1. Visitors and reporters
Tatsuo Goto (NEC), Masahiro Honda (NEC), Kobayashi (Hitachi)
Accompaniers: Yutaka Ikeda (Hitachi Europe), Mike Parr (PWR)
2. Visiting schedule
November 19-26, 2001
3. iDC classification
The iDCfs we visited this time are classified as follows.
1) iDCfs mainly for facility service (provision of building, electricity, etc.)
2) iDCfs providing housing hosting
4. Report description
4.1 Outline
We visited 7 companies and held discussions with consultants in London and Amsterdam for one week (net 5 days) and got an overview of the state of the IT industry and communication infrastructure in the UK and Europe.
The main findings were as follows.
- They are establishing their own business model to suit European characteristics and culture (different languages, cultures, business customs and carriers of many countries are mixed in a smaller area than that of the US). We are interested whether business models (businesses that provide a "place" for business) of TELEHOUSE and Interxion will be successful or not.
- They are extending the chance for new businesses by excluding regulations (Backbone) and promoting growth by improving infrastructure (Docklands). We need to attend to the relation between the process of achieving a fast, low-price access environment and the development of ASP business.
- They clearly discriminate between businesses that boldly invest in advance (iDC) and those that should be determined by profit. iDC has many ISPfs and general companies as customers, while ASP seems to be small with fewer customers.
- Geographically, European companies, even small ones (SME), conduct business from an international (semi-global) viewpoint. As similar Japanese companies conduct their business only in the domestic market, it has an adverse effect.
- Most people agree that IPv6 will be launched with the third generation mobile system. It is not attracting much interest in Europe, and articles on the subject are rarely seen in IT technical magazines, either.
An outline of each item is summarized below hereafter. We respect the intentions of the reporters and include their views.
4.1.1 iDC businesses
(1) iDC businesses in UK and Europe are rather different from those in the US and Japan which are strongly influenced by it. Those in Europe focus on leasing locations and facilities (electric power, line dropping inlets, fire extinguishing facilities, security, etc.) while iDCs in Japan and US target the IT industry in general, covering the entire service menu such as AP, SI service, hosting and co-location. They entrust value-added services such as broadband lines and AP to other agencies (clients) and will not touch it themselves. A manager of TELEHOUSE likened their current business form as a "real estate agent". They are deploying high value-added type services and are planning to add several service elements to approach iDC models in Japan and US. ASPfs themselves are the major customers of these data center agencies. Most of them are small venture companies with 20-50 employees and do not have sufficient funding to have their own lines and equipment. In consequence, they operate by leasing space and equipment from these iDC agencies. American companies such as Exodus and Global Center have begun to penetrate, but their strategy and deployment are different from those in the US. Abovenet and Global Center which we visited have just landed and have not yet started full-scale business. Their business form seems to be following the local way.
One characteristic is their idea for lines (IP backbone and access lines). They prepare a fiber dropping inlet and interior wiring for the data center equipment, and do not handle lines as a business item. They co-locate routers and switches on the floor and racks leased by their carrier (client), drawing their fiber and provide bandwidth to servers of ASP and companies hosted within the same center. Namely, the carrier (their customer) conducts a line leasing business. iDC devotes itself to leasing places and does not compete with its customers who are ASPfs and carriers. They call this "carrier free" or "neutral" and regard this as an important characteristic business strategy. In the case of a center facility of Interxion located in Amsterdam, it is said that 18 carriers co-locate communication facilities to operate in the center. American carriers such as Level3 and Global One are included in this. This kind of business form could be called something other than iDC. Actually, Interxion calls it an "Internet exchange center" instead of data center. Likewise, COLT calls it an "Internet Solution Center". Interxion calls this operating form "Internet community". This means that various related companies work together based on a center and do their business in competition with others. The representative from Interxion said it was a sort of marketplace.
TELEHOUSE is an overseas affiliate of KDDI in the United Kingdom and does not dare to lease lines and likewise entrusts lines to other carriers. KDD EUROPE, an affiliated company, is also one of them and TELEHOUSE will not emphasize its KDDI color. According to them, this is because their basic strategy is carrier free. This kind of management form is not possible in Japan where NTT has been monopolizing the market and competitive carriers have not soundly developed yet. It is also different from iDC managed by large-scale carriers which leverage the network differentiation with those carriers in the core of alliance. It is a form peculiar to Europe. Only Global Center entrusts all backbone lines to Global Crossing as in the US. They said that most of the customers are American companies or their affiliates in Europe.
(2) The iDC (and ASP) business model appears to be different from that in the US due to the geographical characteristics of many languages and cultures in a smaller area than the US.
Interxion and TELEHOUSE dedicate themselves to the facility leasing business and do not even have a trunk line network, let alone their own servers. They devote themselves to the business, so to speak, of being an intelligent real estate agent, cyber real estate agent or business community provider that undertakes operation of servers and communication devices and perhaps primary maintenance. It seems to be a complicated specialization-oriented business model that has special agencies for communication infrastructure (optical fiber), agencies peddling their servers in the center and brokering agencies. A small-scale company can enter the ASP business without having a server (currently, it is difficult for the reason described later). This is similar to the business model discussed in Japan (ASPIC Japan).
This is contrary to that in the US where a giant iDC builds up its own communication infrastructure and tries to capture users and ASPfs for running a business model on their platform. The European preference for a customer-oriented business model is also reflected in the base strategy. COLT and Interxion, which are European companies, are quickly installing centers in the main European cities. Judging from the scale of the center in Amsterdam, each center seems to be in rather small. This may be because they have concluded that keeping with the local character is the key to success.
4.1.2 ASP business
(1) There are few all-round agencies to cooperate with iDC based on large-scale equipment investment in the US to combine a wide range of value-added services. At least 5 iDC companies we visited this time were not such business deployment. Most of the five iDC companies and two consulting companies (SAQ) are venture ASP companies with tens of employees. They deploy iDC equipment and space as "real estate agents", loan and AP services to meet the scale for SME. Their customers are small and medium-size companies such as law offices and meat chain stores and their APfs for sale are common products such as Microsoft Office, Microsoft Exchange and financial software. Major companies that recently branched out from the US such as AboveNet and Global Center have just opened offices and have not attracted so many customers yet. Their major customers are in the financial sector such as banks and insurance companies. AboveNet (in Europe) believes that ASP is too soon. They say the reason is that they are not confident about the security and reliability of the Internet. Many companies are not willing to use ASP for mission critical services. And Interxion commented that ASP is a simple "emulation" of the conventional computer center, and consider the ASP business simply as an old-fashioned remote application (such as SAP, CRM and office productivity improvement service). This view is different from that in the US. Though AboveNet has just moved into the UK and hosts only one ASP for a financial customer, they are planning to purchase SiteSmith to add more advanced SI services to ASP which is a realistic user of bandwidth and space. This is a good example of isolating iDC and ASP.
4.1.3 Location of iDC and ASP, situation and American style financial sector
(1) Major cities in Europe (only London and Amsterdam this time) stubbornly stick to the old (European) tradition, while they seem to respond to the new (American) industry without destroying it. For the time being, iDC may be a good model. Both cities have iDC buildings into which the American style was brought without change in a small area with an American environment. In the Docklands, which is a redevelopment of the vast premises of the East India Company on the outskirts of London and has an atmosphere like Odaiba or Tennoz Isle in Japan, large office buildings are being built on the waterfront. Three companies among those we visited have centers there. They may not have any other choice due to its good location (10-15 minutes by Docklands Railway from the city) and flexibility of buildings (almost impossible in the London urban area). Incidentally, it is natural that the internal structure of iDC is American style, because AboveNet and Global Center we visited are both American affiliate companies.
(2) Most of the iDCfs in London are gathered in the east of London and East India area. This East India is the original site of the old East India Company downriver of the Thames and is being redeveloped. While the landscape is old London, new office buildings are rapidly being put up in the area just like Odaiba in Tokyo. Most of the iDCfs are gathered around TELEHOUSE and are busily constructing facilities.
According to TELEHOUSE, they intended to provide facility services to companies that branched out of Japan when they opened their office in 1990. As Internet businesses such as iDC are growing, iDCfs have gathered around the company triggered by TELEHOUSEfs easy-to-use facility, especially broadband lines of carriers co-located in the companyfs iDC. This shows an interesting composition that companies which have expanded out of Japan are the driving force of iDC and ASP businesses in the UK. They say that the companyfs business strategy of being "carrier free" has played a key role since its establishment. TELEHOUSE is rolling out its to London, Paris and Geneva and other 4 companies are also extending (or about to extend) their business across the whole of Europe.
Interxion set up its first office near Schipol Airport in the suburbs of Amsterdam and is starting or building 14 sites at various places in Europe, specifically: Amsterdam, Copenhagen, Stockholm, Zurich, Madrid, Berlin, Frankfurt, London, Paris, Brussels, Milan, Vienna, Munich and Dusseldorf.
They are also planning to open sites in Helsinki and Dublin, while COLT opened an iDC in London, Paris, Amsterdam and Frankfurt in this January, They originally started as a carrier in the UK and operated as an affiliate of Fidelity, a US-based venture capital firm. Currently, they have 30 network sites and 12 iDCfs in various cities in Europe. ISC (Internet Solution Center), their name, opened in Milan and Madrid in June, and Stockholm, Zurich, Vienna and Berlin in August. They are planning to open one in Hamburg at the end of next year.
Global Center UK set up iDCfs in 10 places in the UK and is planning to branch out in Germany and Scandinavia in the near future.
Judging from the situation, the European iDC and ASP strategy is excellent and global, even though it has a narrower coverage than American carriers who have targeted the world market from the beginning. This is a distinct difference from Japan.
4.1.4 Carriers and network; Disparity of backbone and access
(1) A further difference from Japan is how carriers are involved and the backbone. Though voice telephone is monopolized by BT in the UK as in Japan, other Internet backbone businesses are completely governed by market principles. There are more than 100 carriers in the UK and they are in intense competition. Different from Japan, anyone can construct fiber cabling quite easily, though this has caused major traffic problems in many places. Many carriers will enter the iDC business with new prices and services.
(2) Regarding the state of communication (business), regulations on the backbone are almost non-existent, unlike in Japan. Especially in the United Kingdom, construction permission can be obtained so easily that the joke about the rapid increase of road construction being due to optical fiber construction actually appears to be true. Even iDC agencies do not know how many companies are providing backbones. It is natural that a center has line transfer switching equipment so that iDC users can freely select one and TELEHOUSE, an affiliate of KDDI, enables other networks to be freely selected. Rather, they positively emerge from KDDI and claim "carrier neutrality". Some carriers specialize in neutrality like Interxion.
However, the circumstances are entirely different for access-oriented fast networks from the backbone and expensive dedicated lines and low-speed dialup/ISDN lines are the mainstream. Therefore, ASP for small and medium-sized companies (SME) is not commercially feasible. Just as NTT has a monopoly in Japan, BT continues to enjoy a monopoly in the United Kingdom. ISDN has a considerable influence in the United Kingdom, CATV prevails in a small area, and xDSL is expensive in access charges (line access charge paid to BT) and so is not prevalent. However, the situation is improving and the situation is expected to be different next year.
4.2 iDC/ASP report
1) iDC/ASP in US and Europe
The circumstances of the Internet in Europe considerably differ from that in the US. The Internet began with NAP (Network Access Point) as a center, integrated with collocation, and developed to iDC. On the other hand, to avoid having to connect to the US to access the Internet, Europe has started to construct IX (Internet eXchange) instead of building broadband access to the US. IX is being deployed in cities and economical units, with language problems added to it.
The use of TELEHOUSE facilities by Internet service providers is due to importance placed on communication hubs to relay traffic and because many carriers installed switchboards. As a result, the largest IX, London Internet Exchange (LINX) uses a TELEHOUSE facility, and PARIX (Paris) and CIXP (Switzerland) also use TELEHOUSE. Furthermore, CSP and ASP are increasing as customers expect to connect to multiple ISPfs at a reasonable price. There are 150-180 ASPfs in London, more than 100 of them are LINX members, and most of them are TELEHOUSE customers. Some companies set up branch offices in the Docklands because TELEHOUSE is located there, which could be a kind of brand. Currently, each IX is connected by fast lines contracted by members and connection between members by IX results in a complex backbone structure of the European Internet.
2) European network situation
Regulations for network operators (equivalent to class 1 carrier in Japan) in the United Kingdom are strict for voice communication and almost non-existent for data communication. On the other hand, France has the strictest license conditions in Europe. Switzerland may be the least strict and Germany and the United Kingdom have almost the same level of loose regulations. Therefore, as we can run an IP service business with our own fiber in the United Kingdom, it is advantageous to obtain a network operator license before starting business. Permission for cable construction is granted quickly and easily. There are reported to be more than 100 agencies in the United Kingdom.
On the other hand, as access-oriented business requires a large investment, the situation is almost BT dependent. The DSL unbundling charge is expensive and investment in cable has just started, so ISDN will play a major role for home use at present. Though local access was released in July, it costs 20 thousand yen for 512kbps, which is almost double that in Germany and France.
3) Docklands area
As building regulations are strict in London city, it is difficult to construct a large building. On the other hand, as the government is trying to attract companies to the premises of the former East India Company, regulations are rather loose in the Docklands area. This is the main reason why TELEHOUSE decided to locate a center here. TELEHOUSE entered the area in the initial period and Global Switch, RedBus, TeleCity, CityReed and other agencies gathered there afterward.
The atmosphere in the Docklands area is like Odaiba or Tennoz Isle water front in Japan and is Americanized; only the Docklands Railway has the atmosphere of London. AboveNet and GlobalCenter are located here. iDC agencies brought in American culture or iDCfs gathered because it has an American atmosphere. Whichever the case may be, many buildings are being built at present.
4) European iDC/ASP market structure
Major iDC/ASP users are corporations (large companies) and SMEs (small and medium-sized companies). We expect the corporate ASP market will be bigger than that for SME. Though a number of SME customers are expected, education is the key and it is expensive. Other emerging dot-com companies are also prospects. In the future, e-commerce will be the largest application for iDC which will develop accordingly.
This new movement is accepted differently in different regions: the three Scandinavian countries and the United Kingdom are positive, while France, Belgium and Italy are deliberating. In general, their level of understanding of IT is still too low to link it to sales. One half of senior managers in the United Kingdom and France ignore technical explanations. Unlike the US, Europe has many vertical policies for each district and the situation is complex.
Regarding the communication environment, while the backbone has enough bandwidth, capacity of access lines is low. This restricts the spread of ASP, in addition to suspicions about Internet security.
Various figures have been published regarding market scale: the smallest is 1.5 billion dollars for Durlacher (European security company) in 2004, the largest is 20 billion dollars for Dataquest in 2003, and in the middle is 4.5 billion dollars for iDC in 2003. Which forecast is appropriate is unknown.
5) iDC/ASP agencies in Europe
Major iDC agencies are emerging telcos (carriers) and the traditional PTOfs (telephone companies such as BT). The former restrict their business in physically providing facilities and are waiting for expansion of access-oriented bandwidth (ADSL). A typical example of the latter is Ignite of BT. European iDCfs are still at an entry-level phase and customers demand convenience of service, while iDC agencies put priority on technology. It is necessary to convert technology into services.
ASP agencies include traditional PTOfs, emerging telcos, ASP specialists and computer vendors. Among major ASP agencies, PTOfs (DT/FT/BT) focus on domestic business. Emerging telcos provide hosting and various services to the whole of Europe, while ASP specialists are generally small in scale and are operating by using their agility. A WAP-based ASP agency has also emerged, and although this is the only company at the moment, there will be more participants soon.
As iDC advances in the direction of providing advanced services, the border between ASP and iDC will become vague. On the other hand, though agencies and business scale are rapidly increasing, companies may have difficulty implementing their business plans due to lack of necessary engineers.
Services will develop from Web hosting to single e-commerce and further to integrated e-commerce. This requires an application constituting SAP and other value chains.
6) Role of European Union
There are two major roles of the EU: one is to promote unbundling of the local loop (access line) which is starting to happen, and the other is to promote consistent regulations in Europe and compatible legislation among countries. In either case, there is no movement to directly support ASP and iDC.
7) IPv6 conditions in Europe
BT is providing training to engineers through a large-scale network and BT, FT and DT are securing their addresses. Vendors have started to develop converters and edge routers. As the UMTS license will expire in January, 2003, every company is developing a strategy for this period.
The mobile market promotes IPv6. The transition to the third generation will be the critical factor affecting IPv6 prevalence and the problem is time. The most feasible case is that all IPv6-based infrastructure will be ready in 2004 and IPv6 will be generally used in 2006.
The trend toward providing devices implemented with IPv6 is slowing down in the carrier class communication device market in fixed networks. Namely, carriers have postponed installing IPv6 (FT does not have even a plan) and Cisco has held back shipments until next year. The fixed network market puts priority on developing ADSL.
8) ASP conditions in London
Customers use dedicated lines. DSL is available in Germany and the Netherlands, whereas dedicated lines or dialup (telephone lines) are the mainstream in other European countries like the United Kingdom. Though the ASP business started more than two years ago, it has become popular only in the last half year. 20 to 30 small companies have started up in London.
A typical ASP consists of a Windows2000 server and Windows terminal, accommodates 10 users per server and customers connect with 64Kbps dedicated lines.
We heard that they generally charge 2,500-5,000 pounds per month under a 3-year restricted contract. Customers are garages (car repair factory), manufacturers, law farms and butchers and they provide MS Office, MS Exchange, Quick Books (financial software) and CRM as major services. SLA is optional for turnaround time and 24-hour operation.
As upfront investment is being made in iDC and not ASP, many ASPfs are small in scale due to fund procurement problem. However, as IT engineers gravitate toward large companies, ASPfs for small and medium-sized companies should have more chance to move into the market.
9) Network infrastructure conditions
The rate for broadband (trunk line) access has plunged to one tenth due to competition. However, local access is still slow and expensive. BT is too strong to resolve the problem in the last phase. BT provides 80% of access lines and ENERGIS and COLT provide the remaining 20%. Therefore, small and medium-sized companies are not easily able to use broadband access. Dedicated lines, dialup (telephone lines) and ISDN are still the mainstream.
ADSL started up two months ago. Though it is easy to obtain the service, BT does not guarantee the backbone traffic and the service charge is 200 pounds per month (about 32,000 yen/month) and still expensive. The number of subscribers is increasing by about 100 per month due to the delay of service application processing and shortage of construction engineers. The situation is expected to improve next year and broadband will be available for customers at the end of 2001.
Major backbone companies are ENERGIS, Level3, OX, COLT, Global Crossing, KPN, Qwest and Cable&Wireless, and ENERGIS and COLT are also providing DSL services. Backbone companies are also running ISP. For example, COLT provides server hosting.
10) IPv6 conditions seen from users
Though some broadband companies are conducting small-scale tests, this is a sort of insurance and actually the MPLS service is the mainstream. IPv6 is being considered for installation further ahead. There is no pressure to install IPv6 in the United Kingdom, and we heard that it has attracted little attraction. More pressure is on expanding bandwidth at present.
11) Electronic government plan
The British government is pushing forward an electronic government plan similar to that of Japan and has signed a contract with EDS. However, it has not been successful, mainly because people do not want it.
4.3 IPv6 meeting report
Date: November 22-23, 2000
Place: Berkeley Hotel, London
Attendants: About 60. There were many people from carriers. 6 Japanese people from NTT attended the meeting. Mr. Nomura from NTT Europe delivered a speech. Three from Hitachi attended (Kobayashi attended the meeting as a member of INTAP).
Summary
1) In the current Internet environment, a PC communicates with other PCs via IPv4. We are shifting to the age where we communicate using mobile telephones via IPv6, and so we expect the dominance of the US to fade and that Europe will take the lead.
2) Though a killer application to boost IPv6 has not emerged yet, mobile and mobile telephony seem to be the key in Europe. "Always-on" may also be a key.
3) Mr. Nomura from NTT Europe and Mr. Murai, a professor of Keio University, introduced the status of IPv6 activities and the efforts in Japan compared to those in Europe. Mr. Latif also intentionally referred to the activity in Japan.
4) The lack of novelty was a pity, perhaps due to consistent moves?
December 2000