AT&T partnerships with both Microsoft & IBM – what’s up with that?

By Bill Moran

AT&T has announced major deals with IBM and Microsoft involving collaboration and built on using the respective partner’s clouds. These being Microsoft’s Azure cloud and IBM’s cloud with the popular Red Hat OpenShift platform. The current deal follows last year’s deal when AT&T purchased IBM’s Global Networking business for $5 billion. At first glance, this decision seems confused. Why two separate deals? Why not stick with a single partner? 

A little analysis reveals that AT&T may have made very good decisions. Before discussing this, know that the contract details are confidential. We have no privileged information. Therefore, we indulge in speculation mixed with historical knowledge and known facts. Therefore, some obvious questions must remain unanswered. 

Let’s look at the Microsoft deal first. The contract between AT&T Communications and Microsoft has AT&T switching most of its desktop users to Office 365 and Windows 10. With 260K+ employees (Q1 2018 AT&T), this is a massive project. 

By contrast, the IBM deal with AT&T Communications involves business applications. We suspect that many of these are Linux-based. There are references to the Red Hat platform as well as mentions to AT&T’s commitment to open source in general. We think that IBM’s experience with hybrid cloud in the data center is equally important to AT&T. 

Both Microsoft and IBM are talking about collaboration with AT&T around the arrival of 5G technology. Technology which is will significantly affect all three. Also, they all anticipate AI in various forms playing a role in that future. Finally, IBM will be including AT&T networking as a standard part of its offerings.

Now we begin speculating. First, we examine the potential benefits to each company. We assume that each of the companies has done its homework to convince themselves the deal will be profitable. Note that, historically such calculations are not always correct. Only time will reveal whether these expectations are met. With no details available about AT&T’s licensing costs for  Office 365, we must assume Microsoft is satisfied they will profit there.

Taking a closer look at AT&T.  In addition to any economic benefits, AT&T is clearly expecting help from its partners in solving important business & technical issues. Such help allows AT&T to focus its telecoms skilled resources on preparing for the challenges associated with 5G introduction. Without these deals AT&T would need to dedicate significant technical skills to IT data center tasks as well as desktop and data center cloud migrations. 

No details have been provided on how and what form IBM & Microsoft contributions to these projects will take. Will they staff projects, or just provide project management? Another more speculative benefit for AT&T results from the potential for collaboration with Microsoft & IBM on applying AI that results in competitive advantages.

Turning to IBM and Microsoft, both will benefit by growing the usage of their respective clouds. Microsoft is currently #2 in cloud suppliers (AWS is #1). The deal with AT&T could provide an important boost in enterprise acceptance and cloud market share. 

Any 5G experience gained by working with AT&T could yield expanded and improved service offerings by IBM and Microsoft. Both companies could benefit working with AT&T to speed innovation as they cooperate to leverage new AI applications. IBM can also point to this deal as additional justification for their ($34B) acquisition of Red Hat. 

AT&T benefits from its association with two highly competitive, technologically sophisticated partners eager to grow market share. The downside is that cooperative efforts get bogged down in details of cooperation vs. competition. 

These deals certainly have the potential of significantly benefiting all players. Things look and sound promising, more details are needed to assess the reality. We’ll be following closely to see and comment on progress.