… Proffers Steps To Achieving Global Standard
For over 20 years Medallion has been contributing to the digital ecosystem in Nigeria through it various classes of services. Medallion, now trading as Digital Realty Nigeria, has been promoting local content, broadband penetration, interconnect switching and hosting of contents through its carrier-neutral Data Center operation across various cities in Nigeria
The company’s datacenters are today the most connected facilities in West Africa. It is the region’s number one peering point connecting the sub-region to the rest of the world. Over 70% of all internet traffic exchanged at the Nigeria Internet Exchange takes place at Medallion’s datacenters. No other facility has the same number and concentration of operational International Submarine Fiber Operators (Mainone, Glo1, SAT3, WACs, ACE, Equano, etc); Digital Mobile Service Providers (MTN, Airtel, Glo, 9Mobile); LTE Service Providers (Smile, Ntel, Mafab etc); Long Distance Operators (Phase3, Multilinks-Telkom, MTN, Airtel, Globacom, etc); Metro Fiber Operators (Broadbase, 21st Century, VDT, IPNX, Suburban, etc); Critical National Contents Infrastructure (Nigeria Internet Exchange, Nigeria Internet Registration Agency, NCC CSIRT, NgREN, etc); OTT Service Providers (Google, Facebook, etc); VAS Providers (BrainShare, Platinum Index, Cedarview, Interra, etc); ISPs (Netcom Africa, Internet Solution, Vodacom, Layer3, etc). Medallion ensures seamless interconnectivity and peering amongst these service providers.
With so much more in the works for Nigeria, Digital Realty is set to leave huge footprints in the cloud- and carrier-neutral data centers, colocation and interconnection solutions services, that will be difficult to match.
In this interview with E-Business Life Editor, CHIDIEBERE NWANKWO, the Chief Executive Officer, Digital Realty Nigeria, Engineer IKECHUKWU NNAMANI, talks about the company’s plans and programmes; the nations telecom policies and repositioning Nigeria to a truly digital economy and the opportunities inherent in the country’s tech space.
Medallion Data Center Amongst Competition
I think the key point here is that we started early to identify that this is a class of service that is needed in the telecom and ICT ecosystem.
Remember in the old Medallion, we were the pioneers in the carrier-neutral interconnect voice switching before data came, which was what we started with as far back as 2004. We did not just play a role in the creation of the Interconnect Exchange licence, but we were one of the first licencees. So, from a very early stage, we had identified the need for infrastructure sharing, whether it is passive or active infrastructure sharing. That creates a marketplace, where companies can not only exchange services, but more importantly, it also drives down the overall cost for each of the participants, because now you are all sharing a common infrastructure so each is paying a little bit to make up for the overall cost versus each carrying the same cost on their own.
So we have seen it from a cost-effective service delivery, as well as a more efficient service delivery standpoint. That was why we took time to start building the platform and infrastructure to make this happen on a large scale, which ultimately led to the creation of our first Data Center, the LOS1, at Saka Tinubu, Lagos.
So, there was that foresight but it did not kick off as fast as I expected, I thought the market would have seen the need for this kind of services and embraced it much faster or earlier than they did. But eventually, the need was too overwhelming that today we see that people have come to understand that this is needed. We are even at the infancy state because there are still several layers of this that is not being done yet. The country cannot get to a full digital economy status until some of these building blocks are in place. In Lagos, for instance, there is a lot of progress in the build-out of this infrastructure, but you hardly see much in every other State. So there is still a lot of work that still need to be done. There are still some cross-city services that still needs to be offered for the overall growth of the economy and social wellbeing of the people that the infrastructure still does not exist.
As technology is advancing, as service delivery is advancing, we are beginning to see the need for more of these infrastructure developments. So, it still requires a lot of people with foresight going to put down these infrastructures; definitely requires a lot of investments, so there must be people that believe in the business case, that want to put money there. And then, of course, from the government side, it requires a lot of support. Not just from regulation as a means to extracting income to the regulators, but regulation as catalyst of growth for that industry. Luckily we have very good regulators in Nigeria who understand this part of the telecom and ICT industry, so they are as supportive as can be, but we still need a lot more support. All these must come together for us to see a fully digital economy, which I believe is the goal of everybody.
Company Data Center VS Commercial Carrier-Neutral Data Center
It is always going to be like that. Globally, it is like that, it is not unique to Nigeria. Let me give you an example, the biggest Data Centers providers globally, are not Data Center companies as we know them. If you look at Microsoft, nobody will tell you Microsoft is a Data Center company, but they have the biggest Data Centers. If you look at Amazon, if you look at Google, if you look at Meta, there are so many of them. But each of these entities I just mentioned, despite having the biggest Data Centers globally, they also are the biggest customers to the Carrier-Neutral Data Centers. So, there is a role and a place for different ones. But it depends on what you are putting there. There are some devices and services that a telco needs to run, that is internal to its network, that it will prefer to put in its own Data Center. There are also services, especially services that require multi-operators’ hand-shaking that you can’t do on your own. You need to go to a neutral place, a marketplace where you meet other operators like yourself. So, there are various categories of Data Center and the different roles they play. But to assume that an operator will not have its own Data Center is not the global standard of practice. And I, personally, wouldn’t expect that. Now it is a different ball game if a telecom operators start to operate a Data Center commercially as a business, beyond what they need in-house for their own services. That is when you start wondering, do they have the expertise? Is it a business they should be doing? Remember, if you take the case of the cell site towers, there was a time the operators were building and owning everything. After some time, nobody told them that it is not a core part of their business. So, eventually, they outsourced it all and reached a managed services agreement with companies that do it as their core. There was also a time when some of the telcos were talking about outsourcing some of their data centers. So, these things will keep evolving, but the key point we need to understand is that there are different classes and categories of these kinds of infrastructure, and they play different roles. Sometimes based on the content, a telco may prefer to handle certain traffic at their facility. And there are other data types that is only logical and reasonable that they can only be offered efficiently if they are in a Carrier-Neutral third-party facility. So it is not unique to Nigeria if you see telcos also owning datacenters. As I said, the companies that have the biggest and largest Data Centers are not Data Center companies. If you check the capacity of a Microsoft, Amazon, Google, Meta, and the rest, they are even bigger and larger than global Data Center companies like Digital Realty and Equinix.
Redundancy in Data Centers in Nigeria
Some reports that were published some years back indicated that Nigeria, as at now, should have at least 600 megawatts of IT load, given the size of our economy, population, GDP, and what it should be if we are a truly digital economy. Today we have about 30 megawatts IT load. So, you can see the percentage of what we have, compared to what we need to have. That is even in terms of the size of IT load which is a metric we use. Now in terms of quantity of datacenters we are also far below what is expected. For instance, if you go to a city like Toronto, last time I checked there were over 30 Data Centers in that city alone. It is just like saying, if you go to Victoria Island in Lagos and there are over 30 data centers there. So you start asking yourself, how many Data Centers do we have in Nigeria as a whole? Similar thing, if you go to South Africa, one of the Data Centers owned by Teraco, a Digital Realty company, is bigger in capacity than all the Data Centers in Nigeria combined, and that is not the only Data Center they have.
The reality is that we have not started. We are not even anywhere close to starting, if we really understand what needs to be done to have a truly digital economy.
Now in terms of use cases that will require deployment of data centers, two things are happening in parallel, the use cases are becoming available. It is amazing that Nigeria has a population of more than 200 million people that potentially could use digital services in the country, now the question is how come we are so far behind a country like South Africa that is probably one-third of our population. The answer is that for a long time they have already digitized their economy. Now Nigeria just started, it is still a work in progress. In my estimation it will still take 3 to 5 years for us to start getting to a good position in our digital economy services and infrastructure availability. So, we still have some distance to go.
With respect to investment into the data center space in Nigeria, where what you are saying with respect to lack of investment sources becomes applicable is when potential investors don’t understand the dynamics of the data center construction industry. Some may confuse it with traditional services supply to a telco where a contractor is issued a Purchase Order to supply an item and fully paid after the item is supplied. Data Center business is one of those long-term investments. To start with, it takes you at least two years to build a very good facility. You are investing money and no single income is coming. So you can clearly see that it is not the kind of business that people that don’t have access to long term fund and very cheap fund should go into. Let’s say you take a short term facility at a high interest rate, by the time it becomes due, you have not even generated a single income from the facility, because it’s just the building that is there. So, it makes it very important that whoever decides to go into this subsector of the ICT space, they understand that this is a capital intensive and a long term goal.
Now the good thing about data center investment in Nigeria is that all the metrics points towards a very good situation for Nigeria. We know the latent demand is there, sometimes it just needs to be woken up. We also know that all the metrics that are meant to make this a success are also available for a country like Nigeria. So, it’s just a matter of time before these things will start changing.
It will surprise you to know that if we have these facilities here, the biggest customers will not be Nigerian customers. They are going to be foreign customers that need to be closer to the Nigeria subscriber base. So they put their server here locally because of issues about latency, data sovereignty, issues about better quality of service delivery to customers.
It has multiple layers of advantage. 1. If these companies are coming and they pay in foreign currency, it helps to stabilize the local currency. 2. These are the customers that do big capacity, from one big customer, you can sell 3 to 5 megawatts capacity. And that totally changes the game compared to what we are doing at the moment in the country. But it takes time, it takes investment. They won’t come until they see that the facility is there. They come, inspect it, confirm that it is the same quality and service level compared to what they will get in any other Data Center of global standard in any part of the world. So that is the reality of it. It is not a business that everybody should go into, if you ask me. If not, some people will get into serious financial distress because of the nature of the business. But it is one that, if everything lines up, is a very good business.
Achieving National Spread in Data Centers
The truth of the matter is that for the cost to build and operate the facilities the location of the datacenter to achieve maximum returns is very important. A parallel example is telephony, where we talk of rural areas and urban areas. Some people were complaining, why the operators focus on the urban areas and not the rural areas where people also need telephony services. Affordability becomes an issue; efficiency of service delivery becomes an issue. Let me give an example. If a company has a facility in a remote location in a city, how do you ensure that that Data Center is operational and available 24 hours a day especially given the nature of electricity supply in the country today? The answer is, you might not be able to guarantee a high level of service delivery because of the localized challenges that may exist there; there are logistical challenges to supply diesel/fuel to some cell sites existing today, talk less of if you now build a modern datacenter facility in a remote city.
From a capacity standpoint it will require implementing the appropriately sized infrastructure in each location. Where you go back and say, maybe in Lagos you can build a 20 megawatts facility hyperscale. The business case for Lagos supports it. But if you are in Sokoto, what if what the environment supports is just 1 megawatt. Building 20 megawatts in Sokoto when it can only support a 1-megawatt facility will result in a failed project. This is where someone needs to know what they are doing… to know what to build and where to build it. At the end still be able to achieve the set objectives.
Artificial Intelligence in Data Center
For a Data Center operator, AI come from two standpoints. Number one is that most of the new Data Centers are being built with AI already integrated into the Data Center Management System and how it works. Data Center customers will be able to get better user experience purely because AI is being used as a service within the Data Center itself to operate the Data Center.
The second one, which is also very important is that the Data Center not only uses AI for better efficiency, but AI application companies become one of the customers for the Data Center. The capacity demand from AI customers in a datacenter is high.
See AI as something that adds value, not take away. See it as what makes work, business easier. And also cost effective.
AI Regulation and challenges
It is not peculiar to Nigeria alone. Even in Europe and North America U.S. major efforts are being made, both in their congress as well as the Executive, to understand the long-term impact of AI to ensure there is work being done on AI Safety and Best Practices. The reason for this is that some companies or individuals are only looking at AI from the revenue it adds to them, without considering any negative impact it may also have. For instance, if you introduce an AI machine into a workforce, does it suddenly eliminate the jobs of people without you even knowing that that was what has happened? One starts looking at it from an ethical standpoint. The only difference is that people developing ethical solutions for AI are few compared to people producing non-ethical solutions, but have come to take advantage and make money. So, in the U.S. and every other country, their governments are actively involved in creating the right policy, to be sure that it is not abused. But more importantly, to be sure they don’t use regulation to stifle AI growth.
The regulation side in Nigeria is a work in progress. I don’t see it is a problem or challenge because to the best on my knowledge AI has not gone too far in its adoption in Nigeria. That means our government, across all areas, need to look back and ask, is there any potential harm from this service or technology? How do we mitigate it? What do we do to stop that harm? The key point though is that AI policies and regulations should not stifle the growth of AI in the country.
Some have said AI will take jobs away, so, should we stop? Truth is that it’s not AI taking anybody’s job away, it is just a case of people needing to be re-trained and find out how to use AI for better efficiency and cost-effectiveness.
Operational Challenges and Infrastructure Issues
The truth is that doing business in Nigeria is challenging. Everybody knows that. And the biggest challenge currently facing the datacenter industry is probably FOREX. For some operators having access to FOREX is the issue. But for us that have access to FOREX through our international operations, it is how is the FOREX trending? And does it create a measure of stability for you to be able to make business projections and have a realistic business plan that will remain valid over the projected timeline.
I give you an example to portray this situation: For instance, you go to an investment team and you present a business plan, that you need money to build, maybe 1 (one) megawatt Data Center. That requires and investment of between $12M to $18M USD depending on the type and quality of data center you want to build. They grill you, ask question, and maybe finally they approve based on the business case you present. It is important to note that for a datacenter project over 90% of the expenses is in foreign currency not Naira. So, your business case will naturally be based on foreign currency and the equivalent rate in Naira is computed using the prevailing exchange rate. Hypothetically, imaging it comes down to charging your customers $500 per kW MRC equivalent to be able to break even and meet your revenue returns based on what was presented to the investors. You then send out pricing to the customers at NGN500,000 per kW MRC using the prevailing exchange rate of NGN1,000 to the USD at the time pricing is concluded with your customers. However, with the instability of the Naira exchange rate, 3 months later Naira depreciates in value from NGN1000 to NGN1200 to the USD. It means the $500 per kW revenue becomes $417 per kW. In few more months the Naira depreciates further to NGN1500 to the USD. Then the revenue changes from $500 in the business case to $333. So clearly based on depreciation of the Naira, the business case becomes inoperable and clearly not what investors want to see. This discourages needed investment if not properly managed.
Beyond challenges with exchange rate, there are operational challenges with electricity supply, extremely high inflation, multiple taxation, amongst others.
From the infrastructure vandalism side, it remains a challenge. Several times in a month, you get fibre cut by road contractors and mischievous individuals. Nobody pays for it, but you as a business, you have to restore it for the sake of your customers. And you cannot do anything about it, because the process for you to go and get a refund will make you end up spending more money.
There are good days ahead, but the challenges are still there for now.
