FOCUS CLOUD SPECIAL
Issue 19, January 2012
TELECOM CLOUD FORMATIONS
Yevgeniy Sverdlik discovers that the telco/cloud computing consolidation frenzy is teaching companies how important it is for buyers not to hurt the innovation that created the successful cloud players they bought
has had a transformative effect on both the telecommunications industry, and hosting and cloud service providers throughout 2011. The transformation occurred as telcos went on a spree, buying up providers of data center services. The year’s mergers ranged in size and geographies: Verizon/Terremark, CenturyLink/ Savvis and Windstream/Paetec in the US, and Telefonica/Acens in Spain, for example. But they all had a unifying feature: the Cloud.
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Verizon said its purchase of Terremark would boost its cloud strategy, and CenturyLink said absorption of Savvis would make it a global colocation and hosting player, as well as “accelerate” its cloud capabilities. Windstream bought Paetec about three months after the latter company launched a cloud portfolio and an infrastructure expansion program. Telefonica cited Acens’ pioneering role in developing cloud solutions as one of the reasons it bought the Spanish provider in June.
For telcos, such deals are either a way to buy into the Cloud market or to add features to existing portfolios of cloud
according to Kelly Morgan, senior analyst at Tier1 Research.
“Some of the telcos are belatedly realizing that their customers are putting more and more of their workload into the Cloud – requiring network connectivity and outsourcing their data center [or] hosting needs,” Morgan says. “Having their own hosting [and] cloud fi rms allows telcos to get in on the action and keep more of the traffi c on their own network.”
Cloud is also an opportunity for telcos to compensate for falling revenues from traditional voice services, Morgan explains, while leveraging assets they already own. “They are also looking for ways to take advantage of their network and other assets,” Morgan says. “Originally, telcos had data center space to store their equipment, so they often know what’s involved in running a data center.”
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www.datacenterdynamics.com
he combination of fast growth in the Cloud-based services space and diminishing revenues from traditional voice services
MUTUALLY BENEFICIAL services,
Data center and cloud services capabilities give large telcos a way to offer comprehensive packaged solutions to businesses. Such a package may, for example, include traditional phone and internet services, as well as email and web hosting.
One of the biggest and most high-profi le examples of the consolidation trend has to be Verizon’s acquisition of Terremark — a US$1.4bn deal that closed in April. Less than three months after the merger’s completion, Verizon announced an “expanded and enhanced” portfolio of solutions it chose to sell under the Terremark brand. The portfolio includes IT infrastructure, cloud, security and related professional services. The infrastructure services include everything from colocation to managed hosting and enterprise cloud, enabled by Terremark’s platform.
The Terremark deal created a market
behemoth overnight out of a company whose presence was already a dominant one. It expanded its infrastructure to 50 data centers around the world, a global network and access to big expansion capital.
This is exactly why many data center and cloud companies have been selling to telcos instead of playing independently and growing organically, Morgan says.
“Hosting/data center fi rms require a lot of capital, especially data center fi rms, but also hosting companies when they get big enough to require lots of servers,” she says.
In addition to resources and network
connectivity, telcos make the argument that they also provide data center companies with access to larger customer pools. Morgan says one reason for this is it makes selling to a telco more attractive than selling to a private equity fi rm.
Savvis benefi ts from having been bought by CenturyLink in a very similar way that Terremark benefi ts from the Verizon acquisition. This US$2.5bn deal closed in July and, similar to the Verizon/Terremark merger, it brought its data center footprint to 50 facilities in North America, Europe and Asia. Savvis CTO Bryan Doerr says total gross fl oor space in these data centers exceeds 2m sq ft.
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