Zacks_Analysts' Blog : TDS Rides on Cloud Biz - Analyst Blog

Telephone and Data Systems Inc. (TDS) plans to acquire OneNeck IT Services, a data hosting and information technology (IT) company. The estimated takeover price is $95 million.

The acquisition was approved by the Federal Trade Commission and is expected to close on July 1. We believe the purchase of OneNeck will give Telephone and Data Systems a good opportunity to expand its operations in managed hosting and cloud services offerings.

Telephone and Data Systems has significantly improved its competitive position in the rapidly evolving managed hosting and cloud services business. The company purchased VISI Inc. in March 2010 and TEAM Technologies in December 2010 to expand its offerings in the cloud computing sector.

Telephone and Data Systems is a diversified telecom services provider offering wireless services through its subsidiary U.S. Cellular Corp. (USM) and wireline services through TDS Telecom.

Telecommunication carriers are rapidly entering the cloud computing business due to increased competition and changing consumer habits. This will help operators to differentiate their products and services and pave the way for strategic alliances between telecom and IT companies.

In this context, the company’s largest competitor Verizon Communications Inc. (VZ) acquired IT service company Terremark Worldwide Inc. in April 2011 while AT&T Inc. (T) plans to invest $1 billion in network-based cloud, mobility and network sourcing solutions in 2011. The third-largest landline operator CenturyLink Inc. (CTL) also plans to buy Savvis Inc. (SVVS) in the second half of the year.

We are maintaining our long-term Neutral rating on Telephone and Data Systems. The stock retains the Zacks #3 (Hold) Rank.