WAN Services /

Let the bargain shopping begin

By Denise Pappalardo
Network World Internet Services Newsletter, 04/23/01

It has been reported recently that Cable & Wireless may be interested in purchasing Exodus Communications.

This rumor first surfaced last week in a newspaper in the U.K., and it was quickly picked up and repeated in several stories on the Web.

But the fact is, Cable & Wireless wants to move away from supporting collocation services. Instead the service provider, like many others, wants to build up its complex Web hosting business. Clearly there's the promise of higher revenue with complex Web hosting because the service provider will essentially support a customer's entire e-commerce operation and Web site.

And as the company's Chief Executive Graham Wallace puts it, "there's more stickiness" with complex Web hosting, meaning less churn, than with collocation services. It's easy for a company that's buying collocation services to pick up one of their servers and move it from data center to data center, maybe looking for the best real estate deal. Collocation is essentially buying space in a service provider's data center that is typically better connected to the Internet than most any large business complex.

Why all of this talk about collocation? Because collocation services make up the majority of Exodus's revenue. It doesn't make a whole lot of sense for Cable & Wireless to acquire Exodus when it is trying to move away from collocation support.

It is true that Exodus, like many of its competitors, is trying to build up its complex Web hosting business, but the fact is that the service provider's history of expertise is not in this arena. And the sheer number of Exodus hosting facilities may be too large for Cable & Wireless; Exodus has 42 data centers, primarily in the U.S. but with several in Europe, Japan and Australia.

Cable & Wireless likely doesn't need that much hosting real estate.

Although Exodus may not be on Cable & Wireless's radar screen, clearly it is watching other service providers that are teetering on the brink of disaster.

The first company that comes to mind is PSINet. The ISP has been on the verge of filing for bankruptcy protection for over a month. It's already sold off some of its assets, but at this point, is still holding on to its network assets. (See www.nwfusion.com/news/2001/0417psinet.html)

Cable & Wireless may be able to come in and buy up PSINet's data centers and add those facilities to its network. It is almost guaranteed that the data centers will be sold at a cut-rate price.

Another possible acquisition target is NaviSite. The Web hosting service provider is essentially up for sale. NaviSite offers managed Web hosting, collocation and application hosting services; it has 8 data centers. NaviSite may be a better fit for Cable & Wireless because it, too, has an application service provider business and data centers around the U.S.

NaviSite stock is one that has been hit hard, trading below $2 last week - which means Cable & Wireless may be able to acquire NaviSite also at a cut-rate price.

Of course, this is only my opinion. The official word from Cable & Wireless is that they do not comment on rumors or speculation.