Mergers & acquisitions

DiData Deal Spells Bad News for SIs

With the acquisition of Dimension Data Holdings plc (London: DDT) set to help NTT Communications Corp. (NYSE: NTT) delve deeper into the IT infrastructure of multinational Fortune 1000 customers, what effect will NTT's move have on the broader global IT services market? (See NTT Splashes $3.2B on DiData and NTT-DiData Deal Approved.)

The competitive impact will be felt by other global service providers, many of which have worked closely with Dimension Data in the past, and by major systems integrators, which will likely see more of their business co-opted by a global service provider.

It's the latter group that will likely feel the most pain as NTT, and other major international carriers, ramp up their activities in the hosted, managed, and cloud services sectors, reckons Jere Brown, CEO at Dimension Data Americas.

Large multinational companies have to choose, Brown says, between building their own infrastructure -- or paying a third party to build it for them -- and a network-hosted or cloud services model, which requires far less capital expenditure.

Currently, enterprise users are planning to adopt a hybrid model, says Brown, and that will upset the current IT services status quo. "We see a lot of movement in the market as [hosted/cloud services models] become clear, and people develop their strategy," Brown opines. "It will change the complexion of the systems integrator market, because they [the integrators] are heavily reliant on equipment at the customer premises, and we see companies moving away from that. It will change how clients do business."

Dimension Data has been partnering with global service providers for some time, combining its IT infrastructure and services expertise with bandwidth from NTT, AT&T Inc. (NYSE: T), BT Global Services , Verizon Enterprise Solutions , and others to serve two-thirds of Fortune 500 companies and become Cisco Systems Inc. (Nasdaq: CSCO)'s largest global partner.

Not surprisingly, then, NTT, which has now received the support of Dimension Data investors representing more more 93 percent of the firm's shares, wasn't the only company interested in acquiring the South African-based outfit, Brown admits.

"There were other companies besides NTT that we talked to, but we liked NTT's global footprint and financial results," Brown says. "As we announced the acquisition, the one concern we had was picking up the phone and announcing [to other carriers] that we were being acquired by NTT. But we were surprised by the reaction of our service provider clients. They already have relationships with NTT at the highest level, and they understand that the telecom industry is like that. So we have continued to move forward with existing engagements and new opportunities with service provider partners."

Dimension Data hasn't slowed its own acquisition pace since the NTT acquisition was first announced in July: It has recently acquired a UK-based video conferencing integrator, mvision, and New Zealand-based IT services company Integral Axon Computer Systems.

"Our business model is global orchestration and local delivery," Brown says. "We have feet on the ground in 50 countries, with partnerships in 26 more, and we continue to add direct presence -- that's been our strength."

That geographic spread means Dimension Data understands procurement logistics, regulations, and tax rules in a multitude of locations, notes Brown.

"We have a lot of investments outside the US -- we seem to follow where the money has gone," Brown says. "We go where our clients need us to be."

And now NTT will be going to those places too, combining its bandwidth with Dimension Data's IT capabilities to develop new hosted and cloud service offerings.

— Carol Wilson, Chief Editor, Events, Light Reading

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