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BT Lights Up Storage Service

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News Analysis
Light Reading
5/23/2002

U.K. telecom incumbent BT Group has announced that it is creating a managed storage services offering over its optical Wavestream network, about six months after most SSPs have abandoned this business model in favor of more lucrative services (see BT, EMC, Dell Offer SSP Service and SSPs: RIP).

Of the 20 or so storage service providers (SSPs) that launched between 1998 and 2001, almost all of them -- including StorageNetworks Inc. (Nasdaq: STOR) -- lost millions of dollars building out data centers to host third-party storage, which very few businesses wanted. Subsequently, StorageNetworks and many of the other startup clones in its wake are now selling storage management software instead (see StorageNetworks Cuts SSP Roots and SSPs Switch to Selling Software).

BT has other ideas. It expects its new Data Storage service to add around £190 million (US$277.6 million) per year of new revenue to the firm by the end of 2004.

It says its newly launched Wavestream optical network service enables the efficiencies of networked storage, as customers can transfer large volumes of data over high-capacity optical networks (see BT Launches Wave Services).

In its favor, BT already owns a network of data centers built out across the U.K., unlike the SSPs that had to start from scratch or rent from the incumbent telecom operators. Furthermore, it is not planning to manage a customer's primary storage offsite on shared storage resources. "Customers are uncomfortable with the utility storage model," says Kevin O'Shea, BT's data services product development manager. "It is too big a leap of faith for them to trust that the service provider will never mess up the file zoning so that their data doesn't get confused with another customers'."

Instead, O'Shea says, BT is offering disaster recovery, remote mirroring, and backup services for secondary storage, backed up to the customer's remote site or to a BT datacenter over its Wavestream network. "Either way, their primary storage stays on the customer premises," says O'Shea.

"We might be slow to market, but when we launch we have to be sure to get it right," O'Shea adds, in defense of BT's late entry into this market. "We have a valuable brand and cannot afford to upset our customers."

Similarly, U.S. operators are cautiously dipping their toes into this market, after the SSP fallout. BellSouth Corp. (NYSE: BLS) announced a deal with StorageNetworks, while AT&T Corp. (NYSE: T), Qwest Communications International Inc. (NYSE: Q), and SBC Communications Inc. have all made mutterings about managed storage hosting services (see RBOC Throws Bone to SSP and SBC Lights Up SANs (In Theory)).

BT believes that three years from now, 75 percent of the storage being bought will be networked. According to "The Storage Report," a June 2001 study from Merrill Lynch & Co. Inc. and McKinsey & Co., moving to networked storage gives an average cost saving of $0.46 per megabyte over a three-year period, through better hardware utilization and simplified management. Currently, only around 25 percent of the $6.89 billion Western European storage market uses networked storage, according to the report.

BT will offer co-branded Clariion storage arrays from Dell Computer Corp. (Nasdaq: DELL) and EMC Corp. (NYSE: EMC) in its data centers throughout the U.K. as part of this offering. Interestingly, BT houses about 200 terabytes of its own internal storage on EMC arrays (see Dell, EMC Update Software and Dell and EMC Do a Deal).

— Jo Maitland, Senior Editor, Byte and Switch
http://www.byteandswitch.com

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