Switzerland. Touching the sky, banking on cloud
If there is a place where it is possible to touch the clouds in the sky and use the digital cloud on Earth it is Switzerland. The 728-year-old Swiss Confederation has as many natural wonders as interesting use-cases of cloud adoption and data centre expansions. From colocation providers, to hyperscalers, IT services providers, crossing a whole range of other market players and new technologies like blockchain and artificial intelligence, Switzerland is booming. And no one noticed. João Marques Lima reports.
The Alps are the highest and most extensive mountain range system that lies entirely in Europe and reach its peak at nearly 15,800 sqf high or 4,808 meters. Despite touching the sky and romping through the clouds across eight European countries, across the land, a new cloud is being touched and that is cloud computing.
All states are currently undergoing a transformative cloud journey with data centres being built. However, it is in some ‘hidden markets’ that interest is growing considerably.
While most eyes have been, for instance, on the Nordic region and Dublin in recent years, Switzerland has quietly added up to its data centre footprint, counting with facilities from some of the world’s largest colocation and wholesale players, as well as hyperscalers.
Although not the largest or most populated country in Europe at 8.5 million citizens and 41,285 skm of land, Switzerland, which has remained independent from Europe, has over the centuries proven to be a beacon of stability and has transformed itself into one of the most important financial clusters in the world.
It’s GPD has grown from ‘just’ $197bn in 1980 to more than $660bn by 2017 and is estimated to have nearly topped $710bn in 2018, making it the world’s 20th largest economy, according to the International Monetary Fund. However, Switzerland ranks second in terms of per capital nominal GDP at $82,950, only behind Luxembourg’s $114,234.
The number of internet users has boomed in the last decade, from around 2.1 million in 2000 and a 28.8% penetration rate, to anywhere between 90% and 94% at the end of 2018, according to different reports.
Smartphone penetration is also relatively high, with users expected to grow to 7.33 million by 2021, 2.16 million more than in 2015, reports Statista.
The rapid digitalisation of enterprises and financial institutions, which historically have been slower to adopt cloud-enabled technologies or move a sizable portion of their data assets to the cloud, is also driving the market forward.
The managed private cloud market in Switzerland was worth nearly $450m in 2016, according to figures used by Zurich-based law firm Bär & Karrer. The public cloud market was estimated to be $801m that year. The overall Swiss IT market (hardware, software and IT services) was in 2016 evaluated at $26.7bn. All figures are expected to have risen over the years.
In a study by Research in Action commissioned to operator Interxion, the think tank found that by 2020, more than half of Swiss IT decision makers (51.4%) expect to be outsourcing their data to the public cloud. The on-premise share is predicted to drop from today’s 47.7% to 26.3%. Public cloud is in fact expected to grow much further in the coming years, with hybrid cloud ecosystems becoming more prevalent.
The Government has also taken to the cloud, and in October 2012 signed the Cloud Computing Strategy, which was drawn up by the Federal IT Steering Unit (FITSU) together with experts from the Confederation, the cantons, the communes, enterprises affiliated with the Confederation and the private sector, and adopted by the eGovernment Steering Committee.
The eCH Cloud Computing Group has been working further on the cloud computing area since the end of 2014.
Host of options
Switzerland’s prime hosting clusters are located in the two global cities and economic centres of Zürich and Geneva, followed by Basel, Bern and Lausanne.
The largest data centre providers are Equinix, Swisscom, Orange Business Services, Green Datacenter, Interxion and Colt Technology Services, all attracted to Switzerland by the country’s high bandwidth penetration rates, a financial sector – including some of the world’s largest banks and financial institutions – continuing to go digital as well as enterprises.
According to Interxion, “Switzerland’s liberal economic system, competitive tax regime, highly educated workforce and political stability make it the ideal location for organisations looking to establish operations in the heart of Europe.”
The operator points out that although outside the EU, Switzerland has strong trading links with the EU and is bordered by three of its largest market economies (Germany, France and Italy).
On its turn, Equinix dubs the country as the “secure heart of Europe” with “a long-standing tradition of security, continuity, and confidentiality”. Equinix counts with nearly 400 customers across its 165,000 sqf data centre footprint in Switzerland, powered 100% using renewable energy.
According to ISG Research, the main leaders in cloud transformation, operation services and everythingas- a-service (XaaS), and manager public cloud services in 2018 were Swisscom, Atos, Accenture, Capgemini, T-Systems, Netcloud, EveryWare and Fujitsu.
Other companies worth noticing include IBM, Rackspace, Cloudreach, Nordcloud, BT, Infosys, Tech Mahindra and DXC which in January 2019 acquired digital transformation company Luxoft for $2bn.
Hyperscalers such as Amazon, SAP, IBM and Oracle are all serving the local market. Microsoft is expected to join in soon with two cloud regions in Zurich and Geneva.
Marianne Janik, CEO of Microsoft Switzerland, said of the opening: “As a company, we’re focused on empowering every organisation and person on the planet to achieve more. We intend to be the first global provider to deliver enterprise cloud services from Swiss data centres which will empower companies and institutions of all sizes and across industries to accelerate their innovation and increase their productivity. Through that we contribute to the digital transformation as laid out in our commitment to Switzerland.”
Earlier in 2019, Google’s SVP of Technical Infrastructure Urs Hölzle launched a region in Zürich, its sixth in Europe and 19th worldwide. The Zurich GCP region (europe-west6) was launched with three availability zones, enabling high availability workloads. Hybrid cloud customers can also seamlessly integrate new and existing deployments with help from Google’s regional partner ecosystem, and via two dedicated interconnect points of presence.
Kirill Tropin, Geographic Expansion Product Manager, said at the time: “The launch of the Zurich region brings lower latency access to GCP products and services for organisations doing business in Switzerland. Hosting applications in the new region can improve latency for end users in Switzerland by up to 10ms. Visit GCPing.com to see latency to the Zurich region from wherever you happen to be.
“The Zurich region launches with our standard set of products, including Compute Engine, Google Kubernetes Engine, Cloud Bigtable, Cloud Spanner, and BigQuery.”
Other recent developments worth noticing include EveryWare AG acquisition of iSource AG data centres in Glattbrugg, Energie Wasser Luzern’s ground-breaking ceremony of its 4MW nuclear bunker data centre in Lucerne, and Telia Carrier’s expansion of its Global IP Backbone with an additional Point-of-Presence (PoP) in Zurich.
What’s on offer?
As a landlocked country, Switzerland automatically is excluded from the countries where subsea cables land at their shore. Nonetheless, the country is well linked to its neighbours and some of the world’s most important city hubs.
Switzerland is also a key entryway for North America companies deploying in Europe. Its neighbours, Lichtenstein, Germany, Austria, France and Italy, are also home to some of Europe’s largest markets, making connectivity fast, and less than 30ms roundtrip latency to 80% of Europe, from Dublin to Moscow, and from Lisbon to Stockholm.
Again, being a world leader in finance, banking and international trade, make this location an attractive destination to data centre operators due to the high volume of business happening within the Confederation.
In terms of corporation tax, the Confederation taxes a flat rate of 8.5%. Nevertheless, Swiss cantonal tax rates vary considerably. In general, they are progressive depending on different factors.
PwC explains that as a general rule, the overall approximate range of the maximum CIT rate on profit before tax for federal, cantonal, and communal taxes is between 11.5% and 24.2%, depending on the company’s location of corporate residence in Switzerland. Reduced CIT rates usually apply for companies subject to a special cantonal tax regime (e.g. holding companies, domicile companies, mixed trading companies).
On the energy front – another important leverage for any data centre operator -, power is abundant and nearly three quarters of it is produced through renewable sources, with the country heavily investing in ending its dependence on fossil fuels. For example, one of the five nuclear power plants across the Confederation is set to shut in 2019, with the remainder being turned off over the next decade.
According to the Swiss Federal Office of Energy’s most recent energy report, in 2017, 68% of energy was outsourced from renewable or green sources, up from the previous year 62%.
Market think tank Cloudscene points out that this gives Swiss colocation facilities significant opportunities to take advantage of green energy.
“In addition to green energy, data centre consumers enjoy a range of PUE scores between 1.17 and 1.50. The average PUE for Swiss data centres is 1.3. Swiss colocation facilities provide over 115.03 MW of power and has a range of rack power options from 0.90 kW to 4.00 kW,” the company reported.
Politically stable and relatively safe from most catastrophic natural disasters, Switzerland is a safe place to build and manage in the longterm data centre assets. Neutrality, federalism and direct democracy are the three cornerstones of the Swiss political system.
Additionally, as Equinix points out, while labour market costs are relatively high, labour market efficiency is the best in Europe, and Switzerland ranks as the most competitive labour market in the world, according to the World Economic Forum.
On the data protection front, Article 13 of the Swiss Federal Constitution enshrines the right to privacy, and this extends to both individuals and legal entities such as companies.
Although Switzerland is not a member of the European Economic Area or the European Union, the EU Directive explicitly permits data transfers to Switzerland from member states— so keeping data from EU business transactions in a Swiss data centre is a common exercise. Any data processed or stored in Switzerland will be subject to Swiss data protection laws.
Swiss data protection law applies to personal data of both natural persons and legal entities (corporations). Though neither a member of the EU or EEA, data transfers from EU Member States to Switzerland are permitted under Art. 25 of the EU Directive. Switzerland has also ratified the Council of Europe Convention on the Protection of Individuals with regard to Automatic Processing of Personal Data.
In summary, Switzerland is a financial capital to the world and home to some of the planet’s best well known organisations with far reach. Its rapidly growing cloud computing market is forcing the expansion of data centre operators, from hyperscalers to colocation, wholesale and retail.
The country is not expected to reach the levels of investment seen in booming market destinations in the EU such as Dublin and the Nordics, but it can well be on its way to see a further investment in new facilities and servicesas a leading Tier to edge hotpots. Unsurprisingly, many of the colocation merger and acquisitions in the sector globally, have happed with the help of Swiss investors, banks, legal firms, advisors and many others.
Switzerland really is at the centre of the financial world for data centres, and for that reason, Data Economy will be heading to Zurich in February 2020 for the Finvest Summit and Awards, bringing together global financial and legal expertise.
For more, visit www.finvestsummit.com.