North American Telecoms continue to dump data center assets. AT&T is the latest Telecom to sell off its colocation portfolio, selling 31 data centers to Brookfield Infrastructure Partners for $1.1B. Brookfield will launch a new colocation player atop the portfolio, once the acquisition closes.
AT&T joins Verizon and CenturyLink in selling colocation data center porfolios:
- Verizon sold 29 facilities in 15 metros to Equinix for $3.6B. The former Terremark NAP of the Americas in Miami drove the price tag up.
- CenturyLink sold 57 data centers in North America, Europe and Asia to Cyxtera for $2.15B. Though, to be fair, CenturyLink followed up by acquiring Level 3 and its 250+ data centers. A large majority of those data centers are low-tier legacy telecom data centers, but they’re a better strategic fit for an Edge play
- AT&T is selling 31 data centers to Brookfield for $1.1B, as the Time Warner acquisition makes facility CapEx an unnecessary burden
AT&T’s data center portfolio was first rumored to be on the block in 2015. It previously sold its managed application and hosting operations to IBM and named Digital Realty as its colo partner.
In February of this year, AT&T’s data center portfolio went back on the block. The Wall Street Journal said the assets in question generated about $135 million in earnings per year, and that more than 300 facilities worldwide could eventually be part of a deal.
Both AT&T and CenturyLink had significant space inside of Digital Realty facilities, so there was a lot of discussion around Digital potentially acquiring one of those porfolios. Digital acquired Telx and its interconnection-rich assets to beef up its retail play in 2015.
Just what is the Telecom strategy when it comes to data centers?
Colocation went from being the missing jewel in Telecom enterprise IT services to a pariah. In total, 3 of the top 5 retail colocation players put their colo business on the block. While it appeared to be a buyer’s market, each porfolio sold for a healthy multiple.
AT&T, Verizon and CenturyLink all took a “one stop shop” approach to enterprise IT. High-touch managed services and cloud were always the priority. Colocation is often treated as an avenue to win managed services and cloud customers. It was hard to justify the facility CapEx, given colo was treated as a compliment, not a priority.
Colo was often bundled with other services as well. Kind of like a landline bundled in a cable + internet package. An afterthought.
While hybrid and multi-cloud is all the rage with kids these days, there’s two types of customers. Do-It-Yourselfers (DIY) gravitate towards colocation, while Do-it-for-Me folks look for managed services. There’s plenty of both types of customers, but the crossover appeal is limited.
Finally, colocation needs to be carrier neutral – which caused all three telecom colo businesses to struggle. While many Telecom colocation offerings claimed carrier neutrality, this often meant having two carriers instead of one. Technically, it’s carrier neutral.
Finally, colocation businesses struggled under telecoms because of their pricing. They all priced aggressively. It served as more indication to customers that the intention was to upsell. Low pricing and low to stagnant growth, made colo look like a bad business on balance sheets.
In short, there was little reason for Telecoms to own their facilities. AT&T will continue to sell colo, only it will resell Brookfield colo.
Telecoms are fighting a battle on the cloud front, and the battle is insanely capex intensive. There’s also a battle brewing on the content front, which makes the cloud battle seem affordable. AT&T’s pending Time Warner acquisition extends its battleground and its debt ($180B worth). Proceeds from sale of facilities will go towards paying down some of this debt.
Telecoms are focusing on the network and content. Software Defined Networking is breathing new life into network assets, which is synergistic with content offerings. They are pivoting so that the network is their platform.
Brookfield’s other assets include energy transmission, distribution and storage across North America and Australia; fiber and wireless towers in France, and other stuff like agricultural operations that don’t really provide any synergies with colocation. At least, not that I can think of. Yet.