Verizon: Terremark Will Remain Carrier-Neutral

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.

Verizon (VZ) said yesterday that it will buy Terremark (TMRK) for $19 a share as a way to accelerate its "everything-as-a-service" cloud computing strategy. The deal is driven by Terremark's progress in managed services and cloud computing, but Verizon said it also valued the colocation business. That point was emphasized by executives of both companies in a conference call this morning.

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.

The new carriers were largely unhappy with the arrangement, and soon began leasing space for their equipment in sturdy buildings located next to telco central offices. This strategy provided easy access to telco networks, but with the additional control and space they desired. Carriers and data center providers quickly filled buildings like 60 Hudson Street in New York, One Wilshire in Los Angeles, 350 East Cermak in Chicago and 401 North Broad Street in Philadelphia.

Terremark's NAP of the Americas in Miami was the first effort to build a major Internet exchange from the ground up, as a dedicated data center building. More than 160 global carriers exchange data at the huge, 750,000 square foot building, which is a key Internet gateway to Latin America.

Will those carriers be comfortable with Verizon as their landlord - even if Terremark continues to manage the property? Despite the assurances that Terremark will remain carrier-neutral, securities analysts wondered whether the deal might lead to the loss of revenue from customers who remain unconvinced and depart.

"From a carrier-neutral perspective, we don't think (customer loss) is a big risk," said Fran Shammo, Verizon's Chief Financial Officer.

What do you think? Will it remain business as usual? Share your thoughts in the comments.