It is an interesting time for companies that choose to house their IT infrastructure in data centers owned and operated by large telecommunications (telco) providers. Over the last decade, many telcos have made material investments in their data center offerings, sensing an opportunity to leverage their assets to grab another layer of business from customers. Over time, this investment has proven to be a case of easier said than done, requiring more time, energy and money than they bargained for. To be successful in the data center space long term, it takes a lot more than physical infrastructure and a set of basic, turnkey offerings that can assist customers in federating to a new data center, networking or hybrid cloud utilities.
At the same time, IT managers have grown more sophisticated and increasingly nervous about staking the future of their careers on maintaining their environment within a legacy telco-run facility. While data centers once offered a tremendous opportunity for telcos to diversify their business model and expand their growth profile, the days of relying on a large telco brand for safety and security are nearing an end. With a range of growing pressures on their core business offerings – such as the need to modernize infrastructure and the decline of legacy landline business – telcos are facing a growing quandary over how to allocate capital to drive further growth.
The pressures on their core business offerings require material investment in supporting wireless infrastructure and spectrum to support their legacy customer base and revenues. Thus, their choice in assessing capital allocations is to either protect their core investments or continue investing in more diverse strategies like data centers. Supporting the core is the logical choice for telcos, who have been selling off their data centers in droves.
Over the past year, M&A in the space has really picked up speed. In 2017 alone, Peak 10 acquired ViaWest from Shaw Communications for $1.67 billion, Digital Realty Trust announced its acquisition of DuPont Fabros Technology for $7.6 billion, CenturyLink sold its data center business to a group of investors for $2.2 billion and launched a data center provider called Cyxtera, and Equinix acquired a massive Verizon data center portfolio for $3.6 billion. A number of smaller deals have also taken place.
From the recent deals we have seen, mid-sized players have been coming into closer competition with larger national providers. Given that both Verizon and CenturyLink have sold off many of their data centers recently, large telco brand recognition has become a significantly less relevant factor for organizations deciding where to house their IT infrastructure. Even if an organization wants to go with a name, with big telco giants exiting the space, other service providers must compete based largely on their value proposition and service delivery.
In working with major telco providers, many customers have come face to face with one surprising reality – they often struggle to offer truly scalable services, products and facilities.
Scale, scale, scale … if you want to succeed
IT leaders look at scale in a few different ways – and for a few different reasons. There’s scale for their business and the scale they are providing for their customers.
For the business, scale can mean growing and diversifying your product portfolio and driving expansion into additional geographic markets. If a company remains stagnant in one business area or geographic footprint, it can increase the threat to the overall growth of the business. Increasing the depth and breadth of your service and the geographic footprint of your service area also helps to attract bigger customers, since larger enterprises typically need a more diverse range of infrastructure services delivered through a broader geographic footprint.
Scale is also an important differentiator in meeting the growing demand set of enterprise customer requirements. Given the fast paced nature of the business world and growing amount of data and workloads that enterprises are tasked with handling, customers must feel secure in knowing their provider can scale to their needs, with little to no downtime in the process.
Do telcos have a future in the space?
The adage that “no one ever got fired for choosing the large brand” is no longer valid. Every company needs to carefully consider who is running their data center environment.
Enterprises working with a large telco partner for IT infrastructure services would be wise to carefully consider the relationship before that telco provider hits eject on its data center business. Make sure you’re working with a partner that is committed to remaining-laser focused on growth, scale and building its customer base through new services and solutions that can meet the evolving needs of your business.
For data center providers, now is your time to shine. It’s time to step up and show the world why you’re in this business. Scale with your customers – or better yet, stay one step ahead of their needs – and show them you’ll be here for the long haul.
