Europe Special: Finding space in the ‘Big 4’

Europe’s so-called Big 4 – London, Amsterdam, Frankfurt and Paris – between them accounted for 85% of Europe’s entire capital spend on data centres for the first quarter of 2012, according to consulting firm BroadGroup.

This dominance is predicted to intensify over the coming years, driven by industries that are dependent on data centres, such as cloud, media and finance. Companies in these important sectors are clearly drawn to centres of gravity where a choice of high quality, well-connected, carrier-neutral capacity resides.

Small wonder then that one of data centre and exchange operator Equinix’s major motivations for acquiring carrier neutral co-location and interconnection service provider, Ancotel, earlier this year was the latter’s Frankfurt facility with its 2,100 square metres of space and 400 network customers, including 6,000 cross connects.

But is it healthy that so much activity should be centred on metros like Frankfurt and the City of London? Is it not in everybody’s interests for data centre operators to start investing in newer hubs – ones that might, in their favour, be less crowded and less saturated with competing players?

Ancotel managing director Frank Zachmann explains that a prime driver for Equinix in the deal was the need to strengthen its position within existing markets, in preference to branching out into new: “It’s natural to stick to where you already have momentum,” he says.

“There are possible new data centre markets which are just too small at this point in time to invest in. We see that those markets will develop, but they just need another couple of years to get into a state of maturity where a large data centre investment makes sense.”

One of the obvious attractions of the Big 4 is that it’s in these cities where the biggest wealth and diversity of high-quality connectivity is to be found. They are, quite simply, where the internet lives and where all networks of consequence pass through.

Given the critical interplay between carrier-neutral data centres and the carrier partners who have connections into those centres, there is naturally pressure on data centre operators with a Big 4 stake to uphold to invest to attract the right sort of connectivity.

Conversely there is pressure on carriers to distinguish between one data centre offer and another to ensure they have the partner with the right attributes for their customers. It is a difficult balancing act where everybody’s interests are not necessarily aligned.

“When you look at a data centre from a carrier perspective, the data centre is your tool to help you sell your product,” explains Zachmann. “But the centre is not your business, not your core activity. From a data centre point of view it’s the other way round. We’re the experts in power, air conditioning, reliability – that’s where our focus is.”

Carriers themselves profit, of course, from a good blend of connectivity in a data centre. Sharing real estate with a handful of unknown ISPs won’t offer the diversity or scope they need. They’ll be seeking everything from a choice of local loop specialists to dark fibre providers with international credentials. A good data centre has to sit on the major fibre routes so that everybody has the maximum potential to interconnect.

“What makes a data centre stand out for carriers is a good return on investment on the equipment you’re paying to put in that centre,” claims Mike Hollands, director for the connectivity segment of data centre operator Interxion.

“This will come from which other carriers are there for you to interconnect with. A good data centre makes that quick return possible for you. If you look at COLT, for example, they connect to over 400 different customers in our data centres. This gives them a great return, partly because their footprint matches ours so well.”

Neutrality, in its truest possible sense, is another key weapon in the armoury of a data centre operator looking to emerge profitably from the competitive Big 4 jungle, says Hollands.

“We don’t compete with our carriers, in the sense of providing our own connectivity,” he explains. “Equinix has got its own exchange operations, and they offer connectivity between their data centres. This is a bit like a restaurant undercutting their wine suppliers with a house brand. ‘Carrier neutral’ to us means not just that any carrier can come and do business with us, but that we’re independent of all carriers. It means different things to others, I guess.”

Andreas Hipp, CEO of carrier’s carrier Epsilon, certainly values neutrality when he looks for international PoPs for his global network: “Neutrality has to be maintained,” he says.

“The focus of the data centre has to be what’s in the building, less on the connectivity between buildings. Historically their role has been about things like power, redundancy and cabling and not on interlinking of facilities. That this is not always the case is an area of concern for carriers. Also, the more that data centres try to provide incrementally adds to their charges at a time when what carriers do, the networking, is getting cheaper.”

As reliance on a handful of major hubs intensifies, what goes on in those hubs is in a state of flux. It’s not exaggerating too much to say that the whole central purpose of the typical data centre has gone through some radical shifts over the past couple of years.

We’ve seen in that time a general shift of emphasis in the provisioning of IT, from an asset model to a consumption one, and that has to a degree changed what data capacity is there for.

We may now also be seeing the start of a consolidation down to a few big global data centre names, with fewer people wanting to build and operate their own facilities. We’ve also seen the market begin to segment into data centre operators with particular areas of interest.

Roger Keenan, CEO of City Lifeline, a small City of London-based data centre, says there are standards that all must now uphold to remain credible, regardless of their niche.

“You’ve got to be Tier 3 these days,” he believes. “We offer N+N as that’s what people now want. We’ve got 22 carriers listed on our website connected here, which is a huge number for a relatively small data centre, and a lot more than the out of town M25 centres have. We can attract customers in both the voice and data marketplace. Why does a central location work? The reality is that people like to be able to access their equipment. There’s disparaging talk about ‘server huggers’, but people want that – it’s a big issue.”

Looking to the future, Neil Cresswell, managing director of the EMEA business of data centre operator Savvis, says he can easily envisage a more diverse set of European hubs than just London, Frankfurt, Paris, Amsterdam: “In future you might see new places like Istanbul joining those names,” he anticipates.

“These [Big 4 cities] are places where low latency is a priority. Our strategy remains that the network is as important as the data centre. There’s a market for highly connected data centres with lots of suppliers of good quality networks connected to them.”

Nick Razey, CEO of Next Generation Data which operates a Tier 3 data centre in South Wales, questions the allure of the Big 4 in a fast changing market: “I believe the compelling reason to cluster in Docklands has largely gone away, thanks to the low price of connectivity,” he says.

“We’re seeing a lot of data centre operators migrating away from centres like that to places like Wales where you’re paying warehouse rents. There are fewer networks in Newport, it’s true. Power is the big issue now. A lot of our customers are the larger systems integrators. The bigger you are, the less the cost of connectivity matters.”

It seems implausible, however, to think that property owners in the Big 4 are packing up any time soon and heading for the sticks. Telecity Group UK managing director, Adriaan Oosthoek, doesn’t think so: “These hubs developed for historic reasons over a period of time, and it would be virtually impossible to replicate them today,” he says. “Nobody is going to set up shop somewhere else.”

He does think though that there will be a greater emphasis in future on attracting customers from markets outside of Europe, and of the data centre market becoming a lot less parochial: “Half of the customers in our Docklands data centre are foreign,” he says.

“We actively go after these carriers, from all sorts of places, particularly Asia. Meantime, it’s a matter of continuing to make sure we offer what they need in terms of quality, investing to make sure we’re reliable and efficient. This is a necessity to create a long-term relationship with carriers.”

Data centres looking to strengthen their appeal in competitive hubs can benefit from connectivity with the major internet exchange names, in addition to acting as interconnect sites for individual carriers.

Frank Zachmann, managing director of Equinix-owned Ancotel, believes that the tripartite relationship between exchanges, carriers and data centres can be central: “If you don’t have traffic, you are at a dead end, so that’s why we’re seeing a trend to consolidate in Amsterdam. London, Frankfurt and Paris where the major exchange names live,” he says. “It all belongs together.”

Harald Summa is CEO of DE-CIX, the world largest internet exchange, which has just announced that its peak traffic has hit 2Tbps for the first time. Its peering infrastructure is distributed over several carrier-neutral data centres throughout the city of Frankfurt.

“It’s a complex ecosystem alright,” he says. “This is because of end user demand for both applications and content which have got to be on the one hand stored, in a data centre, and on the other transported, by a service provider.”

Data centres, in his eyes, are all different in the way they do business, which must be born in mind when looking for partners: “Some are all about merely hosting content on their own or someone else’s machines while others are about applications as well as content, and involved in areas like cloud or e-commerce. Some customers want all kinds of security, availability and connectivity, others just want a roof on it.”

He says DE-CIX runs a data centre audit where it evaluates different data centres on behalf of customers, much as a business traveller might with hotels: “You might want the comfort of a five star establishment, or just somewhere to sleep the night,” he says. “We show customers what they can expect from a data centre.”

He thinks the concentration of data centres in the Big 4 metros is explicable simply on account of the connectivity those places offer to the internet: “Frankfurt has got 15 or 16 world-class data centres all interconnected and sited as close as possible to the customer, all with excellent connectivity and low latency,” he points out. “They are connected with upwards of 450 carriers and ISPs. We are in the middle of it all bringing it all together.”