TeleGeography Workshop

Proceed with Caution

Potential Warning Signs in the Colocation Market

Jon Hjembo

TeleGeography

Outline1. Is the colo sector too dependent on content/cloud?

2. Is the competitive landscape too concentrated?

3. Is growth sustainable?

1. Is the colo sector too dependent

on content/cloud?

Content drives the bandwidth market

Share of Used Bandwidth by Category for Major Routes, 2016

Cloud providers 2015 footprint

Carlsbad, CA | Washington, DC | Exeter, UK | Singapore | www.telegeography.com | info@telegeography.com

Cloud providers 2017 footprint

Carlsbad, CA | Washington, DC | Exeter, UK | Singapore | www.telegeography.com | info@telegeography.com

Including sites under development

Carlsbad, CA | Washington, DC | Exeter, UK | Singapore | www.telegeography.com | info@telegeography.com

Tech dominates the marketMost Valuable Publicly Traded Companies by Market Capitalization, 1 Dec 2017

(Billions USD)

Source: Yahoo! Finance

Tech companies

Non-tech companies

Strong diversification, little change in mixEquinix Customer Mix, Q1 2015 and Q3 2017

Source: Equinix Q115 and Q317 Earnings Presentations

Diversified and shifting mixCyrusOne Customer Mix, Q1 2015 and Q3 2017

Big increase of

cloud and

finance in the

mix

Source: CyrusOne Q115 and Q317 Earnings Presentations

Other players

• DLR: over 2,200 customers across verticals.

Largest client accounts for 7.8% of annualized

rent revenue.

• Interxion: 1,600 customers across European

markets

• Cyxtera: at least 3,500 customers worldwide

Conclusion• Question: Is the colo sector too dependent

on content/cloud?

• Answer: Despite the outsized influence of a

handful of content/cloud providers, colo

operators still maintain highly diversified

client bases.

2. Is the competitive landscape

too concentrated?

A quick review of recent acquisitions and mergers

Equinix gets its own slide:

• Bit Isle (Dec 2015 - $280 mn)

• TelecityGroup (Jan 2016 - $3.6 bn)

• Verizon assets (May 2017 - $3.6 bn)

• Itconic (Oct 2017 - $252 mn)

• Zenium Istanbul (Oct 2017 – $93 mn)

• Metronode (Dec 2017 - $791 mn (AUD 1 bn))

• TierPoint: Cosentry (Jan 2016)

• Medina Capital/BC Partners: Cyxtera (May 2017 - $2.8 bn)

• Peak 10 + ViaWest: (Aug 2017 - $1.7 bn)

• Digital Realty: Dupont Fabros (Sep 2017 - $7.8 bn)

• Iron Mountain: IO Data Centers (pending - $1.3 bn)

• CyrusOne: Zenium (pending - $440 mn)

A quick review of recent acquisitions and mergers

Equinix dwarf the competitionLargest Retail Operators by Gross Floor Space, 2017 (million sq ft)

Note: NTT Group includes 6 companies. NTT capacity shown excludes domestic Japanese capacity, which accounts for 58% of the Group’s footprint

Equinix growth focuses on existing marketsMarkets with Largest Growth Rate in Equinix Footprint, 2015-2017

In wholesale, Digital Realty is peerless in scale

Largest Wholesale Operators by Gross Floor Space, 2017 (million sq ft)

Rapid growth is not universalGrowth in Gross Colocation Space, Select Operators, 2015-2017

Conclusion• Question: Is the competitive landscape getting too

concentrated?

• Answer: Top operators are concentrating investment in

core hub markets, and there’s an unusual level of market

consolidation right now, but a number of operators are

finding opportunities.

3. Is growth sustainable?

Not all markets are the sameGrowth in Gross Retail Colocation Floor Space for Select Metro Areas, 2013-2017

Sustained growth

Low growth

Growth spurt

Vacancy rates vary a lot tooColocation Vacancy Rates for Select Metro Areas, 2017

Convergence in base pricesChanges in Price per Kilowatt at 4-Kilowatt Density, H2 2015-H1 2017

Persistent gaps in cross-connect ratesChanges in Fiber Cross-Connect Prices, H2 2015-H1 2017

…as do future expectationsOperator Price Expectations by Metro Area, H1 2017

Conclusion• Question: Is growth sustainable?

• Answer: Moreso in some markets than

others, but the overall colo market appears

to be quite stable.