Wires

Microsoft, AT&T ink cloud deal worth more than $2 billion

Stephen Nellis and Angela Moon

July 17 (Reuters) - Microsoft Corp and AT&T Inc on Wednesday said they reached a deal under which the telecommunications firm will tap Microsoft's Azure cloud service for its computing needs and provide Office 365 software to much of its 268,000-strong workforce.

Under the deal, Microsoft and AT&T will also work together on so-called edge computing, which will see Microsoft technology deployed alongside AT&T's coming 5G network for applications that need extremely small delays in passing data back and forth, such as air traffic control systems for drones. The multi-year deal is worth more than $2 billion, according to a person familiar with the matter.

The deal is a major customer win for Microsoft, which is fighting to gain market share against Amazon.com Inc's Amazon Web Services, the biggest provider of public cloud services in which customers run their software applications in data centers managed by the cloud provider.

AT&T will continue to operate its own core networking operations for cell phones and other devices. But John Donovan, chief executive of AT&T Communications, told Reuters the deal is a fundamental shift for the telecommunications provider to become "public cloud first," meaning that it will predominately rely on data centers built by others to power the rest of its business.

"This is one of the most far-reaching initiatives we have put together because of it being so comprehensive," he said.

For Microsoft's part, the company will also gain a partner to sell its edge computing services, which will help software developers write programs for situations like factories whose machines are fitted with sensors to collect data or retail stores fitted with sensors and cameras to help keep inventories up to date.

"Our general heritage of being a developer tools company, combined with the network capabilities of AT&T, is unique," Microsoft Chief Executive Sayta Nadella told Reuters.

The deal between Microsoft and AT&T came a day after AT&T said that its AT&T Business Solutions unit will tap International Business Machines Corp to help modernize its software for the cloud and move it back and forth across data centers. IBM Chief Executive Ginni Rometty told the Financial Times that deal is worth "billions" of dollars but an IBM spokesman declined to confirm the remarks to Reuters.

Meanwhile, Microsoft and AT&T said Microsoft will be AT&T's "preferred" cloud vendor. Ed Anderson, an analyst with research firm Gartner, said the deal was a good customer win for Microsoft but that too little is known yet to say how important the 5G and edge computing aspects of the deal will be.

"In addition to (AT&T) being an important customer, you've got two big important technology companies starting to come together to think about what some other possibilities are," Anderson said. "But at this point, it's really kind of left to the imagination to kind of figure out what those possibilities are." (Reporting by Stephen Nellis in San Francisco and Angela Moon in New York; Editing by Cynthia Osterman)