Cross-Connect Revenue
Executive Summary
Key Takeaways
- ✓ Cross-connect revenue is recurring fee income from physical interconnections between tenants, or between a tenant and a network carrier, within a colocation facility.
- ✓ Cross-connects typically carry materially higher margin than base space and power revenue, since the incremental provisioning cost is low relative to the recurring fee charged.
- ✓ Cross-connect density, the number of interconnections per tenant or per facility, is often used as a proxy for a facility's network ecosystem value and its attractiveness to network-dependent tenants.
- ✓ Cross-connect revenue should be modelled as a distinct line from base space/power revenue, since blending the two obscures the facility's true margin composition.
Definition¶
Cross-connect revenue is the recurring fee income a colocation operator earns from provisioning physical cabling connections between tenants within its facility, or between a tenant and a network carrier present in the facility's meet-me room.
Why It Matters to the Financial Model¶
Cross-connects typically carry materially higher margin than base space and power revenue, since the incremental cost of provisioning a connection is low relative to its recurring fee. A colocation financial model should model cross-connect revenue as a distinct line rather than blending it into base space/power revenue, since blending obscures the facility's true margin composition and understates the value of network density.
Cross-Connect Density as a Network Ecosystem Proxy¶
Cross-connect density, the number of interconnections per tenant or across the facility, is often used as a proxy for a facility's network ecosystem value: a facility with many network carriers and interconnected tenants is more attractive to tenants whose business depends on low-latency connectivity to those networks, which can in turn support premium base pricing as well as cross-connect fee revenue.
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Frequently Asked Questions
What is a cross-connect?
A physical cabling connection between two tenants within the same colocation facility, or between a tenant and a network carrier present in the facility, typically provisioned and billed by the facility operator on a recurring monthly basis.
Why does cross-connect revenue carry higher margin than base space/power revenue?
Because the incremental cost of provisioning a single cross-connect, cabling and a one-time installation, is low relative to the recurring monthly fee charged, whereas base space/power revenue carries ongoing power and cooling costs proportional to the capacity leased.
What does cross-connect density indicate about a facility?
A higher number of cross-connects per tenant or per facility is often used as a proxy for the facility's network ecosystem value, since a facility with many network carriers and interconnected tenants is more attractive to tenants whose business depends on low-latency connectivity to those networks.
How should cross-connect revenue be modelled relative to base colocation revenue?
As a distinct revenue line, not blended into base space/power revenue, since the two have materially different margin profiles and blending them obscures the facility's true margin composition and understates the value of network density.
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