Report: Verizon 'Starting Process' To Sell Off Data Center Business For $2.5 Billion

The wheels are in motion for telecom giant Verizon to sell off its data center assets in a deal worth more than $2.5 billion, according to an article published Wednesday by Thomson Reuters.

According to the report, Citigroup Inc. is advising Verizon on the possible sale of its data centers and colocation portfolio. The story cited sources familiar with the matter who requested anonymity because the purported deal is confidential. Verizon declined to comment, citing its policy not to comment on speculation.

While rumors have been swirling around Verizon's plan to shed its data center business since last year, one master agent who requested anonymity is convinced it's finally happening.

[Related: Report: Verizon Is Exploring Selling Its Enterprise Business Assets For $10 Billion; Partners Unconvinced ]

"There is an acceleration happening in cloud," the master agent said. "The channel is selling a lot of cloud and making money, but ironically, it's not with the large carriers. I think the large carriers are realizing cloud isn't their cup of tea … and that's not what customers think of companies like Verizon for. Trying to change that market perception is a very difficult thing to do."

The large telecoms that have done big acquisitions around the cloud have struggled to pivot their business models to support the cloud. Since jumping into this space, carriers have had a hard time wrapping sales around cloud services, the master agent said.

"It's a cultural challenge and it’s a staffing challenge. The brightest and best talent that you would need in the cloud business model are not thinking, 'I can't wait to work for Verizon,' they are thinking they are going to work for Google, AWS or even Facebook."

The deal, if carried out, would confirm industry speculation that Verizon is following in the footsteps of rival carriers already moving out of the data center and colocation business. The move suggests that Verizon is abandoning plans to expand into colocation and hosting services, a strategy that the carrier kicked off in 2011 when it purchased data center operator Terremark for $1.4 billion.

Verizon's data center and colocation business includes 48 data centers.

Carceron is an Atlanta-based IT managed services provider that sells Verizon's mobile phones to its end customers. While its relationship with Verizon is limited, Carceron could still see an impact, as the sale would be very large and could cause a ripple effect in the market if it happens, said Jeffrey Lee, vice president and chief technology officer for the company.

"It could affect our partners that use Verizon to host their data. Down the line, that could affect market costs and our pricing to our end customers," Lee said. "For a sale that huge, it definitely could reduce the number of competitors out there, and we don't like that too much."

Less competition in the cloud space also means there are fewer buyers shopping around for data center assets, especially those with a high price tag. The large -- and successful -- players in the cloud space will most likely be scooping up carrier data centers, the master agent said.

"I think companies like Microsoft and Google will be very strong candidates to buy up some of these carrier data center assets as these companies evolve," the agent said. "I think large cloud providers' buying assets from the carriers is inevitable."

Carriers moving out of the data center business is a trend that started last year. Telecommunications provider Windstream sold off its data center operations to colocation provider TierPoint for $575 million last fall, and CenturyLink announced during its third-quarter 2015 earnings call that it is exploring the sale of its own data center assets and colocation business. AT&T is also said to be looking into the sale of its data center assets.

The dynamics of the telecommunications industry have been turned upside down, said Ted Schuman, CEO of master agent PlanetOne Communications. The move away from traditional TDM-based technology to IP-based technology occurred at a gradual pace, while cloud is accelerating adoption in a very short period of time, sending many telecommunications companies scrambling.

"Many forward-looking organizations, vendors, agents and MSPs made early investments in the cloud, some of which are no longer paying off, and infrastructure and data centers are among them. In 2016, we'll see many companies evolve and expand, and others turn back to their roots to stay focused on what they do best," Schuman said.

Reuters also reported in November that Verizon was considering the sale of its enterprise business, including the former MCI business, a landline and Internet service for business customers the carrier acquired in 2005. At the time, an agreement couldn't be reached with the buyer who was rumored to be CenturyLink, according to Reuters.

PUBLISHED JAN. 6, 2016