Earlier, Alphabet Inc, the parent company of Google announced plans to invest more than $500 million in a cloud data center at the site of Hemlock Semiconductor in Clarksville, TN.
Without a doubt, the Cloud has become an overarching trend, transforming IT organizations and the technology market. The cloud model can help companies reduce upfront capital expenses, increase organizational speed and flexibility and, in some cases, turn IT operations from cost centers to revenue generators. According to IHS research, global spending on public cloud services by enterprises and consumers will grow from about $115 billion in 2012 to approximately $230 billion in 2017. That spending spans every industry segment and almost every region.
But where should Cloud Service Providers locate their data center for cloud services? Are some regions more attractive than others?
This question is getting harder to answer for enterprises and the cloud providers serving them. People typically think of the cloud as global, but local regulations, security concerns, and infrastructure availability issues require regional data centers to deliver cloud data and applications.
For companies deciding where to break ground on a data center for cloud services, regional, national and local regulatory conditions pose some of the most complex challenges. Market trends, regulatory rules, security factors, and infrastructure conditions vary by region and country, creating operational and strategic implications for companies when they select territories for data centers. Both Cloud Service Providers (CSPs) and enterprise IT managers need to understand those implications and associated risks.
First, regulatory and legislative changes don't move at the speed of technology. As the marketplace clamors for new cloud services, regulators and public policy makers constantly struggle to catch up.
In the European Union, for example, recent legal decisions could usher in dramatically different regulations concerning data exchange and privacy protection. The European Court of Justice (ECJ) ruling on the Safe Harbor principle, which has until recently enabled US companies to self-certify that they adhere to comparable EU policies on data privacy and security, has the potential to further Balkanize the Internet with major implications for CSPs.
Even among EU members, country-specific regulations pop up. For example, data center operators in Germany must adhere to the rule that data belonging to German companies must stay in Germany. In addition, some German data privacy laws apply only to individual consumers, while others apply only to businesses.
And in places like India, and other developing economies, regulatory frameworks may not be as dependable and/or transparent as they are in more established economies, complicating investment and business decisions.
In addition to regulatory and security concerns, the state of local infrastructure (including telecommunications and energy) deserves close examination by companies choosing a data center location.
In telecommunications, the primary consideration is broadband coverage. High speed broadband may be delivered via cable, DSL or fiber, as well as high-speed wireless (LTE service). Cloud service providers need to know the current broadband situation, plus national upgrade plans for the network, and whether those plans are realistic. Finally, cloud service operators need to know the prices for international connectivity—a relevant question for any service that intends to have a global footprint.
The local electrical grid may pose pricing considerations. In the EU, for instance, energy prices vary by country and region, although the EU aims to normalize prices in the long term. Along with retail cost differences, the CSP or enterprise IT manager needs to understand energy pricing options: retail, wholesale or, in some cases, co-generation—i.e. traded electricity. In Europe, costs for electricity include taxes related to the EU's de-carbonization agenda. As de-carbonization initiatives progress, both network charges and surcharges are increasing.
Along with pricing, country and local regulations may come into play with energy consumption. While the EU aims to create a unified power market, the current situation is neither unified nor harmonized. Relevant regulatory questions include: Is co-generation (wind or solar) permitted? Are there subsidies for energy co-generation efforts? How onerous is the planning and permissions process for grid-connection rights?
When evaluating regions and countries for data center deployments, one reality is that risk assessment is a dynamic process. Without a doubt, Local market conditions, especially security issues and local regulations, require continued and close analysis.
Mike Hartnett is Senior Manager with IHS Economic and Country Risk Consulting
Dr. Jagdish Rebello is a senior Director with IHS Technology
Posted on 4 January 2016