Hosting market under gun

In its US$340 million bid to buy Digital Island last week, telecommunications giant Cable & Wireless PLC aggressively expanded its IP and data services firepower with content delivery and managed hosting services.

The move underscores the continued efforts of telecom providers to take low-cost advantage of an ailing hosting market and reinvent themselves with data and Internet services, analysts said.

According to Greg Howard, principal analyst and founder of the HTRC Group, the acquisition reflects the growing importance of data offerings in the telecommunications services mix.

"The focus now is on quality of customers, not [the] sheer number," Howard said. "C&W understands that value-added services are a critical differentiation in the market."

Digital Island leverages a global network of datacenters and servers to speed Web content delivery and manage Internet services.

Another provider ramping up data offerings is AT&T, which has quietly grown its own content delivery network service, AT&T Intelligent Content Distribution, to complement a long list of IP and data offerings.

"Having the hosting, content delivery service, and underlying network is very important to us," for customer choice flexibility, said Rose Klimovich, director of AT&T's global IP network services.

However, customers may prove reluctant to receive critical applications from their network infrastructure provider, said Warren Wilson, practice director at Boston-based Summit Strategies Inc.

Customers should field offers for their hosting and services needs but must keep in mind possible integration headaches, he added.

Citing Qwest Communications International's alignment with Hewlett-Packard and IBM, telecom providers have a mountain of cash to spend to acquire IT expertise beyond their internal grasp, said Lisa Perri of Aberdeen Group.

Perri predicts that more acquisitions of hosting companies will follow this year, possibly including some big names such as Exodus Communications Inc.

New assets fortify cable & wireless war chest* Managed hosting services* Content delivery services* 10 datacenters* 2,550 edge servers worldwide* 800 customers

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More about Aberdeen GroupAT&TCable & WirelessCommunications InternationalDigital IslandExodusHewlett-Packard AustraliaHTRC GroupIBM AustraliaIslandQwestQwest CommunicationsSummit Strategies

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