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June 22, 2016updated 22 Sep 2016 12:22pm

Equinix EMEA on selling $900m worth of data centres to its biggest rival because the EC told it to

C-level briefing: Eric Schwartz talks to CBR on the EC’s decision that forced the company to sell eight of its data centres in an European battle for fair colo competition.

By Joao Lima

It was in May that news revealing Equinix’s intention to sell data centres to one of their biggest competitors caused much stir amongst the industry.

Following Equinix’s $3.6bn acquisition of TelecityGroup initiated last year, the EC told the company it would only validate the deal if the hubs were sold to create a competitive landscape between colocators in Europe.

The decision meant selling five hubs in London, two in Amsterdam and one in Frankfurt, all of which were from Telecity’s portfolio. In total, it amounted to 302,000 sq ft of data centre space and 40MW of power.

CBR spoke to Eric Schwartz, EMEA president at Equinix, on Digital Realty’s $874m acquisition of the sites.

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CBR: Why did you sell your data centres to Digital Realty?

ES: The cold answer to that is for the money.

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CBR: Are you not worried about them becoming an even bigger competitor?

ES: Whoever we were going to sell to, it would be a competitor. We picked Digital Realty, we could have picked somebody else who would be competing with us as well.

We took a step back and said "we are going to be competing no matter what." We were confident we would close the deal, and get it done with Digital. We had the confidence they would get the deal done, they had the money.

And then we said, "if we are selling to them, does this change things so much that what we planned to do needs to change?". We had this discussion in depth..

CBR: What came out of that discussion?

ES: We are a global platform, we are in metropolitan markets, good connections, focus on customers, and take advantage of cloud migration in enterprises; I think we are in a good position to do that strategy.

Digital can do a lot of things. But to do what we are going to do, we are the best.

When you combine their European business with what we are selling them, we are still substantially larger than they are in Europe. And globally we have better coverage.

Even if they buy somebody else, we are still bigger than that combination. From our perspective, it was about picking someone to get this done so we can move on.

Ultimately, I think we are going to flourish or not based on whether we effectively serve our customers. If we are serving them well, then no one is going to care. If we are not effectively serving customers, the fact that Digital has eight data centres, is the least of my worries.

CBR: What do you think of the EU’s conclusion?

ES: The process was set up because the European Union wants a substantial competitor to compete with us.

Trust me, if there was a scenario where we could have done something where there was not going to be a substantial competitor, that would have been appealing. There was no way we could have come out of the process [of buying Telecity] without it.

In that context, Digital was just one of several options.

CBR: Do you think the EC was fair with you?

ES: I think they were entirely fair; I disagree with their conclusion [of making Equinix sell eight sites].

The process was fair. The people from the EU are extremely experienced and capable of being in this process. I was very impressed by that.

I understand why they reached the conclusion they did, but from my perspective I disagree. There was plenty of competitive activity even without the divestiture, and any concerns that were raised, I do not think were significant. They come to a different conclusion, which I respect, just not agree with.

CBR: How is the integration of Telecity coming along?

ES: We are integrating the business one country at the time. That is going to be a process for the next 12 months.

CBR: How big do you want to be?

ES: We are a growth company and I want us to continue to grow while there is an opportunity out there. We see a substantial opportunity for growth in a three to five year horizon.

We are still deep in the integration of Telecity. We are integrating our last acquisition in Japan, we are building new sites around the world. And this is all driven by customer demand.

I want us to continue to build to keep up in one hand and lead with customers on the other hand as the industry grows.

CBR: How does your pricing function work?

ES: Our pricing function works where we have a range of products but by the end of the day we are a share-holder driven company. We are investing massive amounts of capital, we have to make sure that the prices we charge to customers on each location, or each slot in that data centre it generates a return. Otherwise we will be in big trouble.

We access the market position, and we see where our competition is, we understand what the costs are, we understand what the value is overdoing, and we set prices that are consistent with that. I worried all the time to that my suppliers might raise the prices.

I cannot say we are not going to change prices, because we do change prices. We do that based on a whole variety of things.

We can be in a situation where power prices go up, just as we can be in a situation where power prices can come down. Labour prices, interest rates, all of that flows into that.

We go out and invest in new capabilities in the data centre; we have to recover those investments. And we are going to recover those investments by selling more units and increasing the price.

There is an implication that we have this massive power. I hope we are relevant, but I think people are overestimating how this works and getting concerned about that.

CBR: What sort of markets in Europe are in most need of data centre services? For example, you only have twoDCs in Poland, and Poland is expected to become a big economic power in the next decade. There is also sometalk around the Balkans, Baltic, Spain or Portugal because of Latin America.

ES: Those are all opportunities and from my standpoint I would extend that to the include Middle East, where we are in Dubai, and there is quite a bit of economic growth.

Our strategy is very much based on the basis that we invest first in our existing markets to make sure we have the capacity to meet customers’ needs.

We then consider other markets in the same country, and then consider other countries.

All those you listed are possibilities, but we are very focused on the existing markets and achieve our growth ambitions in those markets without going to other markets. Not to say we will not, but because many of our customers are service providers, our first priority is to focus in the markets where we are and ensure we can provide the trajectory and growth customers need.

CBR: What about the UK? What are the plans?

ES: In the UK we now have a presence in the Docklands, we have a presence in Slough, and two assets in Park Royal. We are in London and also in Manchester.

We are in the process of expanding facilities in Slough, but the plan is to ensure we have capacity for customers in all locations. Then we are going to put some energy into identify why would a customer need to be in the Docklands, to be in Manchester and in Slough all at the same time, because those are the major interconnect points.

Is there a benefit to us, customers, to being able to offer that say as a sort of country-wide platform. I think there is. We are already seeing interest from global customers in Manchester. I am enthusiastic about Manchester.

The ability to balance the Docklands and Slough, for customers, this is a first, and we need to understand when does that really matter to customers. But I think it will.

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