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IBM, Qwest in alliance to build Internet centers

NEW YORK: IBM, the world's largest computer maker, and telecommunications provider Qwest Communications International Inc. Q.N said on Monday they entered into a $5 billion alliance to build and run 28 Internet data centres to house online operations of U.S. businesses.

International Business Machines Corp.'s Global Services division will receive $2.5 billion over seven years to build and provide support for the data centres.

In return, Qwest, which will own the data centres, will receive $2.5 billion from IBM to lease 25 percent of the space in each, making the computer giant an anchor tenant. The $2.5 billion also allows IBM to use Qwest's network.

Data centres are giant warehouses where computer servers and high-speed telecommunications connections create a nerve centre for Web based business operations.

The two companies plan to lease space to businesses who want to run their own online operations, or they could manage Web sites on behalf of businesses, which is called Web hosting in industry jargon.

"This $5 billion is just revenue that we get from each other, it doesn't include the revenue we will each receive from our customers for hosting," said Doug Elix, IBM senior vice president and group executive at IBM Global Services.

The combination creates a powerful force in the nascent market for Web hosting, with the wherewithal to vie for major contracts.

"Our strategic relationship enables next-generation services for customers by bringing together the industry's best information technology and services from IBM with one of the world's best broadband networks," said Lew Wilks, Qwest's president of Internet and Multimedia Markets division.

Analysts said that IBM is already a powerhouse in Web hosting -- its customers for such services already include The New York Stock Exchange and Macy's department stores, but that the deal gives them more visibility in the booming market.

"This raises the profile of both companies in regards to Web hosting," said International Data Corp. analyst Jeanne Schaff. "IBM wanted to become a more visible presence in the Web hosting market, because right now it is buried in its professional services offerings."

"For Qwest, they wanted to build all these data centres, but it is a huge capital investment, which they needed someone to go in with them on," she added.

The alliance was nonexclusive, and IBM said it might eventually look to partner with other telecommunications companies in other regions.

Qwest said last fall it would house computer maker Hewlett-Packard Co.'s own ambitious Web business push in Qwest data centres.-Reuters