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IBM, Vodafone Strike $550M Cloud Deal

Iain Morris
1/17/2019
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IBM and Vodafone have struck a strategic business partnership to provide European enterprises with access to a growing range of cloud and network services.

At the heart of the relationship is a $550 million, eight-year outsourcing deal that, according to IBM, sees Vodafone hand over the management and development of its cloud and hosting business to the cloud and technology services and products giant.

The deal between one of the world's largest network operators and one of the leading cloud platform companies will allow Vodafone Business customers in Europe to take advantage of IBM's cloud capabilities, as well as Vodafone's fixed and wireless network reach, at a critical time in the market -- with the growing reliance of business users on multicloud strategies and the emergence of new 5G and software-based networks, and as artificial intelligence (AI) continues to advance.

The two companies, which are business partners already, said their tie-up would address growing complexity for many customers: They reckon more than 70% of organizations today are using up to 15 different clouds, making data security and interconnection between different cloud providers critical issues.

The deal is anchored on the outsourcing agreement: Vodafone, in turn, would gain access to IBM's cloud assets and capabilities. "We gain access to IBM's cloud footprint where our customers need it," said a Vodafone spokesperson.

But the tie-up also points to the convergence between network and IT services that is happening with the arrival of new technologies. In forthcoming "edge" networks, IT and data processing equipment could be deployed much closer to end-user premises, instead of in central data facilities, creating new service opportunities.

IBM Corp. (NYSE: IBM) and Vodafone Group plc (NYSE: VOD) give the example of an oil rig that would previously have lacked connectivity and used a confusing array of IT systems. Thanks to the new joint venture, that rig would be able to run AI and augmented reality applications from IBM over an edge network provided by Vodafone. This could mean pinpointing and resolving problems in minutes rather than hours, the companies say.

"Vodafone has successfully established its cloud business to help our customers succeed in a digital world," said Vodafone CEO Nick Read in a statement. "This strategic venture with IBM allows us to focus on our strengths in fixed and mobile technologies, whilst leveraging IBM's expertise in multi-cloud, AI and services."

"Through this new venture we'll accelerate our growth and deepen engagement with our customers while driving radical simplification and efficiency in our business," added Read.

While the companies are referring to their business relationship as a joint venture, they made clear during a short webinar on the tie-up that they have not created a separate legal entity.

The details of any revenue-sharing deal between the companies have also not been made explicit: Vodafone declined to comment on this matter.

Nevertheless, the tie-up could provide a helpful boost for both companies. In the six months to the end of September, Vodafone Business accounted for nearly 30% of the €19.7 billion ($22.5 billion) that Vodafone Group made in service revenues, but its sales inched up just 1% on the year-earlier period and there was a small decline on the mobile side. (See Vodafone Weighs Towers Sale, Swings to Net Loss for H1.)


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IBM, meanwhile, has been struggling with the transition to cloud computing. Although its cloud revenues were up 20% in its recent third quarter, to about $19 billion, the overall cloud market has been growing at a year-on-year rate of about 50%, according to Synergy Research, which says that Microsoft Corp. (Nasdaq: MSFT), Google (Nasdaq: GOOG) and China's Alibaba Group "far surpassed" the total market. (See IBM Is Losing the Cloud Race.)

IBM's cognitive solutions division, which includes its Watson AI technology, also had a disappointing third quarter, with revenues down 6%, to $4.1 billion.

IBM already does business with major telcos including AT&T Inc. (NYSE: T), BT Group plc (NYSE: BT; London: BTA), Telefónica and Verizon Communications Inc. (NYSE: VZ), but the deal with Vodafone seems to go a lot further: The joint venture will combine capabilities from the two separate firms "under one roof," it said in a statement, and be designed "to act like a start-up." It is intended to be operational in the first half of 2019.

The move comes in the week that IBM struck a mainframes deal with T-Systems, the IT part of Germany's Deutsche Telekom AG (NYSE: DT). Following reports that T-Systems International GmbH would sell its entire mainframes business to IBM for €860 million ($981 million), a Deutsche Telekom spokesperson said IBM would merely provide a "share" of its mainframes services under a new partnership.

IBM is also closing in on a $34 billion takeover of Red Hat, a cloud company that develops products based on open-source technology. On Wednesday, some 99.5% of Red Hat Inc. (NYSE: RHT) shareholders voted to approve the deal. (See Red Hat Shareholders Greenlight $34B IBM Acquisition.)

Company representatives said that open source technologies would figure prominently in the joint venture. "We believe in open choices and flexibility for customers and you've seen with the Red Hat acquisition that we are committed to open," said an IBM spokesperson.

— Iain Morris, International Editor, Light Reading

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