Should ASEAN Telcos Reassess Data Center Business?

A. Amir

Summary Bullets:            

  • Major ASEAN telcos are considering selling their data center business.
  • As the demand is shifting, telcos should consider reassessing their data center business strategy.

In the last few days, three major ASEAN telcos – PLDT, Globe, and Indosat – were reported to be mulling over their data center businesses, worth around $500 million (USD), $200 million, and $200 million, respectively.

Not a New Trend, but Has Been Happening for Years

Having telcos exit the data center market is not new: Verizon sold its 29 data centers in the America region to Equinix in 2016; Tata Communications sold 17 facilities in 2016 and its data center arm sold a 26% stake in its Singapore business in 2019; Lumen completed the sale of its data center and colocation business in 2017; AT&T sold 31 of its data centers to Brookfield in 2018; Telefonica sold off 11 data centers in 2019 and confirmed the sale of additional four facilities in 2021; PCCW sold its data center business in 2021; and Singtel has announced that it is considering selling off its infrastructure, including data centers.  However, the trend is only recently coming to the emerging ASEAN region.

Telcos’ Data Center Business

Telcos were some of the early players to enter the data center business, driven by strong demand for colocation services.  Today, nearly all major ASEAN telcos offer data center services through their main brands or IT arm.  They play to their strength, differentiating with network and interconnection services as well as local presence to capture the opportunity from enterprises across different verticals.  However, the data center market in ASEAN has somewhat reached its peak.  The increasing numbers of new entrants and new facilities with better features, higher specifications, and carrier-neutral propositions are often more attractive for enterprises.  This has also caused market oversupply and under-utilization in many facilities.

The Market Is Still Growing, but There Is a Major Shift in Demand

The demand for data center services in ASEAN has settled down, and the market is expected to increase at a compound annual growth rate of 5.6% from $3.1 billion in 2020 to $4.1 billion in 2025 (source: GlobalData IT Market Analyzer).  However, there has been a shift in market demand, and telcos are slowly losing their edges, especially when competing against pure data center players.

The accelerated cloud adoption during the pandemic, combined with hyperscalers’ aggressive expansion in the region in the last couple of years, is making colocation services less compelling in the market.  More enterprises are considering cloud services for greater scalability and cost savings, especially for their non-critical applications.  Cloud service providers have also significantly enhanced their offering and service delivery capabilities to ensure successful deployments.  While hyperscalers also host their private cloud services from third-party data centers, especially with new edge solutions like AWS Outposts, Azure Stack, and Google Anthos, telcos facilities are often less favored due to the high requirements in performance, availability, and reliability.

Data center services are still crucial for enterprises in highly regulated verticals such as government, healthcare, and the banking, financial service, and insurance sectors.  While more ASEAN regulators have relaxed the local data residency requirements, enterprises in these verticals are often still restricted by data sovereignty requirements.  Besides, there is also an increasing demand for low-latency applications such as autonomous vehicles and robotics that drive the need for local hosting.  Furthermore, the proliferation of mobile broadband, content, and social media usage in the region is attracting OTT providers to push their content closer to users to offer a better experience.

Telcos Should Reassess Their Data Center Business Strategy

Telcos with established data center portfolios should reassess their strategy.  Cloud adoption is expected to continue to increase and hit the colocation market stronger.  Furthermore, leading global data center players such as Equinix, Digital Realty, and NTT Ltd. are expanding fast in the region.  These players have advanced capabilities such as software-defined interconnect, comprehensive service portfolios, extensive partner ecosystems, and wide global footprints.

ASEAN telcos could also retain their data center business but need to consider redefining the value proposition.  They should focus more on highly regulated verticals, OTT providers, and hyperscalers.  Telcos could also leverage their infrastructure assets to address the increasing edge computing opportunity.  In addition, they could consider enhancing the capabilities through compliance to high industry standards such as Tier 4 facilities.  Software-defined interconnect and wider-ranging partners, especially global network and cloud providers, are also important to offer flexible and scalable services.

Related report: Rationalization of Telecom Assets: What Is Core and What Is Not?,” September 14, 2021

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