IBM and Qwest Unveil $5 Billion Web Hosting Deal
By Cindy Christ

Computer giant IBM and Qwest Communications announced a partnership Monday to build 28 new Internet data centers in a bid to gain a bigger share of the booming Web hosting market.

Data centers are huge warehouses holding computers and telecommunications equipment that run Internet and corporate intranet sites.

Denver-based Qwest already operates data centers for Hewlett -Packard (HWP) and other businesses through existing data centers hooked up to its advanced, fiber-optic telecommunications network.

The companies said the seven-year agreement would generate $5 billion in revenues from dot-com companies, Fortune 100 firms migrating their old-line businesses to the Web, electronic marketplace operators, and application service providers.

IBM and Qwest will split the revenues evenly, with each receiving $2.5 billion, the companies said.

In an interview with Reuters, an IBM executive said the $5 billion excludes any additional revenues from fees for hosting customers' Web sites.

Web hosting businesses collect fees from companies for leasing space on computer equipment, or for running their entire Internet operations. According to Frost & Sullivan, the U.S. Web hosting market will be worth more than $35 billion by 2005.

"At the new centers, Qwest and IBM plan to deliver the widest spectrum of e-business services ever to be offered under one roof," the companies said in a statement.

The soup-to-nuts concept includes everything from leasing space for Web sites and managing online operations to providing high-speed Web access and long-distance services.

Under the deal, IBM Global Services will build and support the new Qwest "CyberCenters" over the next three years. The first four will be up and running by the end of this year in Dallas, Philadelphia, Sterling, Va., and metropolitan San Jose, Calif.

Other centers are planned for Atlanta, Austin, Boston, Chicago, Denver, Los Angeles, Washington, DC, New York, Phoenix, Silicon Valley and Seattle.

IBM will purchase at least 25 percent of the hosting space to support customers' Web sites, becoming the anchor tenant in the 100,000-square-foot centers, which will operate on Qwest's high-speed, broadband network.

The agreement allows IBM to increase its service offerings to current customers, which include the New York Stock Exchange and Macy's department stores, through its more than 40,000 servers in 133 data centers worldwide.

Market analysts predict that every traditional business will eventually have an Internet presence, a trend driving a huge market opportunity for companies with the expertise and capital to develop the massive infrastructure needed to support demand.

By the end of 2000, Qwest plans to have 14 U.S. data centers in operation. With the planned IBM-operated centers, Qwest expects to operate a total of 42 data hosting centers in the U.S. and Canada.

"We can't build our data hosting centers fast enough to keep up with customer demand," said Lew Wilks, Qwest president of Internet and Multimedia Markets, in an interview with CNBC financial television.

Somers, N.Y.-based IBM said it might eventually look to partner with other telecommunications companies to set up data centers in other regions, according to Reuters.

Investors welcomed news of the alliance. Shares in IBM (IBM) closed up $6.25, or 5.2 percent, at $126.88. Qwest (Q) jumped $4.50, or 9.7 percent, to $51.

On Monday, Morgan Stanley Dean Witter upgraded shares of Big Blue to "outperform" from "neutral."

AG Edwards boosted its investment outlook on Qwest shares to "accumulate" from "maintain."