When Forrester Research came out with a report claiming that traditional telcos could become an endangered species, many thought the industry was doomed for a swift decline. With increased changes in the market and commoditization around the services that telcos provide, the simple reality was that it had become a tough place for telcos to grow profitably.
But, amid ongoing predictions around the industry’s continued struggle, telcos have risen to the challenge and found new solutions to stay afloat. One such strategy has been for telcos to acquire hosting companies – like the recent acquisition Dutch telco KPN made of one of the largest hosting and cloud providers in the Netherlands – as a way of bringing in complementary services to grow their business, adding value for their clients and, ultimately, helping prevent a decline in revenue.
To aid in this strategy, when making a hosting acquisition, telco providers should look at three main elements: location, services and revenue potential.
Location, Location, Location
The ideal acquisition candidate for a telco provider should complement, not share the strengths and weaknesses of the acquiring company. One strategy for telcos to balance their current offering is to look closely at hosting providers’ geographical coverage and capabilities.
Telcos should thoroughly evaluate if a hosting providers’ geographies will expand on the type of customers that are currently being served. By taking geography into consideration, there’s a clear opportunity for telcos and hosting providers to share resources and delve into geographies they’re not currently exploring, especially ones that may be poised for rapid growth.
For example, BLM Acquisition Corp., a consortium of 32 regional telecom and broadband providers, recently acquired cloud hosting company Codero Hosting. The acquisition will allow BLM to make a major cloud play in cities beyond its core market. On the other hand, Codero has a number of European customers that need a cloud business in the U.S., so this acquisition might allow them to develop data centers in Europe to be in a better position to serve companies there. It’s a win-win for both the telco and the hosting provider.
By extending their reach, like the BLM Acquisition Corp. did, telcos can delve into new markets and customers to help their businesses grow and remain profitable.
Complementary Services
For forward-thinking telcos, it’s of paramount importance to look for the right complementary services to boost their current offerings in today’s increasingly complex and dynamic market. With the commoditization of telco services like voice and data, the telco community has come to realize that it needs access to the infrastructure that hosting providers can provide to expand their capabilities for their current customers – and to draw new ones in.
In the case of SoftLayer Technologies, for example, complementary services played a key role in IBM’s acquisition of the cloud hosting company. Since the acquisition in 2013, SoftLayer has quickly grown to become the backbone for IBM’s cloud business, with many of its services being integrated directly with the platform.
In another instance, for U.S. Internet, cable TV and phone service provider WOW!, the acquisition of cloud service provider Bluemile was key to building up its cloud offering. With Bluemile, WOW! is now able to offer a range of data center services to its customers, such as cloud backup and disaster recovery, as well as a more robust physical network overall.
By bringing together complementary technology and solutions, telcos and hosting providers alike can provide greater value and range of services to their customers and ultimately strengthen their positioning in the market.
Potential for Revenue
Many telcos are seeing an alarming, downward revenue spiral. In fact, a 2015 report shows that revenue declines for the telco industry are much larger than previously expected – with a potential decrease of $172 billion across nine markets estimated through the end of 2018. As they continue to suffer, significant hits to traditional service revenues – like voice, messaging and data – telcos need to look to hosting providers to help reinvent their business model and boost their revenue.
As previously mentioned, hosting providers’ complementary services are a key draw for telcos – but not just because they add value and a greater range of services. Bringing these complementary services together can also help increase service velocity for telcos’ businesses, thus improving overall service and reducing operating costs.
Acquiring hosting providers also builds the potential for new revenue streams for telco providers. Rather than spending the time to develop the market for these new services, telcos can turn to hosting providers to bring in cloud-based service offerings that can then be sold to existing customers. As such, it’s clear that hosting providers can help telcos create a differentiated cloud proposition that competitors will be challenged to match, thus offering the potential to rebuild lost revenues.
A Brighter Future
A changing telco market means that providers need to learn to adapt quickly – or risk falling behind. At the same time, hosting companies have seen others, like content providers and systems integrators, increasingly capturing portions of the IT market.
It’s a win-win for telcos and hosting providers to work together for a brighter path forward. By evaluating a hosting providers’ geographic coverage, complementary services and revenue potential, telco providers will be on their way to finding the right acquisition target that helps expand their service offering and secure a strong future.
