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Pandemic emphasises demand for digital

Hybrid working requires investment

Although the roll out of 5G continues around the globe, with 162 commercial networks having launched worldwide at the time of writing, provision is variable across different geographies. The pandemic has highlighted the importance of reliable connectivity and fast internet access, particularly in rural areas.

Fast broadband is now an essential utility alongside power and water in many nations, placing the telecommunications industry in the spotlight. While the digital transformation was well underway prior to the pandemic, from smart infrastructure and the Internet of Things to digital entertainment and digital finance, the centrality of the internet in our daily lives was put into sharp focus. As the ‘new normal’ emerges, and flexible working models become more prevalent, significant digital infrastructure investment to provide reliable, superfast connectivity is essential. Pre-pandemic, 5G rollout was the focus of many Western nations, and remains a priority, but coverage is fragmented. It is still unclear how networks will be consolidated where a mix of equipment has been used.

COVID-19 has demonstrated the need for investment in a balanced range of digital technologies. The use of cloud services continues to grow and, during 2020 and 2021, it has been used as much for collaboration as for storing content. From data centres to subsea cables, satellite internet and Smart Cities, the global acceleration of digital trends offers up many infrastructure investment opportunities.

Geography driving choice of technology

In densely populated areas of developed and emerging economies, new operators are rolling out fibre when the economics stack up. New fibre companies are providing neutral host structures that are offered on a wholesale basis to operators. In February 2021, KKR announced it had entered into an agreement with Telefónica to establish Chile’s first open access wholesale fibre optics company and, in Poland, Orange Polska and APG Group have formed a joint venture to rollout a fibre network to 1.7m households.

In more rural locations, where the unit costs of fibre are less favourable and the challenge of connecting ‘the last mile’ is more acute, providers are implementing solutions such as fixed wireless, mobile broadband and satellite.

Space: the new frontier

Starlink is the satellite network that SpaceX is developing to provide low-cost internet to remote locations and in April 2021, the US Federal Communications Commission approved SpaceX’s proposal to modify its Starlink satellite licence. Reported to cost more than USD 10bn, the network of thousands of satellites is designed to deliver high-speed internet anywhere on the planet.

Similar plans for space-based internet are being launched by OneWeb, whose major stakeholders include Eutelsat, the UK government and India’s Bharti Global. OneWeb’s fleet of 648 Low Earth Orbit satellites are expected to deliver high-speed, low-latency connectivity to Alaska, Northern Europe, Greenland, Iceland, the Artic Seas and Canada later this year, and globally by the end of 2022.

Data Centres to support collaboration while reducing environmental footprint

As workers collaborate remotely and online trading increases, latency becomes more problematic; more localised data centres help reduce the delays. It is not enough to have superfast internet on the edges of the network, the supporting digital infrastructure must be out on the edge too.

Data centres, while central to digital transformation, are highly energy intensive. Given global commitments on greenhouse gas emissions, the industry is making strides to diversify data centre power generation sources, with renewables incorporated into the mix. Infrastructure is being built and upgraded to improve the energy efficiency of data centres, particularly in managing the cooling process.

Big Tech is leading the charge

Many digital infrastructure projects are being driven by the large, mostly US, tech firms.

  • Microsoft, which operates more than 200 data centres, is planning to build between 50 and 100 more each year ‘for the foreseeable future’ as its Azure cloud footprint grows. This includes establishing a presence in ten new countries by the end of 2021.
  • Apple has plans to spend an extra USD 80bn in the US over the next five years, opening new facilities and devoting resources to future technologies including 5G.
  • Facebook recently announced that it is investing in two subsea cables connecting Singapore and Indonesia to North America.
  • Google has invested in at least fifteen subsea fibre cable projects.
  • Amazon is a part-owner of two cables and a major capacity buyer of capacity in three others.
  • Chinese company Hengtong Optic-Electric Co. is building its ‘Peace Cable’ for PCCW Global and Orange and it will reach Marseille from China via Pakistan and East Africa in late-2021.

Specialist funds providing finance

There is a rise in specialist funds that only invest in digital infrastructure; Cube Infrastructure Managers in Luxembourg has a vehicle investing purely to support fibre rollout in areas of Europe where high-capacity networks are not yet deployed. Institutional investors with long-term views now see telecoms as a core strategy.

With digital now seen as critical infrastructure, increased Foreign Direct Investment (FDI) controls are impacting on the deals in the digital infrastructure space. As nations focus on security of supply and critical infrastructure, they are increasingly scrutinising who is behind each investment.

The pandemic has amplified the need for spending on digital infrastructure, providing investment opportunities across the globe. Where previously we saw companies vying for prime office real-estate, the future will more likely see them competing for the best data centre locations. Soaring demand for cloud and internet-based services in Africa, for example, has seen large tech companies, including the likes of Google, Amazon and Microsoft, continue to open data centres across the continent.

Authors

Chris Watson
Chris Watson
Partner
Global Head of TMC
London
Anne Chitan
Anne Chitan
Partner
Global Co-Head of Communications, TMC
London