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Ameritech, IBM sign

multibillion dollar deal

NEW YORK: International Business Machines Corp.'s services unit -- its fastest growing business in the first quarter -- got another boost Friday with a multibillion deal to manage Ameritech's massive data centre.

The deal, which will span a 10-year period, will be the biggest mainframe data centre IBM has managed, the computer giant said. IBM's Integrated Systems Solutions Corp. will manage the regional bell company's data centre operations.

Analysts estimate that the deal is worth about $3 billion to $4 billion in revenues to IBM over the 10-year period.

"In terms of the outsourcing business, this is huge," said Bill Milton, a Brown Brothers Harriman analyst, referring to IBM's services business. "They really are being aggressive here...They are building up a huge business."

Under the agreement, the IBM unit will manage Ameritech's data centre operations and ongoing consolidation efforts. In addition, it will provide help desk services for the data centre and implement a comprehensive disaster recovery system.

Last December, Ameritech and IBM announced an alliance to provide business customers a single source for voice, data and video needs, in a $400 million deal over seven years.

Big companies such as Ameritech, would hire a company like IBM to manage their data centres to save the cost of doing it themselves, because a computer giant with IBM's resources can manage a data centre more efficiently.

The deal with Ameritech will involve consolidating the company's data centre operations into fewer locations, something that Ameritech already had in the works.

An Ameritech spokesman said there will be two groups of its own employees affected by the deal with IBM. Approximately 106 jobs will be lost or eliminated because of the data centre consolidation, but a spokesman said that these employees will be offered other jobs at Ameritech, or they will be offered jobs at other locations. Some data centres will be closed.

Ameritech said that 550 Ameritech managers will be offered jobs at the IBM unit in the five states where Ameritech provides local phone, data and video services -- Illinois, Indiana, Michigan, Ohio and Wisconsin.

Ameritech said that with IBM managing its hardware and programmes, it can concentrate on software development.

Gary Helmig, a SoundView Financial analyst, estimates that IBM will be managing approximately 20 mainframes at four to five of Ameritech's data centres.

"With Lucent and Ameritech, IBM is pretty well positioned to be in the 25 to 30 percent revenue growth range this year for ISSC," Helmig said, referring to another services pact that IBM announced in March. He said the Ameritech deal could add about $250 million a year to ISSC's growing revenues.

In the first quarter, many analysts called IBM's services business the bright spot in a decent quarter, but one that was fraught with big pressures on pricing.

In the first quarter, IBM's services revenues climbed 31 percent to $3.2 billion, a much higher growth rate than the rest of the company. IBM's total first quarter revenues were up five percent, to $16.6 billion in the quarter.

Sam Albert, a Scarsdale, N.Y.-based consultant, said that the deal could represent a the beginning of a pattern in the telecommunications industry, and with the recent spate of mergers between the Baby Bells, more deals could follow as those companies consolidate their duplicate data centres.

"If Nynex and Bell Atlantic were to decide to outsource some of their data centre operations, that would be the next plumb," Albert said, referring to two RBOCs who decided to merge earlier this week. "This could be the prelude of further deals to come."-Reuter