Company Strategy

Telx: Changing gear

After a decade of leading the market in interconnection services, Telx has turned towards Ethernet exchange services via a partnership with Neutral Tandem. Guy Matthews reports.


There aren’t all that many companies that started operations at the very tail end of the boom telecoms market of the 1990s, and which have survived to tell the tale. Co-location and interconnection specialist Telx is nothing if not a survivor. It has made a number of strategic touches to the tiller over the years, and somehow continues to stay relevant and defiantly afloat in a volatile and fast-evolving sector. Some tough challenges lie ahead however if it is to prosper for another 10 years. The last 12 months have seen Telx go through, even by its own standards, some pretty radical strategic shifts as it bids to move beyond reliance on a rapidly commoditising core business proposition – that of providing physical interconnection of customer networks within data centre facilities. Telx announced itself to the world in 2000 with the establishment of what was at the time the world’s biggest carrier-neutral, physical layer interconnection facility at 60 Hudson Street in New York. It now operates 15 data centres in nine different US cities, and remains a leader in the market for interconnection services.

It added 10 of these sites in 2006 through a tie-in with data centre owner Digital Realty Trust, and the following year added to its New York presence by acquiring NYC Connect’s interconnection facilities at 111 Eighth Avenue.

Entering the Ethernet world

Clearly knowing an opportunity when it sees one, Telx moved last year into the Ethernet exchange space, using its existing facilities to leap aboard a bandwagon set rolling by CENX and Equinix. A strategic partnership with US network operator Neutral Tandem now allows it to provide Ethernet exchange services across America, as well as in most of its own data centres.

Its biggest change of gear by far though has been the recent targeting of enterprise interconnection needs, a fair hop and a skip from its carrier-focussed past. The company’s strategy looking ahead now has twin prongs, says Brad Hokamp, Telx’s chief marketing officer.

"Firstly, we aim to continue to be a leader in interconnection services," he explains. "I’d say our locations are already the most strategically advantageous in the world. We’re at all the main US intersections where the major carriers connect. We started in Hudson Street, and we’re now in Chicago, LA, Dallas, Atlanta, Miami and so on. In all those places we have our ‘meet-me’ rooms where we offer everything from physical cross connect to virtual exchange services. Our Ethernet exchanges are a natural extension of that. Everyone’s moving to Ethernet."

Glenn Calafati, VP of interconnection services, fronts up the Ethernet initiative, and agrees that in short order Ethernet exchanges have become a major option for people wanting to connect their own footprint to other Ethernet networks: "The choice used to be to build another network, or set up a private NNI," he says. "Exchanges are a rapid and cost-effective way to achieve interconnection and are complementary to our other interconnect activities. We support many products in our portfolio, so we can say ‘Come over to us and we can migrate you to Ethernet tomorrow.’ We see Ethernet as one of the most prominent parts of the business in five years time."

Hokamp recognises that a pure focus on nothing but basic physical interconnect does not amount to a sustainable business model, in a market where carriers and enterprises are always after something a little extra.

"We of course continue to provide physical connectivity, but the value we offer these days is a little more in-depth than that," he says. "As well as connectivity, we provide more of a marketplace for customers to do business with each other. CBX Online, for example, is an online version of the regular CBX gathering we’ve been holding for the last 10 years. It’s our big customer event. Some 1,200 people came to the last one, in New York."

A new enterprise

The second part of the Telx growth strategy is, says Hokamp, centred around its fledgling enterprise push: "We’re concentrating our efforts to move more into the enterprise data centre market," he says. "Not only have we grown our service provider and carrier business, but we’ve penetrated verticals like financial services, as well as media and software-as-a-service (SaaS) companies. As we move into enterprise, we’re still using interconnect capability as our biggest asset."

He insists that the Ethernet exchange move is complementary not only to Telx’s carrier activities, but its new enterprise ones also: "Our Ethernet capabilities play a role in enterprise," he claims. "Enterprise customers are keen to use the exchanges to connect to service providers. All the verticals we serve have a high need for service provider connections."

Hokamp says he is proud of the job Telx has done over the years to identify new opportunities: "We’ve always established good partnerships to support that, such as with Digital Realty," he claims. "We’ve been able to grow faster than the market as a whole. Why? Because we’ve grown our regular interconnection business at the same time as evolving into new spaces. We’ve stuck to our main differentiator which is building an ecosystem for our customers to take part in. Also, there’s been a major increase in the traffic driven by the wider market, and we’ve done a good job of evolving our capabilities to meet that demand. We’ve expanded both our footprint, and our capabilities."

Another market change that Telx has reacted to is the cloud, offering cloud service providers a rallying point for connection with network partners and others: "We’re in front in a lot of areas now, including cloud, SaaS, IaaS," he says. "We’ve got a big focus there. We’re cloud neutral, selling high performance connectivity to lots of cloud providers. This will be an important part of the business when going forward." 

Going global

Telx, despite partnerships that spread its interests globally, has never established its own presence outside of US borders. So might it in the future? "I think we could be expanding offshore in time," says Hokamp, guardedly.

So how do independent voices rate Telx’s progress beyond traditional core activities? Mike Sapien, an analyst with the Ovum consultancy, believes the jury is still out.

"Telx is trying to make a transformation from its legacy carrier, wholesale-centric business of providing network connectivity and basic co-location services in major densely populated markets in the US," he says. "Its initial move was adding peering and some internet services, beyond basic network connections, within its ‘meet-me’ rooms, and also offering managed ‘meet-me’ room services in other data centres."

Sapien draws parallels with similar diversification moves that Switch and Data tried to make, prior to its purchase by Equinix in 2009.

"Switch and Data had the same challenge – the difficulty of making the transition from a carrier and wholesale model to a retail and enterprise model," he says. "Switch and Data was not that successful in making the transition, in my view." Telx has been forced to chose a way forward from a limited pot of growth options, believes Sapien: "It can try adding new data centres, which is very capital intensive, or finding partners that will let it manage their data centres," he says. "There’s the other option of moving into the enterprise market, which it has done. This move [to enterprise] is a natural expansion strategy, but it is a challenging transition that requires marketing and messaging changes, as well as data centre modifications, product and service expansion and sales channel retrofit."

Sapien observes that most carrier-focussed companies targeting enterprise business focus too much on presenting the move in the right light, and not enough on making actual changes to their data centres, product range, sales channel or marketing materials. "Modifications are needed to attract enterprise customers, changes to meet the expectation of the retail market versus wholesale customers," he says. "This includes complex managed services and equipment configuration, as well as increased power requirements, taking major effort and capital. My current view is that Telx hasn’t done too much other than putting messaging out that they are going to offer services to enterprise."

Part of the natural tendency of operators moving to a new enterprise strategy, he believes, is reclassifying certain customers as enterprise customers, when they are really better described in other ways – as aggregators, ASPs or resellers. "Telx is just starting its enterprise transition, and has made some minor progress, but I haven’t seen major changes to the data centres, products offered or sales channels," says Sapien.

key facts 

Ownership: Telx is owned by GI Partners, a private equity firm.

CEO: Eric Shepcaro.

Financials: Telx’s most recent full year figures are for 2009, when it turned over $98 million.

Network: Telx has no network, but operates a national portfolio of 15 strategically located interconnection and co-location facilities across the US.

Customers: Telx serves more than 750 telecommunications carriers, ISPs, content providers and enterprises from its data centres.

Services: Telx provides a selection of co-location, interconnection and exchange services to service providers and enterprises.  


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