AT&T is reportedly looking to sell its data center assets as part of a broader effort to pay for pending acquisitions.
The Wall Street Journal is reporting that the communications giant has enlisted the help of Bank of America to find a potential buyer for the data center assets. The report notes AT&T generates about $135 million in earnings per year from its data center holdings with a potential sale price expected at around $1 billion.
AT&T has dozens of data centers located around the world.
Among a number of other recent deals, AT&T is in the process of acquiring Time Warner for $85 billion. That deal has been held up by political wrangling with regulators.
Analysts noted a potential sale of its data center assets would follow recent trends by other operators in exiting the increasingly competitive and commoditized data center space.
“Once upon a time there was logic to combine transport with the data center, but that logic never materialized in the real world,” explained Roger Entner, founder and president at Recon Analytics. “What customers are looking for is to pick the best transport and pick the best data center. With that the whole case for a carrier-owned data center disappears.”
Entner noted that AT&T’s market share pales in comparison to players like Amazon, Google, and Microsoft. And that AT&T’s data center business is more of a distraction internally than it’s worth to operate.
“What aggravates the whole situation is that in data centers it’s all about economies of scale,” Entner said. “If you are the largest you will have the lowest prices. Being a $100 million data center business is just not enough scale. And, the five to 10 minutes AT&T’s management uses to discuss its data center business each quarter is probably about five to 10 minutes too much.”
AT&T in late 2015 sold its managed services business, which included data center space, to IBM for an undisclosed amount. That deal reversed a 1998 transaction between the two companies that had IBM selling its Global Network business to AT&T for $5 billion.
Leading up to that deal, AT&T was also looking to sell its data centers. However, it eventually just moved the hosting business.
Billion Dollar Opportunity
The potential $1 billion price tag could be a deal for a buyer.
Verizon in 2016 sold 24 data centers to Equinix for $3.6 billion. The 24 sites consisted of 29 data center buildings across 15 metro areas, comprising about 2.4 million gross square feet. It also included about 900 customers.
The Verizon-Equinix deal followed on the heels of CenturyLink announcing plans to sell its global data centers and colocation business to a group of private equity funds for $2.15 billion in cash and a minority stake valued at $150 million. That deal included 57 data centers across 2.6 million square feet of raised floor capacity.
Both deals included agreements that had the selling operator leasing space and services back from the data centers.
Entner noted that AT&T was likely to find a buyer for the data center assets if it’s truly interested in selling. “There’s always a buyer out there, depending on the price,” he said. “Those deals for Verizon and CenturyLink should reinforce to AT&T that now is probably a good time to sell. It’s time to take Kenny Rogers’ advice and ‘know when to fold ’em.’”
A recent report and survey from IHS Markit hinted that operators selling their traditional data center assets could lead to plans for more focused deployments.
The survey found that 85 percent of operators questioned said they plan to create or to have deployed mini data centers in select central offices. The research firm characterized these mini data centers as including servers, storage, and switching designed to offer cloud services.