At a time when data centers are seen as strategic assets, Windstream has decided to sell its data centers and focus its capital resources on building out its network services, while selling cloud services and more through a strategic partnership.
The data center sale to TierPoint, a cloud and managed services provider, has been rumored since this summer. It will net Windstream Communications Inc. (Nasdaq: WIN) $575 million in cash, and create a partnership between the two companies to cross-sell their respective products and services through referrals to the two customer bases. This gets Windstream out of the business of operating data centers, which it was doing at a loss, according to its figures.
In a statement, Windstream President and CEO Tony Thomas acknowledged the importance of data center services going forward.
"Data center services will remain an integral component of our enterprise service offering," he said. "We expect the divested data center business to continue its significant growth under the leadership of TierPoint, and we look forward to partnering closely with them to provide advanced data center services to our enterprise customers."
Like many other major telecom operators, Windstream bought its way into the cloud services business by acquiring Hosted Solutions back in 2011, and built out a regional cloud strategy that seemed to fit well with the push to move data toward the edge, closer to the enterprise customer and deeper into the regional and Tier 2 markets that Windstream typically served. (See Windstream Unwraps Cloud Strategy and Windstream Makes Regional Cloud Play.)
As recently as last month, Windstream's CFO Bob Gunderman told investors at the Bank of America Merrill Lynch 2015 Media, Communications & Entertainment Conference, that the data center and cloud services business is a "a critical part of our portfolio," according to Fierce Telecom.
Now it appears the company believes it can better invest the $575 million it gains from this sale in continuing to expand its local fiber footprint and adding advanced networking capabilities. And Windstream can leave it to TierPoint to operate and manage the data center infrastructure (with its required updates and maintenance), while choosing to partner on those critical capabilities.
Windstream has already put its physical network assets into a REIT (real estate investment trust), to focus on advanced networking capabilities and in some respects, this new sale fits that mindset: Instead of paying to operate and maintain a physical data center presence, Windstream is choosing to have a strategic partner take on those responsibilities, while still being able to offer its customers the hosted, managed and cloud services they want.
The data center assets being divested generated $30 million in revenue in the second quarter of this year, but were operating at a loss of about $2 million, according to figures released by Windstream.
— Carol Wilson, Editor-at-Large, Light Reading