Economics of the Interconnection Data Centre (IDC) Industry

07 December 2015
By Dr. Frank P. Maier-Rigaud and André Selke, et al.

The modern digital economy is characterized by high data volumes and the necessity for reliable high-speed data exchange. High-speed and high-quality data exchange between the networks of different companies can be technically achieved by direct physical connections via fibre optic or copper cables over short distances between the servers of two networks (measured in metres rather than kilometres). Such direct physical connections are referred to as Direct Circuits or Cross-Connects.

Enabling such high-performance connections through Cross-Connects is the core value-adding service offered by the interconnection data centre (IDC) industry in Europe. As a prerequisite for Cross-Connect services, the IDC industry has to offer colocation services, i.e., the provision of space, power, cooling, and security, which allows customers to place their server and networking equipment in close proximity to each other, and the ability to reach those servers in the data centre via a telecommunications infrastructure.

In this paper, commissioned by Interxion Holding N.V., NERA Director and Head of Competition Economics Europe Dr. Frank Maier-Rigaud, along with Senior Consultant Dr. Christopher Milde and Research Officer André Selke, examines the economics of the IDC industry with a focus on Europe. The paper is based on publicly available information and on insights gained in discussions with various industry participants.