DATACENTER CANADA MTDC MARKET ASSESSMENT REPORT EXCERPT SUPPLY AND PROVIDERS MICHAEL LEVY WRITTEN BY DECEMBER 2012

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1 CANADA MTDC MARKET ASSESSMENT SUPPLY AND PROVIDERS DATACENTER WRITTEN BY MICHAEL LEVY DECEMBER RESEARCH: DATACENTER

2 COGECO DATA SERVICES COGECO DATA SERVICES Headquarters: Toronto, ON President: Tony P. Ciciretto CANADIAN DATACENTER FOOTPRINT Number of Canadian Datacenters 6 FINANCIAL PROJECTION ($M) Est. Canadian Operational Square Footage Total Company 2012 Revenue $20-50 North American 2012 MTDC Revenue $5-20 CURRENT MTDC REVENUE SPLIT Wholesale Colocation 0% 100% CURRENT INTERNET INFRASTRUCTURE SERVICES MIX MTDC Services Interconnection Hosting and/or Cloud Services Other 65% 0% 35% 0% 45,000 Background Cogeco Data Services (CDS) was founded in 2000 as Toronto Hydro Telecom, a utility telecom that offered network services and colocation services. In 2008 the company was acquired by Cogeco Cable, a Montreal-based communications company with assets in telecom, radio, television and media. CDS s presence stretches from the eastern reaches of Quebec to Windsor, Ontario. Currently the company has three datacenter facilities in Toronto and, as a result of its acquisition of Quiettouch, a small facility in Vancouver (primarily used as a backup facility). CDS s downtown Toronto facility, which is primarily devoted to the delivery of managed services, offers 13,500 square feet of usable floor space and is segmented into two suites. The two other sites are located west of the central business district and provide colocation in conjunction with managed services. The company s original datacenter space provides 5,000 square feet of operational floor space and is filled to capacity. The second, built in 2007, which is south of the first, offers 20,000 square feet of operational floor space and employs advanced backup power systems (bi-fuel and diesel generators) and interstitial flooring. CDS is building a datacenter in Barrie, a suburb north of Toronto, which at total buildout will accommodate 100,000 square feet of net usable datacenter capacity. The first phase, which will provide between 5,000 and 10,000 operational square feet, is scheduled to open sometime in Q Following the construction in Barrie, the company has plans to open facilities in Oakville and Montreal we can expect more details surrounding these two facilities later. All CDS datacenters are designed to CSAE 2 CANADA MTDC MARKET ASSESSMENT

3 3416 standards, and built with high power density per square foot. CDS continues to build upon the advances in cooling techniques, airflow and design that the company will also use in its other facilities. We believe that with such high-quality equipment and practices, CDS will experience healthy traction as it develops further as a player in the Toronto managed IT, cloud and datacenter markets. CDS comes up against pure-play colocation providers, but leverages its own network and managed services to try to differentiate itself. The company also competes with the large Canadian telecom incumbents but feels that its ability to be flexible (to offer colocation, managed IT services and IaaS) and the fact that it has a proprietary network are advantages. The company also says it runs up against large system integrators from time to time. CDS s customer base is marked by medium to large enterprises that have between 250 and 10,000 employees. About 60% of its customers are based in the Greater Toronto Area (GTA) and the remainder is based in Greater Montreal Area (GMA) and US. The company sees uptake from the following industry verticals: financial services, health care (including major hospitals), education, media and broadcasting, and technology. The company s downtown Toronto customers tend to deploy their mission-critical or latency-sensitive applications in the downtown facility, so they can quickly tend to their servers if necessary and deploy their disaster-recovery workload in the other CDS datacenters. This is sometimes flipped, considering Toronto is experiencing commercial sprawl outside the central business district. CDS cites that the Toronto market has a relatively sophisticated customer base and has observed that nearly all customers looking to outsource their workloads for the first time already leverage virtualization or a third-party IaaS approach to some capacity. Cogeco Cable views CDS as an opportunity for growth in the business services market and supports the subsidiary s push to advance its service offering in the managed IT, datacenter and cloud services space. We have also gotten a sense that the company is interested in a service-intensive business that drives higher revenue per square foot. 451 RESEARCH: DATACENTER 3

4 MTDC Services CDS offers colocation, managed IT and cloud services. Most incoming business is interested in managed datacenter services and a healthy percentage leverages a hybrid colocation/private cloud product. FIGURE 37: Cogeco Data Services Canadian MTDC Footprint FIGURE 38: Cogeco Data Services Canadian MTDC Pipeline LOCATION EXPECTED COMPLETION ESTIMATED OPERATIONAL SQUARE FOOTAGE Barrie Q ,000 Montreal Q ,000 TOTAL CANADIAN MTDC PIPELINE (SQUARE FOOTAGE) 102,000 Expansion Strategy CDS constructed its first datacenter in 2001, which offered basic colocation services. In 2007, CDS built a second facility to complement its existing space and moved into the managed services space. Subsequently, the company added to its network and datacenter assets through the acquisitions of Quiettouch (a Toronto-based managed IT services provider) and MTO Telecom (a Montreal-based carrier). The Quiettouch acqui- 4 CANADA MTDC MARKET ASSESSMENT

5 sition greatly augmented CDS s cloud assets, marking its entry in the managed IT and cloud services market. By Q CDS will have six active facilities that will offer 100,000 square feet of operational datacenter capacity. CDS has three projects in the pipeline the first to go live is a facility in the Toronto suburb of Barrie. The company also intends to build in Oakville, another suburb of Toronto in addition to the 100,000-gross-square-foot datacenter in Montreal. Our Assessment Although CDS s usable datacenter footprint is modest for the time being, we expect the company will soon be a force to be reckoned with, considering its pipeline projects for Barrie, Oakville and Montreal. CDS s current infrastructural standard is praiseworthy and its new capacity will definitely contend with the highest-quality Canadian providers. We also commend Cogeco Cable for allowing CDS to operate relatively independently, so it may hastily react to the fluctuating dynamics of an evolving market. CDS ought to re-brand, as Primus Business Services has, to further convey that it is a nimble business in an emergent industry, and not a bureaucratic telecom. In addition, disconnecting CDS from Cogeco could facilitate interesting spin-off opportunities in the future. Even though few details regarding CDS s Montreal project have been disclosed, the industry has reacted positively to its expected entrance into the capacity-constrained market. The Montreal customer base is highly localized and prefers to patronize local business; the fact that CDS s parent company, Cogeco Cable, is headquartered in Montreal, will likely assist its go to market strategy. The Montreal customer base has been demanding a viable alternative and we believe CDS will experience rapid uptake. 451 RESEARCH: DATACENTER 5

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