AT&T Inc has agreed to partner with Akamai Technologies Inc instead of competing with it on content delivery network (CDN) services, which deliver content faster by avoiding Internet congestion, sending Akamai's shares up 10 percent.
As part of their agreement, AT&T (Dallas, USA) will transfer its existing CDN operations, customers and services to Akamai's platform in 2013, the company said on Thursday.
Janney Montgomery Scott analyst Richard Fetyko said that the agreement was important for Akamai (Cambridge, USA) as it effectively eliminates AT&T as a rival and potentially brings Akamai new business.
"It's an admission by one of the largest telcos that the CDN business is not an easy business to manage," said Fetyko who noted that investors had been concerned about the prospect of competition from big operators like AT&T.
"It shows investors that telcos are not likely to be competing with Akamai any time soon," he said, adding that Level 3 Communications (Broomfield, USA) was now the only telephone company in this market.
Shares in Akamai rival Limelight Networks Inc (Tempe, USA) fell 2 percent after the news because of AT&T's choice of Akamai.
AT&T and Akamai said they will initially focus on North America and planned to expand globally within 12 months. They will connect Akamai CDN services to AT&T's network and share resources such as technical support and marketing.
Akamai shares were up $3.56 or 10 percent at $39.06 in morning trade on Nasdaq. AT&T shares were down 11 cents at $33.80 on the New York Stock Exchange. Limelight shares were down 4 cents at $2.03 on Nasdaq.
(Reporting By Sinead Carew; Editing by Maureen Bavdek and Theodore d'Afflisio)