In recent years, Latin America (LATAM) has emerged as the new darling of the tech industry, and for good reason. The LATAM tech boom has been fueled by a young, tech savvy population with a high rate of mobile adoption and a unique financial environment that is giving wings to new fintech startups and services. IDC predicts that over half of LATAM’s GDP will be digitized by 2022, driving almost $380 billion in IT spend. Seventy percent of that spend is expected to go toward “Third Platform Technologies” that form the basis of digital transformation – big data and analytics, cloud, mobility, social, cloud, the internet of things (IoT) and the interdependencies between them.[i] As digital business continues to take flight in LATAM, it will require IT infrastructures that can support real-time interactions between people, things, locations, clouds and data to capture value. This is driving enterprises to find more creative ways to scale digitally, intensifying the need for interconnection, which is the direct and private exchange of traffic between key business partners. In an independent study commissioned by Equinix, APCO Insight surveyed 2,485 IT global decision-makers, and 76% in LATAM said they believe interconnection is a key facilitator of digital transformation.[ii]
According to the third annual Global Interconnection Index (GXI), LATAM is projected to be the fastest-growing region in the world for the second year in a row, with interconnection bandwidth capacity increasing at a 63% compound annual growth rate (CAGR) over five years (2018–2022). The GXI measures and forecasts the growth of the private interconnection bandwidth required to support the companies driving digital business.[iii] By 2022, the GXI Volume 3 estimates that installed interconnection bandwidth worldwide could reach 13,300+ Tbps, the equivalent to 53 zettabytes annually. In one minute, that amount of interconnection bandwidth could concurrently process 536M, 4K video streams. LATAM is expected to account for 11% of this, reaching 1,430+ Tbps of interconnection bandwidth capacity over the same time period.
INTERCONNECTION BANDWIDTH GROWTH BY REGION
LATAM macro trends
The GXI highlights five major macro, technology and regulatory trends shaping the competitive landscape across all industries. These include rapid growth in digital business, urbanization, cybersecurity risk, data volumes and compliance requirements, and business ecosystems.
With a proven appetite for technology adoption, LATAM represents a unique opportunity for digital business growth. Brazil, Mexico and Argentina are among the top 10 highest-ranked markets for total hours per week spent on the internet, much of it on mobile devices.[iv] Consumers are younger, on average, than other regions and enthusiastic about adopting new innovation like e-sports, streaming video, virtual shopping experiences, drone deliveries and more. Virtual products and services like streaming media or digital banking can be rolled out quickly, bypassing traditional industry players. As a result, LATAM is one of the fastest-growing regions for mobile commerce and digital services and investors are taking note. Venture capital (VC) investments for tech startups in the region reached US$2 billion in 2018, with fintech and logistics topping the list.[v]
Investors are also flocking to back the infrastructure needed to support digital business. Fiber optic networks, cell towers, data centers and subsea cable routes like Monet, Curie and Seabras-1 have garnered long-term investor interest. Five subsea cables totaling over 15,500 miles in length were deployed in the region in 2018, and an additional 16,600 miles are expected to be deployed by 2020.[vi] Content providers are playing a large role by becoming owners and anchor customers of new cable systems in the region as they race to meet the surging demand. Between 2014 and 2018, long-haul demand from content providers increased at a 95% CAGR, outpacing internet backbone providers.v
Content & Digital Media takes the lead, but other industries are heating up
Given these macro trends, it’s not surprising that Content & Digital Media in LATAM is expected to be the largest in the world for total installed interconnection bandwidth (8% larger than Content & Digital Media in North America). Growing at a 59% CAGR, it is also projected to be the largest industry segment in LATAM, reaching 31% of total interconnection bandwidth by 2022. Scaling to meet increased demand for localized digital content requires that content providers get closer to users and partner ecosystems to solve for latency and ensure the best performance for users. That’s why content providers are turning to private, direct interconnection across their ecosystems to ensure a seamless streaming experience. Next in consuming the most interconnection bandwidth capacity are businesses in the Banking & Insurance (17%), Cloud & IT Services (14%) and Manufacturing (10%) sectors.
While starting from a modest base, many industry segments are forecast to grow at a CAGR greater than 100% as LATAM’s digital economy heats up. For example, Energy & Utility (117%) is the fastest-growing sector in LATAM, as it is a very dynamic and volatile market in a region with tremendous commercial growth potential.
Consult the GXI Vol. 3 to see the full range of industries that are driving interconnection growth in LATAM.
Expanding infrastructures and digital offerings are shaping ecosystem interconnection
LATAM service providers are still expanding their infrastructures while businesses are rapidly developing digital products and ecosystems of services to grow revenue. Given that, enterprises and service providers are expected to equally split the total number of private interconnections through 2022, with enterprises expanding at an 85% CAGR and service providers at a 50% CAGR.
LATAM enterprises are also expected to use 68% of their total installed interconnection bandwidth capacity to reach Network Providers, while another 23% will be connecting to Cloud & IT Providers. Network (73%) and Cloud & IT Providers (10%) also lead in the types of counterparties that service providers are accessing via direct and secure interconnection as they further expand LATAM digital infrastructures. Although connecting to digital infrastructure providers is growing fast, LATAM enterprises are also concerned about avoiding vendor lock-in as they look ahead. By 2024, 80% of the top 1,000 companies in LATAM will mitigate lock-in through hybrid multicloud technologies according to IDC.i By leveraging vendor-neutral platforms like Equinix Cloud Exchange Fabric™ (ECX Fabric™), which sits at the edge, adjacent to multiple carriers networks and cloud providers, LATAM companies can dynamically tap into the provider of their choice over high-speed, low-latency private connections.
INTERCONNECTION BANDWIDTH BY ECOSYSTEM USE CASE – LATAM
Four LATAM metros are driving the greatest interconnection growth
LATAM is the second-most urbanized region in the world after North America, with 81% of the population residing in urban areas.[vii] Densely populated urban hubs drive demand for shared systems, services and experiences. Supporting this demand requires shortening the distance between digital services and users. Interconnection at the digital edge brings data, clouds, partners and users into proximity, enabling optimal application performance and user experience.
The top four LATAM metros are expected to equate to 77% of overall LATAM interconnection traffic in 2022 (1,106 Tbps), with a 61% CAGR. Brazil’s two major cities, São Paulo and Rio de Janeiro, are expected to increase in interconnection bandwidth capacity by almost 7-fold on average during that time period. São Paulo is expected to account for 37% of LATAM traffic by 2022, followed by Rio de Janeiro (18%), Buenos Aires (12%) and Mexico City (10%).
To support the growing demand of these markets, Equinix continues to extend Platform Equinix to empower companies in their journey to the digital edge. As an example, several planned expansions in 2019 and early 2020 will boost supply in Brazil, primarily to support hyperscalers, content players and enterprise demand to localize data and foster ecosystem development with Cloud & IT Service Providers.
INTERCONNECTION BANDWIDTH BY TOP METROS – LATAM
1. Rounding may affect totals.
2. These are the top metros and not inclusive of all metros.
Read the GXI Volume 3 for more information on interconnection growth trends and deployment scenarios by region, industry and ecosystem partners.
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[ii] APCO Insight survey, sponsored by Equinix, August 2019.
[iii] Interconnection bandwidth is defined as the total capacity provisioned to privately and directly exchange traffic, with a diverse set of partners and providers, at distributed IT exchange points inside carrier-neutral colocation data centers.
LATAM is projected to be the fastest growing region in the world in interconnection bandwidth for the second year in a row.