Getting ahead in global urban competition – how regional cities can win the race to the digital society of tomorrow 

With more than 50% of the world’s population now living in cities, urban competitiveness is not just a priority for municipalities today, but also for regional and national governments. Regions around the world are striving to transform their economies and become a point of reference for globally operating capital, a stronghold for innovations, and a location for the headquarters of internationally operating companies. Encouraging migration to a region by making it attractive to both enterprises and citizens is decisive in building the local economy. One key investment here, explains Ivo Ivanov, CEO of DE-CIX, the leading Internet Exchange operator in the world, must be digital infrastructure. 

How can a city that is not one of the traditional hubs transform itself and get ahead of its rivals in the fierce international competition for investment, business, and talent? By encouraging a digital ecosystem to flourish. Take the transformation of Dubai as an example: Over the last decade, the digital capabilities and the digital ecosystem of the city of Dubai have skyrocketed. Today, Dubai stands proudly alongside other established international Internet hubs, like Frankfurt, Amsterdam, London, New York, San Francisco, Mumbai, Singapore, and Tokyo. Like these long-standing Internet hubs, Dubai is home to world-leading digital infrastructure and a strong and healthy ecosystem of Internet players. But in the last ten years – thanks to a combination of the UAE’s digitalization strategy and investments in digital infrastructure, the creation of a modern, agile, and forward-thinking regulatory environment, and the fast-developing local digital ecosystem – it has also become a highly attractive business location, bringing investment and talent to its shores, and encouraging global companies to locate their control centers there. There’s a reason why these two developments have occurred in parallel: because laying the foundations for becoming a successful Internet hub simultaneously lays the foundations for becoming an economic powerhouse.

The recently published study, “The birth of an international Internet hub: a playbook for developing a digital society” provides a playbook for cities and regions to become internationally competitive, investigating what facilitates a city or a region becoming an international Internet hub and what the rewards of doing this are. Using Dubai as its basis – and the establishment of the Dubai-based Internet Exchange UAE-IX powered by DE-CIX, together with the digital ecosystem that has developed around it – the study looks at how to establish such a hub, and what lessons can be learned from the process. The results show how regions can transform themselves, so that even those markets suffering from a lack of digital maturity or liberalization can also take center-stage in their geographical regions in building the digital economies of the future.

The heart and home of digital ecosystems

The example of Dubai provides clear evidence of the power of digital ecosystems to transform economies, and once again shows how digitalization is interwoven through all areas of business and life. Good access to digital infrastructure is not simply a convenience for our personal lives or an enabler of business success but is vitally important for the development of a city, region, or nation. Internet Exchanges (IXs), being the heart and home of digital ecosystems, are a driving force for the digital evolution of a region and key to the digital life of the future.

Why is this, you ask? In today’s digital world, interconnection requirements are increasing in parallel with the growth in data-based and cloud-based services and products. Employees working in a virtual or hybrid environment depend on business applications and fast access to data and content. Companies providing digital services to their customers need these services to be delivered in the highest quality possible. Cities wishing to develop towards a smart city or design intelligent mobility solutions require the capability to send and receive data in near real-time. To ensure the seamless functioning of all applications and the secure transportation of data, every millisecond counts.

This is where latency – the time it takes for data to travel from a user device to its destination for processing and back again – plays a major role. The applications on which our digital future will be based will require extremely low latency. Smart IoT and critical applications that require real-time responses, such as autonomous driving, smart factories, and remote surgery, require latencies in the low-millisecond range. This means that connectivity between the data centers where this data is processed and stored needs the shortest path to the user’s device, where the data is consumed. The shortest data pathways are created by directly interconnecting networks locally at an IX.

Accelerating urban transformation through connectivity

To give you an example from the study I mentioned earlier: In 2012, when the UAE-IX was first established, 90% of local data traffic needed to be transported outside of the Gulf Cooperation Council (GCC ) region – to Europe, Asia, or North America – to be exchanged, resulting in huge delays, poor Internet performance, and regular outages. Today, 90% of locally bound data remains local. The result is a massive drop in latency, from 200 milliseconds (ms) in 2012 to less than 3ms in 2022 and much improved resilience. This means that Dubai’s Internet is about a hundred times faster today than it was a decade ago. That is the power of digital ecosystems interconnected through a robust Internet Exchange.

As a result of the local interconnection and vastly shorter data pathways, within the same time-frame the international IP transit price in the UAE has fallen by 98% and broadband Internet prices by around 85%, while the number of data centers has more than tripled, and the number of locally-registered networks has grown by a factor of eight. The UAE is now ranked first in the GCC in terms of fixed line and mobile broadband subscriptions, and the country enjoys almost 100% Internet penetration. But it’s about more than just the speed, cost, and ubiquity of the Internet – it’s about the flow-on effects from these improvements and the country’s digitalization strategy.

A successful urban digitalization strategy

Why should a city investigate what it takes to become an Internet hub? Because becoming one is not only positive for the businesses involved in digital infrastructure – the transformation has a profound, positive impact on a broad economic scale.

Here’s how it worked in Dubai: In 2012, the UAE Telecommunications and Digital Government Regulatory Authority (TDRA) had begun following a strategy to move away from a classic regulatory structure towards a more modern, agile, and forward-thinking regulatory framework. The TDRA was an early adopter of the belief that public and private sector dialogue and outreach were crucial to positioning the UAE as a recognized Information and Communications Technology (ICT) leader in the Middle East. This strategy, which included laying the regulatory foundations for the establishment and successful operation of an IX, has paid off in so many ways.

Economic benefits include the fact that, in the last decade, the number of international organizations to set up their global headquarters in the UAE has grown by over 700%, the presence of banks in the UAE has risen by 45%, and the number of companies registered in the Dubai International Financial Centre (DIFC) has risen 344%. In just 10 short years, the UAE’s non-oil-based GDP has grown by 35%, the number of international universities has doubled, and the number of students in higher education has increased from 140,000 to one million. The knowledge economy has arrived, hand-in-hand with Dubai’s status as an international Internet hub.

These results clearly demonstrate the positive impact of the country’s digitalization initiatives, starting with the establishment of the UAE-IX and the enabling of the development of a local digital ecosystem. Not only have the performance and resilience of Internet connectivity increased and the cost fallen, but also the growth of the local digital ecosystem has spurned changes on multiple levels, bringing massive investment into the country and making talent call it home.

The magnetism of interconnection

Big cities, with their large populations and strong economies, tend to lead the way in offering good quality connectivity. For regional locations to compete, it is necessary to ensure that data can travel efficiently, stay local, and avoid long detours. Local interconnection and a burgeoning digital ecosystem of networks and data centers act like a magnet, attracting further relevant networks and service providers to the region, in the mid-term encouraging cloud service providers to establish local on-ramps, and setting the foundation for low-latency connectivity that meets the demands of businesses and people. The study presents the steps that cities and regions need to take to develop into an Internet hub. These include investment in local digital infrastructure, such as expanding high-speed broadband networks and establishing an IX, but also the adjustment of the regulatory environment to facilitate the flow of not only data, but also talent and money, and to encourage the settlement of international companies.

According to a study by the Leibniz Centre for European Economic Research (ZEW), cities with a highly developed digital economy are more competitive and grow faster than their more analog peers. Furthermore, not only the region in question benefits from a good broadband infrastructure, but also neighboring, less well-connected regions. Therefore, as each region individually fortifies its own connectivity and digital infrastructure, the flow-on effects will be felt more broadly, also enabling the spaces in between to gain access to better connectivity. The establishment of regional IX infrastructure can thus support national and regional digitalization strategies and reduce the digital divide, bringing more and more of the population online with high-performance connectivity, giving people and businesses the opportunity to participate in digital economies across city, state, and national borders.

Rising data traffic on the Internet, increasingly latency-sensitive applications, and growing security requirements call for high-performance, resilient connectivity. This is made possible through new Internet Exchanges and stronger regional networking. Economic areas outside major metropolitan regions can generate growth in their local economies and build the attractiveness and competitiveness of their locations. Because, as the authors of the DE-CIX study “The birth of an international Internet hub: a playbook for developing a digital society” ask, “What region does not want to become a point of reference for globally operating capital, a stronghold for innovations, and a location for the headquarters of internationally operating companies?”