of its global joint venture announced with British Telecommunications, AT&T officials said.
The IBM Global Network provides leased-line and dial-up service to businesses in 900 cities in 100 countries and allows individuals to access the Internet from 1350 locations in 53 countries. The network is in use by several hundred global companies, tens of thousands of mid-sized businesses and more than a million individual Internet users, the companies said.
News that IBM would divest itself of its network leaked as early as the beginning of September, with IBM confirming sell-off plans mid-month. IBM started the network in the early 1980s to share data internally, but the network grew as customers asked for data infrastructure services, a spokeswoman said in September. The company never meant to become a data-infrastructure provider and recently began to view its Global Network division as extraneous.
Company officials said yeterday that it will concentrate on offering network services, such as messaging and e-commerce applications, as part of its services division, but it will no longer offer data-infrastructure services. When IBM developed its data network, there were few other alternatives for sending data across the globe. However, today, most telcos offer a host of data services over their communications networks.
The fact that the deal involves cross-outsourcing agreements is no surprise either. IBM's goal in selling the network was to find a buyer that could also manage the network's operations, including the part of the network IBM will continue to use, Sam Palmisano, general manager of IBM Global Services, told the IDG News Service in September. He added at the time that IBM was looking particularly at large telecom carriers as possible buyers. Japan's Nippon Telegraph & Telephone was thought to be a prime candidate as a buyer.
AT&T will meld IBM's network into its own networking services unit, AT&T Solutions. Around 5000 IBM employees will join AT&T as part of the deal, the companies said.
The companies expect the deal to be completed, pending shareholder approval and clearance from regulators, by mid-1999.