In yet another push beyond its traditional long-distance customer base, AT&T on Tuesday said it would acquire IBM's Global Network, Big Blue's corporate networking business, for US$5 billion in cash.
As part of the deal, IBM (IBM) handed AT&T a five-year, $5 billion contract to handle much of its networking needs, while AT&T (T) has outsourced some of its applications processing and data management work to IBM.
IBM will take care of jobs such as billing and installation for AT&T's long-distance customers. IBM will also assume management of AT&T's data processing centers, which operate corporate information systems such as employee payroll and benefits. Those outsourcing contracts are valued at $4 billion over 10 years.
The Global Network, which grew out of a phone system linking IBM's worldwide outposts and now transmits corporate data for about 30,000 customer facilities in 900 cities worldwide, was put on the block two months ago. IBM apparently decided that the network was too costly to maintain and that it was not economically worthwhile for the company to try to keep up with the fast-moving telecommunications industry, especially with voice and data networks converging because of the Internet.
Under the agreements, more than 2,000 AT&T management employees will be offered positions with IBM. About 5,000 IBM employees will join AT&T as part of the Global Network sale, which the companies expect to complete by mid-1999 following approval by US and foreign regulators.
AT&T, the largest US long-distance phone company, said the outsourcing exchange could boost company revenues by $2.5 billion in its first full year of operation, and will add to earnings after the first year. It said earnings dilution in the first year will be insignificant. IBM said it does not expect the deal to have a significant impact on 1999 operating results.
The exchange appears to capitalize on the companies' respective strengths, with AT&T focusing on networking while IBM provides business applications for networked companies, said C. Michael Armstrong, AT&T's chairman and chief executive. Armstrong is a former IBM executive with more than 30 years of experience at that firm.
Reuters contributed to this report.
