Co-location specialist Peer 1 Network Wednesday opened its third Canadian data centre in Montreal.

Peer 1’s Montreal centre is 5,000 sq. ft. Its Toronto centre is 3,000 sq. ft. and the Vancouver centre is 12,000 sq. ft. Those

are a far cry from the data centres operated by companies like Exodus Communications which spanned hundreds of thousands of square footage.

But Exodus filed for Chapter 11 protection last year and other well-known providers like Teleglobe and PSINet have also hit dire straits. Peer 1 has deliberately built small to avoid piling up debt and burning through capital, according to Peer 1 president and CEO Geoff Hampson.

“”Our feeling is we want to be able to grow as the demand grows. Rather than building huge facilities and waiting for them to fill up, we build relatively small facilities that we can expand,”” he said.

There’s also less need for acres of space since the technology is getting smaller, noted Hampson. A room that could house eight servers three years ago can now fit more than 250, he said. The challenge is no longer real estate but providing sufficient power and air conditioning to servers crammed into a smaller space.

The Vancouver-based company offers co-location predominantly to Internet service providers (ISPs), application service providers (ASPs) and managed service providers (MSPs). These customers use Peer 1’s data centres to house their servers and provide them with bandwidth. Peer 1 won’t go the route of hosting data itself because it would be competing with its own customers. “”We don’t need the distraction,”” added Hampson. “”We really want to be the very best at offering bandwidth and co-location so that customers that then turn around and offer those value-added services will come to us for their infrastructure. That’s really the business model. We’re not trying to be everything.””

Managing a data centre is an expensive proposition when you factor in the need for air conditioning, security and redundant power supplies to ensure uptime. That reality may provide more ISP customers for Peer 1, said Mark Quigley, analyst with Ottawa-based Yankee Group in Canada.

Cost is an increasing concern for Canadian ISPs. A June Pollara Inc. study indicates that almost one in five ISPs are losing money while 40 per cent have operating margins of less than six per cent. There are 536 ISPs in Canada serving 1,000 or less users, and about 400 with 1,000 customers or more, according to the study. Sixty per cent of Canadian ISPs earn less than $1 million in annual revenue.

In order to compete, ISPs need to keep expanding their service offerings, said Quigley, and they’ll need a data centre to provide them with extra capacity. “”One thing I think ISPs are finding is that while the access business is certainly an important one, there’s more and more depth being required in terms of what they can provide their customer base,”” he said. “”Companies that don’t have the abilities to offer those kinds of services I think are going to find that they lose out competitively to companies that can.””

By offering data centre space to ISPs, ASPs and MSPs, Peer 1 may have a successful revenue model, said Quigley, but the company might have to watch it doesn’t “”become a victim of (its) own success. Your business builds so quickly and you’re at the point where it becomes difficult to turn around and scale because you’ve limited yourself by building smaller data centres in the first place.”” But that won’t be an immediate concern, he added.

Peer 1 also has locations in New York and Seattle and peering arrangements (network sharing agreements) with tier one and tier two telecommunication companies. “”The next phase for us is to seek out new peering relationships,”” said Hampson. “”Typically those will be further south in the United States.”” Hampson is aiming at Miami, a large hub that also serves South American Internet traffic, but also at parts of Europe like London and Amsterdam.


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