Last month we sat down with Senior Analyst Jon Hjembo to talk about all things colocation. Today we’re sharing a bonus question from that interview about key trends in colo pricing.
Can you tell us a bit about key pricing trends in the colocation market right now?
Jon Hjembo: Sure. By and large we see some really predictable trends in pricing. There are some interesting subtleties to it once you break it down on a market by market level or an operator by operator level.
If we look at retail pricing, our standard scenario is looking at a two-year lease for a 4 kw density cabinet. In that scenario, you’ll expect to pay about 20 percent higher rates in European markets than in North American markets. Of course, it varies by operator.
On the North American side, you’re going to pay more for cross connects. More like five times the price you would pay in Europe. So our median rate for a fiber cross connect in the U.S. is about $300/month. It’s only about $60 in Europe.
Those are the most basic trends.
Within markets there can be a wide range of actual prices; you can always expect to pay major premiums in a prime ecosystem. When I say “prime ecosystem” I’m not talking about facility specs. What drives this is being in the place where you can meet the right partners and you can peer with the right people.
Once you’ve built up a prime ecosystem, that momentum builds and keeps going.
Once you’ve built up a prime ecosystem, that momentum builds and keeps going. People are willing to pay a premium to get to the networks you have in your building or within a given metro area. So prices will vary a lot within markets.
We’ve started tracking high-density cabinet pricing and larger scale retail pricing. That’s been interesting. On the high-density side, what was a little bit surprising to me was that you will generally pay less per kw for a high-density cabinet—like a 10 kw cabinet—versus a 4 kw cabinet. Maybe about 10 percent less per kw, but it depends on the relative scarcity of space and power within a given facility.
If an operator has reserved a certain section for high-density service, and that’s filling up really quickly, they very well may charge a premium per kw for that space. And vice versa. If your facility is filling up quickly, you’re probably going to incentivize people to consolidate and move into a high-density space, in which case you’re going to pay less per kw. So that varies a little bit.
On the large scale side, the discounts are a lot more predictable. If you’re going from a standard cabinet to a lease of about 100 kws, you’re generally looking for a pretty big break in the price per kw. About 20 percent across the markets that we’re tracking.
If your facility is filling up quickly, you’re probably going to incentivize people to consolidate and move into a high-density space, in which case you’re going to pay less per kw.
I think the one last thing that I’d note about colo pricing is how important it is to consider your total cost of operations (TCO) when you’re looking at price comparisons. When you put everything together the cabinet lease itself and the number of cross connects you need—the variants can get really interesting.
For example, we had said European base rental rates were higher than North American rates, but the cross connect prices are a lot cheaper. In North America your TCO is going to soar the more cross connects you need. If you needed five fiber cross connects for a standard cabinet, those five cross connects are going to account for more than 50 percent of your total cost for that cabinet. Whereas in Europe they’d only account for about 20 percent of your total cost. Things like that become important to consider when you’re deciding where to do your colocation.
Jonathan Hjembo heads TeleGeography's data center research, focusing on both capacity development and pricing for key markets. He also specializes in research on international transport and internet capacity development, with a particular focus on Eastern Europe. He maintains the dataset for internetexchangemap.com and has increasingly worked with key members of the IX community in exploring the intersection of network, colocation, and peering.