AT&T makes Web-hosting splash with IBM deal
AT&T is taking a big step in the lucrative Web-hosting market with a $450 million, multiyear pact with computing giant IBM.
The deal calls for IBM to contract up to several hundred thousand square feet of Internet hosting facilities in AT&T's data centers. In addition, the company's consulting arm IBM Global Services said it will use AT&T's networking products to build several new data-center hosting facilities.
IBM plans to begin operations by the end of this year at AT&T's data centers in the New York, Chicago and Phoenix metropolitan areas. The two are targeting large companies that are setting up businesses on the Web, dot-com companies, business-to-business marketplaces and application service providers (ASPs).
The telecommunications giant also made available today its wireless content service through an existing partnership with America Online. Under the agreement with AOL, any of AT&T's wireless Net-ready phones will include access to the Net giant's new mobile service.
People will be able to use their AT&T cell phones to view AOL features such as email, news, weather reports and stock quotes, as well as content from other AOL brands including Digital Cities, MapQuest and MovieFone. AOL mobile-service access will be offered through AT&T's Digital PocketNet service.
The recent efforts could help solidify AT&T's position as an Internet player.
Like others in its sector, AT&T has invested heavily in more lucrative areas as a means to offset falling long-distance profits. The company continues to make moves in emerging markets and higher-growth sectors including wireless Net services, Web hosting, application hosting and cable TV systems to deliver local voice and high-speed Net access.
Patrick Comack, a financial analyst with Guzman & Co., said AT&T has been moving aggressively but will need some time before it can rise from its recent slump.
"(AT&T) is turning the company into a broadband and Internet company, but it's not going to happen overnight," said Comack, who has a "buy" rating on the stock. "The majority (of AT&T) is still voice, not data. Business is soft right now, which is what's hurting the stock."
In the long term, AT&T will be a "very exciting company," Comack said, citing its efforts in areas such as Web hosting, cable and wireless. In the short term, he added, "they're going to have to do something to increase share price," such as issue tracking stocks for units handling those newer areas.
The company continues to trade close to its 52-week low. Shares of AT&T have fallen more than 37 percent this year. AT&T also recently cut its third-quarter earnings target by a nickel because it is including Excite@Home's earnings in its statements. By doing so, the company said, it will reduce third-quarter earnings forecasts to a range of 35 cents to 38 cents a share from 40 cents to 43 cents.
AT&T isn't alone in its Wall Street woes. Many other communications carriers, particularly long-distance providers Sprint and WorldCom, have also recently seen their shares slump. Others including BellSouth, Global Crossing and Verizon Communications also have stumbled this year.
Together with IBM, AT&T plans to bundle and market Web-hosting services. The first of these services, available today, will help broaden AT&T's Ecosystem for Media offerings and is designed to help small and midsize businesses improve their Web sites with streaming media. The AT&T Ecosystem for Media, a program the company unveiled in July, allows companies to deliver Internet content to more people at higher speeds.
AT&T said it will bundle IBM's Netfinity Web servers into this new streaming-media hosting service, which also includes the Linux operating system and RealServer Plus streaming-media software from RealNetworks.
As part of the hosting deal, AT&T said it also will provide IBM customers with managed Internet access through its existing partnerships. AT&T will offer service-level agreements to IBM, including guarantees for IP network and Internet data-center service availability. IBM will extend service-level agreements to its own customers based on these guarantees.