Informist, Wednesday, Oct 6, 2021
By Janaki Krishnan
MUMBAI – With demand still outstripping supply in India’s data centre segment, Japanese telecommunications giant Nippon Telegraph and Telephone Corp or NTT has ruled out getting into a price war, even as major players are pouring huge investments into the segment.
"We have limited space, and low prices are going to be unsustainable in the long run. We have already seen some data centres such as Tulip Telecom fold up,” said Sharad Sanghi, chief executive officer-global data centres and cloud infrastructure (India) at NTT, in an interview with Informist.
"So, there needs to be a mid- to long-term view, and with the leadership position that we have, we don’t need to resort to those tactics."
Sanghi said the company will focus on a range of services of the highest quality and maintain its premium offering.
An early entrant in India, NTT has 10 data centres across the country, and is investing over $2 bln to more than double its capacity to over 200MW of information technology load over three to four years.
The company is also building an undersea cable connecting India, Singapore, Malaysia and Thailand, with landing stations in Chennai and Mumbai. This will provide high-speed connectivity to enterprises in India.
NTT’s investment comes at a time when fierce competition is snapping at its heels and players are willing to drop prices to attract customers.
Recently, Bharti Airtel Ltd announced an investment of 50 bln rupees to triple its data centre capacity to 400MW by 2025. Reliance Jio Infocomm Ltd is investing close to a billion dollars in Uttar Pradesh. Home-grown real estate giant Hiranandani group is also powering ahead, building data centres pan-India with investment commitments of about $1.4 bln.
NTT set up its first data centre in India in 2000 along with a few others, but operations were low-key. Indian companies would earlier host their data in servers overseas such as Singapore and Hong Kong for lower costs. But with more undersea cable landings in India, bandwidth rates have moderated, making it feasible to host data domestically, especially in order to ease latency, which is the time taken to transfer data.
Till about 2018, barely $1 bln had trickled into the sector in India. The real impetus came in 2015, as more companies transferred their operations to the cloud. However, the rush for data centres intensified only in the past few years on the back of government push for data localisation and the recent data protection act.
Here are edited excerpts of the interview with Sanghi:
Q. Real estate players, private equity firms and pure play telecommunication companies are all rushing to build data centres in India primarily for co-location services. You are an early entrant in the field. How is that going to affect your rates as well as the industry’s?
A. Well, with fierce competition there will be some reduction in rates. In our case, we will not go below a certain price. We spend 30,000 rupees per sq ft to fit out a data centre, and we try and maintain benchmark pricing. We have to be fair to our clients, but we command that small premium. There will be some margin pressure on certain players, but eventually there will be consolidation.
There is robust demand, but if 10 new players build at the same time, in two years there will be a lot of capacity. Then, for the next couple of years, there will be margin pressure.
Q. As a result of demand-supply dynamics, do you see a lot of data centre shopping, and any imminent price war?
A. Some people do it (data centre-shopping), but demand is so robust. For example, in Mumbai, by the time we build, it is sold out. Of the three buildings we are constructing, over 80% space is already sold out. So, the demand is definitely higher than the supply. Maybe the situation could change in the next 18-24 months because a lot of players have bought land and started construction.
There are customers who do data centre-shopping, but most look for value and track record. We typically don’t participate in reverse auctions unless there is someone whom we really want as a client. If we participate in a reverse auction, we wait up to a certain price. We will negotiate prices and be flexible to some extent. But then, if the price is falling, we get out because it does not make sense. We have limited space, and low prices are going to be unsustainable in the long run. We have already seen some data centres such as Tulip Telecom fold up. So, there needs to be a mid- to long-term view, and with the leadership position that we have, we don’t need to resort to those tactics.
There are people who have invested so much in data centres, but they don’t have clients. So, they are willing to go to any lengths to get them. But most clients understand that data centres are mission-critical for their business, and they will not fall for the pricing trap.
Q. You have investment commitments in India in building data centres as well as a submarine cable. Could you share more details?
A. We have committed over $2 bln in the next three to four years, with the majority of the investment in data centres. We have already acquired land in six locations for data centre plants, and started construction on three centres in Mumbai. We plan to have seven buildings in our Chandivali campus, in addition to Airoli and Mahape. We have acquired land in Chennai, Noida and Bengaluru as well. These are the areas where we are looking to expand.
NTT and some consortium partners are investing close to $400 mln in a submarine cable that is going to cover Malaysia, Singapore, India and Thailand. In India, we are looking at two landing points--one each in Mumbai and Chennai. Speed will be more than 200 terabits per second. It is expected to be completed by late 2022.
We are also investing in renewable energy plants by setting up two captive plants in Maharashtra, and a 20MW plant in Karnataka.
Q. Are you providing only co-location services at your data centres?
A. Co-location and connectivity are the two main foundations for us. We acquire the land, build our own data centres, offer both domestic and international connectivity, along with a suite of infrastructure management services.
Q. You spoke about consolidation. Are you looking at acquisitions?
A. We are expanding organically, and are always open to something good. For instance, if we don’t have space or an asset in a particular city and there’s a player struggling to fill it, we may look at the opportunity. But, it is not something that we have to do to grow; and is not an active strategy.
Q. Due to the rush to build data centres, land acquisition costs must be going up.
A. There are certain zones or certain belts that clients prefer, to attract whom there are multiple players building centres. If there are multiple takers for a land that meets the requirement for data centres, the price goes up...but land as an overall cost of the project is not that significant that if you pay a premium you won’t make money. But in general, land prices have gone up due to data centre expansion.
End
US$1 = 74.79 rupees
Edited by Patricia Hou
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