Two giant outsourcing deals were central to AT&T Co’s purchase of IBM Corp’s Global Network unit for $5bn in cash earlier this week. The two contracts, valued at $4bn, put the total deal value up to between $9bn and $10bn. IBM has agreed to manage certain of AT&T’s legacy applications processing, including billing, service order processing, installation and maintenance, for customers of AT&T business long distance services. And IBM will also assume the management of AT&T’s data processing centers, operating corporate information systems such as accounts payable and receivable and employee payroll and benefit applications. As part of the deal, 2,000 AT&T management employees will be offered jobs at IBM. Tuesday’s announcement that AT&T had won the bidding for IBM’s Global Network unit, which was first put on the selling block back in September (CI No 3,487), saw AT&T agree to take on 5,000 IBM staff from the Global Services division. The IBM Global Network transmits corporate data for about 30,000 customers in 50 countries, and includes over 1,300 dial-up points of presence, with dedicated access from more than 850 cities in 59 countries. Around 60% of its customers are in the US, with around 15% in Japan and the remainder in Europe – primarily the UK and Germany. IBM decided to sell the unit because it found it was competing with some of its largest customers. It only set up the network in the early 1980s because it found that no telecoms providers were then offering international digital data networks. Over the last few years, it’s been investing heavily to convert the old SNA network to IP and data packet architectures. AT&T will concentrate on networking, and IBM will provide business applications for networked companies, said Daniel Mummery of the law firm Millbank, Tweed, Hadley & McCloy, which represented AT&T in negotiating and structuring the two outsourcing contracts. The deal frees IBM from further network maintenance and allows it to lease network space from different vendors. AT&T says it expects the acquisition to bring in around $2.5bn in additional revenues next year, around 2.5% of IBM’s 1997 revenues. Under AT&T, around $1bn will come from direct customers and the remainder through IBM, as the companies continue to manage services contracts with network elements. But the IBM deal may have come at a tricky time for AT&T, just as its joint venture with British Telecommunications Plc is facing a tough examination from the European Commission, over the possibility that it will stifle competition. The deal is expected to close by mid-1999, if regulatory clearance is achieved.
