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Report: Verizon May Sell Former Terremark Data Centers

Mulls potential sale of former MCI and Terremark assets

Verizon Communications has retained Citigroup to help it explore a potential sale of its enterprise services assets, including those it gained when it acquired business landline and internet service provider MCI and assets it gained through the $1.4 billion acquisition of data center provider Terremark in 2011, Reuters reported citing anonymous sources.

Total value of the assets in question is about $10 billion, the sources told the news service. A Verizon spokesperson declined to comment.

Verizon is one of several major telcos looking for alternatives to ownership of their data center assets.

Verizon’s Terremark deal was one of two big data center provider acquisitions by telcos in 2011. The second one was the $2.5 billion acquisition of Savvis by CenturyLink. A smaller deal that year that was along similar lines was Time Warner Cable's $230 million NaviSite acquisition.

The wave of acquisitions was at the time explained by telecommunications companies wanting to leverage their network assets to expand into cloud services. But the handful of giants in the cloud market -- Amazon Web Services, Microsoft Azure, and to a lesser extent Google Cloud Platform and IBM SoftLayer -- have since then only increased their dominance and pushed down pricing, making it more and more difficult for others to compete.

CenturyLink announced last week it was exploring alternatives to owning its massive data center fleet, a substantial portion of which it gained from the Savvis deal. CenturyLink’s colocation business has not been growing revenue, and company officials said they wanted to focus investment on more profitable businesses.

AT&T, Verizon’s biggest competitor in the wireless market, has also been evaluating a potential sale of about $2 billion worth of data center assets, Reuters reported earlier this year also citing anonymous sources.

Last month, Windstream Communications agreed to sell its data center business to TierPoint, a roll-up buying data centers in underserved regional markets, for $575 million.

Like its peers, Verizon is facing a highly competitive data center and enterprise IP networking market. In comments on the company’s third-quarter earnings call in October Verizon CFO Francis Shammo indicated that the company was taking a hard look at its enterprise portfolio.

“Within the data center space, now there is an awful lot of competition happening with price compression,” Shammo said. “I think what you are seeing is the trend that we think will continue as we revamp the portfolio, if you will, and come into more of whether we're going to [be] willing to compete.”

Verizon’s enterprise revenue in the third quarter declined 5 percent year over year. Shammo attributed the decline to “secular and economic challenges.”

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