AT&T and IBM’s Strategic Outsourcing Partnership Is Becoming an Industry Success!

| May 19, 2009 | Business Telecom Services - Europe | Competitive Intelligence Report

| Analyst: Dustin Kehoe

Current Perspective: Very Positive
Vendor Importance: High
Market Impact: High

Event Summary

May 19, 2009 –- AT&T and IBM have provided an update to their strategic partnership. AT&T has completed the takeover of some 4,000 former IBM employees in 48 countries and have transferred over 500 corporate accounts globally. The two companies are offering a complementary portfolio, partner ecosystems, corporate governance and developing standard customer-facing tools for integrated service management.

Analytical Summary

• Current Perspective: Very positive on the strategic partnership forged between AT&T and IBM as it is helping both companies drive more value for their respective customers combining intelligent network solutions with a range of strategic IT solutions to help clients run, optimize and manage their IT infrastructure. Unlike many ad-hoc agreements, this partnership is global in scale and supports over 500 accounts. It is also supported by new investment in customer tools for integrated service management.

• Vendor Importance: High to AT&T and IBM as the two companies need to demonstrate that the partnership is working and underpinned by a strong governance model. The two powerhouses need to be able to demonstrate their combined expertise in networking and IT services with the management of a vendor ecosystem to drive more value to IBM customers, especially on their journey to managed services and transformational outsourcing.

• Market Impact: High on the global networking and IT services market because AT&T is filling its global investments in infrastructure and services with many new accounts through its relationship with IBM. Meanwhile IBM is able to leverage synergies of its preferred AT&T partnership through economies of scale. The fact that the two heavyweights have over 500 global accounts under management, established go-to-market procedures, corporate governance and are building new e-bonding capabilities highlights the immaturity of the ad-hoc partnerships which are dominant in the industry today. In the longer-term, meaningful partnerships will force carriers and IT service providers (ITSPs) to work more closely together whether they want to or not.

Recommended Competitor Actions

• While it is early days, ad-hoc partnerships will be more vulnerable against the more mature and established alliances, such as AT&T/IBM and BT/HP. The more these new partnerships can show their ability to work together and produce solid customer benefits (e.g., getting more value from partners, or improving TCO/ROI metrics, developing E-bonding), there will be more stand-alone carriers and integrators may be forced to respond.

• Incumbent operators that have acquired large IT service providers (e.g., KPN/Getronics, Belgacom/Telindus, and DT/T-Systems) should take aim at these types of partnerships by highlighting their own capabilities both as leading network operators and integrators within their own core markets. This is usually carried out by having an integrated sales force with understanding of IT and telecom requirements, helping customers achieve better TCO/ROI through a combined contract, SLA and billing.

• Competitors can highlight that AT&T and IBM still have a lot of work to do in terms of integration. For one thing, they can take aim at the fact that while it is transferring customers on the front end, it has a lot of work to do with providing a fully integrated back-end portal giving customers the ability to launch trouble tickets, billing details across IBM and AT&T platforms in a seamless matter.

Recommended End User / Customer Actions

• While AT&T has a very strong global MPLS network with coverage in over 150 countries, IBM offers extensive resources such as 90,000 application delivery professionals in 50 countries and 200,000 delivery professionals in 160 countries. IBM also lays claim to managing over 2.5 million desktops. Its partner ecosystem consists of over 500 system providers, 1,300 software providers and 300 network equipment providers which far surpass AT&T.

• Customers should be aware that AT&T and IBM have focused a lot of their resources on supporting customers’ journey toward outsourcing and transformational services. Independent of the IBM agreement, the company was awarded $1 billion contract with Shell to support its network transformation and global managed mobility services. While AT&T and IBM have a complementary portfolio and provide different pieces, there tends to be a lot of alignment in terms of their overall vision and this has not always been the case.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommeneded Vendor Actions

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