Nov. 13, 2002 -- Cable & Wireless will shed 19 of its 42 worldwide data centers, including 12 in the US, as it restructures its Global unit, the company said today.
The restructuring will eliminate 3,500 jobs in Global, which includes Exodus and Digital Island. The company said it will limit its US business operations to focus on multinational enterprise and service providers.
The company did not announce which data centers it would divest, saying it would implement a "phased withdrawal" over 12 months. Cable & Wireless indicated that its ongoing US network would likely be concentrated in major markets where multinationals are most likely to operate.
Shares of Cable & Wireless lost a third of their value in London trading following the announcement, as British investors were unhappy with the scope and cost of the restructuring.
C&W said it will reduce its US data center network from 27 data centers to just 15, and the cities it serves from the current 41 to just 11. The company considered a complete exit from the US market, but ultimately decided that such a move would have hindered its ability to serve British customers with US operations.
"We needed to be very hard-nosed about getting out of businesses where we don't have a competitive advantage," said chairman Graham Wallace.
Cable & Wireless executives said the remaining facilities would be "very concentrated in the major cities." It estimated the cost of escaping its long-term property leases on the 19 consolidated data centers at approximately $525 million.
"That assumes we buy out the leases completely on day one," said David Prince, executive finance director for C&W. "We also can defer termination costs to save money in the short-term and defer out cash outlay.
"We're going to be a pragmatic," said Prince. "Where it makes sense to keep a property in use because of a particular hosting client, we will do so. If we can (sublease) a property, we will certainly do that. If we went to a landlord and got a good deal, we would structure accordingly."
The US data centers, which Cable & Wireless bought from the bankrupt Exodus Communications in February, are currently about 20 percent filled. They need to be about 30 to 40 percent leased to be profitable, according to C&W chairman Graham Wallace.
Exodus filed for Chapter 11 bankruptcy protection in Sept., 2001, saying it had overexpanded as it pursued market share. On Nov. 30 Cable & Wireless announced its intention to acquire most of Exodus in a deal valued at approximately $850 million.
The assets acquired by C&W include 26 of Exodus' 44 operational data centers, with approximately 4 million square feet of gross space, along with 3,200 customers.
Cable & Wireless is a major global telecommunications business with customers in 70 countries and annual revenues of over $11 billion