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Data Center Deals Not Slowing Managed Services Push

CenturyLink and Verizon both completed sales of data centers this week but say they will now be resellers of what they once owned.

May 2, 2017

3 Min Read
Data Center Deals Not Slowing Managed Services Push

Two major data center sales were wrapped up this week, getting both Verizon and CenturyLink out of the business of operating their own massive data centers. Given that AT&T is already outsourcing some of its data center operations, the industry has essentially closed a chapter on data centers.

Both CenturyLink and Verizon remain in the managed services business and both immediately become customers of the data center operations they just sold. In CenturyLink's case, it becomes the largest customer of Cyxtera Technologies, a global infrastructure company newly formed by the consortium of companies that came together to buy CenturyLink's data centers for $1.86 billion, and will continue selling its managed and colocation services.

Verizon has already inked a deal to resell the colocation and interconnection services of Equinix, the company that bought its data centers for $3.6 billion. Separately, rumors still swirl that Verizon will divest its cloud services business. (See Finally! Equinix Pays $3.6B for Verizon Data Centers and Verizon on Verge of Enterprise Cloud Sale – Source.)

At this point, all three of the big US carriers -- AT&T, CenturyLink and Verizon -- are major players in the booming telecom managed services market, which is expected to grow from $11.90 billion in 2017 to $22.58 billion by 2022, according to a recent Markets and Markets report.

Dean Douglas, president of the enterprise segment for CenturyLink, says divesting its data centers will make his company "a more trusted third party" for managed services as a company without as big a stake in the infrastructure piece of the equation. CenturyLink does retain a 10% stake in Cyxtera, which is owned by a consortium of funds advised by BC Partners, including Medina Capital Advisors and Longview Asset Management.

"We really don't think that owning the physical asset is going to impede our ability to sell those services and continue to drive our focus on hybrid IT and digitization," Douglas says in an interview with Light Reading. "We still have two feet in the business, one foot in the IT world and one foot in the comms world. The only difference is, we don't own the physical assets in the IT world the way we do in the comms world."

For some customers, particularly smaller companies, being independent of the physical infrastructure may be a positive thing, he says.

"This allows us greater freedom of action, as we look at leveraging our CAM product, our Cloud Application Management product, we announced in February. We are being thought of as a trusted third party -- an independent third party -- with the companies we transact with as we create this multi-cloud environment," Douglas notes. (See CenturyLink Ready to Roll on New Services.)

For large cloud operators such as Amazon Web Services and Microsoft, it's not an issue but for some smaller cloud players, CenturyLink might be seen as more of a cloud competitor than a partner, he notes. "We don't know for sure, but it may have become an issue."

CenturyLink does have an obligation to drive some business toward Cyxtera, but in general it now has additional flexibility, something CEO Glenn Post referenced, alongside the Level 3 acquisition, as boding well for CenturyLink's growth going forward.

— Carol Wilson, Editor-at-Large, Light Reading

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