AT&T announced in late June that it is creating a separate division and new services for its Digital Media Solutions operation, and beefing up its funding is just the first salvo in what is likely to be a bigger push by service providers into the content delivery network space.

To date, only Level 3 Communications has made a big content delivery networks (CDNs) push, based on its acquisition of Savvis and its network operation, but analyst David Vorhaus, who just launched Yankee Group's CDN Scorecard, expects AT&T, BT and Verizon, among others, to enter the space as well — possibly by buying one of the many smaller CDN players that are currently challenging the market giant, Akamai, which commands 70% of the space.

Limelight Networks, considered No. 2 in the field but currently appealing a court ruling that it violated Akamai patents, is a likely takeover target, Vorhaus said. “There has been talk of Level 3 buying them to continue to build out their network — talk of Akamai buying them,” he said. “I think the most likely scenario is a large service provider — AT&T, Verizon, BT — would stand the most to gain and be able to take on all deployed capacity, and more than that, gain instant credibility in the market.”

An acquisition makes sense because the CDN field is brimming with venture capital-funded CDN players (see chart) and because service providers would be hard-pressed to approach the magnitude of Akamai's network on their own, Vorhaus said. AT&T's pledge to spend six times as much on Digital Media Solutions as it has in the past, or about $70 million, will only get them within the 10% to 20% range of what Akamai has deployed today in its distributed CDN.

The real opportunity right now is in the wholesale arena — selling CDN to content owners and commercial entities, Vorhaus said. Level 3 has been slower to capitalize on its CDN assets, he added, largely because the company is keeping its operations siloed by customer segment.

“The big value Level 3 ought to have is the ability to sell CDN to the customers from its wholesale group, but the way they are organized now, that isn't happening,” Vorhaus said. Even so, he added, the CDN group “is almost the flower in the middle of the dirt patch that is Level 3.”

Many of the smaller CDN players won't survive on their own because VC funding is likely to dry up for those that can't claim significant market share. Some companies, such as EdgeCast, are trying to compete with advanced features while others, such as Panther Express, are pushing down prices, Vorhaus said. And the debate continues to rage as to whether Akamai's distributed approach to CDN will trump other more centralized approaches.

“That's one of the main reasons we started the scorecard was to sort out the issues for service providers and content owners,” Vorhaus said. “There is still a lot of confusion out there.”