Through the deal, Big Blue will gain access to a host of new customers, whileTelef?nica will be able to take advantage of IBM's IT management services and e-business applications that companies use to connect businesses to their customers, partners, and suppliers.
Terms of the deal were not disclosed. Analysts said the deal could be worth billons of dollars.
"This represents a mega-billion-dollar deal," said computer industry consultant Sam Albert of Sam Albert Associates in Scarsdale, N.Y. "The long-term consequences of this kind of deal spells further growth for the IBM company globally."
Another industry source familiar with the outlines of the deal said an exact revenue split had not been determined but that the pact has a cash value of several billion dollars to the two parties.
Together, the firms plan to roll out a portfolio of products and services targeting small to large-sized businesses that includes secure financial services, virtual insurance services, and supply chain services, as well as videoconferencing.
IBM will also help Telef?nica develop services for Web selling, EDI/Web EDI, Web-enabled payments, and security and privacy services.
Under the agreement the companies also plan multimedia offerings that will let users create, store, manage, and distribute, voice, data, video, and music over Telef?nica's IP network, which provides national coverage in Spain that the company is extending throughout Latin America.
In addition, the two companies plan to develop new capabilities for mobile telephone customers and expand the use of of Telef?nica's Lotus Notes implementation.
Reuters contributed to this story.