Telco Connection

Web hosters export know-how

The web hosting story unfolding in Europe is remarkably different from the tale told in the U.S.

Instead of spending billions on the construction of data centers around the world, as AT&T, Sprint and WorldCom, have done, and instead of following the spendthrift path cut by international carriers — like Cable & Wireless — British Telecom, Swisscomm and Telefónica are pursuing partnerships to further their Web hosting ambitions.

In Europe, the large national telcos have made a distinction between owning colocation facilities and fully pursuing the Web hosting business. While telcos own their share of data-center space, BT just cut a deal with Rackspace Managed Hosting of Austin, Texas, for managed hosting. Spains Telefónica, which dominates South American markets, picked Globix for joint hosting. Swiss and Italian telephone companies cut deals with Verio.

Web hosters say Old World telephone companies have accepted their limitations. With the exception of NTT Group, says Moos Bulder, president of Verios European operations, "there isnt a telco in the world with a good Internet Protocol strategy."

Before it was acquired by NTT, Verio blazed a trail of cooperation with European telephone companies, signing up Italys Infostrada, and Switzerlands Swisscomm. Working with the two telcos, Verio found that its value was in exporting people, skills and technological processes for setting up Web hosting, and in providing management of services, while its parters provided the real-estate know-how. This year, the cautious approach has given telcos an edge in the rapidly changing industry landscape in Europe.

"There is already today an overcapacity of a factor of 10 [in Europe]; Amsterdam has close to 20 facilities built and 10 ready to go, and there isnt even enough power for these facilities," Bulder says. "There is such an overcapacity that I get phone calls three times a week from CEOs who have these empty spaces asking if I am interested in it."

Italy, Spain, some Eastern European cities and Russias vast steppes are the only places where data center construction is still an attractive opportunity, Bulder says. As for the rest of these markets, offering Web hosting services without increasing pressure to pay for expensive data center facilities looks like a smart strategy. Such relationships are financially attractive to telcos and Web hosters. Verio execs say they generate 25 percent to 35 percent of new business through telco connections.

The business is catching on with other U.S. Web hosters. Rackspace, which became profitable in February, started talks with BT late last year and developed a Rackspace-powered offering in six weeks. Rackspace plans to use facilities in Austin and London for BT-related sales.

"I think BTs projection is to deliver $6 million in revenue through managed hosting sales, and a significant amount of this revenue will come from our relationship," says Lew Moorman, Rackspaces chief marketing officer.

BTs Rackspace-powered sales, as Moorman understands it, would target customers worldwide. New Yorks Globix and Telefónica have Latin America in their crosshairs. Telefónica has presence in the region, either owning or holding a controlling stake in subsidiaries in Argentina, Brazil, Chile, Colombia, Peru, Uruguay and Venezuela.

"We wanted access to Latin America — it was a natural fit," says Marc Bell, CEO of Globix.

Telefónica and Globix expect to announce the specifics of their venture later this quarter.