FOCUS: Diversifying MTS buys large data center to enjoy burgeoning market

By Yekaterina Yezhova

MOSCOW, Jul 19 (PRIME) -- A 5.2 billion ruble acquisition of GreenBush, one of Russia’s largest data centers, has made mobile operator MTS the country’s second top racks owner, after Rostelecom, on a 44 billion ruble market, expected to grow by up to 25% annually, analysts said.

“MTS is conducting a diversification strategy aimed at transforming into an IT company, with the data centers being an important part of the plan. The acquisition should help MTS become one of the leaders of the data center market and develop its services under the CloudMTS brand,” investment company Aton said in a research note.

The mobile operator said the July acquisition included net debt and a company that has residence of a tax-privileged special economic zone in the Moscow suburb of Zelenograd.

Launched in 2018, GreenBush now runs one of its three modules and will have a gross capacity of 19 MW to power 2,280 racks in 24 server rooms on some 5,220 square meters of floor space when put in operation fully. The other two modules will be brought online shortly.

“We think the main purpose behind the purchase is development of the operator’s corporate segment, for instance, provision of cloud services. In the last few years MTS has been widening its presence on the promising market of cloud services actively,” investment company Veles Capital analyst Artyom Mikhailin told PRIME.

“These services complement the core telecom business and widen the potential of bundle offers for business-to business (B2B). Almost all operators, and MTS already leads here, try to provide cloud services.”

In 2018, MTS acquired 100% of data processing center Avantage with 2,240 racks in the Moscow Region, for 8.9 billion rubles, net debt included.

“After GreenBush’s full launch, its capacity will rise to 2,280 racks, which is comparable to Avantage, and a 5.2 billion ruble price seems reasonable,” Mikhailin said.

MTS Vice President for Infrastructure Development Igor Yegorov said that the country’s data center market will grow by more than 20% annually over the next several years.

“The researches put the country’s market of commercial data centers at 44 billion rubles in 2020, with the number of racks at 50,000. Rostelecom leads the market with a share of 25–28%. When GreenBush is in operation fully, MTS will run 4,520 racks in the two facilities alone (GreenBush and Avantage), while the group owns 10 more smaller centers whose capacities are not disclosed,” Mikhailin said.

“In 2021–2023, the market of commercial data processing centers may rise by 21–25% a year. Most likely, consolidation will continue. We believe the number of players will shrink and the leaders will have larger shares.”

MTS said it plans to use GreenBush’s additional capacity to market colocation and cloud solutions to third parties – including more than 25 services under the #CloudMTS brand. The acquisition will also help the company meet its own compute and storage needs.

“The purchase of the data processing center will strengthen MTS’ grip on the market of cloud B2B services, which is strategically justified when the operator’s traditional revenue rises minimally,” investment company UralSib Capital said in a note. MTS’ mobile services revenue edged up by 2.3% on the year to 82.3 billion rubles in January–March compared to the nationwide revenue of 122.5 billion rubles that increased by 5.6%.

MTS said GreenBush will rank among the top five data centers in the country by capacity, when fully launched, “providing us significant headroom to grow in the Moscow metro area, which today accounts for some 80% of the Russian commercial data center market.”

“With all the potential racks, MTS could be second after Rostelecom. Without GreenBush, the second rank would belong to IXcellerate and DataPro. IXcellerate had at least 3,315 racks in 2019, and their number could have increased by 105 in 2020. DataPro had 2,400 racks in 2019 and the company could have put in operation an additional 1,100 units,” Mikhailin told PRIME.

The analysts said the key consumers of the data processing centers’ services are large businesses.

“Polls say that up to a third of large local companies place their equipment in commercial data processing centers and a third rent infrastructure from cloud services providers. With progress of the online vector and soaring digitalization, businesses’ demand for additional capacities increases, while construction and maintenance of own facilities are extremely unprofitable,” Mikhailin said.

(74.1656 rubles – U.S. $1)

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