Data Centers and Undersea Cables Tangle in Geopolitics and Climate

· The ‘cloud’ is, in reality, created by stacks upon stacks of servers in hot, dark warehouses.

· Amazon, for one, now expects about US$75 billion in capital spending in 2024, up from US$48 billion in 2023, with the majority on data centers. Microsoft and Google, two of the world’s biggest cloud providers, are also engaged in a spending spree on the architecture that supports their AI ambition.

· Countries worldwide are competing to crowd into the physical location of data centers, putting land-scarce economies at risk.

· Enormous demand for energy from these data centers is driving Big Tech companies to unconventional strategies, such as nuclear power

[ABS News Service/28.11.2024]

The future of the digital economy now hangs on an increasingly fractious competition for energy and space. For the first time since the internet’s inception, global geopolitics and climate imperatives are imperiling the physical backbone of the internet that underlies trade and the modern interconnected economy. As a key battleground for influence between China and the US, these effects will be felt first in Southeast Asia.

The modern internet is often imagined as a disembodied medium. The ‘cloud’ is, in reality, created by stacks upon stacks of servers in hot, dark warehouses. While in the past it had been easy to overlook the role data centers, power lines, and subsea cables play in enabling the modern economy, the advent of artificial intelligence, the exponential growth in the creation of data, and the growing strategic value of data mean it is no longer tenable to ignore the physicality of the virtual world.

Investments among Big Tech companies on these infrastructures are projected to continue to rise. Amazon, for one, now expects about US$75 billion in capital spending in 2024, up from US$48 billion in 2023, with the majority on data centers. Microsoft and Google, two of the world’s biggest cloud providers, are also engaged in a spending spree on the architecture that supports their AI ambition.

But tech providers are already running into energy and geopolitical challenges. In the Asia-Pacific, subsea cables cannot be laid along cost-effective routes due to the international contest over the South China Sea. Countries worldwide are competing to crowd into the physical location of data centers, putting land-scarce economies at risk. The enormous demand for energy from these data centers is driving Big Tech companies to unconventional strategies, such as nuclear power, raising yet another set of environmental risks.

In Southeast Asia, the rollout of new internet infrastructure has double-edged impacts. Massive investments in renewable and clean energy to power data centers are coming online and can be expected to help underwrite a strengthening of the electricity grid, thereby creating spillover benefits. Geopolitical factors weighing on the locations of subsea cables could benefit the region and increase the importance of hubs like Singapore. They could also turn just as quickly into a geopolitical minefield.

The routing of subsea cables and development of data centers underscore real-world obstacles for the digital economy. Since 2010, the number of internet users worldwide has more than doubled, while global internet traffic has expanded 25-fold. If the combination of the physical limitations is not addressed, the rapid advancement of the digital economy, as well as the more basic adoption of the internet in Asia and other developing regions, will be slowed. This would have consequences for the evenness and equality of global economic development, writes Kieran Thompson of Dragoman, a Melbourne-based international strategic advisory firm.