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By | Paul Kunert 8th February 2013 14:58

2e2 cloud cash fiasco puts NHS IT and biz 'over a barrel'

What's that sound? Ah, it's rivals circling overhead

NHS trusts and other customers of IT giant 2e2 are stuck between a "rock and a hard place" after their worst nightmares of cloud computing came true.

Hospital bosses and private businesses relied on the integrator to operate their outsourced cloud systems - but 2e2's administrators demanded extra cash last week to keep those computers running.

FTI Consulting, which took charge of 2e2's UK operations at the end of last month, failed to find a buyer for the debt-crippled integrator and ran out of funds to keep the servers ticking over.

It asked 2e2's 20 largest data centre customers to commit to stumping up £40,000 to keep services running. But it could take affected clients up to 16 weeks to move their files to new providers.

Alan Owens, a partner at law firm Morrison & Foerster which has a practice specialising in technology, told us 2e2's customers are between "a rock and a hard place".

"FTI has them over a barrel on this unless someone mounts a legal challenge to the administrators, and that will cost more than £4,000 or even £40,000," he told The Channel.

Any court case would not be dealt with quickly and "would pull more time and resource out of 2e2 which it's saying it just doesn't have", Owens said. He added: "It's a surprise there is so little cash in the business that FTI can't even stretch to this and it must have been running on vapour for a long time."

Shockwaves from 2e2's crash landing will be felt far and wide if the UK tech giant leaves a string of bad debts, investors with a sour taste and customers frustrated.

The potential termination of data centre services "serves as a reminder of the risks of migrating critical data to the cloud," Kelway chief executive Phil Doye told us.

"Cloud providers will be under closer financial scrutiny and will have to demonstrate a clearer disaster recovery strategy in the event of a business failure. This is a particular challenge for those who buy and build platforms in the data centre space and are pursuing highly leveraged growth strategies."

Mike Norris, chief executive at Computacenter, added: "The more critical the system the more you need to work with financially sound suppliers."

Over time 2e2 amassed long-term debts of £270m that costed at least £20m a year to service. Many industry watchers always held concerns about the integrator's ability to sustain operations.

Mark Starkey, incoming UK managing director at Logicalis, voiced incredulity at the "perilous situation" data centre customers had been left in: "It is unbelievable that customers who have committed to such services from 2e2 now find themselves being forced into funding a service that they are already paying for."

2e2's rivals in the IT distribution channel have been and are pitching for business among customers seeking a way out. Starkey said it would "work flexibly" with customers to "find both a technically and commercially agreeable solution to enable them to transition into our facilities in hours and days".

Simon Granger, joint administrator at FTI, told us "“We recognise that the company provides business critical services to a large number of private companies and public bodies who rely upon 2e2.

"Our priority is to ensure that 2e2 has sufficient funding to keep the data centres operational in order that we can continue to provide these services and support the customer base.  We have received overwhelming support from customers following the Administration and we are actively engaged in discussions to both reassure customers and deliver a rapid solution." ®

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