Surge In Wireless Data Could Shift Key Connectivity Points, Redrawing The U.S. Data Center Map

The interconnection of telecommunication cables has long been a foundational consideration when it comes to where data centers are built, but the emergence of 5G and a surge in the volume of wireless data are driving a shift in where those interconnection points need to be, changes that may redraw the data center map. 

In the earliest days of the internet, commercial internet service providers like AOL and CompuServe agreed that in order to create a unified World Wide Web, it made the most economic sense to have their physical networks connect in single locations all over the world.

This model of connectivity has been one of the primary forces shaping where major data center markets have emerged. Technology companies first began building data centers in Loudoun County, Virginia, because it was the location of one of the first of these interconnection points. Loudoun and other major U.S. markets like Phoenix and Chicago sit at the nexus of major telecommunication cables. This model of connectivity remains today.

The growing flood of data flowing through today’s ever-more-complex data center and IT infrastructure requires data centers to have access to a wide array of networks and interconnection opportunities at a given site, further drawing operators to existing hub markets where these robust interconnection ecosystems already exist. 

But industry insiders tell Bisnow that a seismic shift in the connectivity landscape is underway, driven by the emergence of 5G. The technology will dramatically increase the amount of data transmitted through wireless networks and enable new technologies like mobile gaming, virtual reality and autonomous vehicles — industries that require computing power and interconnection close to end users rather than in major hubs.

This trend is an imminent reality, and American Tower’s CEO said it was a primary force that drove the company's $10B acquisition of data center REIT CoreSite late last year. Experts say it will continue to change the development calculus for data center providers. 

“If you believe the internet is going this direction and that we’re not even 10% of the way to where we will be by the end of the decade in terms of the number of devices on the internet, that’s going to drive a lot more traffic towards the edge and in turn drive the need for more interconnection locally,” said John Hardie, managing vice president at data center provider PhoenixNAP, speaking at Bisnow’s DICE Southwest event last Tuesday.

Although a more decentralized model of digital infrastructure — so-called movement toward the edge — has been a prominent talking point in the data center industry for years, the rapid digital transformation accelerated by the pandemic has actually pushed data center development toward existing hub markets. This is due, in no small part, to the growing need for interconnection.

Connectivity needs have become more complex as companies increasingly split their IT infrastructure between colocation data centers and cloud providers, which need to interact seamlessly with each other. At the same time, these companies are using more data than ever, all with lower latency requirements, higher reliability standards and growing cybersecurity needs. This means data center tenants need access to dozens of different networks — both public internet service providers like Verizon or Comcast or private networks offering high-speed and high-security connections along specific routes — allowing them flexibility in how they design their IT systems for speed, security and reliability. 

It is not uncommon for a colocation data center in a major market to have more than 40 different networks available to tenants, something that is only possible in a hub market. Data veneer tenants and hyperscalers also increasingly need to interconnect directly with each other, which is only possible if they are in close physical proximity. It’s why providers and tenants are willing to pay huge premiums to be located in places like Northern Virginia.

Wil Tirado, vice president of global carrier engagement and strategy at EdgeConneX, says interconnection is the best indicator of the success of a data center. He points to Miami, which he says is exploding as a data center market beyond what would be expected based on the needs of the region itself. 

“Miami’s a big market because of the connectivity down to South America. We’re actually working on a third data center in Miami just because of all the connectivity that is going out of the U.S.”

While these data center hubs aren’t going anywhere, industry insiders say the long-predicted movement toward the edge is finally getting underway, sparked by the initial rollout of 5G earlier this year. 

While the most significant use cases for 5G like self-driving cars and cloud-based gaming are still in their infancy, data center providers and others in the digital space have ramped up spending to get ready for what they see as the impending emergence of the so-called wireless edge. They are preparing for the enormous connectivity challenges of a reality in which the tens of thousands of cell towers scattered across North America become the collection points for loads of data that would previously only have been possible with fiber. 

Although it’s unclear exactly how this new interconnection ecosystem will evolve, providers like EdgeConneX and PhoenixNAP have invested heavily in micro-data centers and connectivity points located at or near cell towers. PhoenixNAP’s Hardie says the company is currently experimenting with distributed interconnection on cell towers in a number of U.S. markets through a partnership with American Tower. The company has already installed what are effectively micro-colocation data centers at cell tower sites that provide both processing capacity and the ability for tenants to interconnect with one another. 

“We’ve done it at a few cell towers — we’ve just turned on our first node with them in Austin and we’re turning on a few more right now,” Hardie said. “We really think that’s the future of not only how people will interconnect, but also how they’ll consume data center infrastructure.”

American Tower has been particularly aggressive in positioning itself for this increasingly distributed digital infrastructure and data center landscape. Speaking on the company’s earnings call in late April, CEO Tom Bartlett told analysts that the company’s headline-grabbing $10B acquisition of data center REIT CoreSite was largely an effort to have a hand in all aspects of this new digital ecosystem, from the towers where the 5G nodes and micro data centers are located to the data centers housing the major interconnection points. He says it is a transition that’s already well underway.

“As the 5G revolution begins to unlock new capabilities, we're beginning to see incremental deployments resulting from AR/VR, gaming, artificial intelligence, machine learning, and other next-generation use cases, which require lower latency,” Bartlett said. “We would only expect this trend to accelerate and drive more demand for our data center campuses over the coming years while pushing storage and compute requirements further out to the network edge.”

Bartlett emphasized the strong interconnection available in CoreSite’s data center portfolio, adding that his focus is on using the facilities to strengthen the value of the company’s tower sites. In other words, the value of CoreSite’s data centers is largely to provide central connectivity points for the expected flood of data from the company's thousands of towers. 

“As the 5G environment continues to take shape, we believe we're uniquely positioned to drive continued long-term value for shareholders while playing a critical role as an industry leader in this evolving 5G landscape,” he said. “We’re trying to unlock the edge and work jointly with both of our customer sets on figuring out how we can play a meaningful role in that development. It’s going to take a while for this to unfold, but that's really where our focus is.”