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TW Cable Buys Into the Cloud

Jeff Baumgartner

Time Warner Cable Inc. (NYSE: TWC) is stoking its business services strategy by buying managed application and cloud services firm NaviSite (Nasdaq: NAVI) for $230 million, a deal announced late Tuesday.

TW Cable is picking up a company that has more than 1,200 customers, employs roughly 570, and operates ten data centers in the U.S. and the United Kingdom, along with network operations centers in Gurgaon, India and Andover, Mass. Some of NaviSite's larger customers include Cetera Financial Group, Deloitte, Hyatt, Public Storage and Salvation Army, according to a company spokeswoman.

TW Cable is nabbing NaviSite for $5.50 per share, a 33 percent premium on the company's Tuesday closing price. The MSO expects to close the deal by the second quarter.

NaviSite is nearly profitable but not quite, having reported a first-quarter loss of $2.2 million (6 cents per share) on revenues of $33.4 million.

Why this matters
With cable residential service growth being challenged (basic video services, in fact, already are eroding), MSOs are looking toward business services for growth. Although many operators started out serving very small businesses, MSOs such as TW Cable are starting to look upmarket and put more pressure on incumbent telcos.

TW Cable, Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Cox Communications Inc. breached $1 billion in annual business services revenues in 2010, and they're already seeking ways to hit that next billion.

TW Cable apparently views managed cloud services as an opportunity large enough to require enlisting some help. There's a parallel to Verizon Communications Inc. (NYSE: VZ), which just inked a deal to buy Verizon Terremark for $1.4 billion. (See Verizon Taps Terremark for $1.4B and Will Verizon Kick Off a Cloud Feeding Frenzy?)

For more
For more on cable's pursuit of the business services golden egg, please check out these stories:

— Jeff Baumgartner, Site Editor, Light Reading Cable

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