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Summary

AT&T has been a major buyer of IT services this year, contracting with IBM and Tech Mahindra as key technology partners in its operational transformation to become a cloud-based services provider.

US telco hits the cloud trail

AT&T has been contracting with major IT vendors to migrate its operations to the cloud. Of the several contracts awarded by AT&T, two major deals were signed which are in line with its strategy of technology-led transformation across all operations.

  • In September, the US operator signed up Tech Mahindra (TechMH) to modernize AT&T's IT network and shared systems, and migrate them to the cloud. According to TechMH, this contract was among its biggest deals over the last few years. We have estimated the latest deal at $600m, making the overall relationship worth $1bn, per reporting in the Economic Times of India. With this extended deal, AT&T can have the most advanced software-defined 5G network and move most of its non-network applications to the public cloud. AT&T and TechMH will integrate several technologies and platforms in areas like AI, DevOps, data analytics, and 5G. It will also help the US operator drive sustainable operational improvements across the network. From TechMH's point of view, the deal is big enough to boost its margins over two quarters.

  • Ahead of the TechMH deal, AT&T had entered into a contract with IBM (July 2019) for modernizing AT&T Business Solutions' internal software applications, enabling migrations to the IBM Cloud. This deal between IBM and AT&T consolidates a 20-year partnership, and was signed around the same time that IBM closed the acquisition of Linux software distributor Red Hat. That acquisition made IBM a top hybrid cloud provider in an emerging growth market. Under the telco solutions deal, IBM will provide infrastructure to support AT&T Business's applications, and AT&T Business will utilize Red Hat's open source platform to manage workloads and applications. We have estimated the total contract value at $2bn over five years. IBM will be the primary developer and cloud provider for AT&T Business's operational applications and will help manage the AT&T Communications IT infrastructure, on and off-premises and across different clouds – private and public.

These deals highlight the mutual reliance between telcos and IT systems suppliers and integrators in developing advanced digital services, but without submitting to full services partnerships. While TechMH may deploy new technologies like AI in process improvement for AT&T, it is not clear how much applications development it will be doing on behalf of the telco. Similarly, AT&T will have access to IBM cloud technology, but IBM is keeping the keys to that software bank. As services develop out of these technology exchanges, we may see more co-development in edge computing and potentially in managed IoT/5G offers to enterprise.

Appendix

Further reading

IT Services Contracts Analytics, www.ovumkc.com

"IBM readies itself for growth in Asia-Pacific with completion of Red Hat acquisition, and rethink of client approach," ENS002-000091 (September 2019)

Author

Anushree Agarwal, Analyst, Ovum Telecom

anushree.agarwal.SGA@ovum.com

David Molony, Principal Analyst, Enterprise Services

david.molony@ovum.com

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