TDS' Vital Support Systems purchase is about building solutions, not just collecting assets

TDS (NYSE: TDS) advanced its managed service vision by making a move to purchase Des Moines, Iowa-based Vital Support Systems, a sign that it wants to be more responsive to their business customers' desire to work with a third party to help manage their IT service functions.  

Although a lot of attention has been paid on what its larger ILEC counterparts, namely CenturyLink (NYSE: CTL) and Verizon (NYSE: VZ) with their multi-billion dollar acquisitions of Savvis and Terremark, TDS has been no less aggressive. In the past two years alone, it has acquired four data center and cloud-focused providers in just the past two years, including: Vital Support Systems, VISI, One Neck and TEAM.

"We have always had a vision that we would be able to go to market as an integrated hosted and managed services provider," William Megan, president of TDS HMS, said in an interview with FierceTelecom. "In that portfolio of integrated services certainly collocation and data center capacity was a piece of it, but it also included hosted services top of it, including managed services of customer equipment on their premise or in our data center, hosted services and ultimately move to cloud."

Looking to become a solutions-based provider, all of these companies maintain their own brand identity and name under TDS's still nascent Hosted and Managed Services (HMS) division. Vital Support Systems, for example, will also retain its current management team, including CEO Jeff Sparling, and its current employees.

This is unlike the traditional acquisition process where a service provider or vendor buys a company and then the brand goes away.

Megan said that being able to maintain the brand and current set of services provides consistency for the sales teams and customers.  

"The services that Vital offered prior to the deal are still available, but now they can also offer this set of services that TDS has brought including data center services and cloud services," he said. "We've had elements of cloud, but we're just about to roll out an enterprise class cloud."

Instead, TDS HMS is adding Vital Support Systems' managed services and vendor equipment relationships to its growing toolbox of solutions, including data center, cloud and managed IT services.  

Megan emphasized that Vital Support Systems is not just part of a collection of assets but rather part of a broader offering that includes various areas of specialties to solve their business problems.

"We're building a set of services and a management team that can go to market with a robust set of capabilities that we'll share," Megan said. "There's certainly going to be opportunities where there's specialization like One Neck's ERP hosting application expertise, but it could be part of the package by any one of the other entities in a different geography."

This deal provides a number of benefits to both TDS HMS and Vital Support Systems alike. 

TDS immediately broadens it set of hosted and managed IT service capabilities in addition to gaining an established relationships with more large business customers in addition to Vital Support Systems' vendor relationships. 

Vital Support Systems meanwhile gains access into other markets where it does not reach yet, including TDS' strongholds such as Wisconsin and Minnesota in addition bringing existing clients TDS HMS' solutions from VISI, One Neck and TEAM.

"The ability now to provide to our customer base Infrastructure as a Service (IaaS) either as a hosted collocated service or infrastructure by the drink or infrastructure as a private or shared cloud is an offering we wanted to bring to our clients and we found the best partner in TDS HMS," said Jeff Sparling, CEO of Vital Support Systems.

Besides being able to leverage the broader set of services for its customer base, Sparling added that "from cultural aspect we thought it was a great match."

ManagedIP services have been a growth haven for the telco. In the first quarter of 2012, the service provider reported HMS revenues were up $11.3 million, a factor it largely attributed to the acquisition of OneNeck.

While this won't likely be TDS' last acquisition, the reality is that the service provider needs to find new revenue sources to offset legacy service declines, and by creating an agile portfolio of solutions it can help it compete with a growing set of alternative players vying for the business dollar.--Sean