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Luxembourg: Tiny state fights above its weight as data hub

When you mention Luxembourg to most people it conjures up few images: Sixties pop pirate station Radio Luxembourg, EC president Jean-Claude Juncker, and multinational companies that avoid a tax contribution the size of the Amazon. But there is more to Luxembourg, particularly in technology and data where having a ‘low profile’ is not necessarily a bad thing.

Despite being one of the smallest and least populous states in Europe, Luxembourg exemplifies how technology and communications can act as catalysts for growth. From a technical perspective, it has the densest concentration of dark fibre. In a political sense, as a founder member of the world’s biggest trading bloc (the European Community) it is at the heart of the EC, as well as the United Nations, OECD, NATO and Council of Europe. It’s also one of the three official capitals of Europe, which is why so many EU institutions are hosted there.

Geographically, Luxemborug’s physical proximity to so many large economies gives it a large talent pool. Its low-income tax regime means it can attract skilled workers to make the commute from neighbouring Belgium, France and Germany. It might have a static population of 500,000 but it can draw on about 11 million people.

Culturally, it’s good too, as its scale makes it perfect for quick decision making.

“They seem much hungrier,” says Jonathan Evans, director of global alliances at LuxConnect, a privately owned datacentre colocation company owned by the Luxembourg State.

“You can have a meeting and everyone you need to know from that country is in the room.”

That’s something that technology has never been able to automate. And when contacted by potential investors, business development agencies like Luxembourg for Business and Luxembourg for Finance are quick at establishing contacts and giving a lowdown on the market than in more bureaucratic European nations, supporters say.

Cheerleaders

External watchers are also queuing up to proclaim the virtues of Luxembourg which has been judged the EU’s most competitive economy by The International Telecom Union’s (ITU) Measuring the Information Society report which identifies ICT developments and tracks their cost and affordability.

According to the ITU’s ICT Development Index (IDI), which ranks countries’ performance against their ICT infrastructure, usage and skills, Luxembourg outperforms all over European nations when measured per head of population.

Logistics company DHL’s Global Connectedness Index measures countries against the cross-border flows of trade, capital, information and people. In its last study, Luxembourg was ranked fifth among the top 140 economies countries in the world.

In terms of stability and creditworthiness, Luxembourg ranks only behind China and Hong Kong, as one of the few Triple-A rated countries left in the world, according to Standard & Poor's Sovereign Rating.

Small country, big hub

For such a tiny country, there’s a high movement of resources too. Luxembourg’s international airport is one of the busiest freight airports in Europe too. If it is gauged purely on cargo tonnage, Luxembourg’s Findel Airport is ranked as Europe's fifth busiest hub and was ranked as the world’s 28th busiest back in 2010. It’s connected to the railway network too, with trains pouring in from all directions: the UK, Belgium, Netherlands and German to the north, and France, Italy and Spain to the south. There’s even direct freight from one of the world’s fastest emerging economies, Turkey.

Well connected

Luxembourg has more internet bandwidth per internet user than anywhere else in the world, according to the ITU’s 2014 report.

The technical connectivity of Luxembourg is the product of government investment which in turn created private speculation. An ambitious investment in fibre for Luxembourg stimulated 30 international carriers to create their own connections. There are now 23 different fibre routes into Luxembourg, making it the most networked region in the world.

According to the IT infrastructure evaluation organisation Uptime Institute, Luxembourg has the highest density of top-ranked (Tier IV) datacentres in the world, with eight in operation and more facilities under construction. The competition for supremacy between two rival datacentre providers (LuxConnect and EBRC) has created a favourable environment for Europe’s IT providers.

Luxembourg is at the centre of what has been dubbed the Golden Ring since it provides almost instant (that is, within a few milliseconds) connections with the major internet exchanges in Brussels, Frankfurt, Amsterdam, Paris, Strasbourg and London. Below that connectivity premier league there are divisions of lower-tier connectivity providers that – in tandem with the security provided by the government-driven Computer Incident Response Center Luxembourg – have attracted top international names.

Legal redress

Some claim that a creative legal framework that addresses ‘cloud law’ has also helped attract more risk-averse businesses. Luxembourg’s legislation lets data owners reclaim their data in the case of a cloud service provider going bankrupt, which is reassuring given the shifting landscape of the IT industry. To nervous companies looking for European hosting, this represents shelter for data and an attractive way to centralise their electronic archives in a single country.

The money markets like stability and this is a landlocked country that suffers no buffeting, from neither oceanic nor financial tides. Which helps explain why it has become Europe’s top centre for investment funds.

Content creators using Luxembourg for hosting include PayPal, Amazon, iTunes, eBay and hot games firms Valve and Nexon. Skype built itself up from scratch in the Grand Duchy’s datacentres and most of the major Chinese banks are hosted in Luxembourg, according to Tom Kettels, the Luxembourg government’s conseiller de direction (policy advisor).

In search of the spark

But where is the innovation and the creative talent? As well as being a data hub, Luxembourg has traditionally been a broadcasting nexus, relaying entertainment services to all of Europe through companies like RTL and SES Astra. While it may deliver the entertainment, Luxembourg isn’t known for its own dramatic output.

Gabriel Lippmann invented colour photography, but nothing else much happened until Hugo Gernsback invented science-fiction in the 1920s. Maybe more immigration will bring fresh impetus: 70% of the workforce are already foreign, mostly commuting residents of neighbouring countries.

There are jobs aplenty but if you’re attracted by its riches, beware of celebrating too much. Luxembourg’s most terrifying ghost, the Stierches-geescht - a heavy drinker before his death - haunts the city and is especially fond of scaring drunks.

Impressive, but I’m still not convinced I want to live there. It doesn’t sound like my kind of country, but I’d be happy to send my data there.

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Nick Booth

Nick Booth worked in IT in the UK’s National Health Service, financial services and The Met Police, witnessing at first hand the disruptive effects of new technology. As a journalist and analyst, his mission is to stop history repeating itself.

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