AT&T to sell managed services, applications unit to IBM

AT&T (NYSE: T) is selling off its managed application and hosting services unit to IBM as part of what the two companies say is a way to expand their long-term relationship to deliver networking and hosting services to their enterprise customers.

Upon closing the deal, IBM will deliver the managed app/hosting services that are currently provide by AT&T. IBM said that the offerings will be "aligned" with its cloud services portfolio.

In addition, IBM will acquire equipment and floor space access in AT&T data centers supporting the business.

However, AT&T is not leaving the hosting and managed services business altogether. The service provider will continue to provide networking services including security, cloud networking and mobility that it already provides. Also, the two companies will work closely to innovate and deliver a full suite of integrated solutions to customers.

Terms of the acquisition were not revealed.

Jon Summers, senior vice president of mobile and business solutions for AT&T, said in a release that the agreement "is a natural expansion of our relationship, and it demonstrates our continued commitment to serve customers based on our respective strengths and capabilities."

AT&T has also continued to ramp its managed services capabilities. Leveraging its growing presence of SDN and NFV, the service provider added managed services as the latest feature of its on-demand service capability, giving business customers an option to adjust and add network capabilities as needed in October.

Managed services continue to be a large part of AT&T's business services growth. During the third quarter, it reported that wireline strategic services revenue which includes hosted Ethernet, cloud, VPN, and security services rose 12.6 percent year-over-year to $2.76 billion. These results helped AT&T offset an 8.7 percent drop in legacy voice/data service revenue to $4.5 billion.

The deal also has some large implications for IBM, particularly as it relates to the managed application and hosting markets where it has a sizeable presence. IBM reported that its global technology services revenue dipped 10 percent year-over-year to $7.9 billion. Likewise, its global business services revenue dropped 13 percent to $4.2 billion.

John Dinsdale, chief analyst and managing director for Synergy Research, told FierceTelecom in an e-mail that while the announcements made by AT&T and IBM lack any specific details, it shows the challenges traditional telcos are having in crafting a successful cloud and hosting services strategy.

"I think what is clear is that telcos generally are having a hard time making a success out of their cloud and hosting initiatives causing many to rethink their strategies," Dinsdale said. "Even the traditional managed hosting specialists are having a hard time competing in the world of cloud, so for telcos trying to compete in the same place life can be really hard. Success in hosting and cloud requires some serious ongoing investment and some clear management focus. That is tough if it isn't your core business." 

For more:
- see the release

Related articles:
AT&T's Stephens: Fiber rollout is driving uptick in SMB managed services sales
AT&T adds managed Internet services to on-demand network, names more virtualization vendor partners
AT&T's Donovan: Software, IP migration will increase service delivery
AT&T strengthens solution partner bond with new partner exchange features

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