Top Telecoms Have Their Heads in the Cloud

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Will the cloud burst, or is it here to stay?

There's been a lot of recent hype surrounding cloud computing. Although the cloud has brought with it a few security concerns, many analysts claim that it could change the way we view IT.  

CenturyLink (NYSE: CTL  ) sees it that way. In late April, it announced plans to acquire IT infrastructure company Savvis (Nasdaq: SVVS  ) ina deal valued at about $2.5 billion -- solely for the purpose of catering to the growing need for cloud computing. The announcement came only weeks after CenturyLink became the third-largest telecom provider in the United States after concluding its merger with Qwest. Clearly, the industry is moving toward the cloud.

Telcos are obviously not the first movers to this party. Google's Gmail and YouTube and Yahoo!'s (Nasdaq: YHOO  ) Yahoo! Mail are all examples of cloud computing. And sites like these have been dominating for some time.

Why the shift?
One of the main reasons these telcos are turning to cloud computing is the lackluster growth in their traditional business lines. Old-school landlines are going the way of the dodo, a trend that holds strong with urban dwellers and that's now moving outside the city limits. A report in The New York Times quoting Cowen & Co. analysts says there have been a lot of recent landline disconnections in rural areas. For traditional fixed-line businesses serving rural communities, the escape to the cloud may provide new avenues of growth -- or, perhaps, a last grasp at survival.

For data service providers, the cloud offers a larger market base and allows them to become part of a wider global network. Cloud computing is inevitable, and I think it will eventually become universal. When that happens, these providers will reap the benefits.

The cloud-computing boom is attracting the industry's top players. As business slowly move away from on-site severs, the need for companies like Savvis will grow to propel these businesses to the cloud.

However, CenturyLink isn't the first telecom player to stick its head in the cloud. Earlier this year, one of America's largest telecom carriers, Verizon (NYSE: VZ  ) , announced plans to purchase data storage service provider Terremark. We may soon see the nation's largest carrier, AT&T (NYSE: T  ) , more aggressively target the market, too. After all, how long can it afford stay out?

What now?      
After all the buyout mania we've recently seen, who's still available for acquisitions or partnerships? Well, we may soon see some of Savvis' peers, such as Equinix (Nasdaq: EQIX  ) and Rackspace (NYSE: RAX  ) , enter into deals with other telecom players. I think that in the next 10 years, most, if not all, companies, will possibly switch to cloud computing for a significant portion of their infrastructure. If that time comes, cloud-service providers should see their top and bottom lines skyrocketing.

I think now is the best time to enter into this sector. Making the move now provides them with a new line of business for the future -- a future that seems more bright than cloudy.

Fool contributor Shubh Datta doesn't own any shares of the companies mentioned above. The Motley Fool owns shares of Yahoo! Motley Fool newsletter services have recommended buying shares of AT&T, Rackspace Hosting, and Yahoo! Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (22)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 06, 2011, at 11:39 PM, jwidenerga wrote:

    @Shubh - Great article, with some great points.

    One of the other significant diiferences between a network provider like AT&T vs many other cloud providers today is the ability for an AT&T network services customer (think MPLS based network services) to add the data center(s) where our cloud infrastructure sits as a node on their private network.

    Having this option for direct private network access vs. accessing cloud resources via the public internet provides a higher level of assurance for many customers looking to make that leap into the 'cloud'.

    Joey Widener

    AT&T Hosting & Cloud Services

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