In recent years, new subsea cable projects have opened up markets across Europe, from Finland to Palermo, Ireland and Marseille. They have also acted as a gateway leading to emerging market opportunities in locations where infrastructure is still not mature enough to entice a market.
Where these cables land has had a number of effects on local markets. In some cases, subsea cable landing points have led to new or invigorated colocation markets, with providers focused on enabling the exchange of data traffic and facilitating the transport of content. In others, the impact has been felt further afield. Marseille in France has become both a location to peer traffic and a gateway to other European destinations – and similarly, a European gateway to the Middle East and Africa. More recently, we have seen France’s capital Paris start to benefit from the ‘Marseille effect’ as companies from French-speaking countries in Africa, and others seeking access to mature cloud services from the Middle East, seek a presence in Paris to harness new opportunities.
At the moment, it appears that there is going to be no shortage of subsea connectivity investment across Europe, meaning opportunities abound in a number of locations. Few locations, however, have more than one – or in this case three – new cables about to land. This is what makes the Iberian Peninsula, where cables will land in Bilbao and Valencia in Spain and Sines in Portugal, an interesting prospect as a rising datacenter location. As the major market serving the region, Madrid is already starting to see a shift in demand and multi-tenant datacenter (MTDC) provider activity as a result.
The 451 Take
Ever-increasing data growth, rising consumption of cloud services, the Internet of Things and consumer thirst for digitized content are driving demand for non-terrestrial communications. Many of the existing older subsea cable routes built with older technologies had higher latencies and much less capacity. Newer subsea cables being laid are designed from day one to handle the increase in cloud and other traffic and offer better performance.
Their routes are carefully planned to cater for growth in both mature and emerging markets – in many cases, these subsea systems are landing in emerging markets for the first time, enabling the delivery of services from far locations. This is where Spain looks to benefit. Not only will it become a new hub for delivering services into Latin America and Africa, but European companies might also start to use Madrid and other Iberian locations as a hop-off point for new redundant communications routes between the US and Europe and Europe and Africa.
Cable projects for Spain
Until now, Spain – and Madrid – has largely been an insular IT market serving national customers. These cable routes, however, are likely to make Madrid a global provider. As a result, we expect to see MTDC providers from outside Iberia start to consider the market as part of their growth plans. We have already started to see an increase in cloud activity as well, although much of this to date has been to serve the local market. In future, cloud could also be delivered from the low-risk location of Spain into Africa and Latin America.
This is why providers in Madrid are eagerly awaiting these subsea developments. Three new landing points in Spain have been scheduled: MAREA, which will provide a new high-capacity alternative to existing Europe to New Jersey links (it will land not far from New York in the MTDC hub of North Virginia and in Bilbao, Spain); EllaLink, which is expected to open up emerging markets with landing points in Brazil, Madeira, Canary Islands and Cape Verde before connecting to Spain and Portugal; and ORVAL, which will offer an alternative route into the north of Africa to SEA-ME-WEE 5 and AAE-1 (which connect Europe to the North East of Africa) connecting the North West of Africa by linking Valencia in Spain to Oran in Algeria.
Investment in these three cables comes from a mix of sources. MAREA, for example, is backed by Microsoft and Facebook, which are seeing increased demand in Europe for cloud and other services. EllaLink is a project between the governments of Brazil, Portugal, and more recently Spain, designed to open up digital commerce opportunities and entice cloud services to Latin America, while ORVAL is backed by the Algerian government as a way to increase the digital economy by adding more resilient communications between Europe and the African nation.
Madrid’s MTDC market
The Madrid MTDC and IT and managed services market is the largest in Spain, but it is small compared with the European market leaders (by built supply these are London, Paris, Amsterdam and Frankfurt). The 20th largest MTDC market in the world is Sydney, with 1.2 million square feet of operational supply. In comparison, Madrid has 405,600 operational square feet (London is nearing five million square feet). Madrid, however, is a large market compared with other second-tier European locations and it is the largest market on the Iberian Peninsula. 451 Research currently tracks 17 providers in the Madrid market, which operate 21 facilities, providing 42MW of supply.
Madrid differs from other leading city markets in Europe in that it largely services its local (Spanish) requirements (Frankfurt, for example, is often used as a hub to reach other Eastern European destinations). As a result, the market has a number of local MTDC operators that also provide IT, managed and cloud services further up the stack from colocation – including Itconic, Adam BCN and Telefonica (the incumbent telco). The market also has a healthy number of international providers that entered the market to serve international customers doing business in Spain, including Global Switch (the only real wholesale operator in the market), Interxion, Interoute and Colt Data Centre Services.
In recent years, a number of providers operating elsewhere in Europe have considered Madrid as a datacenter destination – Paris-based Data IV has been vocal about its interest, for example. But to date, there were concerns around how much new opportunity the Spanish market alone could bring. Now, new subsea routes look like they could open up this market to more than just Spanish customers. We expect that as a result, over the coming years we will see renewed interest from other MTDC operators and service providers that currently lack a presence in Spain but want to offer redundant options with connectivity to the US and reach into South America and Africa.
Madrid may be landlocked but the market already serves most of Spain, and as result backhaul opportunities already exist from where the new landing stations will be placed. It also benefits from an existing mature datacenter market that still has plenty of spare capacity and providers eager to grow – this is important for cloud providers that will seek short build times when demand requires they enter a new market or expand.
A number of providers in the Madrid market say they have already been focusing on increasing connectivity options across their datacenter estates and out to other markets. A large number also have pre-approved plans for growth, with more than 116,000 square feet of supply expected to come online from existing market providers before the end of 2018. Demand is expected to grow. Not only are the cloud providers now seeking space – albeit in smaller allocations than the major markets – but Spanish companies are also increasingly moving out of older facilities into colocation, or using colocation as a way to tap into cloud services. Many providers say they also expect to see a number of Spanish businesses use colocation to gain access to subsea cables so they can deliver services into new territories.
Spain has a growing startup community that is eager to export services – Madrid and Barcelona rank sixth and fifth in terms of Europe’s top-10 startup cities. Furthermore, the Spanish market can provide access to skills. In addition to Madrid’s 1,100+ startups, the Spanish capital is home to two of Europe’s most highly regarded universities: The Technical University of Madrid and the IE Business School. Madrid is also a large Spanish-speaking content hub – ideal for content providers seeking material for Latin America.
At present, the vast majority of data between Latin America and Europe passes through the US. With the new subsea cable links, however, parts of Spain (including the Canary Islands) and Portugal will be geographically closer than the Eastern US seaboard. This is why in March 2016 Telefonica announced BRUSA, a planned US-LATAM cable project. BRUSA (Brazil, USA) will link the US with Puerto Rico and Brazil with landing stations at Virginia Beach, San Juan, Rio de Janeiro and Fortaleza. Telefonica is also building a 20,000+-square-foot datacenter in Virginia Beach in the US, which will serve as the landing station for both MAREA and BRUSA.
The connectivity into Africa also offers opportunities for Madrid – first off, providing an alternative for those companies serving Africa from Marseille. It will also allow a new wave of services to be delivered from Spain into the northwestern side of the continent. Spain is also neighbor to Morocco and Algeria, each of which has become legitimate entry points into Africa. Outside of mainland Spain, the Canary Islands float roughly 50 miles off the coast of northwestern Africa. The islands are highly connected (about 14 subsea cables run through them already and many of these weave Europe with South and West Africa). EllaLink will pass through these islands, adding land points along the way and additional access into the region, which is growing fast and seeing a high amount of inward investment as a result. This could further benefit Madrid’s position as a delivery point for African services.
Penny Jones is senior analyst, European Services at 451 Research