Verizon To Buy Terremark For $1.4 Billion

Top 10 Cloud Stories Of 2010

Verizon, in a move that brings it to the front tier of cloud services providers, is acquiring Terremark Worldwide, a supplier of secure and government-oriented cloud infrastructure, for $1.4 billion.

Verizon will pay $19 a share for Terremark between Feb. 10 and 17, or a 35% premium over Terremark's recent closing price. Shares of Terremark moved up $4.90 quickly in early trading Friday to be exchanged at prices just below the $19 mark.

Terremark's board has approved the purchase and the deal is expected to close in the first quarter. The premium reflects the value Verizon places on cloud services as an avenue of growth into broader business services.

Terremark has quickly established itself as a supplier of extra-secure cloud services to government agencies that require them, with data centers in such locations as Culpepper, Va., where the first of five secure facilities has been built on a 30-acre site. Terremark also operates data centers in the Silicon Valley and 10 other locations.

Verizon was already an operator of data centers around the world and had recently announced its plans to expand the number with facilities dedicated to providing cloud services. Combining data center services with its global wired and wireless networks gives it an advantage in delivering business services, said Patrick Vanhoeven, manager of cloud services, speaking from Verizon headquarters in Beltsville, Md.

In an interview Jan. 18, he said, "Few have the ability to turn off Internet traffic (between a business customer and a cloud data center) and route sensitive data across a IP line," as Verizon can.

Verizon also worked closely with the Payment Card Industry (PCI) Council last summer to architect a secure transaction-executing system in the cloud that could be certified as PCI compliant on the cloud provider's side. The originator of the data would also have to show that his systems were PCI-compliant for the whole transaction to be considered PCI-compliant.

By Aug. 18, Verizon was the first certified executor of PCI transactions in a cloud setting. Amazon Web Services soon followed Dec. 7 with certification of EC2 systems.

Top 10 Cloud Stories Of 2010

Verizon also lined up early behind VMware, offering server provisioning and management that was compatible with VMware's ESX Server hypervisor and virtual machines. That simplifies the task of IT managers trying to send workloads into the cloud, when they already have VMware virtual machine monitoring systems. Another telecommunications supplier, AT&T, is following a similar route with its Synaptic Compute Cloud.

By adopting VMware's vCloud Datacenter management systems, Verizon offers enterprise customers the chance to engage in cloud computing "using the same VMware technology as they do in their own data centers," said VMware's Paul Maritz in a joint announcement with Verizon last August.

VMware compatibility "allows us to go after hybrid cloud use cases," said Vanhoeven in the interview. The term hybrid cloud is used to indicate a public cloud supplying services that work in close conjunction with a private data center with workloads sometimes shifted between the two for maximum efficiency.

A VMware user in the enterprise may also send a VMware workload to Amazon's EC2, but that is a relatively recent development. On Dec. 16, AWS announced that EC2 has a tool that recognizes VMware virtual machines. EC2's preferred VM format is its own Amazon Machine Images, a variation of open source Xen.

Verizon's acquisition of Terremark, along with these developments, are indicators of how quickly cloud computing is becoming an extension of enterprise data centers and used for hosting some workloads that IT managers decide to offload there.

Vanhoeven said Verizon will move beyond infrastructure as a service, the equivalent of the AWS EC2 cloud, into platform as a service, where extensive tools and components are offered to cloud users in connection with their applications, and software as a service.

"There is no single cloud model that is going to prevail," he said, summing up Verizon's view. "To be successful, you need to offer a continuum of capabilities."

Verizon maintains cloud data centers in Amsterdam, Hong Kong, and Beltsville, Md. Additional cloud data center capacity will be added by the end of the first quarter of 2011 in London, Canberra, and San Jose, Calif. Two additional data centers will come on line in Culpepper, Va., and Miami by the end of the first quarter to supply cloud services to the U.S. government.

As a telecom provider, Verizon manages 200 data centers worldwide, with the bulk of them dedicated to its network and telecommunications traffic, hosted services, and co-location services.