Unlimited Potential: Cross-Connects Might Be “Whole New World”

DALLAS, TX – CapRE’s Sixth Annual Dallas Data Center Summit took a wide view of the data center game in northern Texas – honing in on all aspects of the arena, from capital markets to M&A to connectivity. And to get to the crux of what’s happening at the intersection of all three, the panel Connectivity in Texas: Analysis of Dark Fiber, Latency Challenges and Innovations in Telecom kicked off with a discussion about the impact of Cloud connectivity on the data center game, especially in the Southern and Southeast U.S.

New Square“If you take a look at a couple of things that have happened, first is Cloud connectivity,” began TJ Karklins, Principal at Global Vectors Llc. “The Cloud providers basically make all of the data centers and allow people to get to the Cloud. If they don’t allow them to get to the Cloud, then it’s a big problem. And so with the holes that are being cut in the side of each data center, to allow Amazon and Azure and Google connectivity, are holes that can be leveraged, frankly, for SDN and other things to get in and deconstruct that, pull that connectivity out of those key buildings, and into Edge providers and into the other data centers.”

“If you take all of that together, then I think there are ways to network around all of this,” he asserted. “From the physical, going out to the manhole outside of Infomart, and being able to connect things up, to doing it virtually, which is going to be so much faster and much more effective. And so I think we’ll see that accelerate. It’ll be good for this market and it’ll be good for all of the players in it.”

To that, a member of the audience posed a follow up question. “You said that cloud operators are going to force a bypass?” he asked.

TJ Karklins, Principal, Global Vectors Llc

“Yeah because with cloud contracts, you have to get there,” replied Karklins. “If they have to let you through, then how do you bypass once you’re on the network? Well one way is, and no one is doing this, you can go to Amazon, cross-connect on the back side of their switching, to somebody else, and loop in an out of Amazon. But once you’re in there, and you’ve gotten into that fabric that’s connecting you to the Cloud, what’s to keep you from connecting to anywhere?”

Because all it is, according to Karklins, is a virtual circuit at that point. “I could come into that portal and turn outside of it and connect across the street, instead of to Amazon,” he explained. “I’m sure there are contractual limits on all of that, but there are going to be way too many boxes that are way too smart. Juniper and CISCO are putting all of this capability in. Every single box is going to be a way out and across. And that’s a new world.”

“What about just getting rid of the boxes and just running everything off of software – SaaS?” asked the same member of the audience.

“Well, that’s exactly right – in a Cloud switching environment,” Karklins cautioned. “Which could be done ultimately. Today there is a physical layer. But the physical layer of one port on the new SDN array is going to have thousands of connections running across a single cross-connect. And so you can break that out and do that. it will be software-controlled and the physical is going to be less important. but today, what are we paying for? In the cross-connect we are paying for the physical.”

“The economics are compelling,” he concluded. “10% of the revenue of these companies that are connectivity-focused is cross-connect. But that’s a 90% margin. So it’s more like 15% to 25% of the operating profits. And so it’s a big deal.”

For more coverage of this panel, check out earlier CapRE Insider Reports: