India is witnessing a transition from an emerging to a developed market economy and digital is slated to play a key role in this journey. The existing digital ecosystem could contribute up to USD 500 billion of economic value, but the potential economic value for India could be as much as double that amount, almost USD 1 trillion by 2025. With over a billion mobile phones and more than 700 million internet subscribers, India has seen an exponential growth in digital-commerce, digital entertainment, and use of social media.
Its mobile data consumption is already the highest in the world and is constantly increasing.
The monthly mobile data consumption per user, at 8.3 gigabytes (GB) per month, is over 54 times the figure in mid-2016 and higher than countries like China at 5.5 GB per user, and comparable to digital leaders like South Korea at 8-8.5 GB per user.
By 2025, the total data traffic is expected to touch 21 exabytes per month. Much of the soaring data consumption is ascribed to social media, fuelled by the escalating use of smart devices and low Internet rates.
The Indian data center industry, is estimated to be worth USD 1.2 billion and is expected to grow at 25-30 percent to USD 5 billion by 2025. It currently accounts for a mere 1-2 percent of the global data center market. However, it is one of the fastest growing data center markets in the world.
Providing impetus are increasing investor interest and stable returns in the long run. Preference of housebound audiences for OTT platforms, accelerating online sales and online transactions are fueling demand. Further, large- to small- and mid-sized enterprises are undertaking rapid digitization and transitioning to cloud-based solutions.
CEO & Country Head, India, JLI
“India’s data center market will outperform over the next 5 years, supported by a combination of growing digital economy, increased investor interest, and stable long-term returns,”
IoT deployment in India has surpassed 250 million and will cross 2 billion in the next 2 years, witnessing major deployments across manufacturing, healthcare, retail, buildings, utilities, automobiles, and transportation among others. This will lead to a surge of data across the connected devices, requiring both compute and storage, as most of the data will be analysed through analytics and leveraged by technologies such as AI/ML.
The pandemic has also accelerated digitization and cloud adoption. Data consumption witnessed a sharp rise of 38 percent YoY in the first quarter of FY21. The increasing availability of high bandwidth speeds, state-of-the-art infrastructure, lower power tariffs, and the growing presence of hyper-scalers is steadily boosting the tailwinds for India’s DC players.
The government too is increasingly reliant on data centers for the Government-to-Citizen (G2C) delivery platforms, such as the National e-Governance Plan (NeGP), e-visa, and National CSR Data portal to name a few.
There have been changes in the regulatory environment and the Reserve Bank of India has mandated that all data of financial transactions should be stored on servers located in the country. The banks and fintech firms are gearing up to house their data in India, increasing demand for data centers.
The push for data localization will not stop with financial organizations either. The Personal Data Protection Bill, a proposed law could force companies to keep Indian users’ data within the nation’s borders. Once the bill is passed in both houses of the parliament, it will lead to large localisation of data, leading to large co-location and cloud capacity requirements in the country.
MeitY, on November 5, 2020, unveiled its draft data center policy enabling the private sector to establish data center parks in the country. The policy proposes to meet the data security needs by promoting investments in safe and secure data centers in India with an aim to give fiscal and non-fiscal incentives to the companies in the segment, along with various other measures to boost growth in the sector.
The policy envisages a series of steps toward making India a global hub. Some prospective but critical steps that could create an enabling environment for DCs include uninterrupted power supply; robust and cost-efficient connectivity backhaul; recognizing DCs as a distinct category of the National Building Code; declaring DCs an essential service under ESMA (The Essential Services Maintenance Act, 1968), and building special Data Center Economic Zones.
The government proposes to set-up at least four Data Center Economic Zones (DCEZ) in the country, as a Central Sector Scheme-DCEZ Scheme. These DCEZs would be concentrated and specialized Data Zones, with the most conducive non-IT and IT infrastructure, connectivity, power, and regulatory environment. They would create an ecosystem of hyper-scale data centers, cloud service providers, IT companies, R&D units and other allied industries. DCEZ Scheme will be implemented by inviting proposals from the states.
Chairman, Anarock Group
“One of the primary advantages of a data center is that lease have extremely long tenures, typically a minimum of 10 years, and going up to 30 years.
This leads to a better valuation than a typical commercial or infra asset.”
India currently has 126 third-party data centers (colocation or hyperscale) spanning 7.5 million sq ft, and a cumulative IT power capacity of 590+ MW. These third-party centers are owned and operated primarily by 53 players, while the capacity is concentrated among the top 12 players who operate 95 percent of the total IT power capacity in the country.
Much of the data center growth is clustered around top seven cities, with Mumbai accounting for 52 percent of the market and the top seven combined 75 percent of India’s total DCs. Demand for data center space requirement is anticipated to increase by around 15-18 million sq ft across the major cities in the next 2-3 years. Mumbai and Chennai will together witness 60 percent of total future capacity, with NCR and Hyderabad contributing another 33 percent. Improved infrastructure in non-metros, and the likely launch of 5G technology will gradually make these regions attractive for some hyper-scalers in setting up DCs there.
Large data centers
CtrlS owns and operates six facilities in Hyderabad, Mumbai, Noida, and Bangalore, each one being a Tier-IV certified data center. The company currently has 1 million sq ft of data center space in the country, with plans to expand to 2 million sq ft hyperscale facilities each, in Mumbai and Hyderabad, and another 1 million sq ft facility in Chennai.
ESDS in India has data centers in Mumbai, Nashik, and Bengaluru. The company is in the process of massively ramping up its data centers capacity and plans to have operational data centers in Chennai, Indore, Hyderabad, Kolkata, and New Delhi too.
On August 10, 2020 Equinix Inc., announced its expansion into the Indian market through the acquisition of the India operations of GPX Global Systems, Inc. The all-cash transaction value of USD 161 million represented a multiple of approximately 15x the projected EBITDA at full utilization. The acquisition is expected to close in 1Q21, subject to customary closing conditions including regulatory approval. JP Morgan, Cyril Amarchand Mangaldas, and Deloitte Touche Tohmatsu India LLP acted as advisors to Equinix. KPMG India acted as the exclusive financial advisor and Kanga & Company as the exclusive legal advisor to GPX Global Systems, Inc., on this transaction.
Under the agreement, Equinix will acquire GPX India’s business consisting of a fiber-connected campus in Mumbai with two data centers, adding more than 1350 cabinets, with an additional 500 cabinets at full buildout. The facilities will add more than 90,000 sq ft of colocation space to Platform Equinix when fully built.
GPX India facilities also host key internet exchanges such as Mumbai IX-DECIX, AMS-IX India, Extreme IX, and Bharat IX, allowing ISPs, carriers, CDNs, and large enterprises to exchange internet traffic.
The acquisition will extend Platform Equinix to India with the addition of two world-class, highly interconnected data centers, providing a platform for additional expansion across the country. Equinix customers will have access to a network-dense data center campus with more than 200 international brands and local companies, including the world’s leading cloud service providers (CSPs), leading networks, content delivery network (CDN) providers, all local carriers, 130 internet service providers (ISPs), and four internet exchanges. Both data centers are strategically located in Mumbai, home to the critical IT infrastructure of numerous global organizations and with international connectivity serviced by subsea cables at landing sites located nearby.
Partner, Deloitte India
“2021 will be a watershed year for the cloud and data center market in India. We predict a growth of the cloud and co-location market at a CAGR of 30 percent to reach USD 10.3-11.3 billion by 2023.”
NTT Ltd’s Global Data Centers and Cloud Infrastructure division in India currently operates with 10 data centers across the cities of Mumbai, Noida, Chennai, and Bengaluru with over 1.5 million sq ft and over 150 MW of power. In September 2020, the company announced the expansion of its line of data center facilities with the launch of a new high-density and hyperscale data center in Mumbai, thereby expanding its data center capacity in India by 30 percent. NTT, which had earlier acquired local data center firm Netmagic, plans to double its capacity in the next two to three years, and it could work out at more than USD 1.5 billion being channelled into India. As recently as January 2021, it acquired 6-acre land in Greater Noida to set up a data center with an investment of `1,000 crore. The company is also looking at greenfield deployments and adding to its land bank for future data centers, but is not averse to acquiring facilities from existing players should the opportunity arise.
NxtGen, Bharti Airtel’s business of data centers has evolved into Nxtra Data Limited and has data centers at Manesar, Noida, Chennai, Mumbai, Bangalore, Bhubaneswar and Pune. Nxtra’s 10 large data centers and 120 plus edge data centers provide its clients with co-location services, cloud infrastructure, managed hosting, data backup, disaster recovery, and remote infrastructure management. The company also announced the signing of an MoU with the Maharashtra Industrial Development Corporation, under which the telco will set up for two new data center campuses in the state, at Mumbai and Pune. Airtel is planning to accelerate investments in the space. In October 2020, the Carlyle Group completed the acquisition of 25 percent in Nxtra Data for USD 235 million, placing its valuation at USD 1.2 billion.
Head of Research, Structure Research
“Demand is outstripping supply in India. According to our projections, the Indian data center sector currently has 252MW of power which is expected to more than double to 536.1MW by 2024 thanks to a compound annual growth rate greater than 20 percent.”
STT Global Data Centers India Private Limited is a subsidiary of Singapore-headquartered ST Telemedia Global Data Centers. Tata Communications continues to hold 26 percent in its India data center business. In India, the company manages raised floor area and critical IT load of 110 MW with 17 facilities sprawled across 2.5 million sq ft, across eight major cities. While major metro cites are the sought-after locations for DCs, STT GDC India is the only enterprise class data center which is present in Ahmedabad.
Web Werks provides hosting services on dedicated servers, cloud, co-location, virtualization, and disaster recovery with a client list that includes Microsoft, Google, Godrej, Canon, Tata, Netflix, Facebook, and Akamai. The facilities are designed to be a carrier neutral hub with access to all the major service providers, telcos, and Internet Exchanges (IXs).
Ricoh has its two data centers located in Kolkata. The Tier-III data centers are state-of-the-art centers.
Sify Technologies infrastructure includes 10 top-of-the-line concurrently manageable DCs. These offer the highest levels of availability, security, and connectivity for IT infra. These are strategically located in different seismic zones across India.
Oracle had launched its second data center in Hyderabad in June 2020. The first one is located in Mumbai.
The existing large players are readying for expansion, with hyperscale data centers and data center parks planned, while there are many in the fray looking to enter this space.
The Adani Group has collaborated with US-based Digital Realty, the world’s leading provider of data center solutions, to create a 5GW capacity with an investment of USD 10 billion over 20 years.
Amazon Web Services (AWS), announced in November 2020 that it is investing `207.6 billion to set up multiple data centers in Telangana. The data center cluster will open by mid-2022. It will comprise of three availability zones (AZ) in India. This is in addition to existing three availability zones that it set up in Mumbai in 2016.
Reliance Data Center is a leading provider of outsourced data center infrastructure for organisations with mission-critical IT operations. It currently has over 650,000 sq ft of hosting space at its nine data centers across India. These data centers are located at Mumbai, Bangalore, Chennai, and Hyderabad. The company has more than 700 large, medium, and small enterprise customers.
These customers have chosen one or more services which include co-location, managed hosting, storage and backup, network connectivity, application hosting, and managed services. Reliance customer list consist of companies from fortune 1000 organizations, government establishment, banking and financial institutions, media companies, and educational institutions. In its August 2019 AGM, Reliance Jio announced a 10-year alliance to build data centers across India, run Microsoft’s Azure cloud. “Jio and Microsoft will partner to launch new cloud data centers in India, ensuring more organizations can access the tools and platforms they need to build their own digital capability,” said Microsoft CEO Satya Nadella. “The initial two data centers, which can house IT equipment consuming up to 7.5MW of power, are being set up in the states of Gujarat and Maharashtra,” Jio said in a statement.
In October 2015, Microsoft Azure had been the first global cloud provider to offer services from local data centers in three regions in India, Central India (Pune), South India (Chennai), and West India (Mumbai).
Google had launched its first cloud region in India, hosted across three Mumbai data centers, each housing a separate cloud availability zone in 2017, after AWS and Azure had in 2016 and 2015 respectively. It is now looking to create its second data center region, wanting to scale up its capacity to 500 MW and may resort to four floors of Sify’s six storey data center lying vacant.
The Hiranandani Group, through its subsidiary Yotta, has started activities with a 50 MW office in Mumbai and a 20-acre plot in Greater Noida stating its intent for six interconnected data center buildings offering 30,000 racks capacity and 200 MW of power.
Other big ticket investments in the data center space this year are from National Informatics Center, National Payment Corporation of India, Bridge Data Centers, Pi Datacenters, and Rack Bank. Colt DCS, Singapore; Ascendas-Singbridge Group, Singapore; Princeton Digital Group; Godrej; DLF; GMR; and Lodha are also some of the leading aspirants.
Analysts are upbeat
A further capacity of 1500 MW is on the cards. An estimated USD 9.5 billion of leveraged capital is expected to be committed to this segment. New data centers could get an internal rate of return of 15-18 percent (counting land expenses) and 18-22 percent (barring land costs). Data center players could make EBITDA margins of around 50 percent when normalized for rental costs, says Analytics Insight. Such attractive unit economics are reflected through a substantial investor interest in India’s data center market.
Colliers International India says that India’s co-location data center stock is likely to more than double by 2023 to about 20 million sq ft, from the current 9 million sq ft. The company notes that India has about 1.2 MW per user of co-location data center capacity at present, as compared to Europe’s 19.1 MW per user data center capacity, which provides a huge opportunity for data center operators and investors in the country.
India will see an addition of at least 28 large hyperscale data centers over the next 3 years, says a recent report jointly penned by real estate services company, Anarock and Mace, a London-based consultancy and construction company. A hyperscale data center is defined as when it exceeds 5,000 servers and 10,000 sq ft. The Anarock-Mace report argues that these hyperscale data centers will span over 16-plus million sq ft with at least 1400-plus MW of IT power capacity.
As per the Anarock-Mace report, in 2020 the Indian data center industry attracted close to USD 977 million in private equity and strategic investments since 2008, of which nearly 40 percent, or approximately USD 396 million, were infused between the January-September 2020 period alone. And close to USD 9.5 billion of capital is in various stages of being announced, committed, or waiting to be committed into Indian data centers.
New business models are emerging in this business, including co-location services, pay-per-use utility model, built to suit, etc. Location and design, easy scalability, security, infrastructure, sustainable practices, and reliable partner are the key determinants for data center demand. In India, a captive data center still has the highest market share. However, co-location service model is witnessing tremendous growth and is soon expected to be almost equal to captive.
Further, as the investment in technologies such as AI, big data, and IoT increases, there will be a surge in demand for application-specific infrastructure solutions in India. In spite of the fact that water cooling arrangements rule the market, developing concerns over power consumption are relied upon to expand the demand for in-row cooling cold aisle containment solutions powered by smart IoT sensors.
Edge computing will continue to gain traction
Data center operators are putting in place plans for the next phase of growth, which includes investing in edge data centers, which are smaller data centers located closer to the customer, allowing for faster processing of data that is not stored on premise. Taking an example of an ATM – these are located where the banks have the majority of their customers.
Edge computing is an approach that enables and optimizes extreme decentralization, placing nodes as close as possible to the sources of data and content. The massive surge in data size with increased usage of IoT devices, virtual communication platforms, digital payments, more demand for OTT content, etc., has led to enterprises gradually shifting to edge computing which happens at close proximity of the customers, thus lowering latency by reducing data flow. With rapid penetration of OTT, gaming, and e-commerce transactions in the country, the Tier-II, Tier-III, including some select Tier-IV cities, will seek high quality of services. Therefore, the content will have to move to the edge. This will see a rise in edge data centers.
Compared to edge, computing at the cloud or core is a more tedious and time-consuming process as data has to travel back and forth to a central server, that affects the decision-making capabilities of any business. Gartner predicts that by 2025, 75 percent of enterprise data will be processed at the edge.
Another trend is co-located edge data centers, that will prove to be commercially viable for all business types to use and benefit from – as there is continuous growth in data, it would be impractical to not make edge data centers cost effective. Edge data centers must also be mobile – shift from one location to another – the concept of containerized data centers presents a huge prospect to how data is managed today.
The telco data center sell-off
Telcos have grappled with the do we don’t we debate around where they should put their investment to work – in the network or in the data centers, both businesses tending to be quite capital intensive. And several of the bigger ones have been through that a couple of times.
While many chose the network, data centers have become one of the strongest commercial real estate sectors in the market currently and, despite their CapEx-intensive business model, Technavio predicts the global industry will see CAGR of 17 percent to 2023. The dollar value of that growth will reach USD 284.44 billion and in India alone, Arizton Advisory and Intelligence says investments of USD 10 billion are expected in the short term. However, while it has been a natural evolution for telcos to offer some hosting provisions, the majority does not contribute to these figures.
Dozens have opted to sell, among them Axtel, Verizon, Telefonica SA, AT&T, CenturyLink, and Vodafone. Bharti Airtel, too, sought to divest its data center unit for 2-3 years until it saw a surge in demand and finally secured a deal with Carlyle. Taking a slightly different approach, last year Telecom Italia (TIM) announced plans to spin off its 23-facility data center portfolio and list it on the stock market to create a potential USD 1.1 billion business.
Yet, not everyone is stepping away. Last year, Orange invested €100 million in two facilities in France while retiring a further nine centers with now outdated infrastructure. In late 2019, China Mobile International (CMI), opened its first European data center, a purpose-built facility in the UK, connected to a newly opened center in Singapore and the global network center in Hong Kong. Another facility in Frankfurt, Germany will follow.
Apart from struggling with the operational expertise required to run data centers, hyperscalers on their part tend to avoid telcos due to the challenges in terms of interconnection between different telcos. Whatever blend of services are selected, their relationship with data in all its forms is changing forever.
5G networks will bring significant changes to the way that data centers are operated and connected, but the number of attached devices they will link and the vast amounts of information they create, mean that multiple approaches to data and application hosting will continue to exist side by side for a long time to come.
While there is a large market opportunity in the Indian data center market, competition is also intensifying. As they struggle to get uninterrupted power supply, access to land banks where there is demand, and highly-skilled professionals, players will need to differentiate themselves by building a customer-focussed strategy, building relationships with large wholesale and hyperscale buyers, innovating their solutions beyond colocation services, and optimizing their operating costs and capital expenditure to achieve market leadership.
Sustainability and scalability will determine the winners.