[By Duncan McLeod]

Despite the tough economy, at least one area of business is booming. Data centres, some of them vast structures costing hundreds of millions of rand each, are popping up across the countryside. We have the free market to thank, not government.

Attend an IT convention these days and you could be forgiven for thinking you’d stumbled into a meeting of meteorologists, what with all the talk about “the cloud”. But it has nothing to do with the weather and everything to do with a new direction for computing.

The premise of cloud computing is that IT resources can be delivered over infrastruc- ture, much like the utility model for water and electricity.

Service providers take away complexity for companies, often centralising resources in vast data centres. Companies are entrusting more of their computing needs to these third-party providers for good reasons, not the least of which is cost savings.

This model of distributed computing has been made possible by reliable broadband networks, delivering computing applications over long distances. Companies no longer have to have an army of nerds managing large data centres in their basements.

But before service providers can begin offering cloud computing on a large scale, they have to invest in building their own data centres. Here, SA is playing catch-up with the rest of the world. But we’re catching up fast.

Building a data centre entails much more than simply installing a few computers and a telephone line. These facilities, which chew enormous amounts of electricity, require multiple sources of power and fibre-optic links, generators and advanced air-conditioning systems, among many other things.

It’s a pricey proposition, but the investment costs are not deterring half a dozen or more SA telecoms, IT and even financial services companies from building giant data centres costing hundreds of millions of rand.

This investment is happening on the back of the billions of rand that are being poured into national fibre capacity. For decades, Telkom controlled SA’s national telecoms backbone. But Altech’s sensational 2008 high court victory against former communications minister Ivy Matsepe-Casaburri means anyone can now deploy infrastructure.

Private companies such as Neotel, MTN, Vodacom, FibreCo and Dark Fibre Africa are building thousands of kilometres of national and metropolitan fibre networks.

Data centres are mushrooming on the back of this investment, leading to big changes in the way companies consume IT services.

JSE-listed IT group Business Connexion is one of the companies profiting from the change. It says corporate SA is quickly adopting cloud-based services. The company has two data centres in Midrand worth R250m.

Teraco Data Environments is another company that’s investing heavily in data centre infrastructure. It has earmarked R300m over the next 24 months to expand its Isando facility and build new facilities in Gauteng, Cape Town and Durban.

Even Standard Bank has built a new facility. Located at Samrand, north of Midrand, the bank’s new centre cost an eye-watering R1,6bn to construct … and that’s before the computer equipment.

All the big telecoms operators are also pumping millions into expanding their facilities and investing in greenfield sites.

To a large degree, Altech’s court victory sparked this investment frenzy. Freed of artificial constraints, the market is booming — and creating jobs — despite the depressed economic environment.

Foolishly, government tried to keep on a lid on the competition that has led to this investment. One hopes it will learn from its mistake and encourage robust competition in other areas of the economy. Electricity generation comes to mind.