4 reasons why regional Internet Exchanges will lead to economic growth
In today’s digital business world, especially for business processes, interconnection requirements increase in parallel with the growth in digital and cloud-based services. According to a study conducted by the OECD, the global Covid-19 pandemic has accelerated the need for stable, fast, and efficient Internet for millions of employees and employers who already take advantage of the option of working from home and are more likely to do so in the future. They depend on video calls, stable VPN connections, and fast access to work-related material. Because of the importance of these digital applications to businesses and people, every millisecond counts. This is where latency, the time it takes for data to travel to its destination for processing and back again, plays a major role. High latency causes the lag we experience, for example, with performance problems on video conferencing software. All digital applications used in offices, the manufacturing sector, and all other industries today are extremely latency-sensitive as they need to deliver high performance in no time to guarantee a better digital experience.
To ensure that regional connectivity is as good as connectivity in major digital hubs, data needs to travel efficiently and avoid long distances. An expansion of local interconnection is therefore necessary to meet the demands of businesses and people in regional locations. Regions outside of the major metropolitan hubs need to invest in local digital infrastructure, such as expanding high-speed broadband networks and establishing Internet Exchanges, to maximize the potential for success, achieve low-latency connectivity, and ultimately better serve their citizens.
Ivo Ivanov, CEO of DE-CIX International, has identified four benefits of interconnection infrastructure in the form of regional Internet Exchanges (IXs), contributing to a positive development of regional digital economies.
1. Local Interconnection improves connectivity and performance of digital applications
In our digital age, most companies need high-performance and secure interconnection to do business. Establishing a regional Internet Exchange will not only achieve that, but in addition, offer tremendous growth opportunities for cities and their economies. Local IXs reduce latency between connected enterprises, enhance the speed of connectivity, increase resilience, and lead to a more stable network for applications such as cloud computing, VoIP connections, video conferencing and online collaboration. The applications on which our digital future will be based will require extremely low latency. Smart IoT and critical applications that require real-time responses, such as autonomous driving, require latencies in the 1-3 millisecond range and will therefore need to be performed within a range of 50-80 km from the user. This means that connectivity between the data centers where this data is processed and stored needs the shortest path to where the data is consumed. In turn, this allows companies in the region to interconnect with each other at the lowest possible latency. In order to max out and future-proof the growth potential of economic areas and second/third-tier cities away from major metropolitan hubs, data centers that act as the core of regional networking are needed, in addition to good broadband infrastructure. These data centers can provide access to a distributed Internet Exchange or interconnection platform, which offers various interconnection services for Internet service providers (ISPs) and enterprise networks.
2. Connectivity to clouds and content improves growth potential
According to a recent study by Google, Temasek and Bain & Company’s latest edition of the e-Conomy SEA Report 2021, many organisations and merchants in the region have embraced digital tools to engage with their customers, with 98% now accepting digital payments and 72% now using digital lending solutions. This trend is likely to increase as a further 70% of the businesses are expecting to increase their usage of digital marketing tools in the next five years.
More specifically, local businesses will be able to accelerate and grow their business potential through direct connectivity to clouds, content and enterprise-grade applications such as Microsoft 365 and skilled workers are more likely to migrate to cities with good connectivity. How can this be achieved? A regional IX not only facilitates local data exchange but provides reliable and secure interconnection services such as direct connection to global hyper-scale clouds – directly on-site via a regional data center. This allows further connection to larger IXs in major, (inter)national hubs, where many of the global players can be found, such as AWS, Microsoft, and Google. Shorter, direct pathways to clouds and digital resources increase security and performance. This results in an increase in the overall quality of the Internet, making secondary economic areas and cities throughout the South East Asia region more attractive for people escaping major hubs, while at the same time attracting new business investments.
3. Cities and regions with a highly developed digital economy are more competitive
The digital economy has become the backbone of economic growth for the future, and no sector can afford not to be on the path to digitalization. This is why the development of local digital infrastructure is crucial to strengthening the local economy and thus creating a better quality of life for citizens. According to a study by the Leibniz Centre for European Economic Research (ZEW), cities with a highly developed digital economy are more competitive and grow faster than their more analog peers. The researchers were also able to prove that not only the region in question benefits from a good broadband infrastructure but also neighbouring, less well-connected regions.
Echoing the sentiment regionally, the establishment of regional IXs throughout the South East Asia region will not only bring low-latency and high-speed connectivity to the underserved areas that we have but also enable low-cost cross-border data flows for businesses and the Internet service providers alike. On top of this, the importance of interconnectivity in Malaysia is further strengthened by the need to support healthy digital economic growth that is reflected in the e-Conomy SEA Report 2021, which highlights that all internet sectors rebounded strongly in Malaysia with double-digit year-on-year (y-o-y) growth and that Malaysia’s 2021 gross merchandise value (GMV) is expected to rise by 47% y-o-y to US$21 billion. Additionally, the country’s internet economy is also expected to reach US$35 billion in 2025, with a compound annual growth rate of 14%. Hence, this is why it is important for cities and businesses to have better infrastructure in order to successfully participate in a competitive digital economy and provide citizens with low-latency connectivity, in which, a regional IX does exactly that. Having an IX in a city results in better and lower-cost connectivity that opens better opportunities for businesses to interact and create new services, as well as to the establishment of new startups in the digital economy. In the long run, this will also result in a flourishing industry of digital services and content in the local economy. Without a regional IX, businesses would have to use expensive international Internet connectivity and pay for transit to exchange and access global traffic, content hosted abroad, and local traffic.
4. Regional Internet Exchanges create business opportunities for network operators and data centers
A regional Internet Exchange is not only a defining competitive advantage for the city in question but also a major business opportunity for the infrastructure players housing it. Therefore, ISPs, city carriers, and regional data center operators can benefit from being involved in establishing and/or operating an IX. If they do not have the in-house interconnection know-how to do this themselves, they can develop their interconnection business in partnership with an existing expert, such as DE-CIX.
The DE-CIX as a Service (DaaS) program, for example, offers professionally managed IXs, built to the partners’ desired dimensions. The IX can be shipped to the doorstep as “DE-CIX in a Box”, based on DE-CIX’s award-winning Apollon technology and offering DE-CIX’s multi-service interconnection platform. A regional Internet Exchange offers various interconnection services for local carriers or data center operators – which they can sell to their local enterprise customers. The IX will also attract more businesses to the region, which are potential customers for the infrastructure providers. The result-A well-functioning distributed ecosystem with great economic potential as part of the local digital economy.
Conclusion
Growing data traffic on the Internet, increasingly latency-sensitive applications, and rising security requirements call for stronger regional networking and new Internet Exchanges throughout the Southeast Asia region. Latency can be reduced, and data transfer accelerated. Economic areas outside major metropolitan regions can generate growth in their local economy and build the attractiveness and competitiveness of their location.
A great example of the benefits of a strong IX is Frankfurt, Germany, a magnet for the digital economy. The city is a major hub not only for finance and trade fairs but also for the world’s biggest tech companies, such as Google, which has chosen to invest in Frankfurt as a location due to its proximity to one of the world’s largest Internet Exchanges – DE-CIX Frankfurt. A similar development of this kind on a smaller scale in secondary markets is what city and regional decision-makers in Southeast Asia should aim for.
Stronger digital infrastructure and a growing digital economy will also attract a skilled workforce to a city or region and accelerate the overall growth. The development of local digital infrastructure through an IX should also be a top priority for local infrastructure providers, such as city carriers and data center operators, who can reap the rewards of this business opportunity. Not only is an investment in digital and interconnection infrastructure necessary to strengthen and future-proof regional economies, but it is also highly profitable.
About The Writer
Ivo A. Ivanov,
Chief Executive Officer of DE-CIX International,
Chief Operating Officer of DE-CIX Group AG.
Ivo A. Ivanov has more than 15 years of experience in the regulatory, legal and commercial Internet environment. In recent years, Ivo has been active and deeply involved in the establishment of DE-CIX sites in North America, Southern Europe, the Middle East, the Indian subcontinent and Southeast Asia, as well as several DE-CIX consultancy projects in Africa, Asia and Europe. Currently, Ivo is ranked as one of the top 100 most influential professionals in the Telecom industry (Capacity Magazine’s Power 100 listing, 2021). He is also regularly invited to share his vision and thought leadership in various industry-leading conferences around the globe.
