Spurred by high costs, the regional telecom heavyweight hands over the management of its data-hosting business to Big Blue.
Under the deal, IBM will take responsibility for running two BellSouth centers housing data for roughly 100 customers. BellSouth said it turned to IBM because the costs associated with maintaining and upgrading hosting facilities in South Florida and Atlanta became too high.
Managing the data centers "was taking a level of expertise beyond where we could afford to keep investing," said Mark Kaish, vice president of data product management for BellSouth.
IBM will take responsibility for running the data centers and managing the hosting business, while the two companies will jointly market and sell data services. IBM and BellSouth declined to discuss any of the financial details surrounding the arrangement, including whether IBM will purchase any BellSouth assets.
The deal allows BellSouth to get out of a business that it wanted to exit and could help IBM with its long-term effort to appeal to more small and midsize businesses, said IDC analyst Melanie Posey.
"It solves a problem for each party," she said. "It's not so much that any party gets a huge pot of money right away."BellSouth was somewhat late to hop on the Web-hosting bandwagon, Posey said, opening its two Web-hosting facilities in late 2000. Also, as a regional company, it doesn't have the global reach of a company like AT&T, she said.
"This is a business that BellSouth wanted to get out of," Posey said. "They announced in their third-quarter earnings call that they were going to get out of some noncore businesses, and Web hosting was one of those businesses."
Other companies that saw Web hosting as a potential new arena also have pulled back, notably chip giant Intel, which last year announced it would take a $100 million charge to exit the Intel Online Services business it launched in 1999.
"Intel...kind of really went far afield by getting into the Web-hosting business," Posey said.
The IBM-BellSouth deal could lead to more deals for Big Blue, said analyst Amy Wohl of Narberth, Pa.-based Amy Wohl Associates. "Given how much of that stuff was built out (between) 1997 and 2000, I would think there is plenty more to have conversations about."
As for the IBM deal, the transition for the centers' 100 or so current customers will take anywhere from a few days to a few weeks, depending on the customer, said Jim Corgel, general manager of IBM's hosting business. "We've got a game plan for each one," he said.
Some of the 24 employees in BellSouth's hosting business may join IBM, although Kaish said the employees represent some of the telecom company's best information technology workers and will be offered jobs elsewhere within BellSouth.
Although IBM did not comment on whether it will share revenue with BellSouth, Wohl said she expects the two companies will somehow split sales generated by existing BellSouth hosting customers as well as new ones attracted through joint sales efforts.