October 31, 2002 -- Riding out the down side of the business cycle is a new experience for most providers in the youthful colocation industry. But not all of them.
Take Telehouse America, which opened its doors in 1987 as a pioneer in the carrier-neutral colocation.
"We had some lean years early on," said John Shields, the vice president of operations for Telehouse, recalling the real estate bust and recession of that time. "We learned that this business is one in which it pays to be conservative. We tried to build based on true demand."
Those lessons proved critical to the success of Telehouse, which pursued moderate expansion during the data center overbuilding binge of 1998-2000. As a result, the company is profitable today, with better than 70 percent occupancy in its five data centers, which span more than 280,000 square feet.
This week Telehouse America announced the appointment of Hideki Akazawa as president and CEO. Akazawa has held numerous positions with KDDI America, the parent company of Telehouse, since 1979.
Akazawa sees the company's financial stability and experience as key assets in a rapidly changing marketplace. "I'm very happy to have an experienced management team," said Akazawa.
Telehouse got its start in the Staten Island Teleport, a high-tech business park funded by the Port Authority of New York and New Jersey. With its proximity to Wall Street and a satellite uplink, the location was ideal for the Japanese financial institutions who were many of Telehouse's early customers.
The colocation business got crowded quickly with the Telecom Act of 1996 and the Internet boom. Many of those new providers built huge data centers.
"When Telehouse started its expansion, its strategy was to take a reasonably sized space and wait until a certain fill rate was reached, always looking at the profit and loss rations," said director of marketing Rich Mataka. "That's the model and business plans that Telehouse proposed in the early '90s, and it has stuck with it."
"This is ultimately a real estate game, and you've got to get the occupancy," Shields added. "That's been crucial to how we grow sites and how we will grow them in the future."
The company's International Internet Exchange (IIX) facilities provide colocation, network services and cross-connections to a wide spectrum of clients, including many international carriers and financial institutions.
Its facilities include the 162,000 square feet flagship site at 7 Teleport Drive on Staten Island, Manhattan locations at 25 Broadway (85,5000 sf) and 33 Whitehall Street (15,500 SF), a Los Angeles data center at 626 Wilshire Boulevard (12,000 SF) and its newest site in Santa Clara, where Telehouse occupies 4,000 square feet at 3045 Raymond Street.
With a strong customer base in the New York area and LA facilities, Telehouse is now looking for customers in its new Silicon Valley IIX site. "That's a really, really depressed area," noted Mataka. "We're being very aggressive out there."
That means colocation pricing of $700 to $800 a month, with free peering for the lifetime of the contract, said Mataka, who says overall sales activity is improving.
"There's a tremendous amount of activity and inquiries, but not a lot of buying right now," he said.
"Two or three years ago, customers wanted three to five cabinets," said Akazawa."Today they're inquiring about one cabinet, or even a half-cabinet or quarter-cabinet."
"Everyone's cautious, and going with what they need today, rather than taking a huge amount of space," added Shields. "Hopefully we end up with a customer who can handle the space they have and grow going forward."
Telehouse says it has a 90 percent retention rate for existing customers whose agreements are expiring. As bankruptcies reshape the telecom landscape, the company sees that customer satisfaction rate as one way to compete with low-priced offerings from competitors.
"Our best sales people are our customers," said Shields. "We've got a very good reputation, largely because our customers are not shy about saying that Telehouse is a pretty good place to be."