Data center capacity in Malaysia, Indonesia, India to grow at 10-25% CAGR over next five years: S&P – ET Telecom

NEW DELHI: Data center capacity in Malaysia, Indonesia, and India will increase at a compound annual growth rate (CAGR) of 10-25% over the next five years, according to the findings of 451 Research, a unit of S&P Global Market Intelligence, released Monday.

“These countries share some common favorable attributes: a rising online penetration rate, localized content, and a young population. Enterprises are also digitalizing their operations and migrating to the cloud,” the credit rating agency said in its report.

It said that Singapore will grow at a “modest pace” owing to a more established market with constraints over land and power supply.

It added that regional telecom operators, real estate companies, and international data center providers are “keen for a slice of the growing pie in South and Southeast Asia”. It is one of the ways to diversify revenue sources and assets and retain customers, said S&P.

S&P said that telcos in South Asia and Southeast Asia see data center investments as a “natural extension” of their core business as they can use their connectivity infrastructure and experience in running capital-intensive businesses in a regulated environment.

It cited Philippines-based telco PLDT, which is building its 11th data center–a 36-megawatt (MW) site in Laguna, which once completed, will more than double the telco’s current 28MW capacity. Singtel is also building data centers (including via partnerships) in Singapore, Indonesia, and Thailand to increase its gross data capacity to 155MW by 2026, from its current capacity of 60MW.

“Telcos also see data centers as part of the solution to offsetting waning growth in other areas such as their traditional voice and mobile businesses. And with the ramp-up of 5G revenue still some time away, data centers may help fill the void,” the credit rating agency said.

In the long run, it underscored that data centers also offer monetisation opportunities if telcos plan to recycle their capital and reinvest in other emerging opportunities. Data centers with favorable locations, good network connectivity, and high-capacity utilisation “can be valuable and have high price multiples”, said S&P.

It noted that European telcos also invested heavily in data centers a decade ago when colocation was booming. However, many of these companies exited the data center market from 2015 to reduce debt and raise funds for core business such as spectrum spending.

“Data center investments may not offer the strategic value of 5G to telcos’ core operations,” said S&P, as it added that large data capacity benefits telcos by improving network reliability and reducing latency as data consumption grows.

“However, we recognize risks from telco-operated data centers,” it said, taking the example of US-based telcos that exited the data center business because they have been unable to “compete effectively against specialised providers”.

“Data centers run by telcos may not be managed independently and may lack a dedicated salesforce, which can result in a lower utilisation rate. Their facilities are seldom carrier-neutral and therefore may lack interconnection, which we view as an important competitive advantage for data centers,” S&P said.