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Telecoms Look to Cloud Computing

April 29, 2011 No Comments

SOURCE:  The New York Times

In the battle for enterprise customers, the country’s giant telecommunications and cable companies are going to the cloud.

On Wednesday, CenturyLink, the nation’s third-largest telecommunications company, announced plans to buy Savvis, a data center services business, for $2.5 billion. Under the deal, CenturyLink will assume $700 million in debt and pay Savvis shareholders $40 a share, 11 percent above the stock’s closing price on Tuesday.

It’s a play on the boom in so-called cloud computing — the practice of using the Internet to process, manage and store data on remote network servers.

As more companies shift away from on-site computer servers, demand is rising for companies like Savvis that provide hosting and data center services. Since the start of the year, several major telecommunications and cable companies have hungrily snapped up these sorts of businesses.

In January, Verizon Communications announced it was buying Terremark, a provider of data storage services for large enterprises, for $1.4 billion. A month later, Time Warner Cable, the nation’s second-largest cable company, acquired Navisite, another business hosting service, for $230 million. In both deals, the acquirers agreed to pay over 30 percent more than the 30-day average prices of the two stocks.

And it is not just older communications companies fishing for cloud computing acquisitions. Data storage players have also attracted the stalwarts in enterprise technology. Hewlett-Packard, EMC and Dell have all signed multibillion dollar deals in the last 12 months.

“There’s still going to be a lot of deals,” said Jonathan Schildkraut, an analyst with Evercore Partners. “We are very early in the growth of these businesses.

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