The move underscores the continued efforts of telecom providers to take low-cost advantage of an ailing hosting market and reinvent themselves with data and Internet services, analysts said.
According to Greg Howard, principal analyst and founder of the HTRC Group, the acquisition reflects the growing importance of data offerings in the telecommunications services mix.
"The focus now is on quality of customers, not the sheer number," Howard said. "C&W understands that value-added services are a critical differentiation in the market."
San Francisco-based Digital Island leverages a global network of datacentres and servers to speed Web content delivery and manage Internet services.
Another company boosting its data offerings is AT&T, which has quietly grown its own content delivery network service, AT&T Intelligent Content Distribution, to complement a long list of IP and data offerings.
"Having the hosting, content delivery service, and underlying network is very important to us, for customer choice flexibility," said Rose Klimovich, director of AT&T's global IP network services.
However, customers may prove reluctant to receive critical applications from their network infrastructure provider, said Warren Wilson, practice director at Boston-based Summit Strategies.
Customers should field offers for their hosting and services needs but must keep in mind possible integration headaches, he added.
Citing Qwest's alignment with Hewlett-Packard and IBM, telecom providers have a mountain of cash to spend to acquire IT expertise beyond their internal grasp, said Lisa Perri of Aberdeen Group.
Perri predicts that more acquisitions of hosting companies will follow this year, possibly including big names such as Exodus Communications.