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CenturyLink's $3.2 billion blockbuster buyout of cloud computing provider Savvis Wednesday continues the trend of larger service providers, carriers and telcos getting into cloud computing though acquisition.
The cloud acquisition gives CenturyLink, the nation's third-largest telco, Savvis' foothold as a hosting and cloud computing provider and enables it to bulk up its presence in a cloud computing market that Forrester Research predicts will reach $241 billion come 2020, said CenturyLink CEO Glen F. Post III in a conference call announcing the acquisition. CenturyLink has agreed to buy Savvis for $2.5 billion in cash and stock and to assume or refinance Savvis' $700 million debt.
“We are creating a premiere managed hosting and managed services provider," Post said, adding that Savvis will operate as its own entity.
CenturyLink's buy into the cloud with Savvis puts it in the company of other service providers, telcos, carriers and cable companies that have put their money where their mouths are in scooping up cloud computing players. Verizon Communications scooped up Terremark in a $1.4 billion deal that closed earlier this month. And shortly after, Time Warner Cable purchased cloud hosting provider NaviSite in a $200 million buyout plan.
Post said that the cloud services and managed hosting businesses are expected to have an annual growth rate of 20 percent for the next few years and adding Savvis to the mix will give CenturyLink a bigger stake in that market.
"By combining with a managed hosting and cloud services leader, we will be able to accelerate organic growth plans," he said, adding that CenturyLink will be able to tackle the management and cloud needs of its growing cadre of enterprise customers.
Meanwhile, Savvis CEO Jim Ousley said it will benefit from the capital backing from CenturyLInk as it shifts toward offering more managed services and targeting the cloud. Ousley said Savvis generates 34 percent of revenue from managed services, 38 percent from collocation and 28 percent from network services and 83 percent of its business is in North America.
The deal is expected to close on the second half of this year.
For industry watchers, CenturyLink's entrance in the cloud market signals a changing tide and is a harbinger for an era where massive service providers own the cloud.
"It just makes sense that the service providers would be the first to capitalize on the cloud," said Vanessa Alvarez, a Forrester Research analyst. "At the end of the day, they know how to run networks and that's the foundation of the cloud."
Bulking up their cloud presences through acquisition is the safest method for service providers and telcos, Alvarez said, as the cloud providers they're buying already have established client bases and the infrastructure to support them.