Colocation and Value Added Services

Reference Code: TA001492SER Publication Date: September 2008 Author: Alan Rodger and Aanchal Sabharwal TECHNOLOGY AUDIT Colocation and Value Added Services TelecityGroup BUTLER GROUP VIEW ABSTRACT TelecityGroup has a network of 20 carrier-independent data centres located in key business hubs in several Western European countries, from which it provides core data centre services (with associated value-added services) in locations that provide its target customers with distinct advantages most significantly the opportunity to locate elements of their IT infrastructure in close proximity to major Internet infrastructure that the company also hosts. For many Web- and content-centric companies, performance, reliability, and accessibility of their online services is critical to prospective success. TelecityGroup s infrastructure enables high server density content hosting and high bandwidth distribution, via the company s hosting of connectivity infrastructure for a large number of leading network service providers, ISPs, and IXPs. Developing data centre infrastructure in key business locations, where significant constraints of real estate, power, and proximity to connectivity hubs are real barriers to opportunity, is out of reach for most enterprises. Butler Group believes that the combination of a proven yet innovative business model, effective utilisation levels, and capacity expansion plans makes the TelecityGroup offerings an essential consideration for large, Europebased companies. KEY FINDINGS Has 20 network-independent data centres in prime European cities. Offers managed content hosting, connectivity, and security services. Hosts 250 national and international network services providers and ISPs. Migration in progress from space- to power usage-based charging. Proximity to data transport core services is valuable for major online enterprises. Hosts key IXPs in six of its data centres. Young, but publicly listed and well managed company, in strong market position. Footprint limited to European countries currently. LOOK AHEAD Further investment planned in order to expand opportunities, adding more data centre space in existing and new markets and locations and developing new, value-added services. Butler Group. This Technology Audit is a licensed product and is not to be photocopied Page 1

FUNCTIONALITY There are immense benefits available from data centre development initiatives, especially for organisations with complex heterogeneous IT environments or those expecting to undergo growth, or which are in any way able to make IT efficiency savings. The immense range available includes (to name but a few) greater availability and performance of IT infrastructure services; improved connectivity across sites and key network junctions; business-focused content storage and security; better reach and support for geographically distributed employees and customers; greater scalability and improved agility; more effective capacity planning, business continuity planning, and disaster recovery; improved operational efficiency; evidential compliance to service quality; and reduction in operational costs. However, data centre initiatives are complex and require careful planning, analysis, monitoring, and maintenance. In combination, such undertakings are too large for the resources available within the IT functions of many organisations. Also, the cost-effectiveness of investments in in-house data centre initiatives is being negatively impacted by the space and power limitations in areas near to key business hubs in Europe. Consequently an externally-provided data centre solution, with assurance of a predictable and scalable storage and connectivity infrastructure as a foundation for enabling organisations themselves to focus on developing and managing applications, has both broad appeal and tangible benefits. Product Analysis TelecityGroup is a UK-headquartered company with a pan-european presence, which operates 20 networkindependent data centres across key regional and national business hubs, namely London, Manchester, Dublin, Frankfurt, Paris, Milan, Amsterdam, and Stockholm. The company provides both colocation and managed services, aimed especially at content and service hosting in a high server density environment, and high-bandwidth content distribution to the client organisation s customers and between different client sites, using Telecity s hosted infrastructure of Tier 1 and Tier 2 network providers and Internet Service Providers (ISPs). In Butler Group s opinion, TelecityGroup offers a very substantial and impressive connectivity infrastructure. For high-bandwidth data traffic between office premises and/or to carrier infrastructure, it offers interconnect facilities to hundreds of Tier 1 and Tier 2, global and national, network providers and ISPs hosted in the company s data centres. Also, key Internet Exchange Points (IXPs) are hosted at six of its data centres. The high-density infrastructure available within its data centres is also impressive, meeting directly the needs arising from property constraints in key business hubs, which have caused increased packing factor of storage and computing infrastructure, which in turn has led to increased power consumption (partially due to the inevitable cooling challenges). TelecityGroup s newest data centres in Amsterdam and London deliver, on average, two kilowatts per square metre (kw/sqm) increased from a pre-transformation average of 0.7 kw/sqm. The company also offers high-density hosting of up to 20kW per customer rack, and states that the ratio of average power to floor space area is being increased across its property portfolio. Pricing strategy has been changed from a basis of area required, to one of power delivery, which Butler Group believes is better aligned with value generated by the proposition. Butler Group. This Technology Audit is a licensed product and is not to be photocopied Page 2

Butler Group believes that, as a critical underpinning for enterprise capabilities, selection of a partner for services of this nature is a key strategic decision, in which financial viability, capacity, and scalability comprise important factors in all of these areas TelecityGroup demonstrates strong growth. The company is publicly listed and reported strong revenue growth in 2007, with an increase in Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) margin from 16.0% in 2006 to 23.8% in 2007. Capacity expansion of 38%, from a combination of both area expansion of existing data centres, and also new data centre properties, is planned. In establishing its new data centres in London and Amsterdam (both of which markets are being extensively utilised in terms of space) TelecityGroup is providing more than double the ratio of average power capacity to floor space compared to the average in those cities, and plans to undertake similar improvements across the other markets in which it operates. Butler Group believes this translates to a benefit to customers in that the company can achieve efficiencies that can be passed on in competitive pricing. The company s capacity utilisation has also steadily grown between 2005 and 2007, and it has also undertaken valuable saving and control initiatives in the areas of power and property costs, which together account for over a third as a proportion of total revenues. Unit power cost has been fixed by contracting with suppliers for 12 to 18 month tariffs, and the company has long leases for all its properties (typically 15 years minimum) with rentals as near as possible to fixed costs (pegged to general cost-of-living increases for the company s leases in mainland Europe, and to five-year rent review periods for its leases in the UK). Overall, Butler Group believes that TelecityGroup can be considered a highly competent long-term hosting and connectivity partner for organisations with large-scale business plans that may require expanded data centre support. Product Operation TelecityGroup s hosting and colocation services aim to provide organisations with access to a processing, storage, and connectivity environment that is reliable, performant, scalable, and secure. The colocation services can incorporate high-density cooling capacity of up to 20 kw of cooling per cabinet, and both service variants incorporate power supply, cooling, and monitoring services, using APC s InfraStruXure technology. The company offers a range of managed services, including managed storage, managed firewalls, managed servers (hardware and operating system management and monitoring, covering Windows, Linux, and Solaris platforms), in a secure environment. The company s connectivity services sit at the very core of the company s value proposition, and other services suites (particularly content and media) work closely in conjunction. TelecityGroup targets enterprises that require high-bandwidth connectivity between sites, using the Tier 1 and Tier 2 network providers and ISPs that are sited within the company s data centres. In addition TelecityGroup provides a Gbps (Gigabits per second) performance Ethernet service and a Local Area Network (LAN) extension service that can be used for business-to-business (B2B) requirements across Europe, and beyond to global locations, using partner infrastructure. For enterprises, TelecityGroup also provides managed Internet services, offering connectivity across multiple Tier 1 carriers with appropriate redundancy, unified billing and service level agreement (SLA), and optimised routing. Providing proof that it sits very high in the value chain of connectivity, TelecityGroup hosts key Internet Exchange Points (IXPs), hubs where different ISPs share traffic. Six Telecity data centres host one of the key national IXPs: Amsterdam with AMS-IX, London with LINX; Frankfurt with DE-CIX; Paris with FreeIX; Dublin with INEX; and Manchester with MaNAP. Butler Group. This Technology Audit is a licensed product and is not to be photocopied Page 3

As managed services offerings, TelecityGroup provides managed security, monitoring, backup and recovery, and load balancing services. As part of managed security, the company provides managed firewall, intrusion detection, Distributed Denial of Service (DDoS) mitigation, intrusion detection, and vulnerability assessment. It also targets ecommerce services, and has Payment Card Industry Data Security Standard (PCI DSS) accreditation. Monitoring services cover device availability and server threshold monitoring, while backup and recovery services span major operating system, database, and messaging platforms. Additionally, the company provides traffic routing, and the professional services arm offers advisory services related to infrastructure design, and migration and disaster recovery services. The content and media services are aimed at content-centric businesses, such as large portals, and download sites (e.g. Facebook, Virgin, Sony Computer Entertainment Europe, and AOL, all of which number among customers). TelecityGroup enables high-performance, two-way content distribution to customers, and allows businesses to host content in close proximity to key network service providers, which can benefit service performance. The group s infrastructure incorporates: 24x7x365 physical security and CCTV monitoring; restricted access protected with identification and access cards; high-capacity dual and redundant power supplies with both battery and generator backup; fire detection and suppression through smoke detection apparatus; controlled air conditioning; computerised building management systems that operate sensors; and 24x7 engineering and technical support by on-site technicians. TelecityGroup has its own Network Operating Centre (NOC), located in London, to manage every element of the infrastructure, from hardware to software, within which it uses surveillance tools to perform preventive maintenance, and provides customer support 24x7x365. The services are highly scalable. It is very easy to add servers with increases in demand, without changing the configuration or upgrading the existing servers. The capability is incorporated to distribute traffic among multiple servers and route the traffic to the least loaded server. Any faulty server is disconnected from the network, and traffic diverted appropriately until the server is repaired and becomes available again. Product Emphasis TelecityGroup s services focus on the following key aspects, with respect to customer benefits: Space and infrastructure availability, to reduce capital investment requirements. Value-added services, encompassing data centre infrastructure and server platform monitoring and management, and requirements for content storage, high-bandwidth connectivity, and IT security such as managed firewalls. High-bandwidth connectivity infrastructure, enabling site-to-site connectivity across major European hubs, and customer-oriented content distribution to major Internet hubs, through Internet exchange hosting, Ethernet services, and cable installation and management services. Providing high-density server infrastructure in key business hubs through superior data centre management technologies and practices. In Butler Group s opinion TelecityGroup presents a network of data centres that combine capabilities which would be difficult to replicate for even very large organisations, and the company is certainly among the leaders in the high-density, network-independent data centre market. Butler Group. This Technology Audit is a licensed product and is not to be photocopied Page 4

DEPLOYMENT The degree of customer involvement in deployment and post-deployment activities is dependent on a number of factors pertaining to the particular circumstances: The nature of the customer s business typically TelecityGroup s customers are of different types that each have particular needs pertaining to data centre services. The company categorises these as connectivity businesses, content and media companies, Systems Integrators (SIs), corporate enterprises, and application providers. The skills, and existing documentation and procedures, within the customer s business pertaining to the infrastructure elements that TelecityGroup will be dealing with on the customer s behalf. Any consultation services that might be necessary due to specific project requirements (e.g. to bring about transformational change). Hardware and equipment typically belongs to the customer, with TelecityGroup providing colocation, and possibly data centre, services. In some cases, TelecityGroup provides a managed hosting solution, in which case the equipment is owned by TelecityGroup. Subsequent to solution implementation, an administrator may be required for services such as backup, monitoring, and security services. A typical deployment scenario would involve the following steps: Requirements gathering, involving understanding and agreeing the customer requirements, and the current business processes and objectives. Gap analysis, involving comparison of the status quo with the desired state. Design, wherein a customer-specific solution is designed, based on the findings of the requirements and gap analysis. Implementation, completing the initial engagement with modular deployment of hardware and other solution elements, followed by configuration. Post-deployment services such as support, and reporting of service effectiveness and performance. TelecityGroup also augments its colocation services with a number of value-added service offerings including engineering support services, bandwidth provision, Internet access and connectivity services, data backup, storage, monitoring, Internet security services, and hardware services. The company provides a single point of support 24x7x365 for each customer, to ensure rapid mobilisation of teams for fault resolution, and also to maximise availability. Customer access to incident reporting and service requests can either be via telephone or the TelecityGroup customer portal. The company s NOC monitors all infrastructure elements and helps with proactive optimisation of the infrastructure. Butler Group. This Technology Audit is a licensed product and is not to be photocopied Page 5

PRODUCT STRATEGY The TelecityGroup customer base is consistently diverse across vertical sectors, and this helps the company to minimise the impact of demand fluctuations in particular customer markets. Newly signed customers in 2007 spanned a wide range of sectors including software and IT, investment banking, retail finance, and the specialist sectors with which the company has established links (e.g. connectivity, and content and media markets). All services are sold direct. TelecityGroup is in the process of revising the charging structure for its services a migration from unit floor space pricing to energy usage pricing. This reflects the market dynamic of energy becoming a dominant factor in data centre costs, and allows innovative differentiation via the provider s preserve of supplying the appropriate floor space according to the power rate purchased (and increasing margin on space by ensuring that efficient cooling allows higher density usage). According to TelecityGroup, this pricing basis transition is being accepted well, and can be attributed to the soaring demand for high power density data centre space, particularly across business hubs in the UK, where a notable effect is a resulting reduction in the price differential between racks and suites. Typically, the company contracts every new customer for a period of one year at least, which is invoiced quarterly in advance. In the case of the larger agreements, TelecityGroup usually signs contracts for a longer term (two to three years, or sometimes more), with a plan to re-negotiate with the customer and continue the relationship for at least one additional year. The company provides a contractual facility for service delivery to continue automatically upon expiry if re-negotiation is underway. Future plans include further investment both in existing facilities and bringing to market new data centres (new facilities in Milan and Paris are due to open in 2009), while remaining strongly aligned with the strategy of high-density content and application hosting, and providing connectivity infrastructure and proximity to connectivity across key business hubs. The company intends to focus more on inventory optimisation; on additional managed services such as engineering, connectivity, utility computing, and security and backup services; and overall to prioritise managed services over colocation. Overall, Butler Group believes that the challenges to building connectivity hubs across key business locations tend to concentrate the carrierindependent data centre market, and the position of TelecityGroup should continue to make its services attractive to enterprises. COMPANY PROFILE A publicly traded company, TelecityGroup (FTSE: TCY.L) is headquartered in London and has operations in seven European countries. The company s 20 existing data centres are present in Amsterdam, Dublin, Frankfurt, London, Manchester, Milan, Paris, and Stockholm. TelecityGroup came into existence in November 2005, with the merger of TeleCity and Redbus Interhouse. Subsequent to the merger, the company had over 3,000 customer contracts and combined revenue of more than GBP60 million. The company acquired Globix Holdings UK, a managed services hosting company, in September 2006, and in November 2007 raised GBP96.3 million with its Initial Public Offering (IPO), which was followed soon after by the company s entry into the FTSE250. The company is also on the FTSE techmark All-Share index. Butler Group. This Technology Audit is a licensed product and is not to be photocopied Page 6

The Group had 346 employees in total as at June 2007, of which 192 were based in the UK (28 of whom were based in the head office). Also at that time, 33 employees were based in France, 37 in Germany, 52 in The Netherlands, 6 in Republic of Ireland, 12 in Italy, and 14 in Sweden. In its 2007 financial year, 65% of the company s revenues (see Table 1) arose from business in UK and Ireland, and 35% from the rest of Europe. Table 1: Financial Details Year ending 31 December 2007 2006 - Revenue (pounds Million) 97.9 68.9 - Change on Previous Year (%) 42.1 - - Total Operating Profit/(Loss) (pounds Million) 3.5 (7.3) - Source: TelecityGroup D A T A M O N I T O R TelecityGroup s customers are considered by the company to fit into four broad categories, as follows: Connectivity businesses, including network service providers and ISPs that use TelecityGroup data centres as a location for both interconnection and trading of network services. Vodafone, BT, Orange, COLT, and Deutsche Telecom are major customers in this category. Content and Media companies (including Virgin Radio, Facebook, ITV, SONY, and AOL) who manage, deliver or receive content in various different contexts, and need data centre facilities as close as possible to network service providers for reasons of reliability and cost effectiveness. SIs and corporate enterprises, which use TelecityGroup facilities for corporate data centre outsourcing (SIs), offsite data backup, and business continuity or disaster recovery. Siemens, Barclays, Ernst & Young, and BenQ are major customers in this category. Application Providers i.e. companies that facilitate the commercial relationships between the other customer categories within TelecityGroup s data centres. These customers (which include Microsoft, Skype, Akamai, and Double Click) offer a variety of services, including digital rights management systems, content distribution systems, billing and payment services, and online back-office applications. SUMMARY TelecityGroup, with its focus on high-density data hosting, and carrier-neutral connectivity services across key business locations in Europe, has just a few peers in the Europe-specific market. Overall, Butler Group is impressed with TelecityGroup s offerings, and believes that the company s services could help organisations reduce capital budget requirements and assure the quality of delivery for high-bandwidth services to customers, suppliers, and employees. Butler Group. This Technology Audit is a licensed product and is not to be photocopied Page 7

Table 2: Contact Details TelecityGroup Suite 8.01 2 Harbour Exchange Square London E14 9GE UK Tel: +44 (0)20 7001 0000 Fax: +44 (0)20 7001 0001 www.telecitygroup.com Source: TelecityGroup D A T A M O N I T O R Headquarters Europa House, 184 Ferensway, Hull, East Yorkshire, HU1 3UT, UK Tel: +44 (0)1482 586149 Fax: +44 (0)1482 323577 Butler Direct Pty Ltd. Level 46, Citigroup Building, 2 Park Street, Sydney, NSW, 2000, Australia Tel: + 61 (02) 8705 6960 Fax: + 61 (02) 8705 6961 Butler Group 245 Fifth Avenue, 4th Floor, New York, NY 10016, USA Tel: +1 212 652 5302 Fax: +1 212 202 4684 For more information on Butler Group s Subscription Services please contact one of the local offices above. Important Notice This report contains data and information upto-date and correct to the best of our knowledge at the time of preparation. The data and information comes from a variety of sources outside our direct control, therefore Butler Direct Limited cannot give any guarantees relating to the content of this report. Ultimate responsibility for all interpretations of, and use of, data, information and commentary in this report remains with you. Butler Direct Limited will not be liable for any interpretations or decisions made by you. Butler Group. This Technology Audit is a licensed product and is not to be photocopied Page 8