> White Paper

Investing in – The Scenario, the Market and the Opportunities Sept 2017

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Contents

3 - 4 Introduction

Key current and future data center trends in India

Increased Importance of/Reliance on Data Centres

Changing Attitude Towards Risk

Resource Constraints

Navigating Choices

Fast Paced Growth

Understanding Complexities

5 - 6 Indian market by vertical

The Public Sector/Government

The Banking & Financial Services Industry + Telecoms

The Information Technology/ IT Enabled Services (IT/ITES) Sector

Retail Sector

Global companies entering the Indian market

Summary

7 : A leading data center provider in India

> White Paper | Investing in India – The Scenario, the Market and the Opportunities

Investing in India – The Scenario, the Market and the Opportunities

With a population of over 1 billion, India is clearly a market that to 1.2 billion. users were approximately 300 million in 2015 bears a close watch. The aim of this whitepaper is to provide and by 2020 it is expected to reach 650 million users, making it the reader with a starting point to understand the challenges, one of the largest Internet communities on the planet. This huge opportunities and points to cover should an organization wish to development in data consumption is resulting in a substantial offer their solutions or services in India. We will provide an overview increase in the speed and volume of data that needs to be handled on India’s data center market, the key growth drivers, and strategic by data centers. To put it in simple terms, more data will be digitally factors to consider before making an investment decision in the generated, exchanged, and stored than ever before, creating huge Indian market, that today ranks as one of the most vibrant markets opportunities and challenges for the network and data center globally. infrastructure.

Introduction India is Becoming a Digital Country Based on a number of data and research agencies, India’s rate of data center asset growth and investment is higher than for any other People Mobile Internet Smart phone major global market. This is primarily due to the huge population phone users users users and their desire to connect digitally. According to a number of industry reports, India’s data center market is expected to touch $4.5 billion by 2018. The country is poised to be the second-largest market for data centers in Asia-Pacific by 2020. Such an enormous growth rate will be driven due to increased take-up of digital technologies among consumers as well as businesses. 1,250 mn 1,000 mn 300 mn 240 mn 2015 Data Center Market Outlook 2014 - 2020 1,350 mn 1,200 mn 650 mn 520 mn 2020 200 200 200 Sources: eMarketer, Ericsson, UN estimates, BCG research 178

152 2. Changing Attitude Towards Risk 150 141 dollars)

As a result of the changing nature of applications and in line with the

trend towards digitization of business, the perception of risk in the

100 data center is changing rapidly. This increasing trend of businesses (billions

going digital combined with a huge number of connected devices

size 55 is seeing data centers as the focal point of these connections. 44

et 50 36.5 k Traditionally, the role of data centers has been to focus on risk 30 management, which is generally associated with downtime, Mar 1.93 2 4.5 7 0 system availability and application-centric breaches. While those 2014 2016 2018 2020 elements still remain a key part of any data centre practitioners risk Figures in $ billion Source: Gatner, IDC and Cyber Media Research management strategies, they now have to think of scalability and the importance of delivering key information at a quicker pace. This has seen a shift in the risk appetite of data centre practitioners, to Key current and future data center trends in India try out new technologies, new methods and innovative practices to 1. Increased Importance of/Reliance on Data Centres keep up with the rapid pace of their business. India recognizes that a very robust network and a high quality dispersed data center infrastructure is essential for the sustained 3. Resource Constraints growth of the country. Underpinning this, is mobility, as more One growing trend that has been observed is towards companies and more consumers utilize their mobile phones as the principal outsourcing their data center related applications as a way of platform for data consumption. In the last nine months the data avoiding huge investments in their physical infrastructure. There consumption in India has matured by 6x. In 2015 there were around is no longer a need for Indian companies to invest in land and 1,000 million mobile subscribers and by 2020 it is expected to reach technical infrastructure like hardware and software as there is an u

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> White Paper | Investing in India – The Scenario, the Market and the Opportunities

DCD Opinion

u increasing number of data center providers existing in the country India: The Move away from Legacy IT 2016 to 2020 (% to outsource their requirement. Along with avoiding up-front Enterprise Footprint) investment, the ability to rapidly scale resources subject to demand 100% 11% is a key reason behind outsourcing. It is difficult for any company to 21% predict their resource requirement for growth in the coming years 80% 14% to avoid falling into the trap of either over or under provisioning. 15% 18% Today, the companies are keen to partner with cloud, colo, network 60% and data center service providers based in India. The trend towards 21% using reputable outsourced service providers also avoids any kind 40% of business disruption caused when data is stored in one physical 57% location. For instance, security breaches, floods, fires and so on 20% 43% could cause an organization to lose all their data. The Indian market is thus becoming a lot wiser when it comes to data protection and 0% backup. 2016 2020 In-House Co-located Other Public cloud outsource India: Higher than Average Vulnerability to Power Problems 5. Fast Paced Growth Indian companies are growing rapidly due to huge domestic demands for services. On the other hand, this growth can create India 2016: % challenges, as the company might now have to expand its IT and Datacenter World 2016: owners, operators network capacity to meet the growing demands. For example, % Datacenter extremely when a company opens up new branches, it needs to implement owners, operators concerned about solutions that enables all its employees to seamlessly exchange data extremely increasing power concerned about costs 33.6% Black- and collaborate across geographies. A great service provider would increasing power outs and power be able to ensure that this need is catered to and the experience is costs 23.6% Black- interruption 41.4% hassle free. outs and power interruption 26.4% Increasing Proportions of Indian Companies Investing in IT upgrades, cloud and virtualisation technologies

80% 2016 2020

4. Navigating Choices 70%

There are significantly more companies offering outsourcing 80 60% Upgrades Virtualisations services in India, thereby giving organizations a lot more choices 70 50% on whom to partner with. This makes the new landscape difficult 60 to navigate and has created an opportunity for highly reputable 40% companies wishing to extend their services into India. The plethora 50

Sample 30%

of choices, suppliers’ reputations and offerings are simply too % 40 20% complex for an organization to fully grasp and understand. For 30 example, by just handing off the maintenance responsibilities, 10% the company is also far less likely to experience network outages, 20 0%

e te since data centers necessarily have redundant backup systems for r 10 a AAS IAAS tions SAAS P Users ystem a Server ftwa torage Hybrid Hybrid network access, electricity and climate control. Many data centers Priv S Servers defined utilties o S Network 0 S even have their own backup power generators, which means that Cloud models & services Applic even in the case of a local power utility outage, they remain up and running – and through no extra effort on the company’s part. But it 6. Understanding Complexities: is significant for the companies to understand the key differentiators The interrelated nature of the applications, the hardware stack, the between the service offerings and ensure it has made the right network and the physical location that reside in (data center) is choice in selecting their service provider. making it harder and harder to ‘Get it right.’ Reducing the u

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> White Paper | Investing in India – The Scenario, the Market and the Opportunities

u number of mistakes made through the right partner is becoming their various branches. This posed a big challenge to the banking increasingly important. Unfortunately, although it is important, it is sector as the vast majority of banks in India have a significant nearly impossible for an organization to get everything right in such number of branches. For example, even a smaller public sector a huge market. This, in turn, is creating a lot of opportunities as a bank in India will have between 600-800 branches and the largest number of local and international companies seek to differentiate bank in India operates about 15,000 branches. To connect such themselves through their service offerings. a huge number of branches requires the network to be deep and widespread. During this time period, India’s growth in the telecom Indian market by vertical and data center industry was in part fueled by this legal requirement As we have seen, the Indian market is full of massive opportunities for the banking sector to connect all owned branches. This posed a but at the same time has significant challenges. Despite this, the huge challenge and subsequent opportunity for the Indian network market can be broken down by regions and verticals. service providers to deploy network connectivity across the whole Each of these verticals are concentrated in specific hubs or cities in of India. India, which means that doing business in India can be easier than it would seem at first glance. This was a significant change to the traditional use of network connectivity in India as hitherto the majority of network The Public Sector/Government infrastructure had been directed towards an individual or user in the In terms of verticals, the largest sector investing in data retail segment. The demand created initially by the BFSI fueled the communications today is the . New is the growth of network connectivity and data center capacity in India. seat of the government. The Government of India has understood the significance of data centers and has established multiple data The network operators have traditionally grown capacity around key centers under the aegis of the National Informatics Center. The new cities and historically have not paid as much attention to the rural initiatives and announcements made by the Indian Government is communities. This trend was reversed by the Reserve Bank of India fueling the growth of data center. directive requiring branch connectivity on a nationwide basis which in turn coincided with the continued growth of mobile users and For example, the GST initiative would require significant storage their location in both suburban and rural communities. capacities to hold transactional data for millions of businesses of all sizes for decades. It has been currently estimated that in order This requirement for connectivity in rural locations has been solved to meet the requirements laid out by the Ministry of Finance for by service providers like Sify who operate their own data centers the Goods & Services Tax (GST), over a billion invoices would and connectivity. According to Daniel Alex, President - Telecom be uploaded every single day. This massive increase in storage Business at Sify Technologies, “Sify developed connectivity in the requirements will further add to the demand for dedicated facilities smaller more rural communities whenever there was a need for the that no single provider would be able to meet. banks to get connected, that’s how our network started growing. That was the key reason we have built a deeply connected network Furthermore, the central government is committed towards and has given us a significant advantage over other operators with ensuring a connected India through their initiative, less coverage from a network connectivity perspective.” the Bharat Network or BharatNet and the Aadhar identification drive. These three initiatives will ensure that every Alex further added that “one of the key challenges of telecom citizen in India is able to harness and utilize the internet to avail infrastructure in India is that as it goes deeper into the country it is themselves of various schemes provided by the government directly challenging and not cost effective to use fiber so we overcame this as compared to going through layers of bureaucracy in the past. challenge by using wireless connectivity for the last 5-7kms.” Today, The various state governments through the State Data Centre Sify operates the largest wireless deployment in the country. The scheme are building the infrastructure needed to enable these company manages over 1,000 wireless end points in the country initiatives to function. Private players have stepped in to ease the offering comprehensive connectivity in the enterprise space including pressure of demand and as time goes by, more private players will banks and other verticals. The service provider claims that they are enter the market. able to reach every inch of India with robust connectivity solutions.

The Banking & Financial Services Industry + Telecoms The telecom sector in India has witnessed explosive growth over The BFSI (Banking Finance Services Industry) and Telecom vertical the decade. The country is currently the world’s second-largest has always been at the forefront of technology investment and market with a subscriber base of 1.05 billion. deployment. Mumbai is the financial and telecom hub of India. With an increasing subscriber base, there have been a lot of A few years ago the Reserve Bank of India (India’s central bank) investments and developments in the sector. The telecom service mandated that all registered banks in the country needed to be on providers are attempting to enhance their data center not only to core banking and required real time data communication between meet customer’s growing demands but also to provide quality u

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> White Paper | Investing in India – The Scenario, the Market and the Opportunities

u services. In 2015, the reported growth in data revenues for the of the population then the Indian market has huge potential for Telecom sector was 70 percent. The telecom industry, in addition to business growth. It has therefore become imperative that one building their own data centers, is one of the largest users of third chooses the right infrastructure and connectivity partner. party data centers. Summary The Information Technology/ IT Enabled Services (IT/ITES) Sector As we have witnessed, the exponential increase in data is happening According to IBEF (India Brand Equity Foundation), the Indian IT predominantly because of extensive mobile penetration in India. sector is expected to grow at a rate of 12-14 per cent for FY2016-17 There has been a significant increase in bandwidth requirements in constant currency terms. IT industries are increasingly adopting in the four main metro cities (Mumbai, Bengaluru, Kolkata and data center solutions due to its cost-effectiveness and high efficiency. Delhi) and other smaller but rapidly growing cities (like , India is the world’s largest sourcing destination for the information Hyderabad, Ahmedabad, Pune, Amritsar, Indore, Ludhiana, technology (IT) industry, accounting for approximately 67 per cent , Jaipur, Vadodara, Bhopal, Aurangabad, Patna). Mobile of the US$ 124-130 billion market. With more and more industries data applications are now used by every enterprise for both social emerging rapidly in the country, the expansion in data center services engagement and customer growth. This is fueling the bandwidth continues to grow. Most of the IT companies have their presence in demand in all the tier one and tier two cities. In India the bandwidth Bangalore and Hyderabad making them the IT hub of the country. consumption is now largely distributed across seven to eight cities (from the cities mentioned above) which in turn is driving increased Retail Sector investment into metro fiber infrastructure in these locations. In today’s world, customers expect to shop anywhere and at any time. Savvy retailers are reinventing themselves to meet these expectations. The main service providers have built a very They’re upgrading platforms and making sure disparate systems work strong infrastructure serving all these locations based on the fact together seamlessly. By leveraging IT and data centers, retailers can that these metropolitan areas represent 70-80 percent of the meet ongoing customer demands. Delhi, Mumbai and Bangalore are mobile subscribers in India. For instance, Hyderabad city has the the major retail hubs in India followed by a few other cities, Chennai, largest number of mobile subscribers (more than 372 million), Pune, Kolkata and Ahmedabad. followed by the National Capital Region (Delhi, Noida & Gurgaon), Mumbai, Bengaluru, Chennai and Kolkata (Kolkata has more than Global companies entering the Indian market 241 million subscribers). But it is possible for a service provider In last five years, there has been strong business growth in India. The to leverage a lot of the same infrastructure due to the significant mobile and Internet penetration in India has increased. Today, the amount of fiber that goes in between these cities. market is quite mature in India and hence international companies are coming and taking advantage of this developing market. India has followed the same global trend, especially in North, South and East of India, companies traditionally looked to build operate The usual perception that most of the global companies have and maintain their own data centers as this was the most financially towards Indian market is that, it is a large market but in terms of value viable option at the time. But today, due to increased financial it’s quite a price sensitive market. The global companies are excited pressure, rapidly changing compute and storage requirements have but at the same time are concerned that their margins will be low forced companies to look at 3rd party operators to outsource the while trying to meet the expectations of demanding customers. management and ownership of their data center capacity. This is more pronounced in West India, especially Mumbai, where CIOs are In order to crack the code of the Indian market, one should first outsourcing due to the huge cost of managing in-house data centers. understand that it is not a single market that requires one approach, This is clearly demonstrated by the fact that Mumbai contributes to rather organisations should understand that India is a country that around 45-50 percent of a company like Sify’s data center capacity. is remarkably diverse on both social and economic aspects. It has multiple markets in a single geographic location, this becomes more Demonetization in India earlier this year exacerbated the situation complex in a huge city such as Mumbai, where different social and with an unprecedented number of online bank account openings economic stratas exist in the same location. by parts of the population that had traditionally relied on using cash. This ostensibly changed overnight and put a huge pressure One great example, is that in a city like Mumbai, where Apple’s on the data center and network capacity. Payment gateways have products are in the premium category has robust sales, yet in the experienced unprecedented growth as the Government encourages same city, China’s mobile phone manufacturers are also clocking and supports digital payment platforms. This in turn is forcing huge sales. This demonstrates that India has different segments and payment gateway companies like MobiKwik to use outsourced different classes of customers. For this reason, the right positioning cloud capacity to meet this increasing demand. of the product is very important in India. If a global company is able to correctly match its product or solutions with the correct segment The government is a key driver in the exponential increase in u

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> White Paper | Investing in India – The Scenario, the Market and the Opportunities

u data capacity requirements through initiatives like smart cities, Sify’s Data Center Infrastructure and Services digitization of public data to further develop the country’s digital ecosystem. This increase in data generation and consumption in every part of Indian society is ultimately driving the demand for data storage and servers.

The inflow of large international companies coming to India is growing which is making a significant change in the way data is consumed in the country. Hence, the importance of players such as Sify Technologies in India.

India is emerging onto the world stage in a number of ways: • It is using data center capability to consolidate its status as a global service provider. • Indian based and founded service and equipment providers now

command an international footprint. • India is a net exporter of skills. Training and education are of a sufficient quality to enable this. Sify designs, builds and operates the data centers on its own and • It is now one of the 10 largest data center markets in the world. does not outsource. The company has built five data centers for five states in India under the e-governance program and also Sify: A leading data center provider in India runs the IT backend for by a major telecoms company in Pune. Sify has over 15 years of technical and operational expertise The Indian online operation has huge transactions and the web in building and managing data centers. The company has the scale companies need to have a deeply distributed network. Sify track record of providing uninterrupted services to over 8,500 is enabling two big web scale companies to connect. Even a large organizations across sector and scale. The service provider search engine and e-commerce website and a worlds a leading is consciously working in the enterprise space in India with a cloud provider are hosting with Sify and the companies have very deeply penetrated network. It has almost 3,000 access experienced zero latency. Post demonetization in India, a leading implementation points which covers 2,300 towns and cities and payment gateway company, had about 1.5 billion transactions in a about 1,000 odd wireless end points in the country, which are month and they are hosting with Sify. completely managed by the company. Sify’s data centers are ideally suited to be both the primary data center and Disaster Recovery In the last two years, the company has seen 23-24 percent growth (DR). These are strategically located in different seismic zones in new business, 17-18 percent growth in revenue and 35 percent across India, with highly redundant power and cooling systems. growth in cloud solutions. Over the last five years Sify have seen lot of interest coming from global organizations. Today, Sify is In India, Sify has six data centers with around 80-85 occupancy technologically and financially strong in India and hence is prepared rate. The company has in five years grown from 75-80 thousand to move on other countries. The company has 50 odd sites into a servers to 200 thousand servers. This is almost triple the growth in single network fabric that is carried all the way outside the country terms of capacity deployment and server farm area. Sify’s CEO is and is handed over at their international PoPs which could be very enthusiastic on the Indian market and the potential to further Hong-Kong, CA, London, Dubai etc. Thus, Sify today have become expand it’s footprint in India. To fulfill the growing country’s storage an excellent enabler for any of the multi-national companies (MNC) and compute requirement, the company is investing significant interested in India and want to have a distributed network architect. amounts in their data centers. For instance, the company is in the process of building two additional sites in Mumbai, one standalone Company’s capabilities data center in Chennai and Bengaluru, and one data center and • IPVPN/Ethernet/DIA Services across India delivery center in Hyderabad. By 2020 the company claims to be • 2000+ PoPs in 1,200+ towns and cities the biggest data center provider in South Asia. • access in 13 cities • Carrier grade wireless access virtually anywhere in India Kirtikar Ojha, Business Head for Data Centre and Cloud Services • Managed CPEs with Sify-guaranteed service levels at Sify Technologies asserted: “We are offering customers unique • 100K active enterprise circuits solutions like hybrid cloud. Not in terms of technology but • Converged network services - single SLA commercially. For example, if the companies due to compliance are • Access interconnects with all major Telcos- dual/diverse access not willing to outsource their data centers on public cloud then we • Transport services into India over new-age cable systems at Sify can create a private cloud inside their own data center and • Cost effective global backup services can even take care of the data center manageability.” 7