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Hidden colocation cost drivers to look out for in 2022

These unexpected charges and fees can balloon colocation costs for enterprise IT organizations.

Every colocation deal involves a detailed contract and service agreement, but the true colocation cost is buried in myriad supplemental charges and fees in the fine print or price sheets -- and even in those costs that aren't mentioned.

Colocation facilities free IT organizations from the burden of owning and operating data center space, saving major capital construction and ongoing operational costs. But the base price listed on your colocation contract often doesn't tell the whole story of value-added services and support-level expectations. Unanticipated fees can lock the business into an agreement that isn't nearly as cost-effective as imagined. There are ways to recognize and avoid hidden colocation costs.

When it comes to colocation deals, there is absolutely no substitute for due diligence. Consider the value-added services and support level that are most appropriate for the business, as well as what happens when you need more. Are there cost penalties, for example, or will excess support requests simply go unanswered? Read the contract, service-level agreement (SLA) and any price lists or addendums carefully. Ask the provider directly about any costs or fees that weren't covered, such as early termination.

When you select a colocation provider, don't be afraid to start small and expand services later, and don't hesitate to negotiate for the most cost-effective services. You can often negotiate services and support costs, and competitive providers want to talk when a long-term contract is on the line.

If the colocation provider offers references, be sure to contact the references and ask pointed questions about service, support and unexpected costs.

1. Rack space

It's hardly a surprise that rack space is a key colocation cost, but there are potential rack cost factors that are easy to overlook until the bill comes. First, consider how rack space is allocated and priced in relationship to the organization's computing needs. For example, how do costs for quarter racks, half racks, full racks and multiple full racks compare? Small and/or large colocation deployments might carry a surcharge in space or power -- really anything that might not fit cleanly into the colocation provider's menu of offerings.

Also, consider the duration of the colocation commitment and look for any opportunities to negotiate a discount. For example, a business might lower the cost of a large multi-rack colocation deployment by negotiating an extended commitment to the provider. This can apply for both hosted and non-hosted environments. 

Hosted/managed colocation providers might offer tiered services with high-end servers, high-bandwidth networks and highly available power offered at the highest tiers. Top tier infrastructures might carry additional costs, and organizations might choose to reserve those deployments only for mission-critical workloads -- putting other less important workloads on simpler and less costly infrastructure. 

When servers are provided through hosted/managed colocation, talk about the provider's server lifecycle and understand the provider's technology refresh cycle. When it's time to replace servers, how are the organization's workloads affected, and what additional capacity or capability will new servers provide? If new servers are coming, the business might not need as much server capacity to host the same number of workloads, so look for opportunities to optimize rack commitments after a tech refresh. 

Consider whether hosted/managed servers are dedicated or multi-tenant. An organization can seek better control over the server's performance (eliminating the potential for “noisy neighbors”) by negotiating dedicated servers, but such accommodation from the provider may also incur a surcharge depending on the extent of the deployment and the amount of provider work involved. 

2. Setup and change costs

IT facilities and services rarely stay the same for long. Colocation tenants routinely engage new services, change existing services and discontinue unneeded services. Any change can cost money. Colocation providers typically charge a setup fee when a service is first configured and a change fee each time they must alter established services. Setup and change fees are in addition to monthly costs incurred by additional equipment or services.

Colocation providers can charge a setup fee when you lease additional servers. For example, the provider adds cross-connect fees for interconnecting racks or interfacing to telecommunication providers, registering a newly leased server in the domain name system, or allocating an IP address from the provider's pool. Storage and network bandwidth additions -- to accommodate the added server traffic -- could cost you. Some providers also charge for adding monitoring or reporting. Change fees may apply when downgrading or discontinuing equipment or service usage.

Many providers don't clearly explain any setup or change costs, and totals for those incidental fees don't get listed in colocation providers' cost quotes. Change fees can add up, especially if you're just getting started with colocation, or if colocation needs fluctuate unexpectedly. Try to negotiate a number of 'free' changes, especially if you're engaging long-term services or plan to add services over time.

Server sizing illustration
Thoroughly evaluate your business needs before signing a colocation contract, because adding more servers and services can incur change fees.

3. Uptime costs and policies

Colocation facilities aren't created equal, and they are certainly not infallible -- unless you're paying a hefty premium for higher-tier availability. Sign on for service levels or options that meet your company's regulatory compliance or mission-critical workload requirements. Colocation providers support SSAE 16 or SOC 1 and SOC 2, for example.

Uptime negotiations are simpler if the business tenant provides and maintains its own gear and the colocation provider maintains responsibility for the facility, power and cooling. Uptime assurances mean redundant power, such as independent utility feeds, or a redundant diesel generator along with the associated A/B switching configuration. There also can be independent redundant connectivity providers with associated switch gear to manage. Large data center spaces might also provide redundant cooling equipment. All this comes at a price. Understand those costs upfront and how the colocation company factors those services into its SLA.

For managed or hosted colocation providers that also supply gear and managed services, uptime promises should extend from facilities to IT equipment. Ensuring the availability of that gear and services -- especially during provider maintenance windows and technology upgrades -- enormously complicates an SLA. There might not be a provision to back up or migrate workloads before scheduled maintenance windows, taking down hosted workloads unless the colocation tenant intervenes.

The provider's SLA is one of the best places to check availability and exceptions. As one example, a colocation provider's SLA might note that it will replace faulty hardware within one business day and will try to replace the faulty hardware within four hours of identifying the problem. But this doesn't include software-related tasks such as rebuilding accounts from backups or reloading the operating systems or applications. With potential downtime, tenants must conservatively select the workloads to outsource to colocation or opt for colocation providers that guarantee higher availability levels.

4. Power issues

Pay close attention to the colocation provider's power budget. It's common for as much as 20% of the power supplied to a rack be held or reserved as a safety code requirement. That means if a client business pays $800 per month for a 2.4 kW rack, the business can only use up to 1.91 kW of power within that rack (2.4 – 20%). In effect, the client business might be paying for power that can't be used. Although this might indeed be a safety requirement, pricing that includes unusable power can be deceptive.

Next, consider the availability of power distribution units (PDUs) within each rack. A PDU is fundamentally a power strip that provides power outlets for each server and other gear. In many cases, the PDUs are intelligent, allowing colocation providers to monitor the power utilization within each rack. If PDUs are leased from the provider, each PDU can run up to $50 per month. Clients can potentially negotiate to include additional PDUs or waive such fees.

Finally, consider the availability, terms and conditions related to redundant power. Bargain colocation providers might not provide redundant power at all, while other low-cost providers might only offer redundant power as an expensive option. Today, redundant power is generally considered best practice for production-grade data center facilities and should be included by default. There is no reason to do business with a colocation provider that doesn't offer redundant power, and no reason to pay extra for that kind of protection.

Server maintenance illustration
Review the types of support colocation providers offer, along with the associated costs and response times to avoid hefty price tags down the line.

5. Costs of support

Colocation is remote by its nature, and client businesses will inevitably rely on the provider to support a colocation deployment to make changes, handle testing and perform troubleshooting. Support can carry a hefty price tag, so it's important to have a detailed discussion about all the provider's support costs and response times. There are potential challenges and costs to consider.

  • Limited on-site staff. Does the provider maintain a staff on site 24/7/365? If not, response times can be dramatically increased because it will take time for the provider to dispatch an on-call technician to handle a ticket. Limited staff might also result in expensive expedited support requests -- it costs a lot more to handle a problem now.
  • Built-in support fees. Some colocation providers might add in minimum support fees that include some amount of remote hands or other support fees into the monthly bill -- whether the business calls upon that service or not. It's best to negotiate those costs out and pay for the support that is used.
  • Slow response. Poor support and limited on-site staff will result in slow ticket response times. If the colocation provider's response times are slower than the SLA windows that a client business offers to their customers, colocation support might be a problem. It's important to vet the provider's support and be confident that the support staff can handle any support request without having to escalate each problem to find a competent technician.

6. Network setup and fees

Colocation providers typically supply a domain name and IP address from their resource pool to tenant equipment in limited quantities. If you exceed the original allotment, prepare to pay. New colocation tenants easily underestimate resource needs or migrate to the provider faster than expected and incur charges.

WAN or internet connectivity and bandwidth typically aren't included in colocation fees -- those are additional costs handled through telecom companies that are available within the colocation facility. There are likely to be several major providers present and available for cross connection to the client. Costs can range from $225 per month for simple 25 Mbps connections to $2,500 per month for a 1 Gbps connection -- even to $10,000 per month for a 10 Gbps connection. Costs vary depending on the provider and the local market, so clients can shop around for better connectivity pricing.

Don't overlook cross-connect fees. A cross-connect is the process of connecting a telecom provider to the client business network within the colocation facility. A one-time cross-connect fee can run in the $750 range -- in addition to the monthly bandwidth fees -- and are often overlooked. Remember that cross-connections can take weeks to schedule and implement with the telecom provider.

Managed colocation providers charge additional fees for options such as firewalls and virtual private network setup, as well as access to malware scanning, antispam and security monitoring that affect enterprise network traffic. These fees might not seem onerous individually, but the monthly cost of multiple network services adds up.

Anticipate future growth needs for infrastructure-centric resources such as networking. It's often worth negotiating additional complementary domain names or IP addresses, discounts on a managed service bundle or a discount for an extended contractual obligation. It's important to ensure that multiple redundant telecom providers are supported by the colocation provider. This allows client businesses to choose or switch providers and engage multiple providers for redundant connectivity, which can be every bit as vital for critical workloads as redundant power. It is best to avoid colocation facilities that do not offer redundant network connectivity. There should never be an additional fee for having access to multiple telecom providers.

7. Backups and data protection costs

Backups, snapshots and other forms of workload protection are critical for the enterprise, but rarely included under basic colocation fees. Some enterprises lease additional space in colocation facilities to implement a backup scheme, but the additional gear, software and service costs can prove prohibitive and difficult to manage remotely.

Many colocation providers offer backup options as a managed service. As one example, CenturyLink promotes managed backup services based on Symantec NetBackup, which touts file- and folder-level backups and restores, encryption at rest, two-week retention and replication to a secondary site.

Colocation providers can charge additional fees for exceeding backup service limits. If you take this route, find out if services are available at all the provider's data center facilities, and if the company restricts backup bandwidth, storage capacity and retention periods. You should find a service that fits the business's disaster recovery and compliance expectations. For example, short retention times won't serve long-term or archival backup tasks -- possibly compromising regulatory compliance. It's also worth verifying that the tenant receives notification when backup cycles complete.

Test restoration operations periodically to ensure that the provider's managed service -- which comes at a cost to you -- performs as expected.

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