Leading U.S. communications company CenturyLink Inc. CTL reported that it is considering the wholesale model for its existing colocation data center facilities. Under the model, CenturyLink will lease its facilities to other businesses and service providers.
What is Colocation?
Colocation is a type of data center wherein infrastructure/bandwidth and other facilities are rented out to customers. Presently, there are two models in practice for running a collocation facility. In the traditional retail model, the service provider rents out multiple racks of equipment and allocates power to run them. The wholesale model, on the other hand, entails a transaction that includes a long-term lease for a 10, 000–15, 000 square foot facility with 2–3 megawatts of power. Included in the lease are dedicated UPS and generators to support power requirements plus certain immediately available backup systems.
CenturyLink became a colocation provider through its acquisitions of Qwest and Savvis. However, the company has no intention of expanding its data center business and utilizes the same only for its managed and cloud services.
Industry Trends
Prospects for colocation revenue are not so exciting, and CenturyLink is thus looking for ways to avoid investing more capital in the segment. Over the recent years, many telecom operators have been actively purchasing data to counter shrinking revenues from their traditional telecom services. Persistent sub par performance in this segment has resulted in investors calling for a sale of these assets. . Recently, AT&T Inc. T decided to divest its data center business to International Business Machine Corporation (IBM). Windstream Holdings Inc. WIN too sold its data center business to TierPoint last year. Verizon Communications Inc. VZ is also reportedly looking to vend off some of its data centers.
The Bottom Line
CenturyLink plans to monetize its collocation assets through the wholesale mode to other colocation providers as well as enterprises. However, collocation revenues overall are shrinking and it remains to be seen how CenturyLink can monetize these assets in the near term.
One thing is for sure, though. The company has made it clear that come what may, it seeks to continue operating its managed and cloud services as it sees the service as a key differentiator from other players in the market.
CenturyLink currently carries a Zacks Rank #4 (Sell).
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