WorldCom Inc.’s planned US$3 billion acquisition of Intermedia Communications Inc., which WorldCom announced yesterday is the first step in what some analysts predict will be a series of investments by telecommunications companies in the volatile application service provider (ASP) market.
WorldCom – which agreed to assume $3 billion in debt amassed by Intermedia – indicated that the deal would give it a controlling interest in Beltsville, Md.-based ASP Digex Inc. After the acquisition is completed, WorldCom would own 55 per cent of Digex outright and 94 per cent of the application and Web site hosting company’s voting stock.
Speaking today during a panel discussion on ASP trends held via teleconference, Rick Sturm, president of Enterprise Management Associates Inc. in Boulder, Colo., said he expects the WorldCom announcement to be a harbinger of more ASP buyouts by telecommunications vendors. Those companies “will be a strong avenue of consolidation in the [ASP] industry,” Sturm said.
The interest of WorldCom and other large telecommunications carriers should benefit information technology managers who are considering signing on with ASPs, according to Sturm. Companies such as WorldCom understand service level agreements and how to work with large IT operations, he noted.
Amy Mizoras, an analyst at International Data Corp. in Framingham, Mass., said the merging of data centre resources owned by telecommunications vendors with application hosting capabilities would help reduce infrastructure costs of ASPs – a move that could put pressure on even independent-minded hosting firms to accept mergers.
Nathan Ridnouer, a program manager at the Information Technology Association of America, said the Arlington, Va.-based computer industry trade group agreed that telecommunications companies are “trying to gain some visibility” in the ASP business through deals such as the one announced yesterday by WorldCom.