RBOC Throws Bone to SSP

StorageNetworks Inc. (Nasdaq: STOR), a storage service provider (SSP), has received some help from an unusual source: BellSouth Corp. (NYSE: BLS).

The RBOC has thrown StorageNetworks a life-line in the shape of a three-year contract, under which it will sell the struggling SSP's storage software as part of its managed hosting initiative. The financial terms of the deal were not disclosed (see StorageNetworks, BellSouth Partner up).

Like many SSPs, StorageNetworks has been forced to reshape its business model, blaming its woes on the demise of the dotcoms. Instead of owning costly networks and storage facilities, it now plans to piggy-back on the established carriers (see StorageNetworks: Big Layoff).

The deal with BellSouth is the first of many, we hope,” says John Clavin, executive vice president of marketing at StorageNetworks.

This quarter, BellSouth plans to offer StorageNetworks' STORvision command and control software as part of its managed hosting service. StorageNetworks says its software provides capacity and utilization information across heterogeneous storage networks, informing the customer how its storage is being used. Next year it plans to add backup and recovery services to the package.The deal is an important win for StorageNetworks as it provides the company with access to customers it would otherwise not have been able to reach. “BellSouth is in a part of the country where we don’t have facilities,” says Clavin. In fact, the SSP has actually been closing down facilities across the country that it can't afford to support. The deal also offers a way into small and mid-sized companies, which have not been a focus for StorageNetworks up to this point.

BellSouth is in nine southern states: Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee. StorageNetworks has facilities in New York, London, and Tokyo.

Since the deal was signed yesterday, rumors that BellSouth might ultimately acquire StorageNetworks have been buzzing around on Wall Street. However, “It’s more likely to be a service provider with a global reach than BellSouth, which limits them geographically," says Harsh Kumar, analyst with Morgan Keegan & Company Inc. He added that consolidation in the SSP market is about to happen -- and fast: “This time next year there might be one or two left." Now, that's Harsh!

Kumar's prediction is given more weight by all the hungry carriers out there looking to "add value" to their data service offerings, namely MCI WorldCom (Nasdaq: MCIT), SBC Communications Inc. (NYSE: SBC), and Qwest Communications International Corp. (NYSE: Q), all of which are making moves toward offering managed storage services.

StorageNetworks is due to report its third-quarter earnings before the bell on October 18.— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com