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In recent years, “decentralization” has garnered significant attention within the data center (DC) industry. The Japanese government and Tokyo Electric Power Company are promoting initiatives like “Watt-Bit collaboration,” which links power and data communication, to encourage the shift of data centers away from urban concentrations. The underlying objectives include mitigating earthquake and disaster risks and revitalizing regional economies. However, the reality on the ground diverges somewhat from this ideal.

The Barrier of Hyperscaler Economic Rationality

The biggest obstacle is the behavior of foreign hyperscalers. The current demand for data centers is primarily driven by major overseas cloud providers such as Google and Amazon. Their location decisions are based primarily on economic rationality, and they strongly believe that there are significant advantages to establishing operations in areas where data centers and communication networks are already concentrated. Consequently, they are reluctant to decentralize.

Furthermore, supporting Watt-Bit collaboration requires robust internet infrastructure, including Internet Exchange (IX) points and submarine cable landing stations.

As one government official stated, “Decentralization won’t progress if we rely solely on economic rationality.” This indicates that a strategy extending beyond mere infrastructure development is needed for successful regional dispersal.

Government Strategy and Support for Domestic Operators are Key

Japanese data center operators are relatively more proactive in establishing DCs in regional areas. Japanese companies often demonstrate a willingness to expand into various regions, considering their social mission and the characteristics of the domestic market. However, even if they establish regional data centers utilizing subsidies and grants, sustained business operations are impossible without securing enough customers to cover ongoing running costs. Since major overseas cloud providers do not use regional data centers, it is extremely difficult for Japanese data center operators to decide to build new DCs in the regions.

Given this situation, the key to future progress lies in “government leadership” and “strengthened support for Japanese operators.” Market principles, left solely to economic rationality, will not lead to decentralization.

Instead, the government may need to strategically designate locations and actively guide development with a strong resolve. Additionally, effective institutional design is essential, going beyond one-off subsidies to include long-term operational support and tax incentives. The government’s large-scale utilization of regional data centers could also be an effective measure.

The question remains: Is the government prepared to push forward with decentralization, even if it means transcending economic logic? And how will Japanese companies respond to this trend? The regional strategy surrounding data centers is now reaching a critical juncture.