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IBM, Qwest to team on Web hosting services

The computing giant and the communications company form a multiyear agreement, valued at $5 billion, to provide hosting services from 28 new data centers.

IBM and Qwest Communications International today said they formed a multiyear Web hosting agreement, valued at $5 billion, to provide businesses with hosting services from 28 new data centers.

Communications provider Qwest and computing giant IBM aim to provide a wide range of services to joint customers, such as data center facilities, server storage maintenance, complex Web site hosting services and application hosting services.

The data centers, which house multiple servers and communications networks for companies' Web sites, will be connected to Qwest's long-distance network and built to a minimum of 100,000 square feet.

The companies expect to attract more than $5 billion in revenues from the agreement, which will be split equally, they said in a statement. IBM will get $2.5 billion as payment for building and managing the project, while Qwest will receive $2.5 billion from the lease of approximately 25 percent of its data center space to IBM. Qwest said it will own all the centers.

James Linnehan, a financial analyst at Thomas Weisel Partners, called the deal a "validation that Qwest's hosting solutions are going to be one of the global leaders."

"(This deal) gives Qwest the power of gaining a partner like IBM and gives it the distribution capabilities that go along with that," said Linnehan, who rates Qwest stock a "strong buy."

Bill Klein, an analyst at Wasserstein Perella Securities who also has a "strong buy" rating on Qwest stock, said that both companies will reap the benefits of several cross-selling efforts.

"Qwest is partnering with probably one of the premier companies in the Web hosting area," Klein said. "(IBM) brings a customer base that can certainly utilize Qwest solutions going forward and not just (benefit) on the fact that customers will be running on Qwest's network."

Computer makers, including IBM, Hewlett-Packard, Dell Computer, Compaq Computer and Sun Microsystems, have been stepping up their efforts in services, targeting growing Web businesses to better tackle the Internet and gain new revenue streams.

IBM's move comes on the heels of a similar one made by longtime Qwest partner HP. HP recently pushed into the Web hosting market with a pay-per-use service, called Infrastructure-On-Tap. Under the plan, HP said it will provide all of the technology necessary to start and manage a Web site, including hardware, data storage, network security, maintenance, network connections and other IT support, charging only a monthly fee for services the companies use.

Qwest also has been moving away from being a traditional long-distance phone carrier and toward the more lucrative Web hosting market. The Denver-based company said it expects its revenues and margins to continue to improve because of hefty demand for its Internet-based applications and services.

As part of today's agreement, IBM said it plans to continue offering managed services in existing IBM data centers but will add connections to Qwest's high-speed network. As partners, Qwest and IBM said they will target a wide range of customers, from dot-coms and Fortune 1000 companies to online marketplaces and application service providers.

Qwest executives said today's deal does not have an effect on its existing partnerships in the Web hosting and application hosting market. The communications provider, which has alliances with companies such as HP and business software maker SAP, said its deal with IBM is a "broader" agreement, focusing beyond storage centers and more on providing managed Web hosting services.

Qwest said it has selected IBM's consulting unit, IBM Global Services, to build and provide operational support for the data centers over the next three years.

The first four centers, which are expected to be operational later this year, will be located in Dallas; Philadelphia; Sterling, Va.; and San Jose, Calif. In addition, IBM-built CyberCenters are planned for Atlanta; Austin, Texas; Boston; Chicago; Denver; Los Angeles; Washington, D.C.; New York; Phoenix; Silicon Valley and Seattle, the companies said.