News this week that cloud service provider TierPoint has entered into a definitive agreement with comms vendor Windstream to buy its data center business for a pure cash transaction of $575 million marks continued change for the telco industry.
As part of the transaction, Windstream will establish an ongoing reciprocal strategic partnership with TierPoint, allowing both companies to sell their respective products and services to each other’s prospective customers through referrals. This structure will allow Windstream to focus capital on its core telecom offerings while continuing to offer traditional data center services to enterprise customers across a broader data center footprint.
This acquisition is another proof point that telecom operators and cloud aren’t sure things. Now of course, you might be thinking Windstream just got $575 million out of the deal – not too shabby – but I wonder what the driving force behind this deal really was.
A $22 billion industry servicing UK and US SMBs with cloud services, I’m not sure I would want to get out of the market, unless I was struggling to retain or attract new customers. What Windstream did with this deal is sell the datacenter business, but with the partnership agreement to continue to offer cloud services to customers via TierPoint (but my assumption is only when they have customers wanting that service).
Quocirca analyst Clive Longbottom believes this deal has a certain logic, but it’s also illogical in some aspects. He said. “A smaller company trying to compete on non-core data centre activities will always be at a disadvantage, so selling to a data center expert gives much greater capabilities and flexibility, so at this level, it makes sense.” However he did have questions. “It leaves Windstream to focus on its comms business on one hand, except it says it won’t, as it will resell data center services through TierPoint. And TierPoint will sell comms services through Windstream. Two companies, selling the same offering, but with overlapping and redundant back office costs, so driving the cost to the customer up, it would make far more sense for the deal to be a merger with two divisions, to my mind.”
While clearly Windstream and TierPoint have a plan, I see it as another proof point to how telecom operates are struggling to cope with the cloud market. For the past two reported quarters according to Ovum, their revenues have been in decline whereas Internet content providers are growing. So for TierPoint that means growth, but for Windstream, does it?
There are many reasons why telcos are not fully seizing this massive cloud opportunity that has a hungry audience – cultural plays a big role in it.
Find out why cultural norms are inhibiting success and the risks to telcos by reading our new e-book, The Good, the Bad and the Ugly of Telcos in the Cloud.