Covid-19 has fundamentally redefined what is considered essential infrastructure and challenged traditional definitions of ‘core’ assets. In the space of a year, connectivity, although still previously important, has been elevated to a fourth global utility, alongside electricity, gas and water.
Digital infrastructure has been a critical enabler of remote working and learning, the digital delivery of goods and services, and online communication during covid-19, and its importance has been brought sharply into focus. However, data consumption had been accelerating long before the pandemic and this is set to continue. The GSMA estimates that the number of mobile internet users will increase from 3.8 billion in 2019 to five billion by 2025.
So, what does the rising demand for connectivity in a post-covid era mean for digital infrastructure? TMT consulting firm Altman Solon says roughly half of future mobile demand could be met through internal network improvements by telecom operators, but the rest needs to come from densifying networks and upgrading existing
Densification essentially involves improving the network coverage in a particular area by increasing capacity. Densification can be achieved through building more towers, adding radio equipment, such as small cells and distributed antenna systems, to cellular sites, and connecting residences, businesses or other locations to fibre networks.
The investment opportunity
One densification solution will not replace another and all will be required to meet fast-growing data consumption globally, particularly as the rollout of 5G technology gathers pace. Densification is no small task with telecom operators estimating $1.1 trillion is needed to densify networks between 2020-25, according to the GSMA. This includes $290 billion earmarked for the US, $275 billion for Asia-Pacific and $175 billion for Europe.
Telecom operators increasingly prefer to outsource and share digital infrastructure for cost efficiency, ensuring a seat at the table for infrastructure investors, which are better suited to incur the capital spend required to densify and upgrade networks.
The maturity of digital infrastructure in different regions will largely determine the opportunity set for investors. In more mature markets, such as the US, there will be a greater need to complement existing tower infrastructure with small cells to improve connectivity, particularly in densely populated urban areas. Meanwhile, in developing markets, such as Asia-Pacific, where coverage is still relatively poor, the building of macro towers is likely to offer a more attractive risk/return profile.
Digitisation is one of the investment giga themes that we have been following at Partners Group, with our research identifying rising data consumption as one of the significant transformative trends within this theme. Network densification can also have broad, positive stakeholder impact by improving communications connectivity and reliability for communities – something we are now looking to achieve through our recent investment on behalf of our clients into a telecoms tower platform in the Philippines, Unity Digital Infrastructure.