C&W customers take pullout in stride, eye options

They're keeping options open for now

After London-based Cable & Wireless PLC announced yesterday that it's abandoning the U.S. Web hosting and services market (see story), a sampling of C&W users calmly said they will wait to see whether another company steps in and keep their options open about jumping ship to another provider.

Users said a large overcapacity in the troubled hosting business means they expect few problems finding a business willing to sign them up -- even if it means they have to find a new vendor in the future.

Russell Kuteman, vice president of finance at amusement park company Six Flags Inc., which buys content delivery and Web hosting services from C&W, said it's still early to determine whether someone will buy out C&W or whether Six Flags has to go elsewhere. The problem, though, is knowing how long Oklahoma City-based Six Flags should wait before making a move, he said.

"Companies like us and others that have commerce across their Web sites can't afford to be in a risky situation as far as services go," Kuteman said. "We're going to keep a finger on the pulse [of the situation], and the minute our comfort level moves in the negative direction, we'll be gone."

Kuteman said he expects another hosting provider to step in at some point to take over C&W's hosting customers in the U.S. "We enjoy the relationship we have with their people ... and they do what they say they will," he said. "We're really keeping our fingers crossed here."

John Godwin, chief technology officer of online movie download service Movielink LLC in Santa Monica, Calif., said C&W's announcement yesterday of a sweeping restructuring and a complete exodus from its money-losing North American business wasn't a surprise. "I think a number of companies have been in trouble in this economy," Godwin said. "We think they'll handle this very responsibly" by either finding a qualified buyer or giving clients enough notice to make new arrangements. "We just don't think it will have an impact."

Many C&W customers went through this same predicament just 18 months ago when C&W came to the rescue and took over the U.S. business for bankrupt Web hosting business Exodus Communications Inc. (see story). Now C&W is leaving and will try to find a buyer or other undisclosed options for its customers.

Rick Thimble, IT manager for the U.S. and Europe at plastic parts maker Moldflow Corp. in Wayland, Mass., said he's not worried -- even after going through the same thing with Exodus in November 2001. At Moldflow, the C&W announcement comes less than three months after the company signed up to add an IP-VPN contract to its existing Web hosting deal with C&W.

"We're still implementing the network," he said. "There's not too many ... companies that haven't gone through this. What are your choices?"

Ron Pellowe, director of systems and networks at online equipment asset marketplace EquipnetDirect Inc. in Braintree, Mass., said he also went through the Exodus pullout, when his company moved to C&W. "Honestly, I don't think it leaves us in a bad place," he said. "There are a lot of vendors out there who are hungry. I'm not feeling like we're without options."

Pellowe said he's talked to competing hosting companies already and has seen some lower rates. "I don't see it as being a crisis at this point," he said. "In fact, I think there's a good possibility that someone will buy them out."

This is the second time in the past seven months that C&W has adjusted its direction and focus in its global strategy. Last November, the company announced that it was paring back its U.S. operations in a huge way, keeping only its most profitable accounts with its largest global customers (see story). That move, coming less than a year after C&W appeared to be a savior for former Exodus customers, wasn't a surprise then or now, say analysts.

"The past year and a half at C&W they've made strides" to slim down, said Ted Chamberlin, an analyst at Gartner Inc. in Stamford, Conn. But British and American businesses have different ideas about running their operations, and the London-based leadership at C&W felt that waiting for the market to get better was not helping its bottom line now.

"This market has yet to fully bake and hit profitability," Chamberlin said. "I think this is a very shortsighted move. In the long run, it will have very serious implications for the company" because C&W will be out of the key U.S. market.

Dana Tardelli, an analyst at Aberdeen Group Inc. in Boston, said the pullout by C&W is "certainly the pendulum swinging back from world domination to a more realistic view." One problem for C&W was that it came to the U.S. market with "no articulated U.S. vision" for its operations. "To me, it just looks like the clock ran out," Tardelli said.

Andrew Efstathiou, an analyst at The Yankee Group in Boston, said C&W got into a business it wasn't familiar with at the height of the market, which exacerbated its problems later. "Not only is it a tough business, but it's a different business from what C&W was into" before, he said.

Copyright © 2003 IDG Communications, Inc.

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