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Posted by Henry Dewing on July 16, 2010
NTT is set to buy Dimension Data (DiData) for US$3.2 billion. For decades, customers have lamented their traditional telco service providers’ lack of IT integration depth — today, NTT appears to be putting its money where its customers want. Following in the footsteps of more focused deals like BT’s acquisition of Wire One or AT&T’s acquisition of VeriSign’s Global Security Consulting Business, the acquisition of Dimension Data signals NTT’s intent to be a superpower in worldwide information and communications technology (ICT) solutions delivery. But, make no mistake, it is still only a small acquisition for NTT — as one of only three telcos in the world with more than US$100 billion in revenues, the US$3.2 billion acquisition price will have only incremental effect on the firm’s balance sheet.
Other than the right to say NTT owns a highly respected global ICT integrator, what’s in the deal for NTT?
- Almost US$4 billion in revenue and just over US$2.5 billion in assets. Although DiData revenue was down along with the entire IT industry last year, that is not a trend we see continuing — check out our April report, “US And Global IT Market Outlook: Q1 2010; The Tech Market Recovery Has Begun” — with a little less than half of it being “up the stack” services revenue where NTT wants to grow.
- Ongoing ICT relationships with 86% of the Fortune Global 100 and 67% of the Fortune Global 500. This is particularly important with leading firms in emerging geographies like Latin America, Africa, and the Middle East where NTT needs to grow. DiData is Cisco’s largest worldwide re-seller, it is Microsoft’s top 2009 large account reseller and has won numerous awards and works well with a broad cross-section of ICT vendors.
- A group of employees and set of processes that offer experience and capability in delivering IT services. DiData’s services continuum (Plan, Build, Support, Manage, Improve, Innovate) will give NTT an opportunity to engage existing and potential clients throughout their ICT deployments and life cycles.
Much was made of the complementary business lines and geographies in the press release. While that may mean that the businesses can continue to operate independently with ease, I believe NTT will have its work cut out for it to deliver extra-normal returns from the acquisition — and change the face of the ICT market moving forward. How can it do that? I see a few strategies that will help:
- Drive business in new and emerging geographies by leveraging on DiData’s brand permission to sell services and broker transport deals. DiData, an NTT company, will have more ability to enter both the wire closet and the switch room to integrate public transport and private ICT services than either company has today — but NTT must be careful not to damage the DiData reputation by pushing NTT transport or services where they are not optimal for the customer.
- Offer complex managed services with single vendor simplicity within NTT’s footprint. In areas where NTT services are optimal, the new NTT can offer a whole new set of managed services capabilities to existing clients, driving the growth rate of the services business higher and improving overall customer service and satisfaction for those converged clients, as the economy recovers.
- Leverage NTT and DiData network and data center assets to build next-generation service platforms. With global assets and relationships, the new NTT must capitalize on market demand for the pay-as-you go business model and deliver “cloud services” starting with the unified communications and collaboration services it is already known for, as well as continuing to build new lines of business, like business process hosting. This gives NTT a good “cloud transition” strategy. I don’t see most enterprises aggressively adopting public cloud services for another 2-3 years. In the meantime, though, they will aggressively build their own internal/private clouds within their datacenter. DiData gives NTT the ability to participate in that transformation, capitalize on the hybrid internal/public cloud, and make sure the architecture is designed to burst over to NTT’s cloud services when ready.
When the deal closes in the fourth quarter, I hope to see the combined company deliver the full set of managed services (from networks to applications and from on-site to in the cloud) across the ICT market landscape leveraging the unique capabilities and geographic coverage that this global juggernaut has to offer.
How do you think the integration will be executed? And what do you think is the highest priority for the combined company when the deal is closed? Please join the conversation and leave a comment.
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