Our Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided in addition to the accompanying unaudited condensed consolidated financial statements and notes thereto to assist readers in understanding our results of operations, financial condition, and cash flows. You should read the following discussion in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2008, included in our Current Report on Form 8-K as filed with the U.S. Securities and Exchange Commission, or SEC, on May 28, 2009, and our MD&A as of and for the year ended December 31, 2008, included in our Annual Report on Form 10-K for such period as filed with the SEC. The following discussion contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including those set forth in Part I, Item 1A of our Annual Report on Form 10-K and in subsequent SEC filings. Our actual results may differ materially from the results discussed in the forward-looking statements.

EXECUTIVE SUMMARY

Overview

We provide information technology, or IT, services including managed hosting, utility computing, cloud services, colocation, managed security, network services, and professional services, through our global infrastructure to businesses and government agencies around the world. Our services are designed to offer a flexible and comprehensive IT solution that meets the specific IT infrastructure and business needs of our customers. Our suite of products can be purchased individually, in various combinations, or as part of a total or partial outsourcing arrangement. Our colocation solutions meet the specific needs of customers who require control of their physical assets, while our managed hosting solution offerings provide customers with access to our services and infrastructure without the upfront capital costs associated with equipment acquisition. By partnering with us, our customers may drive down the costs of acquiring and managing IT infrastructure, achieve operational efficiency through the use of virtualized technology, and focus their resources on their core business while we focus on the delivery and performance of their IT infrastructure services.

Our Services

We present our revenue in two categories of services: (1) hosting services and
(2) network services. Our focus has increased on the financial industry, for which we have targeted solutions comprised of both our hosting and network capabilities.

Hosting Services provide the core facilities, computing, including cloud services, data storage and network infrastructure on which to run business applications. We manage 28 data centers located in the United States, Europe, and Asia with approximately 1.43 million square feet of gross raised floor space. Our hosting services are comprised of colocation and managed hosting and allow our customers to choose which parts of their IT infrastructure they own and operate versus those that we own and operate for them. Customers can scale their use of our services as their own requirements grow and as customers learn the benefits of outsourcing IT infrastructure management.

• Colocation is designed for customers seeking data center space and power for their server and networking equipment needs. Our data centers provide our customers around the world with a secure, high-powered, purpose-built location for their IT equipment.

• Managed Hosting Services, which includes dedicated hosting, utility computing and storage, cloud services, managed security services, and professional services, provide a fully managed solution for a customer's IT infrastructure and network needs. In providing our managed hosting services, we deploy industry leading hardware and software platforms that are installed in our data centers to deliver the physical or virtualized services necessary for operating our customers' applications.

Network Services are comprised of our managed network services, including managed IP VPN, High Speed Layer-2 VPN and the services marketed under our WAM!NET brand; hosting area network; application transport and bandwidth services.

Business Trends and Outlook

The global economic environment remains a concern as we continue to monitor the impact that the economic downturn may have on our customers, particularly those customers in the financial services industry. Approximately 26% of our revenue for the nine months ended September 30, 2009 was generated by customers in the financial sector. Given the current economic environment and recent consolidation in the financial services industry, we remain cautious regarding these customers and their future impact on our revenue and profitability. Last year, one such financial services customer, American Stock Exchange, or AMEX, which accounted for approximately 3% of our revenue for the year ended December 31, 2008, announced the completion of its merger with another company. This merger was unrelated to the credit crisis; however, during the first quarter of 2009, the merged entity cancelled AMEX's contract with us which has resulted in decreased revenue in the three and nine months ended September 30, 2009.

While the economy is showing some signs of firming, predictability in timing of sales cycles for new business continue to be challenged by lengthy decision making cycles caused, in part, by strained IT budgets. Despite these challenges, we believe we have considerable opportunity and believe that companies will increasingly consider adopting outsourced IT solutions as they attempt to reduce their infrastructure spending and meet the increasing demands from their user communities. Our services model enables our enterprise customers to choose from a number of different strategies designed to reduce their IT costs. Our focus is to provide mission-critical, non-discretionary IT infrastructure outsourcing and we believe that our target customer base considers us specialists in the areas of server management, storage, virtualization, security and network infrastructure. With the recent completion of a significant phase of our global data center expansion, we believe we have the right footprint and functionality in place to provide our customers with the products and services they need at the locations where they need it. We continue to develop and market our new and innovative service offerings, such as cloud computing, software-as-a-service, or SaaS, and our proximity hosting solutions, for which we anticipate growth opportunity.

The center point of our strategy is to provide a scalable managed hosting solution. Colocation and network services play an important and foundational role; however we remain intensely focused on growing our managed hosting business. Our experience shows that colocation has now become an accepted first step in embracing IT outsourcing solutions. The colocation market has grown, pricing has begun to stabilize and we remain committed to delivering growth in that business. However, we anticipate decreases from non-core, below-market margin customers, including certain of those in the internet content business, along with declines due to customer downsizing driven by their continued consolidation and their economic challenges. We continue to focus our network product sales on those customers within our service profile that require an integrated managed hosting and managed network solution, particularly in hosted applications requiring higher network performance characteristics. As such, we expect certain of our network products to continue to be under pressure into 2010. We believe the intersection of colocation, network and managed hosting allows us to produce a much higher return on invested capital than colocation or network alone, particularly by leveraging technologies for shared platform resources.

Our focus is on our customers, and aiming to offer the solutions they need to better manage the current and future costs associated with their IT infrastructure. We are looking forward to developing and leading the market for hosting SaaS offerings from independent software vendors and expanding our existing virtualization and utility computing solutions. Additionally, we consider ourselves a market leader in proximity hosting services, which combines our colocation or managed hosting services with value added network service to provide a full end-to-end solution for financial institutions. We are leveraging this position to further capitalize on the opportunities for hosting applications in the financial markets. We believe our ability to offer our trading community a portfolio of managed hosting services, such as compute, storage, virtualization and managed network incorporating market data differentiates us from our competitors.

Related to the expansion of our service portfolio, of particular note is our investment in cloud services. Our cloud service offering will be focused on our core markets, specifically infrastructure solutions for enterprise applications. To that end, we will continue to invest in and develop on-demand, customer provisioned infrastructure services on multi-tenant platforms that utilize usage-based billing, and as a market differentiator will offer multiple service grades within the shared platforms.

Based on current economic conditions and demand for our services, we also will continue to remain focused on initiatives that we believe will continue to improve the health of our growing business, including:

• Increasing the quality of our infrastructure and the reliability of our services through additional investments in systems;

• Improving efficiencies in our services and support and our general and administrative areas through process and productivity improvements;

• Expanding data center space to support growth in our hosting products and services;

• Investment in cloud products and services;

• Increased client satisfaction through our delivery of differentiated services as reflected in responses to our customer satisfaction surveys; and

• Exploring strategic options for a portion or all of those services that have experienced relatively slow growth in the past in order to allow us to focus on our high growth services.

SIGNIFICANT EVENTS

Interest Rate Swap

In January 2009, we entered into an interest rate swap agreement with National Westminster Bank, Plc., or NatWest, to amend our existing interest rate swap agreement, or the Swap Agreement. The Swap Agreement hedges the monthly interest payments incurred and paid under our loan agreement with Lombard North Central, Plc., or Lombard, during the three year period beginning January 1, 2009 and ending December 31, 2011. Under the terms of the Swap Agreement, we owe monthly interest to NatWest at a fixed LIBOR interest rate of 5.06% and receive from NatWest payments based on the same variable notional amount at the one month LIBOR interest rate set at the beginning of each month. The Swap Agreement effectively fixes the monthly LIBOR interest rate payments owed to Lombard at 7.86%. As of September 30, 2009, the market value of the Swap Agreement was a £2.5 million, or approximately $4.0 million, liability. Additionally, we recorded an offset to this liability of $0.5 million to account for our credit default risk, for a net fair value of $3.5 million.

Option Exchange

In May 2009, pursuant to a plan approved by the stockholders at the 2009 annual meeting of stockholders, we offered our employees the opportunity to exchange some or all of their outstanding stock options with an exercise price per share greater than $17.85 and granted prior to May 29, 2008, whether vested or unvested, for a lesser number of stock options with an exercise price equal to the closing price of our common stock on the date of grant of the new options. Eligible employees tendered, and we accepted for cancellation, an aggregate of approximately 4.0 million shares of common stock, representing approximately 93.3% of the eligible options. On June 29, 2009, we granted approximately 3.0 million new options and cancelled the tendered eligible options.

Data Center Expansion

In July 2009, we entered into a 20 year operating lease agreement for data center space, which will expand our existing financial services hosting facility located in Weehawken, New Jersey by approximately 0.1 million square feet of raised floor space. Along with our proximity hosting solutions, the expanded facility will offer customers the opportunity to utilize other services designed specifically for the financial community, including web solutions, software-as-a-service, and cloud computing. Over the term of the lease, the total future minimum lease payments are $118.6 million. We currently anticipate $22.0 million in cash capital expenditures related to the initial phase of the expansion, with at least $10.0 million occurring in the remainder of 2009.

RESULTS OF OPERATIONS

The historical financial information included in this Quarterly Report on Form 10-Q is not intended to represent the consolidated results of operations, financial position, or cash flows that may be achieved in the future.

Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

Executive Summary of Results of Operations

Revenue decreased $5.2 million, or 2%, for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, primarily as a result of an 11% decline in network services revenue, partially offset by a 2% increase in total hosting services revenue. Income from operations decreased $6.6 million to $4.5 million for the three months ended September 30, 2009 compared to income from operations of $11.1 million for the three months ended September 30, 2008 primarily due to a $6.0 million increase in non-cash equity-based compensation expense. Loss before income taxes for the three months ended September 30, 2009 was $9.4 million compared to a loss before income taxes of $2.1 million for the three months ended September 30, 2008. The increase in loss of $7.3 million was primarily the result of the decrease in income from operations.

The following table presents revenue by major service category (dollars in thousands):

                                      Three Months Ended September 30,
                                                       Dollar       Percentage
                                2009        2008       Change         Change
           Revenue:
           Colocation         $  85,341   $  78,382   $  6,959               9 %
           Managed hosting       62,814      66,518     (3,704 )            (6 )%

           Total hosting        148,155     144,900      3,255               2 %
           Network services      65,056      73,463     (8,407 )           (11 )%

           Total revenue      $ 213,211   $ 218,363   $ (5,152 )            (2 )%

Revenue. Revenue was $213.2 million for the three months ended September 30, 2009, a decrease of $5.2 million, or 2%, from $218.4 million for the three months ended September 30, 2008. Hosting revenue was $148.2 million for the three months ended September 30, 2009, an increase of $3.3 million, or 2%, from $144.9 million for the three months ended September 30, 2008. The increase in hosting revenue was due primarily to a $6.9 million increase in colocation revenue that resulted from sales into new and expanded data centers, which was partially offset by the $3.7 million decrease in managed hosting revenue resulting from the cancellation of the AMEX contract in March 2009. Network services revenue was $65.1 million for the three months ended September 30, 2009, a decrease of $8.4 million, or 11%, from $73.5 million for the three months ended September 30, 2008. The decrease was driven primarily by a $4.9 million decline in managed IP VPN product, which included $1.2 million related to the loss of the AMEX contract. The remainder of the decrease was driven by declines in bandwidth revenue primarily due to continued pricing pressures.

Cost of Revenue. Cost of revenue includes facility rental costs, utilities, circuit costs and other operating costs for hosting space; costs of leasing local access lines to connect customers to our Points of Presence, or PoPs; leasing backbone circuits to interconnect our PoPs; indefeasible rights of use, operations and maintenance; and salaries and related benefits for engineering, service delivery and provisioning, customer service, consulting services and operations personnel who maintain our network, monitor network performance, resolve service issues, and install new sites. Cost of revenue excludes depreciation, amortization, and accretion, which is reported as a separate line item of operating costs, and includes non-cash equity-based compensation. Cost of revenue was $117.9 million for the three months ended September 30, 2009, a decrease of $6.1 million, or 5%, from $124.0 million for the three months ended September 30, 2008. This decrease was driven by $5.6 million decrease in customer related costs and a $2.5 million decrease in circuit costs, both of which were primarily a result decreased network revenues, and a $3.4 million decrease in utility costs related to lower cooling costs due to mild temperatures, partially offset by $3.0 million, $1.3 million, and $0.7 million increases in maintenance, non-cash equity-based compensation, and salary costs, respectively. Cost of revenue, as a percentage of revenue, was 55% for the three months ended September 30, 2009 compared to 57% for the three months ended September 30, 2008.

Sales, General, and Administrative Expenses. Sales, general, and administrative expenses include sales and marketing salaries and related benefits; product management, pricing and support salaries and related benefits; sales commissions and referral payments; advertising, direct marketing and trade show costs; occupancy costs; executive, financial, legal, tax and administrative support personnel and related costs; professional services, including legal, accounting, tax and consulting services; and bad debt expense. It excludes depreciation, amortization, and accretion, which is reported as a separate line item of operating costs, and includes non-cash equity-based compensation. Sales, general, and administrative expenses were $52.6 million for the three months ended September 30, 2009, an increase of $3.6 million, or 7%, from $49.0 million for the three months ended September 30, 2008. This increase was driven by a $4.7 million increase in non-cash equity-based compensation, partially offset by a $1.6 million decrease in bad debt expense. Sales, general, and administrative expenses as a percentage of revenue were 25% for the three months ended September 30, 2009, and 22% for the three months ended September 30, 2008.

Depreciation, Amortization, and Accretion. Depreciation, amortization, and accretion expense consists primarily of the depreciation of property and equipment, amortization of intangible assets, and accretion expense related to the aging of the discounted present value of certain liabilities and unfavorable long-term fixed price contracts assumed in acquisitions. Depreciation, amortization, and accretion was $38.2 million for the three months ended September 30, 2009, an increase of $4.0 million, or 12%, from $34.2 million for the three months ended September 30, 2008. This increase was due to the addition of new data center assets and other capital expenditures.

Other Income and Expense. Other income and expense represents interest on our long-term debt, interest on our capital and financing method lease obligations, certain other non-operating charges, and interest income on our invested cash balances. Other income and expense was $13.9 million for the three months ended September 30, 2009, an increase of $0.7 million, or 5%, from $13.2 million for the three months ended September 30, 2008. The $1.9 million increase in interest expense for the three months ended September 30, 2009 was due to $1.1 million of interest on our loan agreement with Lombard and a $0.8 million increase in interest on capital leases and the Cisco loan. Interest income decreased $0.6 million due to lower average interest rates during the three months ended September 30, 2009. Other income and expense increased $1.8 million due to more favorable impact from currency revaluation of foreign denominated balances during the three months ended September 30, 2009. The following table presents a quarterly overview of the components of other income and expense (dollars in thousands):

                                               Three Months Ended September 30,
                                                                  Dollar       Percentage
                                       2009          2008         Change         Change
  Other (income) and expense
  Interest expense                   $ 14,533      $ 12,674      $  1,859              15 %
  Interest income                         (33 )        (604 )         571              95 %
  Other (income) expense                 (613 )       1,137        (1,750 )           154 %

  Total other (income) and expense   $ 13,887      $ 13,207      $    680               5 %

Income (Loss) before Income Taxes. Loss before income taxes for the three months ended September 30, 2009 was $9.4 million, a decline of $7.3 million from a loss before income taxes of $2.1 million for the three months ended September 30, 2008.

Income Tax Expense. Income tax expense for the three months ended September 30, 2009 was $0.6 million compared to $1.7 million for the three months ended September 30, 2008. The $1.1 million decrease was due to the expectation of a lower alternative minimum tax liability in 2009.

Net Income (Loss). Net loss for the three months ended September 30, 2009 was $9.9 million, a decline of $6.1 million, from a net loss of $3.8 million for the three months ended September 30, 2008, driven by the factors previously described.

Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

Executive Summary of Results of Operations

Revenue increased $20.0 million, or 3%, for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, primarily as a result of a 15% increase in colocation revenue. Income from operations increased to $29.6 million for the nine months ended September 30, 2009 compared to income from operations of $11.5 million for the nine months ended September 30, 2008. The increase in income from operations of $18.1 million was primarily due to an increase in revenues, partially offset a slight increase in total operating expenses. Loss before income taxes for the nine months ended September 30, 2009 was $13.6 million, an improvement of $5.5 million from $19.1 million for the nine months ended September 30, 2008.

The following table presents revenue by major service category (dollars in thousands):

                                      Nine Months Ended September 30,
                                                      Dollar        Percentage
                               2009        2008       Change          Change
          Revenue:
          Colocation         $ 254,429   $ 221,052   $  33,377              15 %
          Managed hosting      198,203     192,540       5,663               3 %

          Total hosting        452,632     413,592      39,040               9 %
          Network services     201,963     220,995     (19,032 )            (9 )%

          Total revenue      $ 654,595   $ 634,587   $  20,008               3 %

Revenue. Revenue was $654.6 million for the nine months ended September 30, 2009, an increase of $20.0 million, or 3%, from $634.6 million for the nine months ended September 30, 2008. Hosting revenue was $452.6 million for the nine months ended September 30, 2009, an increase of $39.0 million, or 9%, from $413.6 million for the nine months ended September 30, 2008. The increase included $8.3 million of non-recurring termination fees, primarily impacting our managed hosting revenue. Colocation revenue increased $33.4 million from sales into our new and expanded data centers. Network services revenue was $202.0 million for the nine months ended September 30, 2009, a decrease of $19.0 million, or 9%, from $221.0 million for the nine months ended September 30, 2008. The decrease was driven by a $12.5 million decline in our managed IP VPN product primarily due to churn from our customer base, including $3.7 million related to the termination of the AMEX contract. Additionally, our bandwidth product contributed $4.7 million to the decrease due to pricing pressures.

Cost of Revenue. Cost of revenue was $360.0 million for the nine months ended September 30, 2009, an increase of $0.6 million from $359.4 million for the nine months ended September 30, 2008. This increase was primarily driven by $3.3 million and $1.2 million increases in salaries, wages, and benefits and non-cash equity-based compensation, respectively, partially offset by a $2.1 million net decrease in circuit, facility, maintenance, and customer related costs and a $1.8 million decrease in travel and other costs. Cost of revenue, as a percentage of revenue, was 55% for the nine months ended September 30, 2009 compared to 57% for the nine months ended September 30, 2008.

Sales, General, and Administrative Expenses. Sales, general, and administrative expenses were $152.7 million for the nine months ended September 30, 2009, a decrease of $10.9 million, or 7%, from $163.6 million for the nine months ended September 30, 2008. This decrease was driven by decreases in salaries, wages, and benefits of $4.3 million, bad debt expense of $4.2 million, and travel costs of $1.5 million. Sales, general, and administrative expenses as a percentage of revenue were 23% for the nine months ended September 30, 2009, and 26% for the nine months ended September 30, 2008.

Depreciation, Amortization, and Accretion. Depreciation, amortization, and accretion was $112.3 million for the nine months ended September 30, 2009, an increase of $12.2 million, or 12%, from $100.1 million for the nine months ended September 30, 2008. This increase was due to the addition of new data center assets and other capital expenditures.

Other Income and Expense. Other income and expense was $43.3 million for the nine months ended September 30, 2009, an increase of $12.7 million, or 41%, from $30.6 million for the nine months ended September 30, 2008. The $7.5 million increase in interest expense for the nine months ended September 30, 2009 was driven by a $3.1 million increase in interest on capital leases and the Cisco loan, a $3.1 million increase in interest on our loan agreement with Lombard, a $0.8 million increase in accreted interest on our Convertible Notes, and a $0.5 million decrease in capitalized interest. Interest income decreased $2.7 million due to lower average interest rates during the nine months ended September 30, 2009. Other income and expense decreased $2.5 million due to less favorable impact from currency revaluation of foreign denominated balances.

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