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February 2, 2011

Big Telcos Seeing Silver Lining

Steve Campbell

This week’s massive news of mergers and acquisitions has seemed endless—and it’s only Tuesday…

The lightening round of M&A chatter began early with Verizon’s announcement that it would acquire datacenter giant Terremark. This was followed by the most recent news that cable giant Time Warner would take charge of NaviSite.

Like users of HPC, there is the constant burning question of “to build or to buy” for many telcos–at least there is that much in common.

These companies see the enhanced competitive advantage of cloud computing and the new customers it could bring on board. It’s already an incredibly tough competitive market for telcos and something tells me that as more realize that if they lag behind in infrastructure and modernization, their profits will reflect this in no time.

I have always liked Terremark’s unofficial motto of “if you build it they will come”—and come they did…Actually, come they will because this merger and acquisition steam on the part of telcos is far from over.

Verizon shelled out $1.4 billion for the company this week to jump-start its entry into the competitive IaaS playing field. A swift, bold move on the part of Verizon, for sure, but not the first.

Verizon also made a $642 million investment in the Keystone State, boosting their communications infrastructure as well as a similar big burst in Pennsylvania. Add this to another $814 million investment in Virginia landline infrastructure and you have yourself a startling portrait of a company that has finally realized its competitive advantages lie in its size and ability to mesh into a market that might finally be approaching the ready stage.

We have to ask, is this finally the beginning of the often-predicted consolidation of infrastructure for cloud computing? It might seem like there is a simple answer, but the difference here is important—the big telcos are making these moves to bolster their product and service offerings and to build out critical infrastructure—the all-important backbone for cloud computing. While we can speculate all day about what this means in terms of consolidation and the future of cloud landscape, one thing is certainly clear—big companies are seeing big value in the future of clouds.

This is bound to be the beginning of a swift cycle—and one that will doubtlessly be full of more surprises and companies like Verizon and Time Warner, too rich to bother building their own infrastructure, seek to capture the promise of cloud computing and richer communications opportunities.

Needless to say, it’s been a remarkable week for NaviSite folks as Time Warner coughed up $5.5 per share with an approximate total value in the $250 million range.  Just about a year ago I conducted a webinar on cloud security with NaviSite—it seemed to be such a short time ago that the well-deserving company would embark on a journey but who knew its partner on the road to new horizons would have been such a giant?

I imagine that there are plenty of small startups, green with envy as they imagine the NaviSite celebrations that are likely taking place this moment. But here’s what these folks behind similar startups might not be asking themselves—“what is our strategy? What is our value proposition, positioning and differentiation—where does this lie outside of our marketing speak?” … If there are not clear answers to these questions, if there is not a solid strategy in place, then success stories like NaviSite’s will remain just what they are—success stories, and uncommon ones at that.