Since acquiring the data centre  in 2007 4D have undertaken a programme of significant upgrades including the most recent improvement of full cold-aisle containment which has had a significant effect on their operational efficiency as well as allowing higher power per cabinet densities with 16Amps per  cabinet now possible.  Furthermore, connectivity options continue to improve and the facility is a significant local bandwidth hub with BT, Cable and Wireless, Global Crossing and VirginMedia already onsite whilst both Geo and Easynet are also expected to arrive in due course.  Some 40Gbs of connectivity is now available connecting directly back to two Docklands based colocation facilities and thus bandwidth pricing is on a par with the ultra competitive Docklands market.  This network means 4D Byfleet is ideally suited to clients looking for a diverse data centre location for redundancy to any central London location. 

At present 4D cater for just over 100 colocation clients, ranging from the smallest of 1U (rack unit) up to several cabinets worth of equipment and quite a large portion of these are locally based IT suppliers, systems integrators and web developers.  Looking forward, further capacity expansion is planned with a power upgrade allowing 4D to provide another bank of 40 cabs on the main data floor and 80 in the area currently housing their offices, with this accommodation moving upstairs in the building.  Thus certainly no immediate capacity constraints look likely for the near future. 

Colo-X Analysis:   4D Byfleet offers a well thought through and very well connected locally based colocation option for the mid-Surrey market which is made all the more attractive by pricing that looks great value compared to the central London market.  Furthermore 4D is a dedicated and enthusiastic team offers the sort of client support (including 24�7 onsite assistance) that you’d expect from a small and fast growing service provider.

Colo-X comment:  Direct access to these systems will be a boost to Equinix as they aim to establish enough connectivity options in their Slough colocation facilities to compete against the established London network hub in the Docklands area and in particular with Telehouse.  It will also boost their strategic importance to the financial trading community by reducing latency times between London and the US markets.  For example Equinix LD4 in Slough has been home to Chi-X, one of the leading exchange platforms rivalling the London Stock Exchange since late 2008.

Certainly corporate activity in the technology sector in general has recently been given a significant boost following last week’s agreed £2bn takeover of Dimension Data by NTT at a 20% premium to the prevailing share price prior to the announcement.  Dimension Data provides networking solutions for corporate LANs and WANs.

At 432p a share Telecity is valued at just over £800m, whilst at $82 per share Equinix is valued at US$3.2bn, or just over £2bn.

What are the implications should a deal arise?

Whilst this is still early speculation it might be worth pondering the implications for the industry; certainly if the stock market truly believed a genuine bid was under discussion the Telecity share price would be quite a bit closer to the suggested 500p takeover price. Conversely though there may also be greater concern here in Europe that the relevant competition authorities might take a firmer position than those in the US took when reviewing the Equinix/Switch and Data deal and if so, this would make a deal much less likely to be allowed through and hence a larger discount to the rumoured offer price might be justified.  Indeed a deal might only be possible at the cost of some of the assets being sold in markets where the combined company were felt to have too high a market share and London would be prime example as such.   Competition issues would certainly be less of an issue for KDDI though with this combination the concerns would be the effect a carrier owner would have on Telecity’s carrier neutrality, but these worries would be easily dismissed considering how well Telehouse has progressed under KDDI’s ownership to date and certainly Telehouse’s neutrality is never questioned.

However, ignoring the details(!), the key attraction for Equinix of acquiring Telecity would be to access the customer base (remember, about two thirds of these companies’ growth comes from existing customers) and don’t forget our recent note about Telecity’s high customer count.  Indeed we have long felt that in acquiring IXEurope Equinix had in fact acquired the wrong operator in Europe as we felt Telecity’s significantly higher customer count offered far greater upside for Equinix’s cross-connect model than IXEurope did as IXE had typically sold quite large deals to fewer clients, with probably their Zurich facility as the exception to this generalisation.  The second attraction for Equinix would be able to rapidly expand into new markets where Telecity is already established and these would be Stockholm, Milan and tentatively in Dublin and Manchester, though on this basis perhaps Interxion, who themselves are planning a US listing later this year, might be the better fit as they would offer more new markets for Equinix, being Madrid, Stockholm, Copenhagen, Brussels and Vienna.

Whatever the outcome of the Telecity speculation we continue to believe that the sector will see enhanced corporate activity levels going forward.  For example, there are three companies planning US listings later this year, Interxion, Telx and real estate operator Coresite and the management at these companies may well look to use either the effective “currency” listed paper will give them or cash raised to acquire businesses or assets to accelerate their growth plans rather than self build. 

Colocation buyers may not be directly affected by all this activity but it is definitely worth being aware of and certainly if consolidation led to a domineering market position by any one operator it could not be considered a healthy market position.  Ironically perhaps the bigger operators need the new entrants to help address this risk.

Tim Anker, The Colocation Exchange, July 2010

VMware bought 5% of Terremark in May 2009 for $20m.  Year end March 2010 revenues were $292m, up 17% year on year.

1. New entrants are growing, in their number, in the locations they are offering and their overall size (60,000 sq ft gross in one of these mentioned below).
2. The amount of colocation space outside central London is going to overtake that inside the London area, so marking a turning point from the Docklands centric nature of the industry to date.

Overall, the amount of data centre capacity available from new entrants in the UK market is still quite low, but as a proportion of AVAILABLE capacity it is much higher, perhaps 30-40% and we continue to believe it will increase.   Of course we monitor new entrants and their facilities closely and visit as many as we can to ensure our buy-side clients are kept fully abreast of their quality, readiness and suitability, thus ensuring our market knowledge is as up to date as possible.  Indeed we have already closed several transactions with many of them. Summary of recent announcements:

Norwich – Migration Solutions have announced they are retrofitting an existing 60,000 sq ft data centre which we understand will become a carrier neutral colocation facility operated by an as yet unnamed new entrant into the UK market. We believe the “major insurance player” referenced in the Migration Solutions press release to be Avivia, who were formerly Norwich Union prior to their merger with Commercial Union in 2000.  The facility will offer 30 to 35,000 sq ft of net tech at up to 32Amps per cabinet.

Virtus Enfield– The first hall has been sold to Coreix, so this site is now definitely happening, expected go live in Q1 2011.  5 further halls remaining.

The Virtus model is a hybrid version of a typical real estate solution with each client having dedicated plant and the standard colocation model where all clients share the same common infrastructure.  With Virtus, the HV switchgear and generator plant is shared but thereafter each client does have their own dedicated UPS and PDUs.  The Virtus Enfield facility can offer 27,000 sq ft of net tech across 5 remaining halls.