AT&T pays £5bn for IBM Global Network

IBM has sold its Global Network business to AT&T, in a $5bn cash deal. The two US giants will also swap outsourcing contracts worth a total of $9bn.

The Global Network deal gives AT&T access to several hundred multinational customers and tens of thousands of medium-sized businesses in over 850 cities worldwide. It is expected to increase the US telco's revenues by $2.5bn in the first full year of operation.

IBM will outsource its own network needs to the US telco's networking services unit, AT&T Solutions, in a $5bn contract lasting five years. In return, IBM Global Services will provide $4bn worth of services - including data centre management and applications processing - to AT&T over 10 years.

About 5,000 IBM employees will join AT&T, with over 2,000 managers at the US telco making the reverse journey.

In a statement, AT&T chairman and CEO, Michael Armstrong, said the deal boosts the company's four key targets for growth: global services, data networking, IP technology and network outsourcing. IBM chief, Lou Gerstner said the move will allow Big Blue to concentrate on providing ebusiness applications.

Robin Duke-Woolley, principal analyst at Schema, commented: "IBM got a good price - it was only looking for $3bn to $4bn. It was desperate to move out of the global network business and concentrate its efforts on the global services business, which is growing like crazy in comparison."

Duke-Woolley added the deal is also a good one for AT&T, despite the high price. "AT&T was extremely keen to make this deal and it fits in nicely with its strategy. The move gives it lots of new multinational customers and increases its international presence. AT&T has lost world partners such as Unisource, and needed to have points of presence in more countries."

AT&T said its new acquisition will be "supportive" of the $10bn global IP network it hopes to build with BT. That deal faces a tough EU anti-monopoly investigation. A spokesman for UK telecoms regulator, Oftel, said it is "too early to say" whether the Global Networks deal will suffer the same fate.

Eric Owen, programme manager at IDC telecoms, said: "I'll be interested to see how this deal fits in with the joint venture - it certainly raises regulatory issues. It's going to be hard enough for the BT alliance to win approval, without AT&T buying another global resource."

Duke-Woolley added: "My feeling is that this deal will be ring-fenced outside the BT arrangement. It gives AT&T a viable business operating on its own and a network where it has end-to-end control. I don't see what it would have to gain by sharing it with BT."

The deal is scheduled to be completed by next summer.