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Wednesday, 3 February 2021

What’s impeding Egypt’s data center growth?

What’s slowing the growth of Egypt’s data center industry? Plans to establish Egypt as a data center hub have been gathering steam, with private sector player Orange and state-owned operator Telecom Egypt undertaking huge data center construction projects, and efforts being made to attract more Cloud Service Providers (CSPs) and OTTs (streaming media services offered directly to viewers via the internet), we previously reported.

An investment priority for TE: Data centers are essential to Egypt’s digitization strategy, and a priority in TE’s investment plan, the company tells Enterprise. Direct investment in data centers only accounted for a small portion of 2019 and 2020 capex spending, of which the bulk was directed towards infrastructure development and network improvements — both a prerequisite for a successful data center business. Data centers are expected to become important contributors to the topline in the long-term, though their input will be minimal in the short-term, as the business grows, TE representatives add.

Egypt currently has strategic advantages driving data center growth: These include geographic positioning, an abundance of subsea cables, TE’s participation in the 2Africa submarine cable project linking Europe, the Middle East, and 16 countries in Africa, surplus electricity, and recently-passed data protection legislation, sources tell Enterprise.

But to capitalize on these, we need to enhance local infrastructure: To become a data hub, Egypt’s local infrastructure needs to better support fiber optics — meaning more and better cables and better bandwidth, says Youssef Amin, market data director at Egypt for Information Dissemination (EGID), a joint venture between the Egyptian Exchange (EGX) and NASDAQ, which owns and operates one of Egypt’s 13 colocation centers.

Egypt’s user speed and bandwidth are well behind global averages, according to data analytics websites The Global Economy and World Population Review. TE has been steadily increasing capacity, and raised Egypt’s bandwidth to 3.7 Tbps by the end of 2020, the company told Enterprise. A report shows steady growth from 1.8 Tbps in 2019 to 2.5 Tbps as of January 2020 (pdf). However, our domestic infrastructure can’t handle the added capacity, sources told Enterprise in July. An EGP 120 bn investment would be needed to expand the use of fiber optic cables locally and improve internet speeds, Federation of Egyptian Industries IT division’s deputy head Hamdy El Leithy estimated in July.

We need to improve our price points: Specifications at Egypt-based data centers can be double the price of those offered by foreign counterparts, says Tarek Ali, chief technology officer at InkTank Communications. Local provider ECC Solutions offers its professional package for USD 127, while a slightly better configuration from Amazon Web Services costs USD 57. High prices at Egypt-based data centers are driven by Egypt’s higher internet costs, says Amin. Both El Leithy and former ICT Minister Khaled Negm have said internet prices are higher than they should be, especially given the quality of the service itself.

Particularly when it comes to pricing international traffic: The pricing of international traffic would need to be lowered to incentivize more private companies to open hyperscale data centers here, says one source, speaking on condition of anonymity.

And especially now Google is looking at building its new Blue Raman fiber-optic network through Saudi Arabia and Israel, bypassing Egypt. Google’s plans to open a new route are designed to alleviate internet congestion through Egypt, sources familiar with the Blue Raman project are quoted in the Wall Street Journal as saying. “The Egyptian government charges telecom operators some of the heaviest fees to traverse its land and waters that can add up to 50% of the cost of a route from Europe to India,” the WSJ reports. Congestion also increases the risk of internet outages caused by breaks in the cables that run under busy shipping lanes, it adds. The new route is likely to consist of a cable running between India and Saudi Arabia, crossing overland through Jordan and Israel, and joining up with another undersea cable travelling across the Mediterranean to Europe.

The project may not go ahead, sources cited in the piece say, because multiple border crossings will require agreements with different regulators. But with its goal to “resolve decades of industry reliance on Egypt,” and the prospect of an alternative route with lower connectivity costs welcomed by the likes of Jordan’s digital economy minister, it may prompt a reexamination of how Egypt can make its pricing more competitive.

Revised pricing, more partnership between the public and private sectors could help the market: Private sector companies working in ICT currently rely on TE’s infrastructure, often leasing cables at high prices. High pricing and a lack of flexibility cut into Egypt’s competitiveness, says Negm. Establishing a data center isn’t that expensive — ranging from USD 100-150 mn — but flexibility from TE is needed to accommodate new players in the market, he adds. Private sector investment alongside the government, or partnership between the two to improve infrastructure, would lead to greater competition, increasing fiber optics and cable efficiency, and benefitting the market, says Amin.

Data protection legislation is important, but it needs to be promoted and enforced to be attractive to major content providers, says Sherif Elmasry, managing director of tech company Cornet Elevated.

And technical know-how is crucial: Constructing hyperscale data centers to the specifications needed by OTTs, and understanding their other requirements, is essential if we want them to come here and house their servers in local data centers, says Elmasry. Scalability is the key requirement, and it needs to be incorporated into the construction mindset, he adds. Investments in infrastructure need to be supplemented by investments in educating and training engineers and technicians, Orange Egypt’s Chief Enterprise Line of Business Officer Hisham Mahran tells Enterprise.

The bottom line? To capitalize on strategic positioning and other advantages, Egypt also needs to be strategic about pricing and public-private partnership, say sources. With OTTs reportedly already eyeing opportunities to build hyperscale data centers here, using more competitive pricing to transform our infrastructure could be the key to them moving forward with those plans, the sources add.

Your top infrastructure stories for the week:

  • EV infrastructure: Spanish manufacturer Zytech expects 100 electric vehicle charging stations to be up and running around the country by the end of the year. The group has already installed 35 stations nationwide.
  • Public EV transit: Commercial vehicles manufacturer MCV will work with a Military Production Ministry tank factory to locally assemble electric buses for Egypt’s transportation network within the next eight months.
  • Heavy rail: The National Bank of Egypt is considering providing EGP 2 bn in long-term loans to the National Railways Authority to be used to modernize its fleet of carriages over the next three years.
  • Electric rail: French transportation outfit RATP Dev will operate the Salam City-Tenth of Ramadan electric train after ministers gave the all-clear to the contract.
  • Renewable energy: Cabinet approved procedures to sign a contract with Siemens Gamesa for a project to generate 500 MW of wind energy in the Gulf of Suez as an independent power producer and sell electricity to the government at USD 0.03 per kWh.

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