Web Hosting Talk : Web Hosting Main Forums : Colocation and Data Centers : Colocation longest Contractual Period?

[boonchuan]

I have a query from customers who wants to colocate 5 - 8 years. Does anyone has any experience on this? What is the normal price increases you would factor in such contracts?

[RyanD]

It is rare to see anything beyond 3 years unless you are talking about very large scale wholesale.

[DevMonkey]

Ok, I don't actually provide colocation but this sounds like a nightmare. I can't answer your question sorry but I'm not so sure you should be taking this on. 8 years is a long time, almost a decade - ridiculously long in terms of e-years. Compare the market etc now to 2004.

[colomondo]

The Markley Group at 1 Summer St, Boston actually doesn't do anything less than 5 years on any type of cage space, but they are definitely an exception.

The long term contract can definitely work out in your favor (thinking bandwidth costs).

I would protect yourself in a couple of ways. I would escalate the base cost for space 3% per year following a typical practice in real estate. I would then have some clause in the agreement that power pricing would be reviewed annually and tie a max rate increase (to make the client feel comfortable) to some power index. This way if power prices spike, you can adjust annually, and if you are lucky and they drop, you can bank the extra income.

[DevMonkey]

Well there's an actual smart response with some good thinking and knowledge which blows my thoughts of the water

[TQ Mark]

if its just 1 rack, then 5-8 years seems high. if its for raw space or wholesale space, then 5 or 10 years is fine and would not include power/utility costs.

[Jasonsite]

Originally Posted by TQ Mark

if its just 1 rack, then 5-8 years seems high. if its for raw space or wholesale space, then 5 or 10 years is fine and would not include power/utility costs.

I completely agree with this. The most you will see for a full rack would be 3, maybe 5 years. No one in their right mind would agree to more than 3 years for one full rack IMHO.

OP: If you don't mind me asking, what type of client is requesting this from you?

[Techee]

Met a guy last week at CES that had 15 year contracts. Their attitude was that it costs too much to move as they had lots of cross-connects; and only wanted to deal with companies that were committed to the business model.
I would not do it for one cabinet, unless there is a provision for moving them to a different cabinet within the same building.
Include power etc as stated above; and also changes to taxes, fees, government regulations, etc. Never know what they are gonna tax next.

[WII-Aaron]

It's not uncommon. We recently signed a 10 year agreement with a colo customer.

You write it like a real estate lease with increases based on the first year's operating expenses.

[lionlink-dot-net]

Originally Posted by WII-Aaron

It's not uncommon. We recently signed a 10 year agreement with a colo customer.

You write it like a real estate lease with increases based on the first year's operating expenses.

^^ Yes. You may write it slightly differently if it's a wholesale purchase, but some customers like the assurance of having long leases that they don't have to deal with every year.

[Spudstr]

all our contracts with facilities are 7-14 years....

typical customer is 3 years though.

[Kusai]

Exactly as colomondo said, we have TWtelecom and they have signed a 20 years lease with exactly the terms colomondo referred to. Quest and XO did 10 years and renewed recently. So basically the lease contract should reflect a regular real estate contract.

Originally Posted by colomondo

The Markley Group at 1 Summer St, Boston actually doesn't do anything less than 5 years on any type of cage space, but they are definitely an exception.

The long term contract can definitely work out in your favor (thinking bandwidth costs).

I would protect yourself in a couple of ways. I would escalate the base cost for space 3% per year following a typical practice in real estate. I would then have some clause in the agreement that power pricing would be reviewed annually and tie a max rate increase (to make the client feel comfortable) to some power index. This way if power prices spike, you can adjust annually, and if you are lucky and they drop, you can bank the extra income.

[funkee]

I see nothing wrong with a long lease. Put an adequate termination clause in there and maybe a clause allowing for an "electrical surcharge" similar to an airline "fuel surcharge" to hedge against electricity prices spiking. All your other long-term costs should be pretty stable and easy to calculate.