The deal amounts to IBM taking over AT&T’s managed application and managed hosting services business. Those services will now be run by IBM on IBM Cloud; IBM will also buy some of the AT&T equipment and floor space that are devoted to the services. No financial terms were disclosed.
IBM is seeking growth vectors for its services business, but a bigger-picture aspect of the deal is that telcos are shedding assets such as data center infrastructure, says Nav Chander, an analyst with IDC.
“The data center is an area where they’ve not been able to compete,” Chander says of telcos in general. “If you’re a small-percentage market-share player, you’re not going to be able to scale at all.”
Windstream sold its data center business to TierPoint for $575 million in October. And CenturyLink is considering a sale of its co-location business, saying it doesn’t want to keep up with the infrastructure costs.
The AT&T/IBM deal seems to be the opposite of a 1998 transaction where IBM sold its Global Network business, including managed services, to AT&T for $5 billion. AT&T and IBM have remained close over the years, so it’s not surprising that AT&T would pick IBM as a landing place for the managed-services business, Chander says.
One unclear aspect of the deal is whether it includes AT&T’s Strategic Business Services, which includes Ethernet services, NetBond (an MPLS VPN service connecting enterprises to public clouds), and Network on Demand, the poster child for AT&T’s work in software-defined networking (SDN). That’s one of AT&T’s strongest growth vehicles — revenues for Strategic Business Services grew more than 12 percent year-over-year in the third quarter.
That growth counterbalances the declining growth rate of U.S. mobile services, Chander says.