New data centre players may struggle with few large clients and limited scale, say experts 

With many major companies either announcing new data centre projects in India or diversifying to add it as a new business including Microsoft, Google, LTI, Hiranandani Group’s Yotta Infrastructure and Adani Group, industry experts believe that though there is demand and scope aplenty in India, large clients for the services are still few.

Benoy CS, Vice-President, ICT Practice and Head-South Asia, Frost & Sullivan told BusinessLine, “The key challenge for the upcoming third-party data centre players will be to gain customers. This is a business where scale matters, existing global companies like NTT’s biggest advantage will be their worldwide network of data centres and as well as locally in India. But most companies have either just announced their plans or started working on the infrastructure, it will take some time for this to materialise.”

He added, “Data Centres is a fairly simple business. That’s why with increasing demand a lot of real estate companies are also entering this space. But the differentiation comes from the services they will provide. Some are going to be co-location service providers while others who are more mature will be providing cloud service. Ultimately, the top ones will differentiate by providing interconnect services that work on low latency network as well.”

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“Yes, there will be some pricing pressure as new players trying to establish themselves will cut prices for anchor tenants. Earlier there were fewer players and clients had less options. But eventually, I believe there will be consolidation in the market as there are few large customers and they will choose a few providers. Not everyone will necessarily benefit from those clients. In the short-term, there will be pricing pressure and in the long-term there will be consolidation,” Sharad Sanghi, MD, NTT India, told BusinessLine in an earlier interaction.

Inflection point

The pandemic came as an inflection point for the data centre industry. Demand for data centres surged over the last two years, especially given the potential India poses . Many new project announcements over the past few months in 2022 coincided with the government’s Budget Speech which planned on giving infrastructure status to data centers making them eligible for other funding benefits. This was also a strategic move given that the government has been pushing for data localisation policy.

Consequently, in March, Microsoft announced its plans to set up its largest data centre in Hyderabad with a target investment of ₹15,000 crore over the next 15 years. NTT is on track with its $2 billion investment announced in late 2020 to set up six major data centre campuses across the country. Of this, three hyperscale data centre campuses in Mumbai region are almost done. It now plans to add more smaller data centres and get additional funding.

In February, Adani Group launched AdaniConnex, a joint venture between Adani Enterprises and EdgeConnex Europe BV to set up a new subsidiary for building data centres.

Scope and competition

According to a Frost & Sullivan report, demand for hyperscale data centre capacity has seen a significant surge, especially from public cloud and content providers. “This is attributed to multiple factors such as more businesses moving their IT infrastructure to the cloud and high consumer demand for app-based and OTT services running on the cloud,” it said.

Existing top players in the data centre space in India include NTT, STT GDC, Nxtradata, and Sify.

Revenue from managed services in the data centre industry is expected to grow 19.8 percent to ₹12,906 crore by FY24 from ₹7,507 crore in FY21, the Frost & Sullivan report said.

Rishu Sharma, Associate Research Director for cloud and AI, IDC India, said, “According to IDC’s Datacenter Operational Survey, 2021, the top factors that Indian enterprises are looking at when selecting a co-location provider includes cost, ability to extend with the enterprise infrastructure in other markets, compliance, investment in renewable sources and the ecosystem access to partners and customers.”

According to Naveen Mishra, Senior Director Analyst, Gartner, Indian public cloud market is poised to touch $16.2 billion by 2025 with a CAGR of 31.1 per cent through 2020-25.

“Real estate, power, people and technology are four key ingredients of capex-intensive data centre industry. New providers with real estate and infrastructure have also invested in this market. Since the market is in growth mode, there is enough opportunity for all providers to succeed. Upcoming data residency law will require a copy of data to be stored in country- which fuels that data centre demand. Infrastructure status to data centres should help bring strategic long term investment in this industry,” Mishra told BusinessLine.

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