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IMN
SUMMER CONFERENCE:
Navigating Through The Wreckage
Focus
is on practical strategies for weathering the downturn
July 26, 2001 (SAN FRANCISCO) -- There were no
rose-colored glasses in sight as carrier hotel and Internet data
center operators gathered here today for IMN's summer conference.
In
numerous panels, the focus was on managing through adversity,
rather than being rescued by a rebound in the market.
Most of the 300 developers, investors and service providers who
gathered at The Palace hotel say they still believe in the future
of carrier hotels and data centers. They hope for a recovery,
but are hunkering down for a lengthy downturn.
"The
pessimism we feel in the telecom sector is simply not being sure
where the difficulty ends," said Jeff Burges, the COO of
Yale Properties, which owns six carrier hotels.
"How long will it last? No one knows, but I think it's probably
longer than any of us here would like to admit," said Stephen
Kelly, president of Kelly Consullting Group.
"In the last month or two we've heard questions emerge about
some large players," Kelly added. "I suspect six months
from now we'll see doubts about even bigger players."
The conference - IMN's second event devoted to carrier hotels
- opened on a day in which Exodus Communications said it will
have just $200 million left by the end of the year, and Level
3 said it intends to swap some of its high-yield debt for common
stock in order to conserve cash.
"Having Exodus as a tenant, it's a huge concern for us,"
said Hossein Fateh, principal in Du Pont Fabros Development. "When
we started out, their market capitalization was $50 billion. Now
it's $600 million."
Those lofty valuations of days gone by make today's difficulties
harder, panelists said.
"Someone once told me 'the better the party, the bigger the
hangover,' " said Tony Wanger of Sterling Capital. "This
(downturn) was three to five years in the making. We don't think
it's going to turn around in nine months."
"There are still tremendous losses to be taken in this field,"
agreed Jim Lavin, vice chairman of Switch & Data. "I
think you have to be quite pessimistic."
The agenda reflected the challenges of operating in a troubled
market. The usual sessions on investment strategies and supply
and demand were supplemented by panels on consolidation, loan
workouts, and ways for landlords to protect themselves when tenants
file for bankruptcy.
One
thing was clear - the shakeout in the telecom facilities sector
has a ways to go, and presents both risks and opportunities, particularly
for companies in position to acquire struggling competitors.
"The downturn will accelerate the need for consolidation,"
said Clifford Preminger, the president of T-Rex, a carrier hotel
developer.
"There's
certainly a lot of buying opportunity for people who've got money
and can stand a little short-term adversity," said Michael
Alter, president of The Alter Group and managing director of its
Ground Zero telecom hotel unit.
Several
panelists noted the recent auction of the assets of colocation
provider COLO.COM. The 25-facility network of data centers - which
COLO.COM spent nearly $400 million to build - fetched a top bid
of $55 million, sources said.
Those
kind of values will be attractive to companies still expanding
their data center networks, like Sprint.
"It's hard for me to believe they're going to go out and
build 100,000 square foot properties when there's so much product
on the market," said Wanger. "If it's available at 10
cents on the dollar, there's no reason to go out and spend $1.05."
OTHER IMN CONFERENCE COVERAGE:
Navigating
Through The Wreckage
Focus is on practical strategies for weathering the downturn
Analysts:
Hosting Models Can Work
But pricing, financing are major challenges, and the RBOCs are lurking
Smaller
Servers, Larger Loads
Ultradense server blades can pack racks - but how to cool them?
Overseas
Markets Offer Opportunity
But perils await unwary providers, and partnering is critical
Meet-me
Rooms Attracting Attention
Interconnection a major selling point for El Paso, other providers
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