Next frontier for telecoms ‘is the Middle East’

The Middle East’s market is changing, with strong growth and better relations between Israel and its neighbours, Goldacre’s David Bloom tells Alan Burkitt-Gray.

Goldacre, a major shareholder in UK-based Kao Data, is to build a new 16MW data centre in Netanya, north of Tel Aviv. This Israeli investment – a partnership between Goldacre’s NED platform and the Meshulam Levinstein Group, an Israeli engineering, construction and real estate company – plans to develop a 13,500 square metre site at a cost of £135 million (US$162 million).

London-based David Bloom, founder of Goldacre, says: “This is huge moment for both Goldacre and NED, having signed the deal on this site, which is set to transform the Israeli data centre industry further and ensure we are a key part of this rapidly growing industry.”

But there’s more, he tells me: “The Middle East is one of the next markets and the next frontier. It is the right place to be.”

That means more than just that Tel Aviv data centre. Things that were politically impossible a few years ago are now being planned and mapped out, as Israel is in the middle of a rapidly growing market, the Middle East.

The region is also midway between Asia and Europe, routes that are served almost exclusively via Egypt today, after the Russian connection was closed following Vladimir Putin ordering Ukraine’s invasion in February 2022.

A few years ago, no one would have considered a link through Israel would be viable. But, as Capacity reported in 2022, there will soon be a cable running from India to Jordan, crossing Israel overland to reach the Mediterranean Sea.

“The Blue-Raman cable is changing everything,” Bloom says. “It makes the area a connectivity hub. Logic dictates it was going to be that way, but you couldn’t predict when.”

Goldacre’s “ambition is to be a multi-site operator in the region”. Which means Tel Aviv is just the start. The company has begun work on the Tel Aviv site but Bloom says it is “simultaneously looking for different sites. Two sites in that geography”.

From what he says, “geography” does not just mean Israel, but its neighbouring countries. “We’re looking at what the end customer wants,” says Bloom.

“You’ve got to pick your country,” he adds. He tells me he “likes” Jordan and the United Arab Emirates, but adds: “Am I going to be building a data centre in Iran any day now? No!”

I did not ask him about Iran, but it is clear the Bloom and his colleagues are considering starting projects in several Arabic-speaking neighbours or near-neighbours of Israel.

The long game

“We’d never limit ourselves, but the route is clear. In two to three years, we’ll be active in Israel and one other geography,” says Bloom. “Though there might be more opportune things that come up, that we didn’t plan to do. It is a long game, and we can’t do everything.”

Goldacre’s founder does mention Iran again, though. I point out that during 2022, Iran has seen more pro-democratic activity than at any time since 1979, when the Iranian Revolution led to the overthrow of the Shah, Mohammad Reza Pahlavi.

“It’s possible that in three or four years you could see a democratic state,” he says of Iran. “I’m not a political commentator. The billion-dollar question is when and for how long.”

That is a matter for the long term, though. Bloom says his company’s focus is on Israel “in the near- to medium-term” but “with options in neighbouring markets”.

“Digital infrastructure is a long-term game,” he adds.

The Netanya site will observe green building standards. According to Goldacre, there are plans to develop a high-tech 35,000 square metre science and research development campus alongside it.

Goldacre believes Israel is one of the significant technological hubs in the Middle East, with its data centre market measuring $337 million in 2021, and investment is expected to reach $629 million by 2027.

Within Israel, Goldacre says it will use the expertise it has gained through its successful UK data centre platform, Kao Data. This facility was named after Charles K Kao, the Chinese-British physicist and engineer who won the 2009 Nobel Prize in Physics for his pioneering work in optical fibre communications.

George Hockham, who worked with Kao on their 1965 paper theorising fibre optic communications, did not share Kao’s prize. Kao and Hockham, who died in 2013, did their work at Standard Telecommunication Laboratories (STL), which was owned by US equipment company ITT via its UK offshoot, STC. This lab was in Harlow, north of London, in a site now occupied by Kao Data.

Bloom says that Goldacre wanted to pay tribute to Kao when it picked the Harlow campus for the site of its first UK data centre, so Kao’s wife, Gwen May-Wan Kao, also an engineer, was invited to “visit the site when we first broke ground”.

The Kao model

Goldacre’s developments in the Middle East will be modelled on the Kao Data facility in Harlow, says Bloom.

“Back in 2012, when we wanted to build a campus-style data centre, the dynamic was still towards on-premise computing,” he says. The potential for data centres was limited then by the lack of connectivity, he recalls. “But it seemed to be destined for change.”

Kao Data was built to meet an ambitious target of 40MW capacity. At the time it was “ the largest data centre development in London”, Bloom says. “Kao Data was born out of that.”

Bloom says Goldacre has now become “a multi-faceted investor” in digital infrastructure, which has “a lot more to go”, as at the moment the company is “just scratching the surface”. Kao Data now operates three campuses in a ring around central London, in Harlow, Northolt and Slough.

This has taken the investor from the London area to the Middle East. “We’re attracting huge capital, different capital. Now people are starting to ask about data sovereignty, the use of power and ESG [environmental, social and governance] issues,” says Bloom.

The pandemic brought an “overnight change in interest”, he notes.

“It was clear to see the potential for innovation in Netanya,” says Bloom, “and we are pleased to work with our latest data centre platform NED and leading Israeli company Levinstein, to bring our knowledge, gained through our work at Kao Data, to further develop the sector.”

The next frontier

With NED, “the proposition is that the Middle East is one of the next markets, the next frontier”, says Bloom, noting that the sort of connections he has been talking about “are the major trade routes”, which reflect the old spice routes that once ran between Asia to Europe. Now, they will mirror the data routes to European cities such as Amsterdam, Frankfurt, London and Paris – “the old banking hubs”, he muses.

“None of this is surprising,” says Bloom. “It’s a matter of picking your partners and picking your location.” And timing. Three years ago was too early, he says. “The right time is now, with the market dynamics and the political outlook in the region and the emergence of the Gulf states.”

But he has something else to add: the human element.

“I want to emphasise the value of our people,” Bloom tells me. “There’s a big focus on capex, this or that amount in billion, but I have found that some of the best investments are in people, in Kao and in NED. And the biggest threat facing the industry is that no one is addressing the skill shortage. We’re not producing enough top-notch teams. This is almost a silent killer. It holds back innovation, and cultivating talent takes years.”

Bloom is “a great believer in building local teams”, because “there are local nuances when you are building physical infrastructure”

Teams have to know the local position, but “you have planning risk, customer risk” still.

However, Bloom is still excited about what is to come. “This is the beginning. It’s an exciting time.”

Alan Burkitt-Gray | 07.03.23

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