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CenturyLink said to be in the hunt for Rackspace

CenturyLink’s buying binge may not be over. The telco that is trying to position itself as a cloud leader may buy Rackspace Hosting, according to a Bloomberg news report.  Rackspace has a current market cap of about $5.33 billion; CenturyLink’s corresponding number is $23.6 billion.

As is usually the case, no one is quoted by name and neither [company]Rackspace[/company] nor [company]CenturyLink[/company] commented. But, while Bloomberg stressed a deal may never come to fruition, the idea of one is not far-fetched.

In May, Rackspace hired Morgan Stanley to explore options including an acquisition or merger, and while the company has maintained it has the wherewithal to go it alone, the competitive cloudscape has only gotten tougher over the last few months. There are umpteen different OpenStack-based private clouds to compete with Rackspace’s own offering. And in public cloud, the battle is all about scale and it’s hard to see how Rackspace can compete there with the likes of [company]Amazon Web Services[/company], [company]Google[/company] and [company]Microsoft[/company].

San Antonio-based Rackspace has long touted “fanatical support” as its differentiator — it says it provides handholding that larger players do not offer and that is a comfort to businesses who may want to move to the cloud but want someone to call. But that support is expensive to provide. In July, it segmented out how much its raw cloud resources cost to show that they are broadly cost competitive with analogous AWS services, but then again, you cannot buy those raw resources from Rackspace without some sort of support.

As for CenturyLink, the Monroe, La.-based company is not shy about spending money to buy capacity and expertise. In 2011, it dropped $2.3 billion to acquire [company]Savvis[/company] and its data center and hosting business. Last year it bought Tier 3, a well-regarded IaaS and PaaS provider with its own set of data centers for an estimated $200 million.

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A Rackspace spokesman said the company does not comment on speculation; CenturyLink has no comment as well.

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