Telecoms giant Liberty Global is spinning off its data centre assets into a new European joint venture with digital infrastructure investment fund Digital Colony. The move, which follows similar deals by AT&T and Telefonica, reflects the changing dynamics of the data centre industry, wherein the twin trends of cloud and edge computing are stoking demand while telcos find themselves with excess capacity.
The new company, AtlasEdge Data Centres, aims to “serve the growing demand from cloud providers, streaming services and enterprises for high-performance, scalable and secure facilities through which they can distribute low-latency applications and services such as 5G, gaming, IoT and edge compute”, according to a statement. It will use what was formerly Liberty Global’s data centre infrastructure across Europe, with four of the company’s internet brands, including Virgin Media in the UK, acting as anchor tenants.
“Combining Liberty Global’s technical real estate and track record in building successful, sustainable businesses with Digital Colony’s expertise in digital infrastructure investment creates an exciting platform for growth that will deliver long-term value,” said Mike Fries, CEO of Liberty Global. But the success of the new company may depend on a sufficient number of use cases emerging for edge data centres, experts told Tech Monitor.
Edge data centres: is Liberty Global onto a winner?
AtlasEdge will sell server space in edge data centres, which form a central part of multi-edge computing (MEC), a model in which data is processed at the edge of the network, close to where it is generated, rather than being sent to a central cloud. This can help reduce latency, which is particularly important when data from connected IoT devices and 5G networks needs to be processed in real time. Data centres owned by telecoms companies, which are already integrated into communications networks, are ideal for this purpose.
Investors are taking an increasing interest in the opportunities around MEC says David Leftley, co-founder of Bloc Ventures, a venture capital fund. “We’ve seen quite a lot of deal flow in the MEC space,” he says. “We all know that the consumption of data is going up and that the point of consumption is moving.”
But, Leftley says his “underlying take-away is that we have yet to see the business use cases” for the technology. He explains: “There are not a lot of industries that require this at the moment. If you’ve got the use cases it makes sense, but you could also end up being stuck in the middle with MEC, because if [latency] is that critical why wouldn’t you have the edge of your network on a server on-premise rather than in a data centre?”
Indeed, last year only 1.3% of Europeans connected to the internet using 5G, while the number of private networks in the world numbers just over 100, according to research from Deloitte.
Leftley, who worked in telecoms before founding Bloc Ventures, says AtlasEdge will need to demonstrate the tangible benefits of edge processing. “It’s all very well saying ‘build it and they will come’, but will they be able to sell this into enterprises?,” he asks. “When you start talking about things like augmented reality and virtual reality to C-suite leaders their eyes tend to glaze over. [AtlasEdge] will need to show how lower latency can offer cost savings, and make businesses more reliable and agile.”
But the rapidly increasing amount of data being produced by businesses means investing in edge data centres could prove prudent in the long-term, says Ed Galvin, CEO of DC Bytes, a data and analytics company which covers the data centre sector.
“The amount of data sloshing around in the world is increasing, and as it keeps going up the ability to deploy at the edge becomes more attractive,” he says. “Public cloud has driven demand over the last five years, but I think it’s erroneous to assume that’s how it’s always going to be. It’s understanding where the next wave of demand is going to come from and the sheer volume of data being produced means that’s going to come from the edge.”
Why spinning off data centre assets makes sense
Though the value of MEC may be up for debate, there is little doubt that monetising data centre assets makes sense for companies like Liberty Global, says Galvin. “Over recent years telcos have built out extensive data centre facilities which they’re not utilising,” he says. “You might only be using 20% of the space, but you’ve still got 100% of the overheads, which really erodes your margins on services which you’re selling such as hosting. That vacant space is costing companies an arm and a leg.”
Rather than waiting for more customers to come along and put this space to use, the ever-growing demand for cloud computing means there is currently no shortage of takers when data centres come onto the market, Galvin says. “There’s such a weight of money behind investors trying to get into the sector, a huge amount of capital is being deployed in data centres and logistics,” he adds.
Liberty is far from the first telco to part with its assets. AT&T sold its portfolio of data centres to Brookfield in 2019 for $1.1bn, while in the same year Telefonica offloaded 11 data centres to Asterion for €550m. These deals tend to be done on a sale-and-leaseback basis, Galvin says. “All of the sudden the telco is just paying a rent on the 20% of the space it uses, and the premium it is able to get on selling the asset is very attractive,” he says. “And from the buyer side, you have a tenant in place already which gives you credibility. It’s a trend we would expect to see continue.”
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Matthew Gooding is news editor for Tech Monitor.