Cloud Exodus: 5 Reasons Carriers Are Bailing Out Of Data Centers

Cloud Services, Sans Data Centers

It wouldn't be a stretch to say that the latest trend in the cloud space is who's trying to get out of it.

Telecommunications provider Windstream sold its data center business to colocation provider TierPoint late last year. Following suit, CenturyLink said it’s shopping around its 59 global data center assets, and even AT&T and Verizon are rumored to be considering selling their data center businesses. Despite being newcomers to the cloud industry, many telecommunications providers are deciding that cloud infrastructure services, such as colocation and hosting, aren't for them. These companies are realizing that they can't compete with industry leaders like Amazon and Google. At the same time, they can still offer cloud services without the fuss of owning their own data center businesses.

Here are five reasons telecoms are leaving the business of data center operations, colocation and hosting.

Struggling With Cloud Sales

While it can't be disputed that cloud services are selling, cloud service providers and solution providers are scoring on cloud sales. But telecoms? Not so much, according to one master agent that requested anonymity.

More often than not, customers are coming to the companies that have emerged as giants in the cloud space - such as Amazon, Google, and even Microsoft - to obtain cloud services. Even though carriers are offering cloud too, these companies are struggling to turn a profit on these services. Competing with the likes of cloud giants is no small task, the master agent said.

Cloud Culture

Many companies, telecoms included, made early investments in the cloud -- almost like a "me too" play, according to the master agent that requested anonymity. While carriers may have viewed the purchase of cloud infrastructure as a smart, forward-looking move, some of these companies are realizing these investments are no longer paying off. As a result, telecom providers are getting out of the colocation business by selling off recently-purchased data center assets.

Part of the reason cloud hasn't turned lucrative for carriers is because of the culture around cloud. Customers often don't think of a telecom as a first stop for cloud services, so carriers are realizing that market perception isn't on their side.

What lies ahead? 2016 will be the year some carriers "go back to their roots" to stay focused on what they do best, such as selling voice and connectivity services, the master agent said.

Maintenance Costs

Running a brick-and-mortar data center costs money. Running electricity and cooling systems, as well as paying staff and security personnel, are all added expenses that can only be justified if cloud services are selling. Some telecom providers are determining they aren’t prepared to spend as much as is needed to nurture a growing data center business.

Carriers haven't traditionally been in the data center business, so taking on these assets has been burdensome for some telecoms. Some carriers have dealt with this issue owning some of their own data centers and leasing space in a third-party provider's data center. Leasing is becoming a more popular option because it's freeing up telecoms from time-consuming and costly data center operations, while allowing these companies to successfully run their own cloud services.

Cloud Expertise

The telecommunications industry is very different from the cloud industry; in particular, colocation and hosting. Any company getting involved with cloud infrastructure services must have qualified staff, and that's been a struggle for carriers, according to the master agent.

Professionals in the data center and cloud space have set their sights on working for the big players with impressive data center buildouts and technology; players like Amazon, Google, and even Facebook, the master agent said. Telecoms have had trouble getting the right expertise in the door. And supporting a data center business that can compete with the market heavyweights requires an impressive level of expertise.

Who's Buying?

Windstream sold its colocation and hosting business for $575 million to TierPoint. Earlier this month, Reuters reported that Verizon's data center business could also be going on the market soon for $2.5 billion. With these hefty price tags and fewer companies interested in running data centers, one might wonder: Who's buying? But despite the growing trend of large telecoms leaving the cloud space, it's still a good time to sell, according to people in or close to the industry.

The market is leaning in favor of fewer data center operators globally, but this means that companies remaining in the data center business -- such as global cloud providers like Amazon and interconnection providers like Equinix -- can afford the high price tags, the master agent said.

An "up" market for data center businesses is proving to be appealing to carriers considering making a change.