On The Record: Taking Over Telx

IMD: Though you've served as president and chief financial officer of Telx since 2007, you became CEO last year after the untimely passing of Eric Shepcaro. What was it like to take the reins of the company under those circumstances?
Downie: It was certainly a difficult time period for the company from a spiritual perspective. However, the team persevered through this challenge in a highly commendable manner. I was proud to be able to carry the ball forward, having worked closely with Eric over the prior seven years to ensure we had a strong talent bench and a scalable, quality organization. We commemorated Eric's contributions to Telx by naming our new flagship facility in New Jersey "The Shepcaro Center," and quickly moved forward to continue to execute to meet the strong demand forces in front of us. Eric would not have wanted us to miss a beat, and I am glad to say that we did not.

IMD: Before joining Telx, you didn't have a history in the datacenter business. Was that a disadvantage, or did it allow you to look at the business with fresh eyes and bring new ideas based on your experience in other areas?
Downie: My career has revolved around telecom businesses for most of its tenure, so I didn't come into the job as a neophyte on the growth factors influencing the datacenter sector. More than 70 percent of Telx's customers are large communications services providers and digital/social media companies, so I was familiar with what was important to the majority of our customer base. Understanding our customers' needs has always been a key factor in best positioning our value proposition to be of the highest utility for their growth requirements. My historical perspective also brought Telx valuable insights for efficient, profitable growth as the company scaled from two to 20 facilities, and from 400 to 1,200 customers.

IMD: What are some of the new projects you've initiated since taking over? As CEO, are you─or have you already─taking the company in any new directions? What do you bring personally to the role that can help Telx differentiate itself from its competitors?
Downie: Telx has made significant investments over the last 18 months in additional enterprise datacenter capacity that leverages our core interconnection value proposition inherent in the carrier interconnection facilities that we have operated for over a decade. We came into 2014 with 14 interconnection facilities with over 700,000 square feet servicing significant connectivity centric customer solutions and six enterprise-class facilities with over 400,000 square feet that offer all the datacenter solution requirements for the enterprise with regard to resiliency, security and redundancy. These facilities, however, also offer all the connectivity advantages of interconnection facilities by being directly tethered into the core interconnection rooms that we operate in our other 14 facilities. This connectivity optionality effectively future-proofs the customer's connectivity requirements from basic redundant carrier alternatives all the way to the hybrid cloud domain. While seemingly a new direction for Telx, this growth strategy is a natural extension of the core Telx value proposition, and we believe provides for more customers to leverage our unparalleled network connectivity alternatives, which will be critical to most future business application requirements. My personal contribution to this strategic direction is to ensure the Telx team has all the resources to efficiently bring these capabilities to existing and new markets and also to be a leading ambassador to ensure current customers and prospects have an appreciation for how Telx is best positioned in the datacenter landscape.

IMD: Michael Lewis' Flash Boys and New York Attorney General Eric Schneiderman's targeting of early-release data have ignited a debate around the value, safety and legality of high-frequency trading, and associated technologies, such as co-location. What's your view on this issue, and should co-location and datacenter providers be concerned about their position?
Downie: The recent rhetoric around high-frequency trading is not a new phenomenon, as it has been a topic of conversation since 2008. As a company that has always been positioned as providing location, proximity and latency advantages to our customers, we have always made sure we understood the issues. We do not think that co-location or interconnection is a technology that advances any illegalities. Instead, Telx serves as an interconnection-neutral operator, creating a level playing field for all our customers across many industries whose applications are latency sensitive. From an exposure perspective, Telx's financial vertical represents 15 percent of our total annualized revenue. The vast majority of that revenue is for customer deployments that support back-office applications, and is not affiliated to any type of trading platforms. For example, we have a few larger foreign exchange trading firms that locate their US datacenter footprints in our New Jersey campus. Roughly 2.5 percent of our revenue comes from companies that do have some form of trading divisions or applications, but the vast majority of this minor subset utilizes Telx for their core network POPs, and not for HFT platforms or interfaces. Telx does not have any Black Boxes or HFT platforms residing in our facilities like some larger competitors who have built distinct ecosystems around this sub FX vertical. In short, Telx's exposure to this space is very minimal, and there are no impacts to existing ecosystem or magnet-type customers.

IMD: With the datacenter, hosting and co-location industry now such a competitive market, how can Telx differentiate itself against its competitors-especially those with an existing global reach and that have established themselves as go-to liquidity centers hosting or close to key financial market centers?
Downie: Telx currently has a highly differentiated portfolio and set of related solutions and capabilities. We operate within 14 of the nation's most important network exchange locations, and in most cases operate the interconnection center within each facility on an exclusive or de facto basis, based on density of networks available versus any alternative within the respective facility. We have established a highly automated and robust set of interconnection capabilities in and around these environments to ensure they are as efficient as possible for our customers' digital transactions. Several of our competitors and other datacenter, hosting and co-location companies leverage our environments and are customers of Telx. Regardless of this dynamic, we believe a service provider differentiates itself based on its delivery of a high-utility value proposition to its customers. As such, over the last decade, Telx has invested significantly in its ability to provide environments for secure, highly efficient transaction capabilities for our customers. Automation has been a primary focus, and we have also created online portal capabilities to allow for customers to see their inventory in real time and process their transactions from their desktop or mobile device. We have also invested in an online e-commerce engine, the Telx MarketPlace, which allows our customer to facilitate interactions and transactions among themselves. Our enterprise facilities leverage these capabilities directly in a seamless transaction, whereas our competitors' customer that must access our interconnection facilities must do so in a series of hops or intermediary transactions. If we continually invest in our service and solution platform, and have capacity to serve our customers' growing demands, we believe we will be well-positioned in the datacenter landscape.

IMD: Firms need datacenters for a host of reasons besides co-location-for which Equinix's NY4 facility is currently the venue of choice in the US. What are some of the main reasons that drive customers to Telx facilities, and typically who are these customers. Do they split competing needs between yourselves and other datacenter providers based on cost and performance and the requirements of different activities?
Downie: Equinix was the legacy venue of choice, as historically no one in the New York metro could offer comparable datacenter capacity with a network-enabled retail format. This is no longer the case. Telx has six facilities in the NY metro area-three on-island in Manhattan and three in New Jersey, including a two-building campus in Clifton, NJ. With the introduction of our NJR3 facility in Clifton, NJ, consisting of 215,000 gross square feet and 100,000 sellable square feet, Telx now has comparable capacity to Equinix's Secaucus facilities, in a retail format with advantaged optionality with direct access to the three Manhattan network exchange locations at 60 Hudson Street, 111 Eighth Avenue and 32 Avenue of the Americas. Telx has built our NJR3 facility to support not only today's customers' equipment but also what will come to market years down the road. Unlike the majority of our competitors, we have built higher densities, superior redundancies and increased customization. These cutting-edge advantages provide our customers the assurance that as they progress through future equipment updates the Telx facility is ready and prepared to support these needs.

IMD: Telx currently has datacenters in 13 US locations─three in New York, three in New Jersey, two each in Chicago and Dallas, and one in Atlanta, Charlotte, Los Angeles, Miami, Phoenix, Portland (Oregon), San Francisco, Santa Clara and Seattle. Obviously only three of those are major financial centers. Does that mean only NY, NJ and Chicago host financial markets clients?
Downie: NY, NJ and Chicago are dominant financial markets, and thus that is where the dominance of our customer interaction occurs. We also experience financial vertical customer demand in Atlanta, the Bay Area and Dallas. We have found as outsourced co-location has been adopted more widely, an increased demand from regional financial institutions looking to place their datacenter needs in a secure, reliable and cost-effective environment. We have seen this type of interest in all our markets, including our new markets of Portland and Seattle. This phenomenon is not only with regional financials but other enterprises including healthcare operators and law firms.

IMD: Some people consider 13 an unlucky number. To put their minds at ease, what city will be your fourteenth datacenter location?
Downie: Thirteen is also a Fibonacci number, a happy number.... At Telx, we don't believe in luck. It's all about execution! If we have to pick, two natural spots of demand in major urban markets are Northern Virginia and Denver. However, we will likely concentrate our growth domestically in our existing markets to meet demand.

IMD: Does Telx plan to enter international markets, and if so, would it seek to set up operations organically, enlist a partner, or acquire a provider with local expertise, and what are the competitive and practical challenges associated with each of those approaches to international expansion versus remaining a domestic player?
Downie: We believe international expansion is an opportunity, as there is only one global services provider in Equinix. It is natural for a customer to default to a known quantity and quality when crossing borders into a new domain. While an opportunity, we also believe international expansion should not be considered lightly, as it is fraught with risk. We also don't believe an international expansion is prudent one market or city at a time, as European or Asian markets are very cross-border integrated and defined. As such, an acquisition would likely be a route for us for international expansion involving multiple markets. We do address demand with partnerships with Interxion in Europe and Tata Communications in Asia.

IMD: In 2011, then-owner GI Partners sold Telx to other private equity firms Abry Partners and Berkshire Partners. How has the new ownership impacted and supported Telx's growth plans and ability to set and execute on new strategies?
Downie: The new partnership has been great. Both parties bring tremendous insights and resources to support our execution. Abry has invested across the datacenter and managed services landscape, and has great perspective on the ins and outs of investing across the internet infrastructure landscape. Berkshire has deep experience and success with recurring revenue models, most notably in the tower sector, and brings great capital markets and operating support resources to bear across our various execution fronts. Creating equity value is our primary objectives and Abry and Berkshire will support our best decision making for the strategies required to optimize this value.

IMD: What is Telx's medium- to long-term ownership plan beyond the current private equity owners? Are you looking at an IPO or M&A, a management buyout, or PE ownership for the foreseeable future? Which strategy will allow the company to be most successful?
Downie: We are currently focused on building the best datacenter company in the internet infrastructure landscape and scaling our highly differentiated value proposition as rapidly and profitably as possible. We are currently at a scale level to entertain an IPO or M&A alternatives. However, we have no immediate plans on either front. An IPO would give us access to very efficient capital, however, and M&A transaction could afford the same opportunity. In either case, we believe we are in the early inning of the demands on our types of facilities and capabilities.

IMD: After seven years at Telx, and 23 years total experience serving the financial industry in one way or another, where do you see the datacenter/hosting industry─and what do you see yourself doing─in a further seven or 23 years?
Downie: Loaded question. As I said earlier, the datacenter sector is in the early innings of growth, given the demand trends on business application outsourcing and digital information growth trends. I am always focused on making the best decisions for the job and objectives at hand, given all the perspectives gained from my prior life experiences-to reference a comment from Steve Jobs' book, there is a dark shadow between conception and creation, and my view is to should let execution cast the guiding light. To answer your question directly, in seven years, I plan to be knocking down walls and driving growth... in 23 years, picking the best beach to receive digital information updates from my daughter in whatever strange format and device in which it will arrive.

CEO Confidential

Name: Christopher W. Downie
Birth date: April 29, 1969
Hometown: Born Woonsocket, RI; lived in NY area most of life
Education: BA History, Dartmouth College; MBA, New York University
Current home: Rumson, NJ.
Family: Married since 2000. One daughter, born 2008.

Q. What book are you currently reading?
A. The Start Up Playbook by Dave Kidder, and The Art of Thinking Clearly by Rolf Dobelli

Q. What CD is in your stereo (or iPod) right now?
A. Casanova by Eric Lindell

Q. What was the last movie you watched?
A. The Wolf of Wall Street

Q. Which sports team do you root for?
A. Rangers and Giants

Q. What did you do for your summer vacation?
A. Went to the beach somewhere

Q. What's your favorite city or place to visit and why?
A. St. Barts, FWI; awesome ambience and relaxing setting

Q. What newspapers or magazines do you read?
A. The Wall Street Journal

Q. What was your first paying job and how old were you?
A. A paper route at 12 years old

Q. If you could have dinner with any person, real or fictional, dead or alive, who would it be and why?
A. Winston Churchill. A plethora of reasons, but principally to gain his perspective on the balance of a myriad of considerations in the face of adversity

Q. How much sleep do you get each night?
A. Seven to eight hours