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To: joe who wrote (25963)	12/8/1998 1:48:00 PM
From: Mang Cheng	Read Replies (1) \| Respond to of 45548

ATT buying IBM networks. This should consolidate relationship betw T and coms. *************************************************************** December 8, 1998 AT&T Agrees to Pay $5 Billion To Acquire IBM Network Unit An INTERACTIVE JOURNAL News Roundup AT&T Corp. said it agreed to acquire International Business Machines Corp.'s global network business for $5 billion as part of a complex deal that involves two huge outsourcing agreements. IBM put the network unit up for sale earlier this year as part of an effort to streamline operations. As part of the deal, announced early Tuesday, the companies said IBM will outsource a significant portion of its global networking needs to AT&T, services valued at $5 billion over five years. In turn, AT&T will outsource some applications processing and data center management operations to IBM's services unit in a 10-year pact the companies valued at $4 billion. AT&T said about 5,000 IBM employees will join AT&T as part of the acquisition. In addition, IBM will assume management of AT&T's data processing centers, which operate corporate information systems such as accounts payable and receivable and employee payroll and benefits. Under the agreement, the companies said, more than 2,000 AT&T management employees will be offered positions with IBM. AT&T said the acquisition boosts its strategy to rapidly increase the revenue at its fast-growing networking services unit, AT&T Solutions. It said the deal could represent $2.5 billion in additional revenue to AT&T in the first full year of operation. "These strategic agreements are all about growth," said C. Michael Armstrong, AT&T chairman and chief executive, in a statement. "The acquisition of IBM's global data network will accelerate our ability to deliver [Internet-protocol]-based services to global customers." IBM's well-regarded network unit "will give us a sophisticated new platform for revenue growth," he said. While IBM doesn't break out the network's revenue, industry analysts have estimated it to be about $2 billion, or about 2.5% of IBM's 1997 revenue. Today, the network transmits corporate data for about 30,000 customer facilities in 900 cities across 50 countries, making it one of the world's most widespread networks. While the IBM network is believed to be profitable and has been an integral part of the telecom and data services that IBM has offered corporate customers since 1981, the assets themselves -- equipment such as switches, modems, routers and 1,375 phone connections -- are increasingly a commodity. Yet the network is costly to maintain: IBM typically spends $200 million a year upgrading it, industry executives say. IBM's top brass apparently concluded it wasn't economically worthwhile to keep up with the fast-moving telecommunications industry, especially as voice and data networks converge due to the Internet. IBM said that this transaction, in its entirety, is not expected to have a significant impact on the company's 1999 operational results. AT&T said earnings dilution from the transaction is expected to be insignificant in the first full year of operation and accretive thereafter. The companies expect the deal to close by mid-1999, after regulatory clearance. Mang