Data centre provider gets $190 million in second round financing

Pihana Pacific, an internet data centre provider, has raised $190 million in a second round of financing, with Goldman Sachs as the lead investor.

The funds will be used to build internet exchange (IX) and data centres throughout Asia Pacific, starting with Japan, South Korea, Hong Kong, Singapore and Australia.

IX and data centres provide the facilities for interconnections between carriers (telecommunications providers), internet service providers (ISP), bandwidth providers, and content providers. This means that industry players can be brought together in the one purpose built co-located facility, and customers can interact with various vendors and partners in the one spot.

"The centre of our strategy is our neutrality," says Lambert Onuma, Hong Kong-based chairman of Pihana. The company is not affiliated with any carrier, internet network providers and therefore will allow customers the choice between telecommunications companies, bandwidth providers, ISP and content providers.

Co-location, a service whereby an ISP hosts a customer's web server at its premises, has been evolving into comprehensive data centres or IX, where bandwidth providers and various carriers also congregate. These data centres have been sprouting up around Europe and the US in the last few years and the trend looks likely to be repeated in Asia.

"What we are seeing is the evolution of co-location centres, or 'carrier hotels'. These 'carrier hotels' are looking to offer a range of facilities, with co-location as its key centre, stretching to web-hosting, and other value-added services, a one-stop-shop," says Philip Low, deputy managing director of The Phillips Group, an international telecommunications consultancy. "What has surprised us in our research is the speed and scale of colocation roll-out in Tokyo. If these plans are typical, which we believe they are, given the entry of global carriers, local players and real estate companies, the advantage of Asia is its ability to leap frog Europe and the United States."

But it is still early days for Pihana and their investors: "It is still a case of the chicken and the egg here in Asia," says Onuma. "Once large telcos come on board, then the large ISPs, ASPs and then content providers will follow."

"Carriers will still have their own locations, but two years from now, there will be a shift to internet exchanges like ours," predicts Richard Kalbrener, CEO and president of Pihana.

Low from the Phillips Group, has one caveat on the future growth of this industry. "At the moment, equipment in the industry is very big, you need appropriate facilities to house them. But the way technology is going, such equipment makers like Nortel will tell you that switches, for example, are getting smaller and smaller. So we wonder how long the model will last."

By 2001, Pihana aims to have internet exchanges in 23 locations. The company expects to generate $30 million to $40 million in revenue a year and to break even within 14-18 months. Customers can expect to pay between $500 and $800 per square foot to house their facilities and to take advantage of the value-added services such as disaster recovery, technicians, security, and billing services.

Pihana will be looking for further funding within the next six weeks, and wants to bring in some Asian investors in this third round. No doubt the funds will be needed - according to Low, it will cost around ú50 million ($72.6 million), to build a state of the art facility with the appropriate power and security.

Pihana Pacific was founded in January 2000, with seed capital of $12 million from Columbia Capital, which was also a participant in the second round and remains the largest shareholder in the company. Other investors in the second round are Morgan Stanley Dean Witter Private Equity, LoneTree Capital, Mori Building Co Ltd and Hewlett-Packard.

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