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Alibaba in talks with BT for cloud partnership in Europe push

(Bloomberg) -- Alibaba Group Holding Ltd. is in talks with BT Group Plc about a cloud services partnership as the Chinese internet giant challenges Amazon.com Inc.’s dominance in Europe.

An agreement between Alibaba and the IT consulting unit of Britain’s former phone monopoly could be similar to Alibaba’s existing arrangement with Vodafone Group Plc in Germany, according to a person familiar with the matter, who asked not to be identified as the talks are private.

A BT spokeswoman confirmed by email that the U.K. telecom company is in talks with Alibaba Cloud and declined to give details. A spokesman for Alibaba declined to comment.

Started in 2009, Alibaba Cloud has expanded fast beyond China in a direct challenge to Amazon Web Services, the e-commerce giant’s division that dominates cloud computing. Alibaba Cloud is now the fourth-biggest global provider of cloud infrastructure and related services, behind Amazon, Microsoft Corp. and Alphabet Inc.’s Google, according to a report last month by Synergy Research Group.

Europe has become key to Alibaba Cloud’s success outside China, with prospects in the U.S. made murky by President Donald Trump’s America First agenda. Alibaba has pulled back in the U.S. just as tensions between America and China have escalated under Trump.

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Trainee engineers from BT Openreach, a unit of BT Group Plc, carry out work at the top of telegraph poles at the company's training facility at West Hanningfield, U.K., on Thursday, Jan. 19, 2017. The U.K.'s communications regulator, seeking to spur a roll-out of fiber broadband to homes and businesses, is proposing changes to BT Group Plc's network to ease access for competitors. Photographer: Chris Ratcliffe/Bloomberg

Alibaba started the German partnership with Vodafone in 2016. The Hangzhou, China-based company put its first European data center in Frankfurt, allowing Vodafone to resell Alibaba Cloud services such as data storage and analytics. Last week, Alibaba Cloud moved into France, agreeing to work with transport and communications company Bollore SA in cloud computing, big data and artificial intelligence.

Telecom Dilemma

BT’s talks with Alibaba underscore a dilemma for the telecom industry. As big tech companies and consulting firms muscle in on their business installing and maintaining IT networks for large corporations, they must choose whether to resist them, or accept their help and decide which to ally with.

BT Global Services has struck up partnerships with Amazon, Microsoft and Cisco Systems Inc., while Spain’s Telefonica SA works with Amazon. In Germany, while Deutsche Telekom AG’s T-Systems has partners including China’s Huawei Technologies Co. and Cisco, it has structured its public cloud offering as an alternative to U.S. giants Amazon and Google -- touting its ability to keep data within Germany where there are strict data-protection laws, 100 percent out of reach of U.S. authorities.

A deal with Alibaba could bolster BT’s cloud computing and big data skills as clients shift more of their IT capacity offsite to cut costs.

BT is undertaking a digital overhaul of its Global Services business in a restructuring involving thousands of job cuts after revenue at the division fell 9 percent last year. The poor performance of Global Services and the ouster last month of BT Chief Executive Officer Gavin Patterson have fueled speculation among some analysts that BT may sell the division. Still, the unit is seen by some investors as critical for BT’s relationships with multinational clients.

U.K. security agencies may scrutinize any partnership between the Chinese company and the chief custodian of Britain’s communications infrastructure. Alibaba’s 2016 Vodafone deal required a compliance certificate from Germany’s office for information security.