AT&T is buying IBM's corporate computer networking business for $5bn, winning a hotly contested auction involving rival bidders such as Cable & Wireless and British Telecom.
The move gives AT&T, which earlier this year agreed a $10bn international joint venture with British Telecom, access to the world's largest computer networking business, providing internal networks and external Internet connections to about 35,000 customers in 100 countries around the world.
As part of the deal, IBM will outsource a large part of its own networking requirements to AT&T in a five-year contract valued at $5bn. Meanwhile, AT&T has transferred some of its billing and installation operations to IBM in a $4bn, 10-year agreement.
Under the terms of the deal, more than 2,000 AT&T employees will move to IBM while around 5,000 IBM employees will join the telecom group.
The deal, which is subject to regulatory approval, will allow IBM to concentrate on providing computer hardware, software and services.
The computer giant originally started the networking business in 1981 when most telecom operators only offered national services.