Why the Telcos Will Go On a Spending Spree

The news came yesterday that Verizon is buying Terremark, a cloud services provider. The deal is worth a reported $1.4 billion.

We’ve seen a lot of talk about possible acquisition targets since the news broke. But it feels like it’s more interesting to explore why the market conditions are right for telecommunications companies executives to continue spending mergers and acquisition budgets on infrastructure providers and cloud management companies.

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Chuck Hollis is vice president of global marketing and chief technology officer at EMC Corporation. It’s clear to him that the acquisition is evident of the move to providing information technology more as a service than anything else:

If you believe in the secular trend that — over time — more IT will be delivered as a service vs. consumed in a traditional fashion, you quickly realize that telcos can have a compelling position.

They’ve got lots and lots of pipe. They know how to deliver a related form of service — communications. They know how to price their offerings and bill for them.

Their strategic motivations are usually clear as well. More ordinary network services are quickly becoming commoditized. There’s only so much content you can sell people. And, before long, you go looking for the next big market to attack.
Indeed, early on, many people thought that IT-as-a-service would go to the telco carriers, and that would be that.

Stacey Higginbotham of GigaOm writes that telecommunications companies see the ability to manage customers networks and their infrastructure.

That’s a new play that correlates to the deeper interest that the telecommunications companies have in extending the data they offer through APIs.

To offer the computing, the network and also data capabilities means telecommunications providers need to invest in cloud management technologies and new routing capabilities for data services. We’ll see how these kinds of companies are viewed as telecommunications executives target more companies for acquisition in the year ahead.

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