Legislation for Data Redundancy Promotion... Will the Three Major Telecoms' IDCs Gain Indirect Benefits?

Insufficient Redundancy Causes Major Kakao Outage Due to IDC Fire
Importance of IDC Disaster Response Capabilities... Focus on KT Cloud, LGU+, and SKB

On the afternoon of the 15th, firefighters are conducting extinguishing operations at Building A of the SK Pangyo Campus in Sampyeong-dong, Bundang-gu, Seongnam-si, Gyeonggi Province.

[Asia Economy Reporter Oh Su-yeon] Following Kakao's large-scale service outage, discussions on legislation mandating data redundancy have emerged, and demand for Internet Data Centers (IDCs) among companies that have yet to implement redundancy is expected to increase. As a result, the three major telecom companies are likely to gain indirect benefits.

According to industry sources on the 20th, bills mandating IDC redundancy for value-added telecommunications service providers are being proposed, centered around the National Assembly. From the People Power Party, lawmakers Park Seong-jung and Choi Seung-jae have each proposed amendments to the Framework Act on Telecommunications Development to establish disaster response systems for value-added service providers. From the Democratic Party, lawmaker Jo Seung-rae has also introduced an amendment to the same act. Lawmaker Byun Jae-il has proposed a partial amendment to the Act on Promotion of Information and Communications Network Utilization and Information Protection to require protective measures for businesses leasing data centers.

Seong Il-jong, chairman of the People Power Party's Policy Committee, stated on the 19th, "While the National Assembly will support legislation to urge value-added service providers to expedite redundancy, before the government legislates, we will conduct on-site inspections and take administrative recommendations to ensure redundancy where it is lacking."

In the case of telecommunications service providers, there is an obligation to establish disaster management plans including redundancy, so network redundancy as well as IDC redundancy allows services to continue without interruption by using backup servers even if the main server goes down. However, for value-added service providers, IDC redundancy is only recommended.

The significant damage Kakao suffered due to the fire at the SK C&C data center in Pangyo was also because redundancy was not properly implemented. Kakao stated that recovery was delayed because developer tools and operational tools were not redundant. Naver, which was also affected, experienced some service disruptions but completed recovery on the day of the incident. This contrasts with the four days it took for Kakao's services to normalize.

IDC Demand Expected to Increase... "Telecom 3 Giants' Hyperscale IDCs Highlighted"

As the political sphere strongly pushes for data redundancy, IDC demand is expected to surge. In particular, demand is anticipated to expand around hyperscale IDCs (capable of housing over 100,000 servers) equipped with crisis response capabilities, leading to unexpected benefits for IDCs owned by telecom operators.

Kim Jun-seop, a researcher at KB Securities, said, "We expect domestic data center demand to accelerate due to the need for redundancy and decentralization by using multiple data centers. Given that disaster response capabilities of data centers will be scrutinized following this service outage, domestic hyperscale IDCs are expected to be highlighted first. In Korea, hyperscale IDCs are operated mainly by telecom operators."

According to the Korea Data Center Council (KDCC), as of 2020, there were 156 IDCs nationwide, and this number is expected to reach 205 by 2023. Currently, KT Cloud operates 14 IDCs, LG Uplus operates 12, and SK Broadband operates 5. As hyperscale IDCs, KT Cloud has the Yongsan IDC, LG Uplus has the Pyeongchon IDC, and SK Broadband has the Gasan IDC. Additionally, KT Cloud began construction of a massive-scale Gasan IDC in early July, planning to secure an additional 100MW data center by 2025. LG Uplus is building the Pyeongchon 2 Center, which is the size of six soccer fields.

With the ongoing trend toward data redundancy, IDCs are expected to become a key profit sector for telecom companies. As digital transformation accelerates, telecom operators regard IDCs as core new B2B businesses. Sales are also growing. KT recorded 121.1 billion KRW in cloud and IDC sales in the second quarter, including KT Cloud, marking an 11.4% increase compared to the same period last year. LG Uplus's IDC sales reached 69.1 billion KRW in the second quarter, a 3.7% increase year-on-year. SK Broadband's IDC sales hit 37.1 billion KRW in the second quarter, continuing a growth trend for six consecutive quarters. With the added demand for redundancy, IDC sector growth is expected to accelerate further.