Verizon may exit data center business after Windstream, Centurylink change strategy

A top Verizon executive confirmed that the telecom giant may sell its Terremark data centers that the company only purchased five years ago, according to the transcript of the company’s recent fourth quarter conference call with analysts.

Until now, Verizon has refused to comment on the whether its 50 or more global data centers in the U.S., Columbia, Brazil and parts of Europe, the Middle East, Africa and Asia-Pacific are on the block. However, Verizon CFO Francis Shammo told Wall Street analysts during the wireless giant’s fourth quarter conference call that the company is strategically evaluating the data center business, along with other hard assets such as cell towers. Price tags for the assets have been touted in a range from $2.5 billion to as high as $10 billion.

Unlike the company’s regional call centers, which deal with customer service issues, the data centers are part of Verizon’s traditional wireless business that provides dedicated hosting, colocation, cloud and IT infrastructure solutions to major businesses, governments and private enterprises.

Now called Verizon Cloud Services, the wireless giant got into the business of selling more data and technical services to businesses in January 2011 when it purchased Miami-based Terremark Worldwide Inc. for $1.4 billion. At the time, Verizon already operated more than 200 smaller data centers in 23 countries, but the deal for Terremark gave the wireless carrier a stronger position in federal government contracts.

After the deal, Verizon kept the Terremark brand until recently, and operated the data center unit as a separately run subsidiary. But like rival telecoms AT&T, CenturyLink and Little Rock-based Windstream, analysts say Verizon is looking to exit the data center business to free up capital to focus on its more profitable wireless business.

For instance, Little Rock telecom Windstream announced the sale of its data center business in October to St. Louis-based Tierpoint in a cash deal worth $575 million. In June 2014, Sequel Data Centers LLC, the parent company of TierPoint LLC, was acquired by an investor group that included the Stephens Group LLC, led by Little Rock financier Witt Stephens Jr. and sister Elizabeth Campbell.

CenturyLink, which also has major operations in Arkansas, announced in November it had retained financial advisors to help in its exploration of “strategic alternatives for the company’s 59 data centers and colocation business in North America, Asia and Europe.

“We expect colocation services to remain part of our service offerings, but we do not believe ownership of the physical data center assets is necessary to effectively deliver those services,” CenturyLink CEO Glen Post said.

Besides its data center business, Verizon has also sold other parts of its traditional wireline and enterprise business in 2015 to purchase more wireless spectrum to grow its massive cell phone network. The New Jersey-based telecom giant announced a deal in February 2015 to sell its wireline and cell tower assets to Frontier Communications for $10.5 billion. That deal is expected to close by the end of March.

Verizon also completed a $5 billion deal in May for American Tower to acquire the leasing rights to more than 11,000 cell towers, and purchase another 165 towers from Verizon.

Verizon’s strategic view of its telecom operations, however, does not include the company’s announcement in October that it plans to reduce its 20 regional headquarters down to six. One of those regional offices is located in Little Rock – the outgrowth of the company’s $28 billion acquisition of Alltel Corp. in 2009.