The Equinix bid for Telecity. Purely a spoiler, or something deeper?

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You have to ask the question, was Equinix caught a little flat-footed by the proposed Telecity Interxion merger when it was announced back in February? The announcement on Thursday by Equinix of a bid for Telecity valuing the latter at £2.3bn certainly appears on face value as a spoiling tactic. While the timing may have been forced by the Telecity Interxion move I suspect that there are a wider range of market and competitive issues that have driven Equinix to act now.

While Equinix has a very strong global position in the market for applications that are route and switch focused, they have made no secret of their ambition to grow their share of the more compute and store oriented enterprise market that is moving towards greater hybrid cloud adotion. The acquisition of Nimbo and the tie up with Microsoft to deliver Office 365 connectivity via Azure both speak to that goal.

Initially Equinix were fairly bullish about the situation, stating that Enterprise customers were coming to them because of their global footprint. Unless the new merged Telecity/Interxion combine had some serious acquisition plans it would take them many years to build up the sort of global coverage enjoyed by Equinix. The world, however, is rarely that binary. Enter NTT. The Japanese telco and data centre provider has been making some serious global moves recently. Already one of the dominant players in Asia-Pac strategic acquisitions of Raging Wire in the US, and importantly, e-shelter in Europe pose a real challenge to Equinix global position.

The other unknown in the Telecity/Interxion scenario was the reaction of the ISPs. The position of both Telecity and Interxion in the internet exchange market place in Europe is, arguably, stronger than Equinix. If ISPs feel that scale is important in this space it could possibly have a knock on effect on Equinix ambitions. Throw in the strategic moves of NTT in Europe and Equinix could find itself seriously challenged in one of the most important data centre markets in the world.

At the same time most people discount the likely impact of AWS on the co-location and inter-connect marketplaces. This is to ignore both the advances that AWS has and is continuing to make into the Enterprise market, and their proven ability to drive cost out of the data centre. Longer term this could eat into the available market for Equinix offerings, even if AWS isn’t exactly a direct competitor.

In this environment making a move on Telecity seems entirely logical. The culture of the two organisations and their go-to-market model is very similar. A combined market share of 17% in Europe would give Equinix/Telecity a clear lead over their nearest rivals in Europe and strengthen their defences in a key region.

As to the deal itself’ 17% market share is hardly likely to exercise the regulators in Europe about competition and monopolies, although there will probably been some discontent voiced by smaller players, and a hefty premium on the share price may be too much for Telecity investors to ignore.

This post first appeared on the old Cassini Reviews website.