Analysis: 4 reasons why Verizon bought Terremark

When Verizon announced its acquisition of Terremark I was meeting with Silent Partner's Kevin Francis.  We chatted about what it meant to the industry, and he quickly fired off some e-mails to a few others to discuss the implications of Verizon purchasing Terremark and how it affects the industry.

Kevin gave me his 4 reasons why he thinks Verizon bought Terremark.  Here is the official Verizon press release if you want to hear the official company line.  And where Terremark's data centers are.


Reason #1.  What is the most valuable asset Terremark has?

  1. Control the largest and most strategic Latin American gateway in the US.       

                just as Google acquired 111 8th Avenue to create a gateway or hub for International carriers and ISPs to meet and interconnect with one another and Google, Verizon gains control of the largest access point for Latin American carriers (and therefore eyeballs) in the United States.  This gives them an immediate and frankly scary amount of control over the ingress / egress of US traffic to Latin American eyeballs and vice versa.  Global Crossing has traditionally been the one to “own” Latin America based upon their fiber assets in region.  Verizon now trumps GX by controlling the main interconnect point and peering fabric of NAP of the Americas.

What is the Terremark Latin American Gateway?

NAP of the Americas

Terremark's flagship facility, the NAP of the Americas®, is one of the most significant telecommunications projects in the world.  The Tier-IV facility was the first purpose-built, carrier-neutral Network Access Point and is the only facility of its kind specifically designed to link Latin America with the rest of the world.

NAP of the Americas - Tier IV South Florida Data Center

Miami has been ranked as one of the top-five best interconnected cities in the world, ahead of San Francisco, Chicago and Washington, D.C. Terremark's NAP of the Americas makes Miami the only city in the U.S. where Optical, Ethernet, MPLS, Voice and Internet traffic is handed off in a single location.

Reason #2.  It's all about the cloud.

    2.  Cloud
                Verizon instantly has a viable cloud product available in the US and Europe which is built on Vmware’s Vcloud Express platform which Verizon also uses.  Both parties are members of the vCloud initiative and thanks to Vmware’s 5% stake in Terremark they effectively get $70 million dollars worth of Vmware’s money too.  Last September VZ put their toe in the water with Terremark and begain white labeling their cloud to circumvent their time to market problems they were experiencing building their own cloud product.  In addition, Terremark is huge in the federal sector thanks to their NAP of the Capital Region and has existing federal customers on their cloud (a feat few can claim).  Interesting to note that last November Terremark was selected to host the FCC’s cloud initiatives.  Is this leverage over the FCC for regulatory negotiations?? hmmm

Reason #3.  We want the people and their customers.  Note this supports why Verizon will let Terremark exist as a subsidiary and keep the Terremark brand.

   3. If you cant’ beat ‘em, buy ‘em
                Witness Cyrus One’s acquisition by Cinncinnati Bell and HyperTec’s acquisition by Bell Canada.  Carriers have realized that they don’t have the right personnel and intellectual capital to build modern, high density carrier neutral facilities. 15 years after deregulation the LECs and Tier1 operators are still saddled with a dated go-to-market strategy whereby they mistakenly believe selling non-carrier neutral sites will guarantee they control customers and gain all of their associated wallet share of network services.  Finally they are conceding to the fact that the 2nd generation of carrier neutral operators are running circles around them in terms of 1) acquiring emerging growth and tech centric customers (content, gaming, financials)  and 2) keeping them via sticky products like peering and Ethernet exchange platforms.   If you  can’t beat em’, BUY ‘em!  Adjunct to this point – I would argue that Terremark’s Design and Engineering team is one of the best in the market today. They deploy true Tier III sites vs Equinix and others (tier II).

Reason #4.  Security and Federal government market.  I was just talking to a friend who works for Department of Homeland Security and he has toured the Terremark Culpepper, VA data center which he says is one of the best secure data centers.

4. Security Expertise
                Terremark - Verizon has a huge managed security service provider division thanks to their acquisition of Cybertrust in 2007.  Terremark brings two key elements to Verizon’s MSSP practice.  1) Vision / Strategy.  Terremark is a leader in this area thanks to their acquisition of Data Return and their industry leading personnel like Christopher Day, Chief Security Architect.   2) Terremark has excellent knowledge and experience around deploying and operating secure systems in a cloud environment. This will prove to be a huge leg up on the competition as folks try to tackle the security problems associated with enterprise cloud.

Another analysis published is here, but they don't go into nearly as much depth as Kevin does and they don't make the point that NAP of America as the #1 asset.

DataCenterKnowledge posts on Verizon plans to keep Terremark as a carrier neutral facility.

Verizon: Terremark Will Remain Carrier-Neutral

January 28th, 2011 : Rich Miller

Can a telecom carrier own a carrier-neutral Internet exchange point? Many in the data center industry may be skeptical of the idea. But executives at Verizon insist that its $1.4 billion acquisition of Terremark will not mean any changes for Terremark’s carrier-neutral colocation business.

Peering sites work best in carrier neutral locations.

Terremark an Independent Subsidiary
“We have very specifically set Terremark up as a wholly-owned subsidiary, and Manny and his team will be independent,” said Lowell McAdam, president and chief operating officer of Verizon. “We’re not going to try to cramp their style at all. There will be no moves to take certain customers out of play.”

“Our business model is not changing,” said Terremark CEO Manuel Medina. “Our carrier-neutral colocation business will continue as is.”

How will this play? The carrier hotel industry was born out of unhappiness with incumbent telcos and challenges in deploying equipment in central offices. After the Telecom Act of 1996 opened the U.S. phone market to competitive carriers, incumbent phone companies were directed to provide their new rivals with access to central offices to house equipment and make connections.

fyi, a reason I listen to Kevin is his company's business is advising clients on their network strategy.


Next big carrier hotel to be bought is One Wilshire in LA.  Major tenants are.

Core Site
Data center and property management company
Musick, Peeler & Garrett LLP
National law firm
Verizon Communications, Inc.
Broadcast and communications provider

Huh, Verizon is a major tenant.  Do I hear a bidding war for One Wilshire?  Google, Verizon, who else will join in?  Whoever can build a worldwide data center solution first has the advantage.