With the increasing digital needs of emerging economies of huge populations such as China, India, and Indonesia, the data centre services market is growing strong especially in the Asia-Pacific region and reported a compound annual growth rate (CAGR) of 14.7% between 2015 and 2020.
This process was further accelerated in early 2020 when the world was hit by the COVID-19 pandemic which saw an evidential surge in global internet traffic of almost 40% between February and mid-April 2020. This was driven by growth in video streaming, video conferencing, online gaming, and social networking and caused an exponential rise in the demand for data centre services.
Similarly, MyIX recently reported that Malaysia recorded a peak traffic of 532Gbps during the early part of Movement Control Order (MCO) which has shattered the organisation’s 2019 record which peaked out at 500Gbps.x
In line with the global trend, the data centre market in Malaysia is also in the growing stage. According to ReportLinker, Malaysia’s data centre market size is likely to reach revenues of over $800 million by 2025, growing at a CAGR of over 8% during the period 2020-2025.
So … What is a Data Centre?
A data centre is critical for enterprises operating in the present borderless world. Whether private or public, the data centre is essential for hosting mission-critical applications. Data centres help organisations streamline information while enabling easy access to users and customers from anywhere across the globe.
A data centre stores computer systems and associated components commonly including a raised floor, backup power supplies, redundant data communication connections, environmental controls (such as for air conditioning and fire suppression) as well as security devices.
In general, data centres may operate on two main models. One is for an organization to build, operate, and manage its own data centre for internal purposes, known as a Captive Data Centre. The other is the Outsourced Model where organisations lease space and hosting services from external data centre providers. These providers offer the security, power, and cooling needs for the data centre and customers can use the space to deploy their servers and other equipment.
Under the Outsourced Model, there are various service levels available in the market, subject to the needs of end users. Below are the general categories of the various models:
- Colocation – refers to pure space rental, including floor space, cages, or racks in different sizes. Basic infrastructure-level support such as power, cooling, and physical security measures, as well as basic network connectivity, are provided. Customers pay a monthly or annual rental fee for the space and basic facilities, but they need to purchase their own servers and send their in-house IT resources to manage the servers.
Managed Hosting Services – include the provision of servers. Customers do not need to purchase their own servers. Instead, they rent the servers from the data centre operator together with other specified equipment. Managed hosting comes in two types – sharing the server with others or having a dedicated server. Customers can still access their servers as they wish without having to allocate their own IT resources at the data centres as the data centre operator provides 24×7 system support such as monitoring and rebooting. This often includes operating system management and software security management.
Major Players in Malaysia
The support and encouragement provided by the government along with the efforts to promote the country as a hub for data centres has catapulted development in the market in every aspect. Being sheltered from natural disasters, the Johor area (close to Singapore) in the southern part of the country is growing as an attractive investment opportunity for data centre companies.
VADS Berhad, Keppel Data Centres, and AIMS Sdn Bhd, CSF Group and NTT Communications are some of the prominent investors in the Malaysia data centre market.
Current Situation in Malaysia
High International bandwidth demand in South East Asia
Globally, the used of international bandwidth is expected to grow at a CAGR of 39% between 2019 and 2026. This growth rate corresponds to a doubling every two years. At the regional level, Asia will see the highest rate of international bandwidth demand growth with forecast CAGR 42%.
Since the start of the COVID-19 crisis, demand for broadband communication services has soared, many operators have cited traffic growth of 20%-50%. As mobility restrictions are enforced to contain the spread of the novel coronavirus (COVID-19), estimated 66% of employees are working from home while all the students are forced to continue studies at home as well. Mobility constraints expanded the use of video conferencing, learning, and shopping over the Internet, resulting in an increase in bandwidth demand.The COVID-19 crisis has indeed increased the use of international bandwidth.
Videos spur demand for greater internet bandwidth
By 2021, video will eat up a bigger share of internet traffic, at 67%. Due to Covid-19 and potential lockdowns, video, game streaming and working from home are expected to boost demand for bandwidth.
Low fibre to the home penetration rates indicates potential demand
Fibre penetration in Malaysia is still low compared to international peers. There are still significant rooms for growth of fibre broadband, especially for the population outside of Klang Valley, Penang and Johor Bahru still relies on ADSL. Furthermore, with the roll out of NFCP and Jendela, acceleration in Malaysia’s fibre penetration rate is expected.
Rising demand for Data Centre in Malaysia
The demand for high bandwidth and low latency, an enterprise outlook for expanding customer reach, and the advent of technological innovations, such as ML, AI, and DL, are contributing to a surge in data center investments across Malaysia. The following are some investments made in data centers across Malaysia in 2020:
- NTT DATA Corp. announced to establish data centers
- Green Packet partnership with Tencent Cloud to set up data centre in Malaysia
- Microsoft Corp. was building its data center in Johor
- AIMS Data Centre started constructing another data center in Cyberjaya
- Alibaba Group Holding Ltd. opened its data center in Malaysia in 2017
This created ample opportunities for services providers to capitalize on the increasing availability of dark fibre to offer high-bandwidth connections to customers.
Introduction of 5G which would increase data usage
The Malaysian Government introduced various plans and strategies relating to internet connectivity. The National Fiberisation and Connectivity Plan (NFCP) aims to put in place robust, pervasive, high quality and affordable digital connectivity for the well-being of the people and progress of the country. National Digital Infrastructure Lab (NDIL) formulated the Jalinan Digital Negara Plan (JENDELA) to improve coverage and quality of service for all digital infrastructure.
One of the key targets beyond year 2020 is the full deployment of 5G in populated areas. This will enable 10x higher speeds than what 4G can provide, enabling real-time sensitive online applications such as remote surgery, autonomous vehicles and various other areas which require high precision and accuracy. With the enhanced connectivity and increased transmission speeds, the volume of data being transmitted will grow exponentially, putting more pressure on the existing data centres facilities.
Oversupply may lead to consolidation
AIMS Group CEO Chiew Kok Hin claimed that Malaysia is facing an oversupply of data centre space, forcing intense price wars, and shrinking profits for industry players with some non-generating data centres unable to secure tenants. In fact, these issues have driven out some players, including Malaysia’s first internet service provider (ISP) Jaring, which went into liquidation in 2015.
Top players are still doing well
AIMS, a subsidiary of Time dotcom, recorded healthy sales growth of 17% for its data business in 2019. AIMS alluded that the oversupply of data-centre space is not a huge concern and it is still achieving a decent utilisation rate of 75-80% for its data centres. This is because most of the smaller players in Malaysia mainly provide only co-location services, which put them in a weak position to compete against the top data-centre players due to lack of connectivity and value-added services. In fact, the top players in Malaysia such as VADS (owned by Telekom Malaysia), NTT MSC, and AIMS have been expanding their data-centre capacity to cater for growing demand, a testament that they are not worried about the oversupply situation.
Conclusion
The demand for Data Center sees a clear growing trend supported by several growth drivers. The increasing complexities in IT infrastructure caused by virtualization and consolidation, combined with various cost constraints, are prompting businesses to consider using third-party data centre services. This is spurring the strong growth of managed hosting, especially across emerging economies.
Moving forward, the government would play a huge role in facilitating the growth of the industry as the regulator & authority to facilitate the implementation of 5G network, as well as providing a special utility rate that would ease the burden of Data Centre operators.
For the Data Centre Operator, more research and development work will need to be done on the cooling facilities and energy consumptions aspects of the data centre facilities in order to bring down the cost of operations, which in turn can benefit the end users via a more affordable price point.
As for the Data Centre users, there will be a need for a more holistic data management strategy with a focus on the cybersecurity aspect to ensure long-term resilience of the business operation, and to protect itself from cybersecurity threats or major data room failure which could jeopardise the operations.
Credit to: Woon Chin Peng, Summer Intern at 27Group
