Co-lo chameleons looking for new model

Money changes everything. In the wake of capital markets drying up, service providers have been left scrambling to find ways to add longevity to what were once thought to be iron-clad business plans. Yet, somehow those providers have to make sure they don't stray too far from their core competencies. Providers focusing on co-location as an integral part of their strategy are facing some radical changes to ensure a healthy business plan in the future.

The glut of capacity and service providers has wreaked havoc on financials. While demand for co-location sites is always blossoming, the interest in spending capital for that connectivity is still on the decline, and so are the companies whose strategy relies only on co-location services.

“The original vision with the co-location space was to bring bandwidth connectivity together,” said Ira Morris, senior vice president of equal access for Universal Access. “That worked when there was a boom in the industry, and capital wasn't a major issue. Capital changes the vision greatly, and while providing space and power worked before, it won't work now that there is a glut of co-lo space.”

As service providers continued their buildouts and capital tightened, they started to question how much they were actually getting out of the co-location space, said Morris. Earlier sites had access to multiple carriers, but they were becoming very restrictive. “Carriers have to get very creative. We look at those [co-location sites] with good space and talk about partnering,” Morris said.

One of the major faults in the CLEC model comes from too many providers in the same metro area, chasing the same buildings.

“And then the building next door won't have anything,” Morris said. “We are looking to tie together assets [from multiple carriers] in a single point of connection so they don't have to expel capital to [get to] each.”

“They thought of each other as competition rather than the RBOC and never interconnected,” Morris said.

Universal Access essentially acts as a service provider dating service by interconnecting carriers and providing the needed capacity.

Considering the need for co-location isn't going away, adding more capabilities, flexibility and services is clearly critical.

Sprint recently opened up its Internet Center in Richardson, Texas, which is the sixth of 10 planned to open this year. Within those centers, Sprint E|Solutions is offering a mix of co-location, Web hosting and IT professional services.

“We are different from others like AT&T, WorldCom and Qwest,” said Keith Paglusch, president of Sprint E|Solutions. “We bring together the various pieces of Sprint. Qwest for example doesn't have the full gamut we do.”

The center sits directly on Sprint's OC-48 backbone. And although Sprint has several thousand square feet of its Richardson center devoted to co-location space, Paglusch noted that co-location is not the focus.

“We are really focusing on managed services,” Paglusch said. “Others set up you-store-it places.”

With conventional wisdom saying co-location alone is out, partnership is in.

“Our model is not to build huge [co-location sites],” Morris said. “From an operational standpoint, getting leaner and meaner is an absolute necessity as is conserving cash.”

“We bring together fragmented networks, and we [are considering] who else could benefit from that,” Morris said.

“The name of the game is scalability and driving unit cost down,” said John Coons, vice president at Gartner Dataquest. “As long as [a product] is priced right and is reliable, it will make everyone happy.”

Universal Access interconnection facility

UTX facilities differ from co-location facilities by interconnecting networks of disparate carriers and expanding their network footprints.

Source: Universal Access