Published 4 August 2016
This is the fourth post in the series of posts on the China Data Center market by me and a colleague. You can find the earlier post to this series on linkedin under my posts or via https://newwitblog.wordpress.com/
Please take note that it is sometimes necessary for the sake of continuity of writing a post to repeat content from my earlier posts here. I still encourage you to read the entire series from the start.
When I began to write on this topic of Local China data center players, I soon realized that the topic itself will be too huge to be contained within one post, so midway through writing on this topic, I have to split this into a two separate posts.
By virtual of the duopoly telecommunications network controls by China Telecom (“CT”) and China Unicom (“CU”), they are the dominant data center player in China. The large enterprises, with exception of property companies and e-commerce companies, are used to be all-in-one, i.e. one big state owned enterprise may have everything from housing projects for its staff and even its own police station, for example until recently, the China Railway company still has its own police force that police its trains and stations. Outsourcing is at a low percentage probably under 10% of the Chinese enterprises uses some form of IT or data center outsourcing especially so for the large state owned enterprises. Nevertheless, optimist will look at this phenomenon and consider this an uptrend opportunity.
In addition, demand for data center space is not huge until after the mid 2000s, therefore those computer rooms that CT and CU have in their telecommunications facility grew at a modest pace and satisfy the early demand. It is only after the ecommerce, online content and video content, gaming have taken off in China coupled with fiber and mobile broadband roll-outs that created the demand. CT and CU cannot meet all the demand and they are also not incentivized to build to demand (they are state owned enterprise after all), which saw the birth of data center service providers that either build for CT and CU (build-own-operate data center operator with CT and CU brand outside their building) or third party colocation data center providers such as 21ViaNet, Centrin, and GDS. China Mobile (“CM”) is also picking up speed in their roll out of data centers (for example, CM have grown from only two data centers in Shanghai in 2014 to having six by end 2016).
- Definition of a Data Center
Very early on, China government require IDC, which is defined as a data center that also provides Internet connectivity to apply for a license. If an IDC intends to have data center across China, they can do the following:
- Apply for a nation-wide license with the Ministry of Industry and Information Technology (“MIIT”). The licensee still has to register their awarded nation-wide license with each city’s Communications Administration bureau that they intend to have a data center facility. So having a nation-wide license doesn’t automatically mean you can build your IDC anywhere. This is the confusing part and can be challenging even for local Chinese data center player. This has the highest requirements for the applicant to have strong financials and also at least 5 years of business operations.
- Apply for a provincial wide IDC license with that particular province’s Communications Administration and do so for each city. The licensee still has to register their awarded nation-wide license with each city’s Communications Administration bureau that they intend to have a data center facility.
- Apply for a city specific IDC license with that particular city’s Communications Administration and do so for each city.
Usually, there is not much of an issue for a local Chinese company to apply for and receive their license. The only time when there is a problem is when the central government or the Beijing or Shanghai city government decided to closed the application process for a year or more. In 2008, the central government stop accepting or approving any IDC license application. This was reopened in December 2012 but only to local Chinese companies to apply. Together with the reopening of IDC license application, MIIT issued a document (http://www.miit.gov.cn/n1146285/n1146352/n3054355/n3057709/n3057717/c3651787/part/3651788.doc ), this document is significant as it contain a statement
The above statement meant that an IDC license is required should the data center service provider provides colocation space for client to collocate the client’s IT equipment, or if the cloud service provider provide compute and data storage resource. Therefore prior to December 2012, if previously MIIT published rules and regulations was silent about a data center service provider that do not provide Internet connectivity may interpret that they don’t need an IDC license, now it is clear that a license is required. In the case of a cloud service provider, it is also now clear that they also need to apply for an IDC license. Such is why there was a scramble by Aliyun (Alibaba’s cloud service company) and other China cloud service providers applying for the IDC license.
The only grey area is when it comes to wholesale colocation service provider that generally lease its building cum M&E infrastructure to colocation/hosting/enterprises, these wholesale colocation data center service rightfully “should” not need to have an IDC license. Given that, to the best of our knowledge, it is of no consequence or concern since there is no pure play wholesale colocation data center service provider in China yet while Charoya is a notable possible first even though it is considered a foreign company.
In May 2013, MIIT allows the application from joint venture whereby the up to 50% shares is a foreign party which has to be an entity based in Hong Kong or Macau.
Generally, it is easier and faster for a state owned enterprise to get the nation-wide and provincial wide IDC license.
- Telecommunications Network
China has an oligopoly telecommunication market that has very restrictive conditions for foreign players except for hardware and software vendors. An except was made in the early 2000s when China had accepted AT&T into the market via a joint venture via a minority holdings of 25%, and PacNet (previously Pacific Internet, and PacNet has been bought by Telstra, more on AT&T and PacNet to be in the next article on foreign data center players in China) when it has the 50% shares in a joint venture with an state-owned enterprise that is mainly operating in the Guangdong province. It is more of a gesture as China is not active in accepting foreign telcos into the telecommunications, data center and nowadays cloud services sectors as will be covered in the next post on foreign data center players in China).
As a result of the telecommunications carrier consolidation in 2008, China’s telecommunication industry is dominated by China Telecom (“CT”), China Unicom (“CU”), and to a lesser degree, China Mobile (“CM”). CHINANET and UNINET, operated by China Telecom and China Unicom respectively, are the largest networks in China, with CHINANET operating predominantly in southern China while UNINET operates predominantly in northern China. In another consolidation in end 2015 and completed by January 2016, China Railway Telecom (中铁通) has been bought by China Mobile and renamed as China Mobile TieTong (中移铁通). Prior to the take-over, China Railway Telecom used to be a fully licensed telecommunications carrier that operates the telecommunication network of China Railway stations and also enterprises that are related to the China Railway group. Now there is only one other fully licensed telecommunications carrier left besides the 3C and it is the China EduNet, they serve their own closed group which is the high schools/universities/research institutes, which therefore are included here for completeness purpose only.
The three China telecommunications players, China Telecom (“CT”), China Unicom (“CU”) controls the fixed line and China Mobile (“CM”) has majority of the mobile market with CT and CU taking up the rest of the mobile market. Let us for simplicity sake call these three state owned telecommunications players “3C” (local calls them 三大运营商).
CT has built and is still the main operator of the national network backbone and network access points in the three major hubs (Beijing, Shanghai, and Guangzhou) and the central government has funded CT to build 7 new regional hubs: ChengDu, Wuhan, Xi’an, Shenyang, Nanjing, ChongQing, and Zhenzhou, which were completed in 2014. These regional NAPs alleviate the need for network traffic to traverse across the country to the three national NAPs and thus reduces congestion and allows regional network traffic to stay regional and attracts ICPs to move some of their regional-targeted content and applications to be closer to these major cities.
Prior to the addition of those 7 regional hubs, network traffic between neighbouring provinces or even cities in the same province will have to route to one of the three major national hubs and sometimes another hob to one other hub if your source IP and the destination IP belongs to different ISP (e.g. source IP is CU going to server IP by CT).
These state owned telecommunications giants builds the data center market in a reactive manner for most of 2000s. CT has most of the data center market in the southern halves of China while CU has more of the data center market in the northern halves. So you will find CT having most of the data centers in Shanghai while CU has more data centers in Beijing. CM had focused on the mobile network market and it has been trying to catch up to grab more of the data center business due to it being relatively new in the enterprise market.
Data center clients, be it local or foreign based, will soon get into the habit of looking for IDC instead of data center. Why? Because a data center cannot serve the client’s need if it cannot talk to the world outside of the data center, and this comes under the definition of IDC in the case of China. Unlike other liberalized telecommunications market, in China, your data center will not attract any ISP unless it has a fiber connection from any of the 3C, but this may come as a surprise to the foreign data center player or foreign based client of a data center, the 3C will generally not budge to bring their fiber connection to a data center even if you pay them. You will have to be a IDC and signs up a bandwidth bundle that is expansive. You do not start at the same starting line even compared to a local data center that has an IDC license. There are more reasons behind the difficulties faced by any data center player be it local or foreign but it is especially so for the foreign data center players and some of it will be covered in the next post in this series.
One thing about the local China data center market is that 3C do not allow the one another’s fiber connection into their own IDC. A third party IDC can bring fiber connections from one or more telecommunications players so this is an advantage that the third party IDC has over the data center owned by any of the 3C. However, the 3C controls the most important resource for a data center – i.e. the telecommunications network connection.
There is one odd thing with the Internet routing within China: the China Internet hubs are still mainly in Beijing, Shanghai, and GuangZhou. If the carriers don’t play nice, all your traffic may get routed to the furthest network hub instead of the closest one. For example, even if you are in Shanghai, your IP traffic may get to Beijing and back and vice-versa each time a CT user access a server collocated in your Shanghai data center. The customer will demand better routing or he may consider to move to another Shanghai data center.
- China Data Center Service Providers by Categories
The requirement by government for any cloud or colocation data center service provider to register for an IDC license have caused a scramble for lots of data center service providers as well as cloud service providers to surface.
The list of participants in the Data Center market are diverse, below is list of categories of data center market participants:
- Telcos (CT, CM, CU)
- 3rd party Data Center Colocation Service Provider (e.g. 21ViaNet, DrPeng, GDS, SDS, SINNet)
- Retail hosting (too many in this space which includes most small ISPs and small IDCs, e.g. 21ViaNet sells server colocation as well)
- Cloud Service Provider (e.g. Aliyun, Baidu Cloud, ZTE, Huawei)
- Build-own-operate pure play facility provider (e.g. Athub, Cybernaut, Farvin). Build-own-operate pure play facility provider will build the building and the M&E but will leave the IT to the client. Generally these providers work on a one-to-one basis, i.e. they have only one client for the entire facility.
- Others: incidental players such as IT service providers, IT security vendors having small private suites/cages or even just a rack and rent out to customers. It may also be large hardware manufacturers such as Inspur that build and operate an entire data center building with 2,000 racks including IT and private cloud for ChongQin smarty city project. Sugon and also ZTE have also done similar build and operate on the same basis as Inspur. Inspur, Sugon and ZTE are all state owned companies. Wanda, the largest commercial and shopping property developer and owner in China, opened a colocation data center which is an ambitious project that targets to host ecommerce and large retail chains providing an eco-system of online-offline through-chain shopping and fulfilment service that pure ecommerce player like Alibaba’s Taobao cannot provide.
We will further elaborate the categories of 3rd party Data Center Colocation Service Provider and Build-own-operate pure play facility providers in the next post on the China Data Center players.
What’s in the series on the China Data Center Market
The rest of the series, not meant to be comphensively listed and not necessarily in the order shown, will look at the following topics:
- A view on the China Data Center Market – Part 1 of 2
- A view on the China Data Center Market – Part 2 of 2
- Some special China Data Centers
- China Data Center Market – China Data Center players Part 1 of 2
- China Data Center Market – China Data Center players Part 2 of 2
- China Data Center Construction Eco-system
- China Data Center Market – Foreign Data Center players Part 1 of 2
- China Data Center Market – Foreign Data Center players Part 2 of 2