Competitive Landscape: CSPs' Hosting Services and Transition to the Cloud, Asia/Pacific, 2011
Publication Date: 30 June 2011

ID Number: G00213479

Vincent Fu


The growth of hosting services continues in Asia/Pacific. Enterprises are demanding more data center capacity, space and racks to support their business expansion in the region. The earthquake in Japan pushed some Japanese companies to seek alternative disaster recovery sites outside of the country, which will create more hosting demand in Asia/Pacific. The growing business is driving CSPs to invest more resource in their hosting markets and increase market supply by adding data center facilities and reinforcing managed hosting service products.

The acceleration of cloud computing increases the importance of hosting capability, as most existing cloud infrastructure as a service (IaaS) providers have a background in either hosting or data center outsourcing. Major CSPs are paying more attention to hosting services than before, which includes those players with a previously limited presence in the data center hosting market. As a result, market competition is growing fiercer.

This research focuses on communications service providers (CSPs) (and not on other hosting service providers in market), as only CSPs operate sizable data center facilities in the region. We provide an update on the CSP competitive landscape for hosting services.

Key Findings

  • CSPs are investing aggressively in highly-reliable data centers and cloud computing in Asia/Pacific to exploit new market opportunities.

  • Data center capacity has increased tremendously and the oversupply of capacity is likely to occur within the next two to three years, which will put pressure on pricing.

  • Traditional data center hosting continues to service commodity, with a fast growth in the demand for virtualization and on-demand hosting capabilities, which threaten traditional data center hosting business.

  • The market transformation from hosting to cloud is evolving quickly and it's difficult for late entrants and slow-moving companies to catch up. CSPs should accelerate the transformation road map.


  • As multinational enterprises penetrate markets in Asia/Pacific to grow their businesses, it is critical that they build up their capability for regional hosting delivery to build a firm foundation for the future.

  • As many enterprises have data center consolidation and transformation projects in progress, CSPs should negotiate with their enterprise customers to manage and implement these projects smoothly.

  • CSPs should improve and differentiate their capability to offer total virtualization solutions, which currently include server and storage virtualization, but will gradually cover all aspects in the next three years.

  • Data center hosting services are moving to a virtualized environment. Cloud computing CSPs should create more value or provide differentiated services to their enterprise customers, otherwise they are at risk of losing their competitive edge.

  • As future competition will focus on cloud computing, CSPs that lack cloud-related engineering skills and content delivery experience, should carefully select technology partners and channel alliances to differentiation themselves from their rivals.


Competitive Situation and Trends

Market Definition

Data center and Web hosting services were not the core business of CSPs five to seven years ago. They made use of part of their large data center facilities to outsource to their customers as additional services beyond network connectivity services.

As IT agility and modernization improved, data centers become the heart of enterprise IT infrastructure. The demand for data center hosting and related managed services has grown significantly during the past three to five years, which drives CSPs toward focusing more on the hosting services market. To address data-center-centric IT demand, hosting services are becoming strategic business for CSPs.

In this research, the hosting services market includes the following components:

  • Colocation and dedicated hosting, which are mainstream hosting services.

  • Virtualization and on-demand-enabled hosting services, such as utility hosting.

  • Data center managed services. With the trend for IT commoditization, it is critical for CSPs to offer data-center-centric managed services. This should include system management, operation system installation and maintenance, managed security and applications and hosted communication services.

Data center hosting is a facility-oriented service, that will become commoditized. CSPs' products and services are hard to differentiate, so they need to either achieve scope of economy or technology innovation.

This analysis covers key trends and influencing factors in the market (particularly in the section, "The Future of Competition"). Pursuing the key factors can establish CSPs' differentiation and shape the competitive landscape.

Pursue Data Center Transformation Projects

Many enterprises built their data centers during the past eight to 10 years, on the standards of the 1990s. They are now outdated systems where the reliability of the architecture and power and cooling systems cannot meet current requirements. High energy consumption and operational costs are a big problem for CIOs. Major enterprises in the Asia/Pacific region are undergoing data center transformation projects, which vary among different enterprises.

For large enterprises, data center transformation means improvement in the quality and agility of their data centers. For midsize enterprises, it often means partnering with qualified hosting service providers to migrate their servers and applications smoothly to high-quality data centers to improve business continuity. Small or midsize businesses (SMBs) need the help of external hosting providers to improve the agility and reliability of their data centers and to reduce costs.

Many enterprises can't manage this significant upgrading on their own, so they need partners (such as CSPs), to help them improve their data center hosting services and implement data center transformation projects. Most CSPs have improved the reliability of their data center facilities and their energy efficiency by migrating existing data centers or opening new high-quality data centers in the region. Additionally, some CSPs have also improved their expertise on data center managed services to help enterprises implement their projects more easily.

Managed Services Make a Difference

The data center hosting market continues to grow and will evolve gradually to include cloud IaaS. Many CSPs believe cloud computing will offer significant opportunities, which is encouraging more of them to invest in this market segment. Established CSPs have expanded their facilities in anticipation of future demand (AT&T, for example) and new players have entered the marketplace, offering various-sized facilities (Tata Communications, for example).

The supply of hosting capacity has greatly increased. Most CSPs have started to expand their data centers' space or opened new data centers in the region. NTT Communications, for example recently begun construction of additional data centers in Hong Kong and Singapore and plans new data centers in the emerging markets of Asia/Pacific. Tata Communications has recently opened a data center in Singapore with a capacity of 66,000 square feet.

We expect an oversupply of capacity within the next two to three years, which will put pressure on pricing and lead to commoditization, leaving it difficult for CSPs to differentiate themselves from their competitors.

CSPs should concentrate on data center managed services, which involve all aspects of IT, ranging from data center facilities, hardware, infrastructure and operating systems, to security and applications. Enterprises usually demand different levels of managed services from their service providers. One CSP alone cannot offer all aspects of managed services or compete in all segments of the market, because different areas of managed services require different types of expertise.

Most CSPs support up to operation systems support level, but the breadth of managed service offerings varies between them, as does their ability to handle complex projects. Few CSPs support application-level management, so selective products offering managed or hosted applications can make a difference.

However, CSPs should not extend their managed services to the application level just to create differentiation because their selected applications should be a good match for their level of expertise. They should consider offering hosted communication applications, such as hosted unified communications services.

The level, breadth and depth of managed services and a provider's ability to deliver, is a key competitive differentiator for CSPs.

Virtualization as an Enabler

As the adoption of high-density equipment in data centers, such as blade servers, becomes more widespread, energy consumption is a key issue for many enterprises and service providers. In some cases, the cost of power consumption takes up to 50% of total operational costs. Spreading the power and under-floor cooling across large data centers is difficult and with the rise of power and cooling consumption causing concern, many servers and areas of storage space in data centers are highly underutilized. To this problem and that of high energy consumption, virtualization is seen as a way to improve asset utilization and make better use of energy.

Virtualization involves several aspects of IT, ranging from server, storage and networks to applications, databases and desktop devices. Many enterprises in the Asia/Pacific region are deploying virtualization programs, especially large enterprises. Virtualization technologies push traditional collocation, with dedicated hosting services evolving to cloud-based hosting services.

CSPs have begun to offer more virtualization-enabled hosting services in Asia/Pacific. Their virtualization solutions start at server and storage level and will gradually cover all aspects of IT during the next three years. Virtualization services allow CSPs to differentiate themselves from their competitors.

Competitive Situation and Trends

The trend of data center and Web hosting in the Asia/Pacific market continues to grow in 2011. We forecast the market in Asia/Pacific will increase from $2,007 million in 2010 to $4,466 million in 2015, with a compound annual growth rate of 14.3%. The growth of managed hosting services comes from an increase in the volume of demand and a move toward higher-quality data center facilities.

Table 1 shows the key market drivers and inhibitors influencing hosting market trends in Asia/Pacific.

Table 1. Key Market Drivers and Inhibitors Influencing Hosting Market Trends in Asia/Pacific

Market Drivers Market Inhibitors
Multinational companies have expanded their business markets and geographies deep into Asia/Pacific, which increases demand for data center hosting services. Data center capacity has greatly increased and it is likely that an oversupply of capacity will occur.
Enterprises are migrating their data centers and undertaking data center transformation to meet high-density servers and energy requirements. A continuous trend for the commodization of data center colocation and hosting.
High growth rates of data and information demand more storage and hosting capacity.
The acceleration of cloud computing increases the importance of hosting capability. CSPs are constructing high-grade data centers to support cloud computing services.
The earthquake and nuclear incident in Japan has driven customer demand for collocation services outside of Japan for security reasons.
CSP = communications service provider

Source: Gartner (June 2011)

Market Players

CSPs play an important role in the data center hosting services market, as they generally have sizable data center facilities and extensive networks. However, their offerings vary greatly, depending on their product strategy and how they prioritize their resources.

In this research, we have decided not to include all CSPs in the "Competitive Profile" section. We are focusing on several key players only that have gained significant mind share, or are emerging players, or players with a distinctive approach to solving the problem.

The Future of Competition

The innovation in technology and service delivery models has driven the evolution of the hosting services market, which will reshape the competitive landscape in the next five years.

Regional Delivery Capability as a Competitive Competence

Most CSPs are increasing their hosting capability in the Asia/Pacific region, which is leading to fierce competition. The competitive landscape requires CSPs to ramp up their regional service delivery capabilities and avoid concentrating on a few specific markets, which is not enough to address the demand for business continuity from multinational enterprises.

It is becoming important to set up local data centers in key emerging markets, such as China and India for proximity hosting and performance. The boom in regional trade in Asia/Pacific also demands regional delivery capability. The earthquakes in Japan and in the Pacific area around Taiwan have enhanced the emphasis on the importance of business continuity. However, we don't encourage CSPs to set up data centers in every country in Asia, as it would be very expensive and complex to implement.

Established CSPs are improving data center regional coverage by acquiring data center space through leasing, retrofit or building it themselves. We believe some CSPs with fewer data center assets and competitive products, will obtain the capability by acquiring existing, successful non-carrier hosting providers.

Competition in the Commoditization Market

The continuous commoditization trend in the IT industry is gaining popularity. Moore's Law states that the IT industry is inevitably moving toward commoditization. The data center hosting market is following a similar trend, where commoditization began with network bandwidth, followed by computing and storage resource and will finally reach aspects of application and services. To mitigate the influence of commoditization, service providers are attempting to standardize their platforms and production methods to handle large quantities with uniform quality to achieve economies of scale.

Improvements in technology have created a highly-reliable IT infrastructure, which enables standardized IT resources, such as computing and storage. The dramatic growth in the usage of the Internet and Web technologies, reinforces the adoption of standardized technology.

Dedicated hosting services have evolved to utility-based hosting in the past three years and evolved further to IaaS. Commoditization is an inevitable trend in the hosting industry, as enterprises are increasingly interested in on-demand resources and a usage-based delivery model. CSPs should adopt a proactive approach to make economies of scale or increase more value to their customers, otherwise they will lose their competitive competence. They also need to consider which aspects of their offerings are commodities and which aspects are suitable for differentiation.

Competition in Cloud Computing

Many CSPs believe cloud computing is the next big opportunity. Part of their interest on data center assets and hosting business comes directly from the growing demand, but CSPs mainly hope to set up a foundation for cloud computing business in the Asia/Pacific region and focus on cloud computing capability in the future.

Cloud computing services include IaaS, platform as a service and software as a service. CSPs have extensive IT infrastructures and established customer bases, which give them an advantage to initiate the steps toward a cloud computing ecosystem. However, many CSPs lack cloud-related engineering skills and content delivery experience, so technology partners and channel alliances need to be carefully selected.

Major CSPs have launched their early cloud computing services in Asia/Pacific, ranging from basic IaaS to a broader coverage of services and most are targeting a specific market segment with typical use cases to test market reaction for the new business model. The market has evolved quickly and the competitive landscape will change rapidly.

We believe CSPs will develop more mature cloud services during the next three years and will be differentiated by their investment prioritization in technology development and engineering and their different skill sets in sales, marketing and service delivery. However, over-investment in data centers and cloud infrastructure may result in the creation of a competitive "bubble" and aggressive pricing. Therefore, CSPs should avoid over-constructing their market presence.

Competitive Profiles


Market Overview

AT&T invested in its enterprise hosting business quite early on in Asia/Pacific, as part of its enterprise managed service portfolio. To date, AT&T has nine data centers in this region, including one super data center in Singapore, supporting its synaptic cloud computing services. It has three data centers in Shanghai, China and two data centers in Hong Kong to address the increased growth for enterprise hosting demand in the greater China region. Its other data centers are located in Sydney, Australia, Tokyo, Japan and Bangalore in India.

Product and Market Strategy

AT&T offers a broad range of hosting services to support its targeted customers, supported from its global footprint of 38 secure AT&T enterprise-class data centers of which nine are based in Asia/Pacific. Its hosting product ranges from colocation, managed hosting services and utility hosting services, to its recently launched, fully on-demand cloud computing and storage services.

Besides facility-based services, AT&T also offers managed services, from hardware platforms to operating systems at Web and database level, up to enterprise applications, e-commerce applications and messaging and collaboration. Additionally, AT&T can manage clients' existing facilities remotely and offers shared or dedicated hosting, with 99.99% availability, backed by SLAs.

How This Vendor Competes

AT&T targets large multinational companies with hosting requirements in Asia/Pacific. Leveraging its network infrastructure and data center facility, AT&T hopes to build up global delivery capability. The company believes that cloud computing will bring significant market opportunities for future growth, which is reflected in its quick decision to move to a cloud computing strategy.

Verizon Business

Market Overview

Leveraging its strengths in network infrastructure and extensive managed services, Verizon business offers a broad hosting choice for its enterprise customers, including colocation, managed hosting services and application hosting services. Its recently opened data center in Hong Kong acts as regional center to support its cloud computing services.

Market Strategy

Verizon Business also believes that cloud computing is a big opportunity and the acquisition of Terremark has enhanced its core proposition for cloud computing. Early adopters (SMBs) were gradually replaced by enterprises customers and enterprise-class applications.

Combining Terremark's data center facility, Verizon Business is forming a global cloud computing and hosting infrastructure, but has to address redundancy in three continents and hopes to gain global delivery capability to address the demand for global enterprise operations. Its acquisition of Terremark has enhanced Verizon Business' core proposition for cloud computing to enable it to launch its "Computing as a Service" cloud services in Asia/Pacific during the last year.

How This Vendor Competes

Verizon Business offers hosting services as part of its IT services in Asia/Pacific to address customer demand beyond network connectivity. The company offers selective application hosting services to its enterprise customer in the region.

It is worth noting that Verizon Business is one of few CSPs to be granted SAP certification for SAP customer relationship management applications hosting and management services. Additionally, its leading position in the managed security service (MSS) market in Australia and the availability of MSS throughout Asia via its Cybertrust acquisition, helps the company to address broader enterprise requirements for cloud services.

Orange Business Services

Market Overview

Orange Business Services offers hosting as part of its IT services, including colocation and managed IT infrastructure services. It recently launched a flexible computing range of services, comprising cloud consulting, virtual private cloud services and dedicated private cloud services for infrastructure and applications. Orange wants to extend its hosting products to bring more value and flexibility to its enterprise customers to enable it to offer a gradual path to cloud IT transformation. This will be achieved by proposing traditional managed and integrated IT services, along with fully-virtualized and on-demand private infrastructures.

Orange has launched virtual private cloud services across Asia/Pacific, delivered through a data center infrastructure across Sydney and Singapore. Orange has also expanded its data center facility coverage across Asia/Pacific and Japan through partnerships, to deliver dedicated private cloud solutions.

Market Strategy

Orange Business Services has a comprehensively managed IT services portfolio with global IT infrastructure operations and the company manages all its data centers services with global processes, certifications and management tools. Besides offering dedicated private and virtual private cloud computing services, Orange is positioning itself as a cloud services aggregator to offer hybrid cloud services by using cloud federation services to integrate public, private and on-premises solutions, along with private application stores - which can all be accessed through a common portal.

How This Vendor Competes

Orange Business Services has a large IT services team in the region, which helps the company to handle complex IT projects, such as data center consolidation and transformation projects. Leveraging its extensive network infrastructure and managed professional services, along with real-time business solutions capability, Orange can provide broad hosting and outsourcing solutions to handle all aspects of the IT needs of large organizations.

BT Global Services

Market Overview

BT Global Services is a leading network IT services and professional services provider. BT continues to invest in managed services and IT capability in Asia/Pacific and has increased its data center hosting capability in the region through its acquisition of Frontline. BT currently has five data centers in Asia/Pacific, covering key markets such as Singapore, Japan, Hong Kong and Australia.

Market Strategy

BT has a clear vision of the networked IT service market and has progressed further in managed services than most other CSPs. It has promoted its data center strategy as fundamental to its future success for cloud services and its managed data center services and IT skills are achieved through internal investment and external acquisitions. BT offers virtual data center services in several markets in Europe, which has extended its hosting portfolio from dedicated platform to virtualized environments. It is likely that BT will extend its services to Asia/Pacific during 2011 and 2012.

How This Vendor Competes

Leveraging existing data center assets and frontline data center assets, BT can build a regional data center with wide geographical scope. It provides basic colocation and managed hosting services to support its focus on multinational customers, especially large multinational financial companies.

BT engages its customers through well-defined professional services, which is a value-driven approach and focuses on customers' business issues and road map development. It also provides customers with on-premises data center services as part of its managed services.


Market Overview

NTT Communications (NTTC) invests aggressively in data center facilities in Asia/Pacific to create a strong presence in the region. Its new data centers in Asia/Pacific emerging markets, cater for the strong demand for hosting and colocation services. NTTC is also constructing Tier 3 data centers (that are Tier 4-ready) in Hong Kong and Singapore and its new Hong Kong data center will be its biggest outside of Japan, with 30,000 square meters of land space. NTTC currently runs data center services in 31 cities across 20 countries and regions outside of Japan. It has the best data center footprint in Asia/Pacific, with coverage in 12 Asia/Pacific countries.

Market Strategy

NTTC targets midsize to large enterprises for both Asian and Western multinational customers. It provides a broad range of hosting services, including colocation, dedicated hosting and virtualized hosting services to meet the demand for broad-range hosting across the region. NTTC is one of the few CSPs that has a complete regional hosting delivery capability.

The earthquake and nuclear incident in Japan pushed NTTC to invest more aggressively in data centers and disaster recovery sites in Asia/Pacific, especially in south eastern countries and emerging markets.

How This Vendor Competes

NTTC sees high-quality network infrastructure and data center platform as core competencies. It gained regional delivery capability in Asia/Pacific through investment in sizable data center facilities in major Asian countries, including emerging countries. NTTC also built up a network of low latency cables to interconnect its core data centers in Japan, Singapore, Hong Kong and the U.S. to provide rapid data backup and fast application performance.


Market Overview

KDDI/Telehouse is expanding its data center presence in Asia/Pacific and other regions. It recently launched seven new data center sites, covering Shanghai, Hanoi, Johannesburg and Istanbul. Additional sites have been set up in New York, London and Hong Kong.

Market Strategy

KDDI/Telehouse is a focused service provider. Its main business strategy concentrates on high-quality network connectivity, data centers and system integration services. Its data center business is under the brand name "Telehouse," which focuses on colocation services, with value-added services on top. Telehouse provides data center facilities to global carriers, CSPs and large organizations which demand high-quality data center facilities in the region. The Telehouse brand also provides data center colocation services to multinational companies.

KDDI is expanding its Telehouse investment in Asia/Pacific to support the demand for colocation services outside of Japan (following the recent earthquake and nuclear incident).

How This Vendor Competes

Telehouse poses a different competitive edge to other CSPs. It positions itself as a neutral carrier and colocation service provider, which enables its customers to choose connectivity from different network service providers. Telehouse also gives its customers more flexibility to control their IT assets. It is building up IT services capability to meet growing demand for data-center-related IT services. By leveraging its IT management skills and system integration capability, Telehouse is adding more value for its customers.

Singapore Telecom

Market Overview

Singapore Telecom (SingTel) has more than 10 data centers in Asia/Pacific, covering four countries: Singapore, Hong Kong, Australia and Japan. SingTel is highly competitive in its home market as its eight data centers located in Singapore include a data center built to Telecommunication Industry Association (TIA) Tier 4 standards, with 150,000 square feet of usable floor space and up to a 2 kW per square meter power rating.

SingTel offers multiple hosting services, including colocation, managed hosting and virtual hosting services and its PowerOn Compute Services (partnering with Cisco, VMware and EMC), which is an enterprise hybrid cloud IaaS that was launched in April 2011.

Market Strategy

SingTel targets global multinational companies (including those in Asia) with data center hosting requirements in Singapore as regional hub. Recently, SingTel has set up a stake in Hong Kong and is planning a second data center in Hong Kong to cater for the growing demand for hosting and related IT services in the East Asia market.

Singapore Telecom believes that cloud computing will bring new market opportunities and is one of several Asian CSPs to launch IaaS cloud computing services early.

How This Vendor Competes

SingTel offers hosting services as part of its managed service portfolio. Leveraging its Internet Protocol network, good geographic coverage and IT arms, SingTel hopes to go beyond connectivity. The company utilizes Singapore as a regional hub to meet the centralized hosting requirements of multinational enterprises and supports their businesses in the Indian sub-continent and South East Asia. SingTel has also set up a wide alliance outside of Singapore to address the local hosting requirements of multinational enterprises.

Tata Communications

Market Overview

Tata Communications is quickly becoming a global service provider. It currently operates more than 1 million square feet of data center space globally and is still aggressively expanding its global facility. In Asia/Pacific, its strength is in India, with 11 data center facilities in seven large cities. Outside of India, Tata Communications has built up a foothold in Singapore, Hong Kong and Japan. The recently opened data center in Singapore is a "Tier 3+" data center with 66,000 square feet of available space, supporting its cloud computing services for the entire Asia/Pacific region.

Market Strategy

Tata Communications has started to target domestic and multinational organizations with hosting requirement in India. It will gradually expand its products to meet the hosting requirements in the Indian sub-continent and South East Asia region and major cities in the Europe and the Americas. Tata Communications offers broad hosting services, including colocation, managed hosting, virtual hosting and data-center-related IT services, such as database management, storage management and backup services. It has an aggressive approach of pushing its cloud computing products to compete on equal terms with established CSPs.

How This Vendor Competes

Tata Communications offers colocation services in its 17 data centers in Asia/Pacific across India, Singapore, Hong Kong and Japan. In addition, the company utilizes its premium data center in Singapore, along with its reliable facilities in Mumbai, Chennai and Hyderabad, to augment its network capabilities and provide a suite of managed hosting services in India and South East Asia for both domestic and multinational enterprise, beyond network connectivity to and within India.

Tata Communications has also gained a foothold in Hong Kong and Tokyo and is preparing to spread its business across the whole region.

Tata Communications embarked cloud computing services early. Together with other so called "next generation services" such as data center service and Ethernet service, Tata Communications has chance to become a disruptive player in the changing market landscape.

References and Methodology

Gartner conducted research for this analysis, which is based on primary and secondary sources. Primary sources include vendor briefings, feedback from CSPs' customers and Gartner discussions related to Magic Quadrant data, as well as community discussions.

Secondary sources include public information sources, CSPs' website information, financial information and interviews with main companies and trade journals.

Recommended Reading

"Competitive Landscape: CSP Hosting Services in Asia/Pacific"

"Data Center Managed Services: Regional Differences in the Move Toward the Cloud"

"Magic Quadrant for Asia/Pacific Network Service Providers"

This document is published in the following Market Insights:

Enterprise Network Services Worldwide

Telecom and Internet Markets Asia/Pacific

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