Hosting your own data center is key to fending off the threat from OTT providers and gaining control of strategic technology.

Mitch Wagner, Executive Editor, Light Reading

October 2, 2014

6 Min Read
Telco Data Centers: 7 Reasons Carriers Should Run Their Own Facilities

It's one of the most important decisions a carrier can make: whether to host and run its own data centers, or outsource the job to someone else.

Hosting a data center is an expensive proposition, requiring specialized skills, plenty of real estate and copious electrical power. But it also provides carriers with competitive advantages, giving them more control over their own technology and greater ability to offer value-added services.

So here are seven reasons why a carrier would want to host its own data centers (and in the interest of fairness, we'll soon publish some reasons why they shouldn't host their own).

1. It makes business sense
Service provider CenturyLink Inc. (NYSE: CTL) has been in the data center colocation business for the past 20 years, growing to be the second-largest retail colocation provider in the world. So, not surprisingly, it's of the opinion telcos should own their own data centers, or colocate with a partner such as CenturyLink, which also provides local Internet, home phone, TV and enterprise services.

The reason is simple: There is a business need, says Keith Bozler, senior director of colocation product management at CenturyLink.

"Even as people move up the cloud, there is always some component that requires colocation," he says.

2. Build expertise and experience
The average tenure of CenturyLink's management team is more than 10 years, which delivers knowledge and expertise that can't be guaranteed when outsourcing. It's crucial the entire team is speaking the same language, following the same policies, and has a rigorous plan in place wherever they are in the world. "You lose that level of control, in our opinion, when you go to outsource those critical components," Bozler says.

3. Deliver uptime and security
NTT Communications Corp. (NYSE: NTT) started hosting data centers in the mid-1990s, with the rise of the Internet. It opened its first North American data center with the 2000 acquisition of Verio. NTT runs 156 data centers globally.

The Japanese carrier finds hosting its own data center enables it to provide 24x7 uptime and meet customer security requirements by applying uniform process end-to-end.

NTT's customers have zero tolerance for downtime. "The network cannot go down," says Kazuhiro Gomi, president & CEO, NTT America Inc.

And the data center is part of the network. "Our objectives are the same between data center operations and network operations. If something goes wrong, we can apply procedures across the board, in the network and the data centers." (See NTT's Builds Global Virtual Data Centers, NTT Taps SDN to Enhance Cloud Flexibility and NFV Lets NTT America Flex Its Networks.)

Find out more about key developments related to the systems and technologies deployed in data centers on Light Reading's data center infrastructure channel.

4. Get efficiency of scale
Tier 1 service providers, which can operate data centers big enough to consume 10 megawatts of power or more, can be more efficient operating those data centers themselves than paying others to run them, says Doug Gourlay, VP, systems engineering, at Arista Networks Inc. By comparison, 10 megawatts is about 100 cabinets. Facebook and Google data centers are about 100 megawatts or more, while a large financial company operates at 30-50 megawatts.

The simple reason it's cheaper for Tier 1 carriers to do it themselves: Hosting companies have to maintain profit margins, Gourlay says. (See Introducing 'The New IP' , Colt Pulls the Trigger on Data Center Virtualization, and Arista Stock Jumps On Meteoric Growth)

Next page: Blurred Lines & Hungry OTT Providers

5. The line between the network and data center is blurring
SDN and NFV mean functions that traditionally reside on the network are now moving into the data center. Moreover, carriers are starting to offer cloud services, which reside in data centers. That's the case at NTT.

Applications need to move between locations, Gomi says. "This is expanding not just within the data center, but outside the data center too. We are embracing SDN, starting from the data center and moving into the WAN."

The adoption of SDN and NFV means network functions are running on commodity servers -- the same servers that run in data centers, says Recep Ozdag, marketing director for Cyan Inc. "It's changing where the network ends and where compute starts. It's blurring," he says. (See Cyan Holdings Wins Smart Metering Deal in India, Cyan Debuts Planet Orchestrate to Manage Physical & Virtual Network Resources and Cyan Hires Video Game Developers for POW! BANG! ZOOM!.)

6. Better compete with OTT providers
Over-the-top providers including Google (Nasdaq: GOOG), Amazon.com Inc. (Nasdaq: AMZN) and Facebook run their own data centers, says Ozdag. "It's hard to compete with them if you don't own your own data center," and master those skills, he says.

To compete with OTT providers, carriers need to optimize their network for services such as security, content optimization, video optimization, and optimal use of radio frequency, says Jason Matlof, VP of worldwide marketing, at A10 Networks Inc. "When you have a limited amount of radio frequency, you want to be sure you're not delivering 8 Mbits/sec to an iPhone that can't even use it," he says. (See DT Teams With A10 for NFV Advance, A10 Brings the Thunder for DDoS Protection, and A10 Networks Reports Revenues Leap in Q1.)

7. Staying in business
Carriers that run their own data centers can avoid relegating themselves to a future as commodity bit pipes, Matlof says. That's what will happen to carriers that fail to compete with OTT providers.

"If all you do is run a bit pipe because you have no data center, you're competing on the lowest cost per bit," Matlof says. "You're going out of business."

But not everybody agrees that every telco should run its own data centers. Watch out for the case against telcos hosting their own data centers.

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading.
Sarah Reedy, Senior Editor, Light Reading, contributed to this article.

Got a tip about SDN or NFV? Send it to [email protected].

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About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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