Telecom Data Center Divestment Marks a Shift in Cloud Strategy
In a continuing trend in the telecommunications industry, Verizon and CenturyLink recently joined other companies in selling their telecom data center assets, Telecompetitor reports. CenturyLink sold off its portfolio of 57 data centers to investment funds advised by BC Partners in a consortium that includes Medina Capital Advisors and Longview Asset Management, while Verizon sold off 29 data centers to Equinix. Cincinnati Bell, Windstream and AT&T are among the other telecom service providers that are also shedding data center assets.
While this transition may seem to mark a move away from offering cloud services, Dean Douglas, president of sales and marketing for CenturyLink, told Fierce Telecom that “it’s important to understand that we’re still in the cloud business.”
In fact, almost all sales have included a provision for the telecom’s continued involvement with the data centers they sold. CenturyLink will maintain a 10 percent equity stake in the consortium, and Verizon will exclusively resell colocation and interconnection services through Equinix.
So, what’s fueling the divestment, and what does it mean for businesses?
Although once viewed as an avenue to increase revenue, data centers are expensive to operate and require significant capital investment. With telecom executives under increasing pressure to cut costs, the energy, hardware, software and infrastructure expenses required to maintain data centers may prove to be too great.
In fact, CenturyLink noted over a year ago in Data Center Knowledge that it was no longer willing to invest the necessary capital to continue expanding its data center ownership. CEO Glenn Post said the company was choosing to focus on “investments that can drive higher returns.”
The selling of telecom data centers isn’t just about profit margins. Reducing complexity and freeing up cash allows telecoms to adjust their business strategy and to find more profitable revenue streams. For instance, according to Fierce Telecom, CenturyLink plans to use the $1.86 billion from its data center sale to fund its acquisition of Level 3 Communications.
“It’s part of our focus on trying to get further into the IT world,” Douglas told the source.
Most large telecom operators, including Orange, AT&T, Telefonica and Verizon have all made investments to upgrade their networks so they can handle sophisticated applications such as machine-to-machine communications, telematic systems and networking for IoT, according to PwC.
In the end, businesses will see little if any disruption from telecom data centers’ ownership changing hands, still have access to cloud services and benefit from telecoms investing in and expanding their services.