DCD: Shift in the data centre facility market?

ATN-300InsightaaS: The December issue of DatacenterDynamics Magazine contains an intriguing article on the simultaneous interest from several telcos in selling off data centre facilities. The article highlights AT&T’s intention to sell $2 billion worth of data centres, Tata Communications’ sale of 44 facilities in India, Windstream Communications sales of its data centres, and current plans by CenturyLink (and rumoured interest from Verizon) in following suit.

The telcos are not planning to exit the data centre services market – author Michael Kassner notes that the sellers want to maintain positions as providers of managed ICT and cloud services. But they no longer want to own data centre facility assets. There is no single reason for the sales – Kassner quotes speculation that AT&T and Verison are selling assets to reduce debt resulting from the recent AWS-3 spectrum auction, while CenturyLink’s CEO is quoted as saying that data centre “valuations are obviously good right now” and that “our cashflow could be used for investments that can drive higher returns and better shareholder value.” But there is a sense in the article that the telcos are weary of the high operational costs associated with data centre facility ownership, and that their colo-centric models are stressed by cloud-centric competitors. 

For the most part, the situations highlighted in the article are US-centric (for example, of the firms mentioned, only CenturyLink has a meaningful footprint in Canada, and only Tata is headquartered outside of North America). But the issues faced by the telcos apply globally. The acumen and skills required to successfully develop data centre facilities is different from the capabilities needed to provide managed services. It seems likely that specialist firms will cast an increasingly-long shadow in each area, and will view each other as customers/suppliers rather than integrated competitors. It remains to be seen how many of the telcos will succeed as managed/cloud service providers, but the path to viability as a supplier of hybrid ICT is likely clearer for these firms than a more complex alignment stretching from power and cooling management to maximizing the value of new wireless spectrum.

Isn’t it a bit curious that major telecom service providers, which only a few years ago invested heavily in data center holdings, are now signaling their desire to sell those very same assets?

During the course of 2015, we have heard a series of leaks and announcements that add up to a picture of telecoms firms reconsidering whether it makes sense for them to own data centers (see box). In February, we heard that AT&T is selling some $2bn worth of data centers, and in July we heard that Tata Communications is selling 44 facilities in India. More recently, in October, Windstream Communications sold its data centers to TierPoint. In November, CenturyLink announced it is considering a sale, and Verizon denied rumors that it is doing the same.

Common factors

The announcements had several interesting common factors. A majority of the businesses divesting data center assets are telecom service providers. By contrast, of the companies buying or expressing interest in the assets very few, if any, are telecom service providers. The companies selling data centers still want to be a part of the industry, providing data center services through third parties, offering both managed ICT and cloud services. Windstream Communications, for example, obtained the right to lease back the assets it just sold.

It’s also interesting to note that the telcos are investing in networks while selling off data centers…

Read the entire article: http://www.datacenterdynamics.com/design-strategy/everything-must-go/95262.fullarticle 


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