AT&T on Tuesday announced its first cloud computing service, a business popular among startups and established firms such as Microsoft, Google, Amazon.com, IBM, and perhaps even Dell, but one that the major U.S. carriers have avoided until now.

The service, called AT&T Synaptic Hosting, is made up primarily of technology AT&T got when it acquired application hosting specialist USinternetworking (USi) for $300 million in September 2006, and AT&T's networking services.

AT&T, the largest carrier in the U.S., will have direct competition early next year when Verizon, the country's second largest carrier, is expected to test and launch a similar service.

“This is a big stretch for both AT&T and Verizon because computing, applications, and operating systems require a much more intense level of customer service than networking, and carriers are generally bad at customer service,” said Mike Eaton, CEO of Cloudworks, a hosted computing service based in Thousand Oaks, California.

Cloud computing, which is also called hosted services, is corporate computing that does not reside at the users' premises. Instead, the computing resources are owned and managed by a service provider, and the businesses access the resources via the Internet.

Customers pay for only the amount of computing resources they need so they can dial up more resources or dial it down based on their business needs. AT&T's first customer Teamusa.org, the official Web site of the U.S. Olympic Committee, is a highly seasonal consumer of computing resources.

Both AT&T and Verizon have managed traditional computing, communications, and storage resources primarily for larger enterprises, but both are making their first foray into cloud computing.

“AT&T and Verizon have recognized that there is now demand for cloud computing and they already have the network and the data centers, so the timing makes sense,” said Sameer Mithal, senior principal at IBB Consulting.

AT&T will use the capacity in its 38 data centers to drive its service but there are questions about AT&T's ability to gear its internal culture to the rapid-response required when customers are unable to access their applications because of an outage or software problem.

“There is a tremendous amount of expertise and cooperation required to offer things like enterprise ERP applications for instance, so I suspect there will be a lot of collaboration with other vendors to seamlessly pull that off,” Mr. Eaton said.

Unlike AT&T which is doing the bulk of its hosted services internally, Verizon is currently negotiating with at least two companies which will act as independent partners to deliver the New York-based carrier's cloud computing services.

“There are hardware and software components of our platform that will be developed and delivered by key partners,” said Chris Gesell, Verizon's global director of IT solutions product marketing. “We have no plans to acquire a cloud computing company.”