AT&T Inc.T, a leading wireless carrier in the U.S., has entered into an agreement with International Business Machines Corporation IBM to shift its managed application and managed hosting services unit over to IBM. Post-transition, these services will be aligned with IBM’s Cloud service portfolio. Moreover, IBM is also set to take over AT&T’s data centers that currently support the managed application and hosting services. Meanwhile, AT&T will continue to provide its security, mobility and cloud networking services.
Business Services Division – A Growing Market
The business services segment is a growing market for telecom operators. AT&T too, through its collaborations with IBM, has been gaining ground in this segment. Recently, the two companies joined hands to develop mobile cloud security solutions. Revenues from strategic business services grew 12.6% year over year in the third quarter of 2015, representing an annualized revenue stream of $11 billion. We believe AT&T’s extended collaboration with IBM will bring extensive enterprise experience and a rich portfolio of cloud, data and application solutions to its business customers, creating opportunity for future growth.
Other News
In a separate development, AT&T received an approval from the Mexican regulator Comisión Federal de Telecomunicaciones for a spectrum rental deal with Telefonica S.A. (TEF). The deal will help these two companies compete against the local dominant rival – America Movil S.A.B. de C.V. (AMX).
The Bottom Line
With the telecom market maturing and too many operators chasing a handful of customers, the companies are increasingly looking at business services to drive revenues. However, AT&T will face competition in this regard from its peers such as Verizon Communications Inc. VZ and cable multi service operators (MSOs) like Comcast Corp. CMCSA. For now, we can only wait and watch as to whether AT&T’s strategies will help it achieve sustainable growth in the future.
AT&T currently carries a Zacks Rank #2 (Buy).
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