Philbert Shih on data centre market in Indonesia

  • April 22, 2020

Source: Data Economy Magazine (Digital) (pages 16-20); Web Version in Data Economy

ANGKATAN

INDONESIA’S NEW GENERATION

Indonesia. The largest country in Southeast Asia has, at one point produced oil, coal, natural gas and palm oil, all used as energy raw materials. The renewable energy potential in the country is high – from sold, wind, hydro to geothermal energy. A surge in mobile data and Internet users is heavily contributing to the pressing need for faster connectivity and, in turn, more data centres in the region. So why is the country still classified as an emerging market? Abigail Opiah investigates.

The growth of data centres worldwide is on an incline and so is the case in Indonesia. The country’s Government Regulation requiring all Indonesianrelated data to be contained in data centres within its national borders by 2017, is driving the IT industry’s steady growth.

Companies in Indonesia are taxed at a rate of 25%, for both domestic and international sourced income. Resident Indonesian companies are required to withhold tax at a rate of 20% from payments to foreign companies.

What is driving the attention the country is getting is the growth of hyperscale clouds that have seen the potential of the market, and have made plans to set up cloud infrastructure there according to Philbert Shih, Managing Director at Structure Research.

“On a global scale, Indonesia, and Jakarta in particular, is a small data centre market, and you can imagine that given the size of the country and city as well as what part of the world it is in, the upside in that market is significant,” he says.

“The market is starting to emerge because of the natural growth of everything digital. Indonesia has very high mobile usage rates, has accelerating internet penetration, has a burgeoning start-up community, and is becoming a lot more dynamic.

“The data centre community is, of course, competing aggressively to try to position so that they can build the data centres that support those clouds.”

He was right. In April 2019, Amazon Web Services (AWS) announced the launch of a new cloud region in Indonesia, based in Greater Jakarta, with the new region set to be comprised of three availability zones.

Also last year, Alibaba Cloud launched a second data centre in Indonesia just 10 months after the company’s first one, to double its local capacity. As it stands, Alibaba Cloud is the only global public cloud platform with local data centres in Indonesia.

News was also circulating last month that tech giant Microsoft could be heading to Indonesia to join the likes of Amazon’s AWS and Google Cloud as the influx in the Southeast Asia market becomes even more apparent.

But the plan for Microsoft to invest in Indonesia is not new. In 2011, it was reported that the software giant was looking to invest around $2.5 billion in Indonesia to develop cloud-computing systems, according to officials.

“In Southeast Asia, Indonesia is the largest country with the largest population and the largest potential current user base. Jakarta itself dwarfs the entire country of Singapore, which is the most developed and mature market in the region. It is approximate and very close, and there is a lot of business going back and forth between three countries – Malaysia, Singapore and Indonesia,” adds Shih.

A BroadGroup study estimates that on average, 85%–90% of companies in Asian countries have their data centre located in-house.

Their estimate for each country varies from 75% in Singapore to 95% in Indonesia.

“Jakarta is the epicentre of everything that happens in Indonesia. The government is there, most of the large financial institutions are there, it has a huge population and a large entrepreneurship and start-up community,” he says.

“I would argue that that market is going to develop around Jakarta for the foreseeable future, and that’s where you’re going to see data centre developments being built on the backs of hyperscale cloud growth.”

ENERGY EFFICIENCY

With this growth is the potential for significant energy savings in Indonesian data centres.

A report by Asian Development Bank highlights the availability of many well-known technologies and practices of varying costs that data centre operators can deploy to improve their data centre energy efficiency.

“Indonesia is positioned to understand the experiences of other countries, to a sample size of the environmental impact of data centre development, as they are at the centre of a lot of the climate change. Jakarta in particular faces challenges with the quality of infrastructure. There are challenges with flooding, which may get worse, and traffic and pollution. Therefore, I think all of these challenges will be things that will come up,” adds Shih.

“In the next five years, you should expect to see significant wholesale data centre expansion activity in Indonesia driven by the public cloud. I could easily see this market more than doubling in five years from a megawatt perspective.”

THE LOCALS

Cloud hyperscalers are not the only ones with big plans for the Indonesian market as local companies like DCI Indonesia have been charging ahead with data centre builds in the region.

The company began the construction of its third data centre facility called JK3 in Indonesia.

The facility has a critical IT load of 12MW and is set to go live in early 2020. The company’s CEO says that DCI is ready to become a pioneer who presents the largest hyperscale data centre facility in Indonesia.

The construction of DCI’s Jakarta data centre is a part of the company’s commitment to finalise the 8.5-hectare hyperscale data centre campus facility with a total capacity of more than 150 MW, located in Cibitung, West Java in Indonesia.

Oscar Stephanus, Sales Manager at DCI Indonesia says the market traction in the region is set to boost M&A activity in Indonesia through the roof.

“There has been a lot of requests from investors that are interested in understanding the market. We’ve seen some big players in the industry trying to also get a better understanding of our market,” he says.

“If you look at the market right now, the size of the data centre is between 70 to 80 megawatts in terms of capacity that is available in the market. Occupied capacity is somewhere between 50 to 60 megawatts. There is a gap between this and our neighbours Singapore, which is one of the most mature markets in terms of data centre capacity.”

The population in Indonesia is around 264 million people in comparison to Singapore that has around 5.6 million people.

“There should be a relation between data centre sites and the number of users, but clearly there is a disparity here. Indonesia could be the next Singapore in the next five to 10 years if the demand keeps on growing,” adds Stephanus.

“What is hindering the country from a policy standpoint remains that we are not the easiest country to set up a business in – but our government is changing by easing its policies. Singapore has been very open and easy to set up businesses there.

“Indonesia has 17,000 islands and connectivity remains an issue, as there are not that many submarine cables entering Indonesia and other parts of the region – it is mostly Jakarta centric. As a result, the price of connectivity in Indonesia was very high, which is not financially viable for hyperscale companies trying to enter the market.”

Despite all of this, Stephanus says the Indonesian market is in its embryonic stage and is set to grow rapidly, which is promising overall.

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