MDEC exclusive: Can Malaysia really become a Data Centre hub?


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Image (GraphicStock) - Data centes, managed services


Part of Malaysia's Digital Economy includes moving the country into becoming a Data Centre (DC) hub.  Computerworld Malaysia is indeed hearing more conversations this year from companies eyeing services strategies to help steer ahead through and to also positively drive disruption.

Many industry insights in Computerworld's latest annual forecast (What is really in store for Malaysia's IT industry?) included tales of an increasingly fragile and disruptive economy, which is driving industry to demand more sophisticated, agile and effective managed services, powered by sound data centre provisioning.

Since this appears to bode well for national ICT industry agency MDEC's (Malaysia Digital Economy Corporation's) DC world-class hub ambitions, I recently asked to hear and see what MDEC has in store this year for DC as well as gauge the prospects of becoming a major DC hub in the near future..

Ir Wan Murdani Wan Mohamad (pic below), MDEC's Director, Digital Enablement, emphasised the agency's base driving force: "As Malaysia continues to embrace the digital revolution, MDEC, as the lead government agency responsible for driving the country's digital transformation, remains committed to enhancing the data centre and Cloud ecosystem that forms the backbone of the digital economy."

Ir. Wan Murdani Wan Mohamad, Director, Digital Enablement, MDEC - done

To set the data centre stage, I asked him to talk about what was motivating Malaysia's DC ambitions?
 [WM] In this digital era, data flows seamlessly across borders and data protection policies continue to present challenges to many countries.
 Some of areas of concern regarding cross border data flows include assurance on data privacy, accessibility and security.

To this end, MDEC has proposed an initiative aimed at positioning Malaysia as a location of choice for data services investment whereby data access and data flows are guided by a progressive data governance framework to continue fuelling innovation and new technologies. 
 The objective is also to mitigate any perception that data hosted in a data centre in Malaysia may not be secure and also to foster better working relationship between relevant agencies and data service investors, which eventually should add more economic value to Malaysia.

Basically, what's in store for DC in Malaysia this year including working on a government to government level (as recently achieved in the security sector)?

Our focus for 2017 and beyond is to continue promoting Malaysia as a preferred Data Centre location and developing the local industry. Initiatives have been put in place to attract more players in the areas of cloud platform and data centre services. We will also be conducting several initiatives to entice more local and foreign companies to set-up data centres and provision high value services in Malaysia for both domestic and regional markets.

At present, there are no existing or planned bilateral ties as the cloud and DC industry is very much private sector driven.  Having said that, Malaysia is always open to working together with our neighbouring countries to promote a more competitive regional presence for the cloud and DC industry.

What impact will the current environment (global and domestic) have on the DC hub vision?

With the Internet having become embedded in our daily lives and to accommodate the perpetual rise of data traffic, the huge potential of the data centre is undeniable as there will be an increasing need for more efficient and high value-added data centre services.

As seen from Technavio's Global Data Centre Market 2016-2020 report, the global data centre industry is predicted to achieve a compounded annual growth rate (CAGR) of close to 11 percent by 2020.

This prediction is mainly due to the rise in digitalisation and cloud computing which continues to spur the growth of the data centre industry.

The report also pinpoints the Asia Pacific (APAC) region as the fastest-growing region in the industry with much of the region's growth being attributed to the increase in data centre construction by local and global enterprises.

It is projected that the APAC region on its own will contribute significantly to the data centre industry by 2020 and is predicted to register a CAGR of 13 percent. Closer to home, the potential of the data centre industry is also evident.

In the last five years, the Malaysian Cloud Services and Data Centre industry has recorded a 20 percent year-on-year growth. In addition, based on reports by the Malaysia Internet Exchange (MyIX), Internet traffic in the country is still on a rapid rise. In August 2016, Malaysia recorded the highest Internet traffic in history, with a CAGR of close to 57 percent since 2012.

Can you talk about some of the other challenges to building the DC hub in Malaysia?

Connectivity needs to improve in terms of affordability and diversity to encourage bigger and faster data flows in and out of Malaysia. Connectivity is key to having a thriving and competitive digital economy as new technologies like IoT and Big Data are critically dependent on connectivity to work and enable concepts such as Industry 4.0 and smart cities.

Malaysia has been facing challenges in both domestic and international connectivity which has led to relatively higher bandwidth costs. A 2015 IDC study revealed that data centres in Malaysia spend between 20-25 percent of their operational cost on connectivity, compared with less than 5 percent in other countries within the region.

With the implementation of new submarine cables last year, the international component of connectivity is in the process of being addressed. However, the domestic aspect also needs to be enhanced as well.

How has MDEC been tackling these connectivity issues?

MDEC has been looking at ways to facilitate the effort in addressing the cost of connectivity for customers of local data centre service providers, which we believe is necessary to help create a more competitive ecosystem that will attract investors to use Malaysia as a base to serve the region.

Related to that, MDEC is piloting the Inter-Data Centre (Inter-DC) Network to improve connectivity and reduce bandwidth costs in Cyberjaya. It connects five major data centres currently clustered in Cyberjaya to facilitate the aggregation of data centre bandwidth, cost savings through the dark fibre model, enablement of new data centre services as well as creation of a data centre hub.

Key benefits of the Inter-DC Network that we want to realise once it is fully implemented by the participating data centre service providers include:

- Diversity of high capacity, connectivity to multiple data centres that the Cloud infrastructure depends on
- More flexibility and greater choice for Disaster Recovery (DR) sites and the enablement of high speed site-to-site replication and back-up
- Lower cost of server hosting bandwidth. Aggregating of traffic drastically reduces bandwidth cost through bulk purchase - 10Gbps is 4x cheaper than 1Gbps on a per megabit basis
- Improved resiliency and distributed resources important for enabling more enhanced cloud services

What other important drivers are there for data centre location?

Another important criteria for determining a data services location is energy. Energy comprises of about 40 percent of the operational cost of a data centre and with the rising cost of resources, the energy prices in Malaysia is increasing. 

MDEC works closely with the industry players, organisations such as the Malaysian Data Centre Alliance to understand their needs and requirements in addressing the rising cost of energy. Through various initiatives such as forums, workshops, we hope to help the data services industry continue developing and positioning Malaysia as a data centre services hub.

 Furthermore, MDEC is engaging the Ministry of Energy, Green Technology and Water, Malaysia, Energy Commission and Tenaga Nasional Berhad with the aim of effectively communicating the needs of the industry. We have also been talking to regional and global players to understand the future trends in addition to having conducted preliminary feasibility study on cogeneration (Combined Heat and Power or CHP) as a more efficient energy source.  Apart from cogeneration, we are also keeping abreast with the development of other options including renewable energy and best practices/standards for energy efficiency in tropical countries.  

Addressing connectivity costs, energy sustainability and data governance framework will certainly put Malaysia in a better position, given that we have basically managed to address most of the other critical factors that influence data centre and cloud investments, namely availability of land, ease of doing business, water supply, geographical stability and friendly investment climate.

How realistic is the DC vision given today's global operating environment?

Given the current trends, there are actually tremendous opportunities for Malaysia to become a world-class data centre hub, for local and foreign companies to serve their markets within the region.

Malaysia offers a number of advantages that are critical to data centre and cloud investments due to our geologically secure location that is free from natural disasters, high energy security due to the country's oil and gas reserves, the abundance of land and water supply as well as our ready-to-use physical infrastructure.

Malaysia's attractiveness as a data centre hub is further reflected through the country's strong position in Cushman and Wakefield's Data Centre Risk Index 2016 report where Malaysia ranks 6th in the APAC region, only behind Singapore, South Korea, Hong Kong, Japan, and Australia; and ahead of Thailand, Indonesia, China and India.

In addition, the Government of Malaysia is a strong supporter in the growth of the data centre industry and this is evident through the Government's investments in data centre and cloud services via MDEC's data centre industry development programmes.

However, more does need to be done to improve Malaysia's standing and capabilities: Two key challenges that must be addressed are the cost and diversity of high speed connectivity as well as the perception that Malaysia's regime (policies, legislation, regulations and practices) for data governance is not conducive to cloud and data centre investments. Another emerging challenge is the rising cost of energy which will be addressed in terms of competitive tariff as well as efficient generation and use of electricity.

MDEC's engagements with the telecommunications industry to introduce data centre-specific packages to mitigate the challenge of cost and diversity of high-speed connectivity have yet to bring about major changes for the industry. One of the key issues is the challenges of the telecommunications industry to create a market for dark fibre.

Can you talk a little more about "dark fibre"?

"Dark fibre" is a model where physical optical fibres are leased to customers to deploy as they see fit. Instead, the telecommunications industry prefers the existing bandwidth services model where margins are far greater.

In analogy, the "dark fibre" model is like a hire-purchase of a vehicle and is CAPEX based, whereas the bandwidth services model is very much like a taxi service model and is OPEX based. The availability of "dark fibre" is one of the critical requirements of all the leading cloud and DC operators who require terabits of bandwidth which isn't economically feasible when buying bandwidth on an OPEX basis.

Malaysia will need to look at adding value to our infrastructure and adopting pro-competitive policies for connectivity and continue to drive bandwidth costs down while ensuring we do not lose our competitive edge in areas where we meet the criteria for data centre and cloud investments.

To end, what other ways is MDEC exploring to being investors here?

To improve perceptions, MDEC will continue rolling-out several communication initiatives to highlight Malaysia's strengths in the data centre industry and to ultimately attract more investors to the data centre space in the country.

With the global trend of cloud adoption continuing to accelerate, Malaysia's data centre industry will find itself at cross-roads. The traditional data centre industry is very much engineering based where the competitive edge comes from efficient management of power and cooling, reliability and security.

The cloud, on the other hand, is very much an IT oriented business and competitive edge comes from huge scale, innovative software and agility built on top of the DC engineering as a baseline foundation.

MDEC sees the way forward is for the DC industry to form strategic partnerships with cloud players to fill the gap in the ecosystem and at the same time enable themselves to grow.

MDEC is continuing to engage with many cloud and DC players to develop the industry in Malaysia and we will announce the relevant initiatives once we have firmed up those plans.

The first version of this article appeared on Computerworld Malaysia 13 February 2017.In addition, an inaugural gathering to discuss Managed Services is planned later this year.