Aug. 5 (Bloomberg) -- AT&T Inc., the biggest U.S. phone company, will offer corporate customers a service that delivers computer programs over the Internet.

The so-called cloud-computing project allows businesses to run applications for managing Web sites and other tasks from five of AT&T's computing centers, the Dallas-based company said today in a statement. Clients don't have to store programs on their own servers, so they only pay for the computer time they use.

AT&T is offering more technology services as corporate customers shut off phone lines in favor of Internet-based voice services. The new computing offerings pit AT&T against technology companies such as International Business Machines Corp.

AT&T will go after customers that experience occasional surges in demand for computing power, such as online retailers around a holiday, Jim Paterson, the company's vice president of product development, said yesterday in an interview.

While AT&T's large business sales fell 1 percent last quarter to $4.7 billion, revenue from data services grew 18 percent. AT&T had 22.4 million business phone lines last quarter, a 3.1 percent drop from a year earlier.

AT&T gained 88 cents to $31.05 at 4 p.m. in New York Stock Exchange composite trading. The shares have dropped 25 percent this year.

Cloud computing refers to the delivery of software through amorphous networks, rather than from a computer's hard drive.

Billion-Dollar Plan

AT&T's five cloud-computing centers are part of a plan to spend $1 billion this year on network improvements. Additional centers may be added later, AT&T said. The company is using technology it acquired from the $300 million purchase of USinternetworking Inc. in 2006.

IBM, based in Armonk, New York, is spending about $400 million on computing facilities to deliver programs over the Internet, Willy Chiu, the company's cloud-computing strategist, said last week in an interview.

Hewlett-Packard Co., Intel Corp. and Yahoo! Inc. announced a cloud-computing partnership with researchers last week. The cloud-computing market may reach $160 billion by 2011, including revenue from advertising, according to a May report by Merrill Lynch & Co.

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net

Last Updated: August 5, 2008 16:06 EDT