Wednesday, June 7, 2017

Three strategic moves by Equinix: Telecity, VZ data centers, subsea links

When one thinks of public Internet infrastructure companies that first names that come to mind are the top cloud providers, but Equinix is another one that really should be at the top of the list, not only for its impressive footprint of data centres worldwide but for its strategic moves build Platform Equinix, its vision of interconnected global facilities for cloud-enabled enterprises. The company's stated belief is that digital transformation is driven by cloud services, where compute, storage and networking are shifting to the edge.

The company now operates data centres, which it calls International Business Exchanges (IBX), in 41 markets across the Americas, EMEA and Asia Pacific. In addition to data centre colocation space for enterprises and service providers, Equinix has been adding direct Layer 2 connections to major cloud service providers. This cross connect service was first launched in 2013 and has been expanded in size and footprint since. In EMEA, for instance, Equinix reports that major Infrastructure-as-a-Service players such as AWS, Microsoft Azure, IBM SoftLayer, Google Cloud Platform and Oracle on average have a presence across 15 markets in its data centres.

Background and a look at financials

Equinix is a public traded company (EQIX) based in Redwood City, California and with 6,200 employees worldwide. It reported 2016 revenue of $3.61 billion (including $400 million from Telecity properties and $149 million from Bit-isle), up 33% over 2015 revenue. Without the Telecity and Bit-isle revenue, the company delivered an organic and constant currency growth rate of around 14%. Net income for 2016 from continuing operations amounted to $114 million. The company is guiding for 10% growth in FY 2017. During 2016, capex amounted to $1.1 billion spread over 19 expansion projects. During April, Equinix announced new expansions in London, Paris and Sydney totalling $145 million of capex.

In December 2015, Equinix reorganised its operations into a Real Estate Investment Trust (REIT), a legal structure with tax advantages for companies operating principally as property owners with tenants paying rent for physical facilities.

A big M&A player

Significantly, Equinix has entered a new growth phase through very big ticket acquisitions. In January 2016, Equinix completed its acquisition of TelecityGroup plc, more than doubling its data centre capacity in Europe and fortifying its position as the largest retail colocation provider in the region. The deal was valued at approximately $3.8 billion (compromised of $1.7 billion in cash and the issuance of approximately 6.8 million shares of Equinix common stock valued at $2.1 billion). Specifically, Equinix added data centre facilities in Bulgaria, Finland, Ireland, Italy, Poland, Sweden and Turkey. Telecity also brings more than 1,000 net new customers to Equinix, including more than 200 network and mobility companies and more than 300 cloud and IT services companies.

To gain regulatory approval for the deal from the European Union, Equinix agreed to sell eight data centres in markets where it would otherwise have attained a monopolistic advantage. This involved a sale of facilities to Digital Realty Trust for $874 million. Post merger, Equinix operates a flagship data centre campus in London (Slough), which now encompasses more than 408,000 sq feet (38,000 sq metres) of net premium colocation space, interconnected by more than 1,000 diverse dark fibre links. The campus hosts more than 90 network service providers and provides access to a range of trans-Atlantic subsea cables, with latency of approximately 30 milliseconds to New York and 4 milliseconds to Frankfurt. The facility also houses LINX, one of the world's largest Internet Exchanges, and serves as a virtual financial centre for more than 170 financial services companies. Equinix estimates that a quarter of European equities trades flow through its premises. Taken together, this makes Equinix one of the busiest network nodes in the UK.

In February 2017, Equinix acquired IO UK's data centre operating business, also located in Slough, in close proximity to the existing campus. Financial terms were not disclosed. The facility is in its development phase. Equinix announced plans to rename the data centre LD10. The facility will add approximately 350 cabinets of sold capacity and a total colocation space of approximately 3,340 cabs once the facility is completely built out.

Equinix gained a big foothold in Europe in 2007 through its $2 billion acquisition of IXEurope and its facilities in France, Germany, the Netherlands, Switzerland and the UK.

On May 2nd, 2017, Equinix completed its acquisition of 29 data centres and their operations from Verizon Communications. The deal, which was first announced in December 2016, was valued at $3.6 billion in cash. Along with facilities spanning approximately 3 million gross sq feet of data centre space, the transaction includes over 1,000 customers, of which over 600 are net new to Equinix. The 29 data centres are located across 15 cities in North and Latin America, three markets of which are new to Equinix (Bogota, Culpepper and Houston), bringing Equinix's total global footprint to over 175 IBX data centres across 44 markets and approximately 17 million gross square feet.

The deal is significant for several reasons. First, it shows that Verizon would rather pursue its role as a carrier than as a colocation data centre operator. If Verizon finds it better not to own the building but to partner with Equinix, a carrier neutral colocation company, then perhaps other carriers will follow this reasoning. Operating the next wave of cloud exchange data centres is distinctly different business than being the carrier. Second, the key facilities mentioned above in Culpepper and Miami will open new doors and bring tremendous traffic volumes in the years ahead. Both are highly strategic squares on the global chess board. Third, the scale of the Equinix platform jumped up another quantum level.

Bringing subsea cables into the data centre

Earlier this week, Equinix announced a deal with Eastern Light, a Stockholm-based company that is building a series of new international optical cable routes in northern Europe, with a focus on selling dark fibre to operators as well as other customers with special requirements for controlling their own infrastructure. NSW (Norddeutsche Seekabelwerke) is Eastern Light's main supplier of its submarine cable system. Eastern Light is using Ciena's GeoMesh solutions as part of its dark fibre offering.

The Equinix deal with Eastern Light ensures that the cable will terminate in two Equinix IBX data centres - HE6 in Helsinki and SK2 in Stockholm - which are key interconnection points for the Nordics. The Sweden–Finland portion of the cable is scheduled for completion in autumn 2017.

Equinix argues that there are performance and cost advantages when subsea cable systems are linked to cloud and content ecosystems inside the same data centre, and the Eastern Light deal is by no means the first such project for Equinix. Recently, the company disclosed that it is maintaining 'significant momentum' as the interconnection partner for new submarine cable projects globally, including recently winning its fifteenth project.

One such high-profile project is the Monet submarine cable, which will deliver 60 Tbit/s of capacity between the U.S. and Brazil, owned by Algar Telecom (a Brazilian telecom company and ISP), Angola Cables, Antel (the Uruguayan telecom company) and Google, which is also the U.S. landing party for Monet. Construction of the system is underway and expected to be completed in 2017. In September 2016, Equinix announced that the Monet cable will terminate in the U.S. at its MI3 IBX data centre in Miami. In Brazil, Monet will land in Fortaleza and Praia Grande near São Paulo. Landing facilities in those markets are to be provided by Angola Cables in Fortaleza and Google in Praia Grande.

When this project was announced, Ihab Tarazi, CTO at Equinix, stated:

-    "As data traffic continues to grow, from Facebook videos and Instagram selfies to Office 365 sessions and IoT connected devices, there is an unprecedented surge in construction of new submarine cables that currently carry 99% of this and all Internet traffic between continents. The investors in these new submarine cable systems, which now include large cloud service providers and content companies, are finding that when these submarine cables terminate on land, Equinix data centres are the optimal location to connect these point to point submarine cables into a single location that directly connects to thousands of networks".

Other current submarine cable projects that Equinix is engaged with (announced publicly) include: Southern Cross Cable Network (California - Sydney); Aqua Comms (New York - London); Hibernia Express (New York - London); Cinia (Germany - Finland); Trident (Australia - Indonesia - Singapore); Globenet (Florida - Brazil); Asia Pacific Gateway (China - Hong Kong - Japan - South Korea - Malaysia - Taiwan - Thailand - Vietnam - Singapore); Hawaiki Cable Limited (U.S. – Australia – New Zealand); Gulf Bridge International (Middle East - Europe); FASTER (U.S. West Coast - Japan); and Seaborn Networks (New York - Sao Paulo).

See also