Thursday, November 5, 2015

Telco Data Center Strategies Diverge

One example of the growing variety of business strategies embraced by tier-one telcos is the matter of data center “colocation” assets. 

One argument, and one strategy, is that ownership of such facilities creates an access and transport opportunity for the carriers, irrespective of direct revenues earned by supplying real estate and services.

The other argument is that transport and access revenue can be earned without the necessity of owning data centers.

And growing pressure on operating margins can tip the balance, even if data center ownership is generally thought to be a positive. That appears to the case for Cincinnati Bell, which is selling ownership shares of its CyrusOne data center business, raising cash to reduce debt.

CenturyLink appears to be thinking along the same lines regarding its own colocation business. CenturyLink appeared to believe colocation center hosting would provide a boost several years ago when it bought Savvis.

While it plans to continue offering colocation services, CenturyLink says it is looking for alternatives to owning nearly 60 data centers around the world that support colocation, managed hosting, and cloud services.

As in the case of Cincinnati Bell, CenturyLink might now be more concerned about debt reduction than revenue upside from owning the data center business.

CenturyLink business segment revenues might be “driven principally by increased market penetration of our network, hosting, cloud, and IT solution service offerings,” as CEO Glen Post said.

But capital might be better deployed elsewhere, CenturyLink suggests. “We expect colocation services will continue to be a service our customers will look for us for, but we do not necessarily believe we have to own the data center assets to be effective in delivery of those services,” said Post.

CenturyLink’s revenue for the cloud and hosting  business is about $600 million annually, and the company says it seeks to sell or otherwise restructure the data center operations, not the cloud and hosting businesses that use data center real estate.

In fact, most of CenturyLink’s cloud and hosting operations are run out of leased data center space, at the moment.

And CenturyLink executives are not willing to commit the new capital they estimate is required to grow the business. They also believe cash generated by an asset sale would earn a higher return in other lines of business.

Windstream is selling its data center business as well. As often is the case, it appears specialists are better positioned in the data center and colocation business than some telcos might be.

On the other hand, other telcos seem to believe they must take a bigger position in data center business. Reliance Communications is among those firms increasing investment in the data center business.

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