Just a few days ago, Japan's Nippon Telegraph and Telephone Corporation (NTT) had acquired Dimension Data (known in APAC as Datacraft), for $3.2 billion, making it an important acquisition in the telecom industry.
Commenting on the acquisition, Satoshi Miura, President and CEO, NTT said, "By leveraging the complementary strengths of both companies, we are confident that we will provide end-to-end, global-one-stop and high quality ICT services. Datacraft and NTT share the common vision to create new services and values to succeed in the coming age of cloud computing."
Most analysts believe this acquisition will influence a direct change in plans and strategies of other telcos. According to Jens Butler and Mike Sapien, Principal Analysts, Ovum, this move could make other deep-pocketed global telcos (such as T-Systems and Orange) sit up and act on some of their existing plans more proactively, than they had originally planned. "It will also more than likely make Dimension Data/Datacraft’s current partners rethink the extent of their existing programmes. As always, will the sum of the merged parts really bring value beyond the individual parts during the coming years?"
Both companies claim that the merger will enable them to "offer new IT services worldwide in the age of cloud computing," combining NTT’s network and hosting capacity with Dimension Data/Datacraft’s system integration (SI) capabilities, but will the combined entity be able to create an integrated set of global services offerings to take advantage of this trend is something that remains to be seen.
According to the Ovum analysts, given Dimension Data/Datacraft's substantial footprint and rates of growth, this merger does certainly provide NTT with access to some previously relatively untapped and expanding geographies ($1 billion in revenues in each of Africa, Europe, and ANZ), as well as greatly expanding its network integration, IT, and managed services capabilities. However, the combined entity will still be no more than a buzz within the North American market.
Alok Shende, Founder Director & Principal Analyst, Ascentius Consulting says, "In spite of existing in the Japan market, NTT doesn’t have a stronghold there. This acquisition will help NTT by doing exactly that."
The Ovum analysts believe there are historic warning signs that must be heeded in such a cross-cultural, cross-industry marriage, with the respective HQs so widely separated by miles, time zones, and cultures. Such trysts have not had the greatest success in terms of globalising, integrating, and delivering a common vision: Fujitsu's acquisitions (e.g. ICL & Amdahl) and NTT’s Verio acquisition highlight the difficulties in creating such an integrated entity.
Unless the respective management teams align at the top, the resulting merged company could well be governed by the "slowest" common denominator of decision-making and drive minimal innovation beyond competitive reactions. The resulting culture clash may also be the major hurdle that can hinder any significant synergistic benefits.
But, what's in it for Dimension Data/Datacraft? Access to NTT’s extensive hosting capacity, a strong balance sheet to invest in its "cloud" vision, and an end-to-end stack to bring to the market. Interestingly, Dimension Data/Datacraft was making progress in transforming itself from a purely Cisco-centric network integrator to a more mainstream, multi-vendor systems integrator. Clarity around the future of this program will be a top priority.
Shende comments, "This move might not make a great difference to Dimension Data/Datacraft as a company, but it will definitely benefit its shareholders. As far as NTT is concerned the acquisition will provide patronage to it in the market. But more importantly, it will give Dimension Data/Datacraft access to funds for their expansion desires."
Is NTT buying into these "closer to the client, on-premise" capabilities to create an end-to-end capability or is this to gain access to Dimension Data/Datacraft’s top-tier Cisco integrator relationship and thus enhance its procurement leverage (and volumes) in CPE-related deals? Such a deal has a wide-reaching impact across industries and geographies and ensures a large set of critical eyes will follow the progress closely, so any integration needs to be well planned and executed.
The disparate cultures conundrum will be a substantial barrier (but not insurmountable), and will need to be considered in line with the potential impact on Dimension Data/Datacraft's ecosystem of relationships with SIs, equipment manufacturers, and other telcos, globally and locally, the Ovum analysts believe.
NTT is procuring far more than geographic footprint, enhanced capabilities, and a successful and growing business; it is gaining direct access to customers through a more mature and embedded relationship model.
Updated Date: Jul 20, 2010 17:59:29 IST