DATA CENTRES Can India Be a Global Player?

The growth of the Internet has caused an exponential increase

in the amount of data that is processed and transacted. With every company

wanting to provide its services online, corporate data storage networks have

failed to keep pace. This has given rise to data centres/server farms that carry

out hosting of large volumes of corporate data along with providing

functionality like data mining, data warehousing, etc. This phenomenon is

combining with whole range of IT-Enabled Services (ITES) like ASP, call centre,

network management, which thrive on low cost, high reliability telecom services,

and adequate trained manpower, to provide complete business solutions.

The Evolution

The 1990s saw the development of telecom networks/Internet

leading to the emergence of services that could be delivered across geographies.

The first offshoot of this was visible in the software services industry with

companies like Infosys and Wipro developing "global business models"

(off-site/onshore) wherein software for use in America could be developed in low

cost locations in India. This paradigm has further expanded to include entire

databases and database applications that can be maintained at low cost in

offshore locations.

As companies all over the world focus on core competencies

and reducing cost, processes which were earlier considered core activities, are

increasingly being outsourced. Thus organizations have started hiving out

activities that add less value but require high resources. Examples include back

office operations, payroll accounting, customer relations, human resources, etc.

For example, consider the case of the typical operation of an airline. They have

large customer interaction for ticket booking, cancellation, status checking,

etc. Further the volume of data is continuously expanding to support newer

applications like net booking. Thus, the airline has to invest huge resources to

maintain up to date computer systems for customer databases, although this is

not its core activity. Now, with data centres, these resources of the airline

could be saved by outsourcing this activity and at the same time the airline can

save on running cost as data centres enjoy lower cost of operations. The data

centre, on the other hand, also benefits by servicing multiple clients. Thus,

this becomes a win-win situation for the client as well as the data centre.

The economic rationale giving rise to a huge IT-enabled data

centres market worldwide is the expected surge in data with emergence of broad

band networks. Thus, content providers like dot.com companies will have to

increase storage requirements in the future. Companies have realized that a

specialist in the field can do this task more efficiently. This specialist in

turn can further reduce cost by carrying out operations from a low cost country

like India if they can ensure reliable service of global standards. Business

solutions like Application Service Providers (ASPs) further reinforce the model

that corporate data need not be physically located at onsite corporate premises.

In other words, such a centre could be realized simply as an offshore extension

of existing information and back-office operations promising constant

availability.

In India, dot.com companies and portals serving the Indian

market are currently being hosted from servers based in the US. The number of

such portals is presently around 50,000. With infrastructural bottlenecks being

overcome they are expected to relocate to data centres based in India. This will

not only ensure better scale of economy, but also improve the quality of

Internet experience for the Indian audience.

Human capital being a major input, data centres require a

large workforce to carry out data querying and database maintenance activities.

The presence of a huge technically skilled workforce in India has thus fuelled

interest in this area. The good reputation that India enjoys in the software

field is an added advantage.

Data Centre Operations

Modern data centres are characterized foremost by the size of

their operations. A financially viable data centre could contain from a hundred

to several thousand servers. This would require a minimum area of around 50,000

to 300,000 sq. feet. Apart from this, the physical structures containing data

centres should be able to withstand the sheer weight of the servers to be

installed inside. Thus, there is a need for high quality construction.

Another issue critical to data centres is the need to ensure

maximum data security and 100 percent availability. Data centres have to be

protected against intruders by controlling access to the facility and video

surveillance. They should have the capability to withstand calamities like fire,

power failures, etc. Recovery sites have to be maintained where everything in

the data centre is replicated for failure recovery.

In order to ensure 24X7 availability, companies have to

ensure high bandwidth, low down time telecommunication links. To ensure non-stop

availability, the data centre could run on NT servers, Unix machines, or

high-end non-stop servers with Storage Area Networks (SANs) for outside server

storage. Adequate redundancy has to be built into the entire system for reliable

operations. This is easier said than done due to the paucity of bandwidth and

high down time prevalent in the present telecom networks. It is expected that

data centres operating in India would lease IPLC lines as VSNL does not

currently ensure adequate bandwidth and low down times required for data centres.

Corporates can either host their own servers within data

centres, host on servers maintained by the data centre or share servers with

other corporates depending on their data requirements. Thus there is adequate

flexibility for corporates of all sizes. Large corporates can have their own

data centres, middle sized corporates can host their own servers, and small

corporates can share server space with other corporates.

Areas of Concern

As indicated in the NASSCOM study, potential areas of concern

for India include lack of strong, reliable infrastructure and a high cost base.

This is particularly critical in areas like telecom with problems like

inadequate bandwidth and high cost of bandwidth. The bandwidth charges in US are

one twentieth of those in India. The Government has tried to increase

availability of bandwidth and reduce cost by having a liberal policy for private

players. VSNL, the monopoly international carrier has also leased additional

bandwidth to meet demand.

In order to secure international clients, Indian companies

also have to convince them about their ability to maintain the highest standards

of security and data recovery for the data centres. This could be difficult with

India’s traditional perception as a high-risk destination. However, India’s

strength in software is changing these perceptions and could provide it with an

advantage over other developing countries.

A potential threat to the data centre industry is a potential

shortage of manpower if user industries like call centres/ASPs suddenly

experience huge growth. Other concerns arising from this include potential

reduction in quality of service due to lack of skilled professionals. This could

cause long-term damage to the reputation of the industry internationally and

help



competitors.

Another area of concern is the lack of a well-developed local

industry for data centres. This is essential as they could provide valuable

experience for entry into international operations. This could provide prior

on-the-job training for professionals equipping them for providing international

standards in services.

Although efforts are being made to solve these problems,

these crucial areas require more concerted effort if India has to capture a

significant chunk of the data centres market.

Government Incentives

Hi-Tech Habitats for ITES: The National Taskforce on IT and

Software Development has recommended Hi-Tech Habitats where supportive

infrastructure for proliferation of ITES would be made available. The Government

will promote these habitats in the rural hinterland adjacent to suitable cities.

Initially, five are planned in the rural hinterland of Bangalore, Goa, Calcutta,

Ahmedabad, Thiruvananthapuram, Chandigarh, Chennai, Hyderabad, Delhi, and

Bhubaneshwar. It is estimated that progressively 50 such Hi-Tech Habitats can be

viably set up by empowering the states to take the initiative.

Tax benefits for ITES through Section 80HHE: The Government

has moved rather proactively on this front and has already made an important

amendment in tax laws to benefit companies providing some of these services.

Accordingly, profits derived from exports of these qualify for Income Tax

exemption.

Telecom Infrastructure: The Government has recently released

first set of terms and conditions that are broad based and are aimed at

liberalizing the data centre operations in India. The international data centres

will be permitted on IPLCs only and will cater to calls from foreign-end PSTN.

However, no PSTN connectivity will be permitted at Indian-end. On Indian-end,

even linking to any private or public network is not permitted for the IPLC,

even if it is of the same organization. However, no other interconnectivity,

except as permitted as above, with any public or private network, is permitted

to the data centre set up.

Venture Capital: Financial boutiques and funding agencies are

taking a proactive view of potential offered by this industry. Large number of

VC companies are funding companies in areas of call centres and back-office

operations.

Initiatives from the States

Realizing the employment potential, states are vying with

each other for wooing large companies to set up ITES units in their states.

• Karnataka, Tamil
  
  Nadu, Maha-rashtra, Rajasthan, Goa, Gujarat, and Orissa have announced
  
  special and attractive initiatives. For instance, Karnataka is developing
  
  "Grameen Data Processing Centres" around Bangalore in places such
  
  as Mysore.

• States like
  
  Himachal Pradesh, Delhi, and Uttar Pradesh are in the process of announcing
  
  special policies.

Deployment Status

The data centre industry in India is still at a very nascent

stage. As of now, a few international companies like Intel, IBM, and Enron are

in the process of setting up data centres for their international operations. A

few Indian companies like Satyam Infoway and Mantra Online are doing the same,

taking up outsourced operations for international clients. However, this sector

is expected to boom, given the competitive advantage enjoyed by India. Already,

investments to the tune of Rs 400-500 crore have been estimated in the next 2-3

years with each operator investing about Rs 20-30 crore. It is expected that 10

large data centres will be operational by the end of this year.

Enron is setting up international data centres in Mumbai, New

Delhi, Bangalore, Hyderabad, and New Delhi. Its first 100,000 sq. feet data

centre (the largest in the country) is expected to be operational by end 2000 in

Mumbai. It has already tied up with Pugmarks (India’s largest domain-based web

hosting company) to obtain clientele. Pugmarks currently services its clients

from a data centre run by Exodus Inc. in Chicago.

Other international players have tied up with local players

to set up operations. For example, Compaq has tied up with TCG Software Services

(The Chatterjee Group), Exodus with Netmagic (backed by Venture Capital investor

Kanwal Rekhi) and Intec group has tied up with domestic software companies in

Hyderabad, Mumbai, and Delhi. Large domestic companies like Mantra Online,

Reliance, Satyam Infoway, and Global Electronic Commerce have also started

building large data centres.

The data centre market for domestic companies has not yet

developed because of comparatively little awareness among local players regarding the benefits of maintaining such huge databases and lack

of enough initiatives from the Government.

After dot.com companies, the financial services/banking industry is expected to

be among the first to set up data centres as most of the ground-work is already

present (i.e. computerized operations and databases). For example, some private

banks like UTI Bank are already in the process of setting data centres for

effective "Universal Banking". Sectors with comparatively less

computerization currently are expected to take more time. A few corporate houses

like the Tatas, Hero group, etc., have announced intentions to set up call

centres running on centralized databases for their domestic operations.

The global market for external storage is expected to be $40

billion in 2002. As per a NASSCOM survey, data storage services in India as of

now provide about Rs 70 crore in revenues. However, they are expected to

generate nearly Rs 6500 crore in 2008.

Other studies on the growth of IT industry also show that

ITES and software services as a whole are expected to grow significantly. It can

reasonably be expected that data centres could piggy-back on the growth of these

industries, as well as form the backbone infrastructure for dot.com enterprises,

ISPs, etc.

Here, it may be worthwhile to note that most of the ITES,

including call centres and ASPs, etc., would require data centres for data

hosting/data warehousing. These revenues are in addition to pure data centre

revenues.

Given India’s strength in managing outsourcing of software

services, the progression to managing outsourced data networks could have been

considered a natural phenomenon. However, this was so far prevented by poor

telecom infrastructure, infrastructural bottlenecks and lack of experience in

managing large data networks. But the last few months have seen a lot of

activity to overcome these shortcomings.

The article is written under the guidance of Professor V Sridhar, by Shailesh

Ishwar Mamnani, Sreeram L, and Sridhar S, all second year students at IIM

Lucknow.