Northern Virginia Energy Crisis, Fly Funding, and More

Last updated on by Christian Koch

Hey Friends,

Welcome to another Weekly Briefing.

Last week was quite active with news beyond what was a fairly busy earnings week, including a developing situation in Loudoun County, Northern Virginia—the worlds most concentrated data center corridor and home to the infamous AWS cloud region, us-east-1. Well, at least part of it. Data Center market leaders Equinix and Digital Realty, along with Big Tech/Cloud—AWS, Google, and Microsoft all reported earnings last week.

But before we get going, I’d like to thank Aptient, a previous sponsor who has returned to sponsor Foundations for the month of August. Aptient is a boutique network architecture, engineering and infrastructure deployment consultancy focused on helping clients solve their toughest challenges across the world. Be sure to check them out, and schedule a one-on-one consultation today. Thanks, Aptient!

And now for some quick housekeeping. You'll notice some changes to the newsletter in the coming months, and I think most readers will like them. First, content will be more structured and organized into "containers"—but sorry, no k8s here. This should benefit everyone, including me and technically, I’ve started doing this in recent newsletters but have been experimenting with formatting and overall structure over the last few months.

Additionally, longer summaries, including earnings highlights, analysis and opinions on market activity, including rumors and unsubstantiated news will be published as individual notes that will be linked at the very bottom under "Latest Research Notes" for those interested. Some of these also won't be available to free subscribers. Additionally, I will stop publishing some insights that turn into breaking news because I'm not here to do that, I'm not a journalist. My goal is to provide readers with thoughtful curation of the important and interesting bits of news along with a unique perspective and analysis you won't get from traditional research firms and media outlets.

As always, please hit that reply button with feedback and let me know what you like and don't like. I don't write this for myself—your voice is important.

Let’s get into this week’s update.

Your Weekly Briefing

Cloud Infrastructure

Last week the big three cloud providers reported earnings which were mostly well-received. AWS revenue was $19.7B, increasing 33% y/y, while Google Cloud revenue was $6.2B and grew 36% y/y, and Microsoft Azure revenue was ~$12B (MS Estimate), which grew at 40% y/y (46% in cc), all seeing some degree of deceleration and impact from FX. On the earnings call Microsoft called out impact from SMB moderation, which will be something to keep an eye on with upcoming earnings from Cloudflare (8/4) and DigitalOcean (8/8) over the next couple weeks.

News

  • Fly,io raised $25M in Series B funding led by Andreessen Horowitz, and also disclosed its $12M Series A funding led by Intel Capital in August 2021. Fly is a global application delivery platform and Chief Executive, Kurt Mackey thinks CDNs are flawed in their approach, and he may be onto something. CDNs have been morphing away from delivery-only over the last few years with the addition of serverless functions, security and networking, as well as databases and storage services, but that's a lot to focus on. In a world increasingly being led by developers, a great developer experience is absolutely critical, but are traditional CDNs capable of delivering? Fly may be exactly the type of company the market needs to shake things up. Fly is also cranking out some fine writing, so be sure to check out their blog as well. Link
  • Alkira and Fortinet announced a partnership and integration to provide customers with the ability to manage, provision, and autoscale virtual firewalls across Alkira’s cloud networking fabric it calls “Cloud Area Networking”. Link
  • Cloudflare expanded its network infrastructure to Guam, which is home to only ~170K people, but is strategically important for internet infrastructure considering the number of current and future submarine cable systems landing and traversing the island. I believe this investment speaks volumes to Cloudflare’s commitment to improving how we experience the internet. Link
  • Kingsoft Cloud is planning to list on the Hong Kong Stock Exchange in addition to its current home on the Nasdaq. Link
  • AWS shared some stats about Prime Day’s infrastructure consumption. Link

Connectivity

Reports are surfacing that optical fiber cable shortages and rising prices are impacting ISPs across Europe, India, and China. According to market research firm, Cru, prices have increased by 70% in some instances. However, it does appear a lot of the larger incumbents are managing to suppress any substantial impact to their business. Fixed Wireless is still making waves in broadband markets with T-Mobile and Verizon adding nearly 1M new FWA subscribers, and new kid on the block Starry, adding ~9,700. Cogent reports earnings this week (8/4) and Starry reports next week (8/9).

News

  • T-Mobile is evaluating options, including M&A for its wireline business/legacy Sprint network, says Chief Executive Michael Sievert on the 2Q22 earnings call last week; "As it relates to Sprint wireline asset, you may have seen we made some announcements that we're no longer using that asset to support our wireless business. We are obviously conducting a review as to the best way to manage that asset. It's a terrific product with a deep, deep legacy in our company. And it's important that we make the right decisions there for the long haul, taking into account how the market has changed over time." It's worth pointing out that T-Mobile currently partners w/ PacketFabric on what appears to be a white-label cloud connectivity offering.
  • Starry announced expansion to Las Vegas, its 7th market, where it will cover ~500K households when it launches later this year. Link
  • One of the worlds largest network service providers now has a Developer Portal w/ APIs. Bravo, Zayo.Link
  • PacketFabric added Terraform support. Link
  • SoftBank's BBIX will expand its internet exchange to NEC's Inzai and Kanagawa data centers in Japan. Link
  • New York metro fiber provider ZenFi Networks has been acquired by BAI Communications for an undisclosed amount. Link

Data Centers

Last week, Wells Fargo analyst Eric Luebchow dropped big news in a research note about a developing energy crisis in Northern Virginia's famed Loudoun County that could halt power delivery to new data centers until 2025/2026. Later in the week on the Digital Realty earnings call, Chief Financial Officer Andrew Power confirmed the issues, further saying they are apparently linked to transmission (not generation) bottlenecks in Eastern Loudoun County, but Dominion, the energy provider for the market has yet to speak out. As the story develops, it’s likely to cause concern and waves of anxiety throughout the industry as data center and hyperscale cloud leaders search for answers. Many questions remain and few things are clear.

I pose this question often, but has the concentration of data centers in Loudoun County and beyond—specifically in Northern Virginia— reached a tipping point? There are several neighboring states with great potential for data centers, especially considering the locations where hyperscale campuses have already been developed. Or, is it possible Northern Virginia brought this upon itself with its generous tax incentives along with having some of the lowest energy rates in the country? Land sure isn’t cheap anymore. If you have an opinion or thoughts on this, please reach out, I'd love to hear them.

Down in Prince William County, residents are fighting data center development and tackling potential corruption among local government officials, so while there may be more energy and plenty of land, the grass may not be greener.

The bigger question however is for Dominion, which is to understand why this wasn’t caught earlier and what led to the failure in planning for something so critical. One would think there would be ongoing and open communication behind the scenes, but from the sounds of it, I'm not so sure there was. One company that stands to benefit from this situation is Quantum Loophole. The startup led by former Terremark and CyrusOne executive, Josh Snowhorn, is developing a massive data center campus in nearby Frederick, MD, which includes a high-capacity, diverse dark fiber ring that will connect the dense ecosystem of data centers in Ashburn, VA, and will be complete with automated cross-connect capabilities via the Telescent optical fiber robotics platform. I'd imagine Chief Executive, Josh Snowhorn's phone has been ringing non-stop.

Rich Miller has more over at DCF, and of course, you should check out the DLR 2Q22 earnings call.

News

  • In London, Bloomberg is reporting that housing developments w/more than 25 units may face significant delays getting energy because of the amount of energy being consumed by data centers in the area. Link
  • Private Equity, Infrastructure Funds, and Strategic Buyers continue to line up for a shot at acquiring Global Switch and their ~13 retail/wholesale oriented data centers across Europe and Asia. Link
  • The government of Ireland published a paper outlining its principles for sustainable development, another market dealing with energy constraints amid strong data center demand. Link
  • Netrality responded to recent reports regarding the situation at its Indianapolis campus, saying it was just raising rents to market rates and that it would like acquire Lifeline’s business. Link

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Further Reading

Helium: The Network of Networks | The Generalist

OK, let's talk about that big Helium story - Stacey on IoT | Internet of Things news and analysis

Behind the network that images the whole world every day | APNIC Blog

The Unsolved Mystery Attack on Internet Cables in Paris | WIRED

U.S. Congress passes long-awaited bill to boost chipmakers, compete with China | Reuters

media.ccc.de -OpenRAN – 5G hacking just got a lot more interesting

"The elephant effect" Considerations on the phenomenon of streaming football in Italy and the operators' point of view

Hydrogen fuel cells could provide emission free backup power at datacenters, Microsoft says | Innovation Stories

Future of Cloud Strategy Survey Report | Deloitte

Lessons from Target’s cloud journey, a decade in the making | CIO Dive

Latest Research Notes

Notes from DigitalOcean's 2022 Investor Day

Thoughts on the Jim Chanos Data Center/REIT Short

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