Following the lead of telecoms carriers, ISPs and content providers, many large firms are now checking into telehotels to keep servers and IT infrastructure offsite but secure.
Telehotels provide bandwidth and a secure location for servers that are either rented or installed by client companies. Where the facility is operated by a telecoms carrier it will probably only offer bandwidth through its own network and tariffs. If the telehotel is independent it may offer a choice of bandwidth providers linked to the site  usually between three and five.
Security is a major selling point. For example, customers may want reassurance that servers will be safe from tampering, and that facilities have good protection against fire and flood. To ensure uptime and care of equipment, customers may want to check that sophisticated air-conditioning and backup generators are in place. And, of course, locations that are within easy reach of their customers also have an advantage. Many telehotels are connected to a network of pan-European or global sites.
Boom business
The telehotel market is certainly booming, and there are around 12 networks of sites due for completion in Europe over the next 24 months, according to financial analyst firm Morgan Stanley Dean Witter.
Examples are CityReach, which raised £190m and plans to have 20 telehotels by the end of next year; Telecity, which floated in June, and has 10 west European sites and a long-term plan for 50; and Interxion, which has secured over £100m of funding, has 11 sites and seven more due for completion within two years.
More evidence that telehotels are big business comes from BT, which estimates that the global market for telehotels will grow from £2.6bn this year to £11.2bn by 2004. The British market is expected to grow from £127m to £595m, while mainland Europe's will grow from £428m to £2.1bn. Morgan Stanley estimates that the European Web hosting and co-location market was worth $1.8bn last, while research firm Ovum expects this to rise to $12.3bn by 2005.
Stephen Young, author of Ovum's recent Telecoms Hotel report, believes there has been a gradual shift from telecoms facilities to switching centres and now to datacentres. Young said that the falling price of bandwidth has compelled carriers to develop a new revenue model based on hosting. This means they are increasingly finding their services being compared with carrier-neutral services that emphasise a range of choice between carriers. Some are even offering services from rival carriers to counter this threat.
Many analysts, including Ovum, question whether customers will really want telehotels to offer so much choice, or whether it willsimply complicate the work of IT managers. 'The key question is whether customers will continue to value neutrality, diversity and redundancy when near limitless bandwidth becomes available at commodity prices,' said Young.
Providers will try to maximise their return on investment by creating larger and larger locations to benefit from economies of scale for power, security, air-conditioning and fire suppression systems. Perhaps the model for the telehotel of the future is the Tri-State Technology Center, in New Jersey in the US, which has one million square feet of space. Typically, London telehotels are much smaller. Telecity's Harbour Exchange site, its second in London, which was completed in February 2000, has just 80,000 square feet, for example.
Morgan Stanley estimates that a complete enterprise outsourcing contract would require between 200 and 300 racks of equipment, and would cost between £3m and £4m each year. Basic co-location of these racks alone would cost an estimated £300,000. Telecity said it typically leases its telehotel buildings and spends around £7m on fitting out the electronic infrastructure.
With so many competing services available, telehotels are increasingly having to compete on price, service level agreements, and value-added offerings.
Offerings may include a mix of consultancy, technical support, and the ability to trade bandwidth, Internet traffic, or voice traffic with other customers using the same facility. The presence of an application service provider (ASP) at a site may also ensure low-cost access to selected applications.
