The international wholesale division of Deutsche Telecom AG (ETR:DTE, news, filings) entered the content delivery (CDN) business today, announcing a partnership with Edgecast. They are the sixth carrier to enter the CDN marketplace in any substantial way, and the first based in Europe. One wonders why they didn't just buy Edgecast, which is about a hundredth or even a thousandth of their size.
However, there is a pattern developing now which revolves around the asset base of the carrier. The three US based carriers - Level 3, AT&T, and Verizon have their own CDN. Verizon's plans are based on Velocix gear but are rooted in their own backhaul network and for their own customers speed. The three non-US based carriers - Reliance Globalcom, Tata Communications, and Deutsche Telecom - have all chosen to enter via partnerships and resale agreements. They are leveraging their networks of course, but mainly outside of the US. The reason, quite simply, is that as powerful as they are they just don't have the US based assets to compete more directly, and the US remains the revenue center of the CDN world for now. Although if they don't start improving last mile broadband speeds it surely won't stay that way for long.
When the drumbeat of carrier entry into the CDN market got heavy this summer, I read it as M&A and was a bit doubtful. They did enter the market, but M&A in fact has not happened, just partnering and resale. I'm not terribly convinced that these resale agreements and partnerships are really going to reap the dividends some of these carriers are hoping for. Dipping a toe in the water doesn't win you many swimming medals. And it's not always a panacea for the small partner either. Just ask Deltathree (OTCBB:DDDC, news, filings) how that Verizon Voicewing voip partnership went. Yes, I'm a bit jaded about such deals between a large telecom that isn't sure what they want to do and a small, fiery technology startup that has few choices in a crowded market. It didn't go well in VoIP, I hope it turns out better for CDNs.
That said, 2009 is shaping up to be a very interesting year in the border region between telecom networks and content delivery. And with Limelight Networks (NASDAQ:LLNW, news, filings) seeing its future in the courts clearing up a bit, perhaps we will see a carrier snap them up at last. Global Crossing or NTT America perhaps?
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