China Data Center Market – Local Data Center players – Part 2 of 2

This is the fifth 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.

This post is the second part of the two-part piece that talks about local China Data Center players. But first, let me talk about how big colocation deals are done and the existence of a group of data center build-own-operate players that are not well known outside of the city/province where they operate.

Where are the co-location hubs?

With the exception of CDN players that will build POP in the big enough cities (say a million people populations, in 2015 there are 122 Chinese cities with more than a million people), big local Chinese firms tend to have their country headquarter in Beijing, while foreign MNCs and big companies that were started in Shanghai or ZheJiang/JiangSu provinces tend to base their headquarter in Shanghai. Guangzhou is one of the earliest Chinese city that trade with the outside world and lots of trading companies are based in GuangZhou and Shenzhen (Shenzhen is the homebase of Tencent that builds the populat social chatting app Wechat and QQ). Beijing, Shanghai and GuangZhou are the major network hubs for China Internet network and incidentally are also the network exchange points for the crucial network connectivity for communications with the outside world. In 2008, eight network hubs were added to the national network backbone (ChengDu, Nanjing, Xi’an, ShenYang, Wuhan). NingXia ZhongWei and Inner Mongolia are special cases whereby all three telcos for certain reasons have extended their fibre network to connect to these places. So, customers like BAT and the likes will more often pick populous cities and coinciding with network hubs for their data centers requirements.

Large state owned enterprises still prefer to build, own and operate their own data centers. However, their subsidiaries outside of their headquarter city, if the requirement is small and do not warrant a dedicated facility management team, will choose to co-locate. However, they favor leasing from the big three telcos.

How are big co-location deals done in China?

The big clients of China data center are Baidu, Alibaba, Tencent (in short, all three are bundled together and called “BAT”), and video content providers (Vku, Youku) and CDN companies NasDaq listed ChinaCache (蓝汛)Shenzhen listed Chinanetcom网宿科技) and  Dnion.

The telcos dominates the market so much so that the BAT goes to them and then the telco refers to their preferred list of data center supplier to recommend to the BAT and the telco fronts the deal on paper and then nearly all the work are done by the selected data center supplier. How these players get to be on the preferred list is another topic, but strong relationship and some other factor comes into play. Nevertheless these players do deliver good enough end product for the data center that the telcos lend their name to.

Currently, smart city is a big thing in China and all sorts of IT solution companies from server manufacturers to cloud service providers are getting involved and the deal usually centred on a new data center facility in those city and sometimes even one per district within a city such as the case in ChongQing. For each city, content distribution network providers like Chinanetcache, ChinaCache, and content providers LeTV are one example of demand that will land in each populous city. They will not be keen to build and operate the data center because their focus is in their CDN / content service.

While it is well known that the two largest state-owned telcos China Telecom (“CT”) and China Unicom (“CU”) have the most of the China Data Center market, whether by number of data centers or rack counts, there are a fair bit of other local Chinese players that exist that plays different roles and positions within the entire data center service provider value chain.

Generally big size deal (1,000 racks and above) is usually done at the highest level between bosses (for example a Senior Director of local Shanghai China Telecom will deal with a local data center builder/operator). Contracts are not required to be publicized and request for proposals are limited to pre-selected group of colocation service providers. CT and CU gets the early signal for the larger deals as the Baidu-Alibaba-Tencent (“BAT”) which require big bandwidth pipe with the best possible bandwidth cost. Let me repeat again because the foreign readers may not appreciate this key difference, the client goes to CT to ask CT to allocate data center build project pipeline to the client and not the other way around whereby the client sends out RFQ that includes CT and asking CT to respond. CT is in a dominant position and so is CU, depending on whether the client is looking for colocation site in the northern half of China or southern half. CM is trying fairly hard to build up their data center network throughout China.

CT or CU do not usually build beyond their office building/complex or their telecom exchange hub unless it is a state sponsored project such as the inner Mongolia Holhot CT Data Center park. How CT or CU work is more or less the same when they have the client demand firmed up, if they don’t have any plan for self-build, they will look at their pre-selected list of data center builder and pick one to carry on the project. The pricing is determined by CT or CU with the client, and then pass on to the selected builder to match the price minus the margin that CT or CU will take. So the deal is officially a CT or CU deal with the client, and CT or CU will sign an agreement with the builder. So it works as:

Client <-> CT / CU <-> Builder/Facility Operator

CT or CU will do quarterly or half-yearly audit of the site, and the client is free to impose to put people on site etc.

So if you see a data center with the external signage saying it’s a CT or a CU data center, it may not be as the builder/operator have a CT or CU contract and runs it on behalf for a CT or CU client. CT or CU is not afraid that the builder cum facility operator will bypass CT or CU to get future deals direct from the client as the client is not going to antagonize CT or CU because the bandwidth and connectivity is the lifeline for the data center and it is controlled in a oligopoly by CT/CU/CM.

China Data Center Players

As mentioned in part 1 of this 2-part posts on local China Data Center players, we will further elaborate on two categories of data center providers:

  • 3rd party Data Center Colocation Service Providers

21ViaNet is the most well known 3rd party data center colocation service provider because it is listed on the on NasDaq, GDS DrPeng, SDS, SINNet are well known within China. DrPeng and SINNet are listed on Shanghai Stock Exchange and Shenzhen Stock Exchange respectively. A large chunk of DrPeng and SINNet’s revenue comes from their ISP side of the business and they have broadband that serves businesses in Beijing, and they seem to only have and want to have data centers in Beijing except where DrPeng do have a data center in Shanghai.

Less well known outside of China are state owned enterprises that invest, build and operate data centers. I will just mention a couple of them here: CIDS (国富瑞), Shanghai Baosight (上海宝信) have a bunch of data center facilities that they built and operate. They have their own sales channel.

Centrin is another well known data center in China, as their Beijing YiZhuang data center captured four of the top five banks (of course all are state owned) and also a good number of financial and insurance institutions. Centrin also have data center facilities in QingDao and KunShan. DataYes does the same for Shanghai financial institutions in Shanghai.

Within this category of 3rd party Data Center colocation service providers is quite a fair bit of data center players that are less known outside of the city that they operate. These players get their business from CT, CU and CM and complements the capacity and build program of these big three telcos. So those CT/CU/CM data centers you sometimes come across, you will need to dig deeper to check if these data center facilities are truly owned and operated by CT/CU/CM, half the time it is not. These players get their business one-to-one or back-to-back from CT/CU/CM. These players, in the early days of the Internet boom within China, lease private suite and rent out per rack unit (1.5inch), per server, per rack and moved on to then build and operate for CT/CU/CM. It is most likely that these players works exclusive with one of the big three telcos. A few examples here: Shanghai HGData, Fountain Data Solution, and city like Beijing and Shanghai has about five to seven of these type of medium size players. There are at least a couple of such players or regional players which are potential partner or investment target such as the AsiaTone data centers that was bought by Equinix in 2012. There are investment into local data center companies by local companies such as Shenzhen listed Sunrise group buying 30% of HGData.

  • Build-own-operate pure play facility provider

A lot of the large data center construction and subsequent electrical and mechanical fit-out (generators, switchboards, UPS, CRAH/CRAC, chillers etc) are funded and project managed by a third party despite it being mentioned that CT or CU builds them say for Tencent / Baidu / Alibaba. This is where well funded companies which are state owned or have government investment comes in.

Companies like Athub, Cybernaut, Farvin, CloudFrame, Chatone and probably there are other well financed companies that do build-own-operate data center facility for their client which includes the like of AWS and Alibaba. These players do not limit where they build their data center and their state owned enterprise status gets them smoother process in dealing with the government for land, power, and water. One other player is called Shenzhen Pioneer Data which is a new player that main build in Shenzhen and so far only for Tencent. Gosun Holding has announced that they will fund and build a data center park in Beijing, whether this will really happen given that Beijing City government since 2014 has been tightly controlling who can build data center facility in Beijing.

It makes sense for cloud service providers to lease building including power and cooling infrastructure from another party while only buying their IT hardware.

These companies 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.

Summary

The China Data Center market have three significant geographical regions  – Beijing, Shanghai, Guangzhou /Shenzhen. One promising market is ChongQin/ Chengdu as a whole and also GuiZhou (for its climate to have opportunity to deploy free cooling).

There are big and well known local China Data Center service providers and there are lesser known ones. For example, some cloud companies lease dedicated data center buildings and some like UCloud usually do not have such restrictions.

Some big state owned enterprises are entering the market or considering to enter the market but lack the data center industry know-how (they can get capital) like the case of BaoGang (or called Bao Steel) and MaGang (or called Ma Steel). There are large number of data centers built by such state owned enterprises for their own IT operations use and they are considering to build their own cloud or go into the cloud market. There are growth opportunities in China for data center and cloud services. In the next post which is about foreign data center players in China, I will share on some of these salient points.

What’s in the series on the China Data Center Market

The rest of the series, not necessarily in the order shown, will look at the following topics:

  1. A view on the China Data Center Market – Part 1 of 2
  2. A view on the China Data Center Market – Part 2 of 2
  3. Some special China Data Centers
  4. China Data Center Market – China Data Center players Part 1 of 2
  5. China Data Center Market – China Data Center players Part 2 of 2
  6. China Data Center Construction Eco-system
  7. China Data Center Market – Foreign Data Center Players

Reference:

  1. http://baike.baidu.com/link?url=ifzD9GZe0Nh1GrLeIH80uAAbdWnSO8k2I34VR77qYcCKX_opPRn55IDsLPVui2JxvAySaIofeunY3Hz4Aks9ta
  2. http://www.idcquan.com/Special/idcmap/
  3. http://dcd-group.cn/2015/03/baidus-hexi-international-data-center-project-was-delivered-successfully/
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China Data Center Market – Local Data Center players – Part 2 of 2

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