THE AFRICAN

DATA CENTER
BOOM

CLOUD, HYPERSCALE, AND

THE TRANSFORMATION OF
AFRICAN COLOCATION
MARKETS

A XALAM EXECUTIVE
SYNOPSIS

November 2018
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2
Why the timing is ripe
for investing in African
data center colocation
The time is now: the age of African digital
Deeper broadband adoption –
~300m broadband connections
in 2017, ~600m by 2023
Connectivity is getting better –
4G, FTTH/P connection base
on pace to triple over the next
five years
Wholesale terrestrial fibre
supply is getting stronger -
~50,000km of fibre added
every year
© Xalam Analytics LLC - 2018
Global data center architectures
are moving to the edge – in Africa
too
Increased diversity and lower
prices in international bandwidth
markets
Transformation of the IT/MSP
market – more are outsourcing
data center requirements,
seeking ecosystems
Enterprises moving more
Workloads to the cloud
New data protection laws putting
stronger emphasis on local data
hosting
The arrival of the hyperscale –
Azure, Huawei launching an Africa
region in 2018, AWS in 2020
A B2B market largely
underpenetrated by IT managed
services
The rise of “Cloud Natives” – From
content to e-commerce and
Fintech
International Carriers, Content
Delivery Networks, Other Internet
Players Expanding their Peering
Presence in Africa
4
How big is the African
data center colocation
market?
A snapshot of Africa’s data center colocation supply

Africa colocation market overview – as of Q4 2018

~112,000 Square meters

~75 purpose-built MTDC facilities* ~36,000 racks
of operational white space

~52% of the colo rack capacity is

~200 MW of gross power capacity ~25% carrier neutral space
in South Africa

*From ~170 facilities in our database offering some form of colocation service; where no power data is available, we assume ~2kW to 4kW per rack, depending on the age of the facility.
Sources: Provider data, Xalam Analytics estimates.

© Xalam Analytics LLC - 2018

6
State of the African colo market – small, but growing fast

Africa Colo Power Supply vs. Sample Major Colocation Markets (2018 E) Evolution of Africa MTDC Colocation Gross Power

700 250

600 ~20% annual growth in

200 available colocation power
500

Gross Power - MW
400 150
MW

300
100
200

100 50

0 0
London Frankfurt Amsterdam Africa Middle East 2014 2015 2016 2017 2018 F

 But it’s growing fast –

 On average, Africa has been adding 10,000 to 15,000 square meters of equipped
The African market is still small, relative to the rest of the world – cloud adoption is
space every year;
only starting to pick up, content players have only started bulking up their African
network presence, and the hyperscale are just arriving
 ~14% growth in terms of space, ~20% in terms of power over the past three years;

 The median African MTDC facility is 2x larger than in 2015 – and getting bigger.

Sources: Africa and the Middle East: Xalam Analytics Research; Amsterdam, Frankfurt and London estimated based on CBRE European Market Review (2Q 2018); where no power data is available, we assume ~2kW to
4kW per rack, depending on the age of the facility. 7
State of the colo market – Africa is really four distinct colocation markets

SOUTH AFRICA KING Markets

 Unquestionably Africa’s largest colocation market;  Kenya, Nigeria, Ghana
 ~52% of Africa’s colocation space, and ~60% of colo  ~10% of Africa’s colocation space and power
power supply;  The most promising markets in Sub-Saharan
 Africa’s largest enterprise and most dynamic cloud Africa outside of South Africa;
market;  Still relatively underpenetrated, and face a
 The primary African base for global Internet and variety of infrastructure challenges;
connectivity providers.  With the right supply conditions, can
 ~30% of Africa’s ASNs approximate North African market size;

NORTH AFRICA REST OF AFRICA

 ~20% to 25% of Africa’s colocation space and power
 Deep enterprise base, mostly excellent supporting  All other African markets
infrastructure;  ~10% of Africa’s colocation space and power
 But most North African markets held back by  Typically small in nature
relatively limited competition in the terrestrial fibre  Small ASN base, relatively small and
segment; underpenetrated enterprise markets
 Proximity to Europe also limits demand from global  Many have critical supply challenges
Internet players, who can cover the region from
Marseille, Spain.

8
African colo space supply – a map view
Where they are – a Mapping of Africa’s multi-tenant data centers African Colocation – View by Metro

*Numbers indicate identified MTDC facilities; estimates as of Q4 2018 Each circle represents a metro market; circle size reflects the market’s relative size, in square meters.
; Source: Xalam Analytics Research Source: Xalam Analytics Research 9
 What is the demand
potential for African
data center colocation?
A snapshot of African demand for data center colocation

A snapshot of demand for African data center colocation – as of Q4 2018

Total potential demand is ~80,000 Hyperscale potential demand (mostly

Take up/Revenue-generating demand
racks (or 170MW-200MW), excluding in South Africa) is another 100 to 150
is ~20% of potential demand
hyperscale demand MW over the next 3 years

Take-up/Demand growing at 20%- ~95% of African demand is in 10 core Less than 20% of potential enterprise
25% a year – faster than supply markets demand is currently served

“Potential” demand includes estimated demand from telcos, MSPs, content providers, the public sector, financial institutions and enterprises; see subsequent pages for key assumptions; enterprise estimates assume that only a portion
of enterprises with an on-premise data center opt to outsource to colocation. This ratio may vary on a country by country basis. All numbers should be considered rough estimates; estimates as of Q4 2018.
Sources: Provider data, Xalam Analytics estimates.

© Xalam Analytics LLC - 2018

11
African colocation demand: international providers and CDNs

Global CDN Edge PoPs in Africa – A Map View Evolution of Africa’s Autonomous System Numbers (ASNs) Wholesale demand indicators are getting stronger

1,800
 At the end of 2018, the African market will
1,600
have close to 1700 active ASNs. Remarkably,
1,400 the number of new ASNs has been growing
every year since 2010, with an acceleration
1,200
over the past three years as more entities
1,000 set up their networks and seek to peer with

ASNs
others.
800

600  The world’s top CDNs have around 70 edge

points of presence across African markets as
400 of 2018, a number that has been
200
accelerating over the past few years.

0  Including the extensive Facebook and

2010 2011 2012 2013 2014 2015 2016 2017 2018 F Google smaller edge caching nodes, the
total number of edge locations by
international providers in Africa is close to
300, and growing by about 10% a year.

Sources: Xalam research analysis of provider data; estimates as of October 2018 Sources: Regional Internet Registries Statistics; Patrick Maigron

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The outsized impact of the hyperscale on African colo demand

African data center power capacity – by DC target market*

350
~50%+ of new African DC power capacity is either fit-
300 for-purpose, or specifically targeting hyperscale  Microsoft is expected to launch its first African cloud
providers region by the end of 2018, out of data centers in
250 Johannesburg and Cape Town. Likewise, main rival
Hyperscale
DC Power (MW)

200 + ecosystem AWS announced that it would launch an Africa

demand region in 2020, consisting of three availability zones
150
(in effect, three data center locations in separate
100 locations).
50
 Demand from the HICs is altering the nature of the
0 local colocation market in a fundamental way. By our
2015 2017 2020 F estimates, at least 50% of incremental colocation
Public Sector Enterprise/Financials Hyperscale Wholesale capacity in the African market is either fit for
purpose – built specifically for hyperscale, or heavily
targeting hyperscale demand.
The Four Waves of Hyperscale Impact
 The HICs are also driving the market in indirect ways.
First Wave: Hyperscale
player requirements
First by pulling in with them an entire ecosystem of
Second Wave: international cloud and Internet players; and second,
International cloud
player ecosystem
by forcing local managed service providers to bulk
demand up, or at least re-architect their own data center
Third Wave: Local infrastructure to survive in a hyperscale-dominated
cloud player/MSP
Fourth Wave: Local world.
demand
enterprise demand

Sources: Xalam research.

13
African enterprise demand for colocation services – a narrower base than you think….

 The African enterprise market is highly

underpenetrated by colocation services, due to a range Enterprise potential demand
of factors including inadequate, or expensive supply,
low awareness of colocation services, slow movement
towards outsourcing and in many countries,
widespread distrust of third party providers.

 We estimate potential demand for enterprise

colocation services in Africa at around 80,000 rack
units, with actual usage at around 10,000 racks.
Actual enterprise demand/Take-Up (2018 E)
 In effect, we estimate that less than 20% of potential
enterprise demand is currently being served. In some ~80k-100k racks
smaller African markets, enterprise usage of
colocation services is largely non-existent. This points
to both the considerable potential of the market and
the significant challenge in realizing that potential. ~10k racks
 For the most part, however, we are relatively skeptical
of enterprise colo demand outside of some large
corporate customers. Enterprises will have the option
of keeping their data center on premise, using some
Companies opting for external colocation only; some
form of hybrid cloud solution, go full IaaS, or will opt to maintain on-premise model, others will go
outsource to colo. Estimated actual, revenue-generating enterprise usage;
to the cloud with an Infrastructure as a service model.
based on estimated leased racks from the enterprise
We generally assume that ~30%-50% of companies with
segment.
a data center represent “potential demand”. Country-
by-country variations are material.

Sources: Xalam Analytics estimates, based on a variety of assumptions; given the number of countries and enterprise segment type, estimates are volatile, and offered here for broad indicative purposes only.
14
Where do the main
opportunities lie?
African potential demand for colocation services is highly concentrated

~55% of African ASNs are in 5 countries: South Africa, Nigeria,

Kenya, Tanzania and Ghana; around 70% of all ASNs are in 10 ~75% of African CDN PoPs are in 10 countries ~80% of Africa’s formal SME and
countries corporate base is in 5 primary markets

Distribution of African Autonomous System Number (ASN) base – 2018 E Distribution of African edge PoP locations* – 2018 E Distribution of Africa’s formal SME and
corporate base* - 2018 E
45 South Africa
Kenya
40
Nigeria
35 Mauritius Others
20%
Djibouti
30 South Africa
Number of countries

Uganda
32%
25 Morocco
Tanzania Egypt
20 Ghana
Angola Egypt
Egypt 18%
15 Angola Nigeria Tanzania
Kenya Senegal Kenya
10 10%
South Africa Mozambique
Morocco
Nigeria
5 Madagascar 13%
7%
Ghana
0
< 20 20-49 50-100 100-200 >200 0 5 10 15 20 25
Number of CDN PoPs
Number of ASNs
*Formal enterprises with more than 5 staff (excluding micro-
enterprises); data excludes Sudan, Ethiopia; country definitions
*Chart includes markets with 2 or more CDN PoPs; CDN including top 10 providers, core may impact perceived size
data center, edge PoP and Netflix open connect locations Source: Xalam Analytics research, based on statistics offices,
Sources: Regional Internet Registries Statistics; Patrick Maigron Source: Xalam Analytics research, based on provider data. tax authority data

© Xalam Analytics LLC - 2018

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Who controls African colocation? Different colo fundamentals mean different market structures

Share of available colocation supply by carrier type – 2018 E

South African market supply is In Kenya, Nigeria and Ghana,

In North Africa, integrated telcos Other African markets have
increasingly balanced – carrier- carrier-neutral providers,
are still the dominant colo been essentially telco-
neutral contribution is the fibercos and MSPs are
providers – but the proportion dominated – largely due to
highest in Africa; integrated overtaking integrated telcos –
of carrier-neutral space has doubts on viability of colocation
telcos are relatively marginal the sign of a rapidly developing
been increasing fast business on a stand-alone basis
120% marketplace

100%
9%
19%
25%
31%
80%
IT/Cloud/MSPs
38%
Integrated Telco

60% Government
25%
FiberCo DC
49% 59%
Carrier Neutral Colo
40% Alternative ISP

20% 33%
25%
20%

0% 1%
South Africa North Africa KiNG Markets Other Africa

© Xalam Analytics LLC - 2018

17
Who controls African colocation? Africa’s Top 20 Providers

Africa’s Top 20 Colocation Players – Based on Owned Colocation Space - 2018 E*

20

18 Only 5 of the top 20 largest

Africa’s top 5 providers (and 9 of
16 players are carrier/vendor-neutral,
the top 20) are SA-focused
or effectively operated as such
14
Thousand square meters

Integrated Telcos/Connectivity
12
Carrier-Neutral Colo Provider
10 IT/SI/Cloud Provider
8 Government DC

0
Africa Data Centers

ContinuitySA
Inwi Business
Telkom/BCX

Vodacom Business

Raya Datacenter
Etisalat
MTN Business

Orange Business

Telecom Egypt

Governments
GPX Global Systems

T-Systems SA

MainOne
N+One

Sudatel Group
Teraco

Internet Solutions

Algerie Telecom
Hetzner SA
 Provider categories are increasingly blurry; some providers could reasonably fit into 2 groupings; groupings provided here for indicative purposes, based on entity’s predominant source of revenue; carrier-neutral used loosely here, including companies
acknowledged to operate as carrier-neutral, even if they don’t meet the technical definition of carrier/vendor-neutral;
 Chart provided for top level indicative purposes only; the data aggregates estimated white space managed by the operator or direct affiliates across African markets.
 Sizing based on direct ownership of the DC facility by the company or a direct affiliate; space leased and resold is not included as part of this footprint estimation.
 There is no consistency in the reporting of African colo space; at this stage of development, the industry emphasizes size; in turn, data center size reporting typically goes for the highest estimate possible. Some providers publicize the size of the DC compound
(incl. offices, storage, etc.); others the entire DC space, including electrical, cooling equipment; yet others the entire space, even if mostly occupied by their own equipment.
 Our numbers are based on normalized estimates/approximations of colo white space – space that is effectively used for, or available to colocation; based on discussions with customers and our own assessment; estimates are subject to change.
 Our estimates may miss some data centers that the provider makes available for colocation – our estimates for South Africa, for example, only include Tier III data centers or above; we also do not include telco remote hubs/switches/NOC in these estimates,
unless we are aware of space clearly reserved for commercial colocation.
 As a result, our estimates may not necessarily match the numbers advertised by a provider, and we strongly recommend that clients carry out their own due diligence, should they require more depth on a given company.
Sources: The Companies, Xalam Analytics Estimates

© Xalam Analytics LLC - 2018

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How we see the outlook
for African colocation
The outlook for the African data center colocation market

Africa colo market outlook – a summary view

~15+ new dedicated facilities to be The market will pass the ~200 MW Take up rates to rise to ~60%+ levels –
constructed over the next 3-4 years within the next five years growing faster than supply

Revenue growth of ~20%-25% over Primarily a wholesale market – we’re

At least half of new capacity
the next three years – faster than the skeptical of retail colo, despite the
dedicated to wholesale/hyperscale
past three deep potential

All numbers should be considered rough estimates; assumptions are made at individual country level; estimates provided for indicative purposes only; estimates as of Q4 2018..
Sources: Provider data, Xalam Analytics estimates.

© Xalam Analytics LLC - 2018

20
 African colo outlook – it’s a data center colocation boom

Colo supply capacity to double African colo revenue growth – Historical vs. Projections

450
25%
400
350
20%
Gross Power - MW

300
250 15%
200
150 10%
100
5%
50
0
0%
2017 2018 2019 2020 2021 2022 2023
CAGR - 2015-18 CAGR - 2018-21

 The broader outlook for the African colocation market is excellent. From greenfield
build to expansion of existing facilities, the continent is in the midst of a seminal data
center construction boom. The next two years should see around 15 new dedicated
facilities across Africa, more than over the past three years combined.
 We are projecting available colocation white space to double from 2017 levels,
crossing the 200,000 square meter mark within the next five years. Gross power
capacity will expand even faster, as providers invest to keep up with power capacity
demand.
 We estimate that around 200 MW of colocation power will come online over the next
five years, a projection we still see as relatively conservative.
 we estimate the African colocation market at around $350m to $400m; this is a relatively
small part (less than 5%) of an African enterprise and wholesale market worth upwards of
~$15bn, and points to the relatively precocious nature of this market.
 But it also means there is substantial upside to current revenue levels. On average, capacity
take-up rates have been around 50%; as hyperscale Internet companies and other providers
pick up capacity, we generally expect this to rise to ~60% levels, even with the additional
build-out.
 Further, colocation growth is highly context-driven; in turn, we do not expect material
changes in the key regions driving African colocation growth. By our estimates, and barring
any unanticipated hyperscale deployments outside of South Africa, South Africa and North
Africa will account for around 90% of the colocation supply to be introduced in the
continent over the next five years.

Source: Xalam Analytics research

21
Reimagining African digital infrastructure market
insights. Malaikum Xalam.

@xalamanalytics
www.xalamanalytics.com