SAN FRANCISCO (03/28/2000) - A few years ago, the race between the new telecommunications entrants was to see who could offer the most bandwidth by building out the fattest pipes. Now that upstarts like Qwest Communications International Inc., Global Crossing and others have built out their massive networks and have nearly unlimited bandwidth at their disposal, the race is on to fill the pipes.
Denver-based Qwest charged into the breach today, announcing a massive joint effort with IBM to build dozens of new data centers worldwide. By the end of 2000, Qwest plans to have 14 U.S. CyberCenters in operation. Once IBM has built all of the planned CyberCenters, Qwest expects to operate a total of 42 CyberCenters in the U.S. and Canada.
Qwest will pay IBM approximately $2.5 billion to construct 28 new facilities, and IBM is paying Qwest roughly $2.5 billion for the right to rent space in those facilities. Qwest could have built the data centers itself but decided that it needed to partner with Big Blue to gain access to IBM's applications expertise. The loser in the deal could be AT&T, which has been a primary provider of facilities for IBM. IBM benefits by consolidating its e-business offerings with one partner.
Today, IBM manages more than 40,000 servers in 133 data centers worldwide. In a conference call Monday morning, Lou Wilkes, Qwest's president of Internet and multimedia markets, said customers will have end-to-end control of their Web businesses, from the network infrastructure to application services.
The deal also means that IBM will connect its existing data centers to Qwest's global network. Qwest has already made aggressive moves into building next-generation applications. It has seven data centers in operation and seven more to come this year, aside from the 28 IBM is building. It's involved in a joint venture with KPMG called Cyber.solutions, which offers outsourced applications and Internet applications for businesses like Campbell's and General Motors.
"When you can sell a CIO on a whole suite of services and promise that we'll be first to market with next-generation stuff, it's easy to build loyalty," says John Charters, CEO of Cyber.solutions. According to Wilkes, both companies will continue to sell their respective services directly to customers. However, he anticipates that as more customers demand complex Web-hosting services, the companies will collaborate: Qwest will provide network services, and IBM will provide operating systems and application services expertise.
Qwest faces serious competition. Exodus has been flying high on the strength of its hosting business. And networking giants such as AT&T, Cable & Wireless and Global Crossing have aggressive Web-hosting build-outs under way. As with Global Crossing, Qwest's extensive network puts it in a prime position to lure Web businesses. Exodus does not own a network, so whenever there is a bandwidth crunch, it has to go out and buy more from a third party. Qwest and Global Crossing have the resources and wherewithal to turn on more bandwidth at will.
Jenny Oh did additional reporting for this story.