The data center market continues to evolve from a place where enterprises and service providers store racks of equipment to a platform for delivering managed services. One of the key trends driving the new interest in data centers, for both traditional providers and ILECs that are trying to transform themselves from voice-centric telcos, is cloud services.
FireceTelecom examines the data center trend in its latest eBook, Heralding the Data Center Renaissance.
Data center growth continues to ramp. According to a recent Infonetics survey, WAN connection is expected to increase more than twofold between 2012 and 2014.
Michael Howard, principal analyst for carrier networks and co-founder of Infonetics Research, said that data center providers are looking to increase the value of their existing data center assets "to keep their current customers satisfied and to attract new customers."
While definitions certainly differ among industry watchers, the data center market segment consists of two main elements: data center providers such as Equinix (Nasdaq: EQIX) that are expanding their domestic and international footprints to accommodate their client's growing needs, and traditional telcos like CenturyLink (NYSE: CTL), Verizon (NYSE: VZ) and Windstream (Nasdaq: WIN) that are looking to expand their service horizons with a particular focus on managed and cloud services.
Telcos like CenturyLink and Windstream, which made multimillion-dollar purchases of data center providers Hosted Solutions and Savvis, respectively, are seeing decent returns on their investments. Windstream reported that Q1 strategic businesses revenues such as data center and managed services rose to $914 million. Likewise, CenturyLink's data hosting revenues grew 4.3 percent year-over-year to $334 million.
Jeff Gardner, President and CEO of Windstream, said during the J.P. Morgan 41st Annual Technology, Media and Telecom Conference, said that the value of his data center service business comes from selling managed and cloud-based services.
"We do some colocation, but we bought Hosted Solutions back in 2010 and what we liked about that business is it was focused on the managed services and cloud computing aspects of the data center business," he said. "When we looked at that business what we liked about it was their revenue per square foot was nearly twice the size of some other data center businesses we looked at."
Even though the big telcos have garnered the lion's share of attention with their large-scale data center and managed services moves, the market has become attractive for smaller players, including TDS Telecom (NYSE: TDS) and Hargray Telecom, that are purchasing other smaller providers as a means to create new business lines to replace shrinking landline revenues.
Interestingly, as more data centers are built, a robust wholesale opportunity is being created for other fiber-centric service providers such as Cogent Communications (Nasdaq: CCOI), tw telecom (Nasdaq: TWTC) and Zayo. These service providers offer a host of connectivity services such as dark fiber, wavelengths and Ethernet, and are even cross-selling their services and the data center providers' services to their own clients.
FierceTelecom delves into these aspects of data centers and more in our new eBook. If you want to know more about this topic, download Heralding the Data Center Renaissance today.--Sean