What does covid-19 mean for digital infrastructure right now?
Bruno Candès, partner, InfraVia Capital Partners: It confirms the essential nature of digital infrastructure, which has truly become the utility of the 21st century. The sector, which was not that long ago seen by most investors as peripheral to the asset class, is considered as core.
James Harraway, transaction managing director, Infracapital: Digital infrastructure is displaying resilience though the covid-19 crisis, which evidences the defensive characteristics of these assets and their attractiveness for infrastructure investment. We’ve seen significant increases in data traffic on our portfolio companies’ fibre networks, near-doubling in some cases, and material uptake in demand from new customers.
Carlo Maddalena, senior portfolio manager, APG Asset Management:
The outbreak of covid-19 accelerated the re-rating of digital infrastructure as essential infrastructure. We see in certain jurisdictions that digital infrastructure is categorised as ‘critical infrastructure’, hence allowing the works and movements of key workers, even if restrictions are place for other sectors.
Tom Maher, head of business development, Whitehelm Capital: While it was already a hot sector for infrastructure managers and investors before covid-19, the appreciation of the importance of digital infrastructure – particularly fast and reliable internet – and the need to deliver improved services, is now acutely obvious. Longer term, this will translate into more competition for transactions, but also more progress.
How might it change the future of the sector?
JH: Covid-19 may be seen as a paradigm shift for digital infrastructure. The realisation that they can function effectively, with employees working remotely, will change how organisations in many sectors work, permanently. The importance of reliable, high-capacity connectivity will be critical to that, which will bring forward demand for, and investment in, full-fibre digital infrastructure.
TM: We expect to see lasting shifts towards more data-intensive work and social practices, such as more video-conferencing, hot-desking, online social interactions, as well as a move to more digital or automated service delivery, such as digital health monitoring and driverless deliveries.
BC: This episode, like every crisis, is accelerating transformations that are already in play. In this case, it is going to accelerate the transition of IT load and computing capacity into the cloud, which will drive massive investments in data centres.
CM: The higher demand for digital infrastructure is also expected to put under tension construction delivery activities and the supply chain. This situation needs to be actively monitored as it may change if, for instance, there are restrictions placed on construction crews, supply chain delays or sustained shutdown of economic activity in the city.
Away from the virus, what is the biggest challenge?
Matt Evans, partner and head of communications infrastructure, AMP Capital: The large number of entrepreneurial management teams seeking funding often chasing the same idea – for example, UK altnet builds. The ability, and most importantly, the sector experience to filter and prioritise is critical to successful investment.
JH: In the fibre sector, getting roll-out planned and scaled for large build programmes remains a key area of focus.
CM: Business models centred around the principle of risk-sharing between investors, partners and authorities. The risk profile of big technology roll-outs remains too skewed on the side of the investor, who of course requires more prudent assumptions and roll-out of proven case studies.
BC: Massive investments are projected, and this requires very dense and sophisticated industrial supply chains and ecosystems for the roll-outs. Developing and maintaining these ecosystems is key – particularly attracting and retaining a qualified workforce.
TM: Time. Development processes take time. Negotiating and structuring commercially sensible investments takes time. Government approval processes take time. Covid-19 has highlighted the need for significant improvements in digital infrastructure now, but the reality is that this progress is not going to happen overnight.
What is, or has been, the most exciting development?
CM: Given the amount of stimulus that is being injected by central banks, it wouldn’t be surprising to see economic activity rebound sharply once lockdown measures are relaxed, and the sector capturing the momentum to upgrade and build new infrastructure.
BC: Growth of the data storage demand remains strong with the bulk expected to be captured by hyper-scalers, including new ones. This requires massive investment and makes a strong case for data centre platforms that have the engineering, commercial and operational expertise, and strong capital backers.
TM: Covid-19 has raised an exciting level of awareness in society on the importance of digital infrastructure, as well as on the possibilities for improving services within communities. Whether that be a broader understanding of the capabilities of video conferencing, or discussions of the possible benefits of remote healthcare monitoring, or better essential services communications systems, there is now a heightened awareness of the benefits that digital infrastructure and smart city services can bring to our societies – not just in the future, but right now.
ME: The apparently unstoppable momentum of the move of processing loads to the cloud. Incredibly, it’s still likely to be in its relatively early days.
If you could change one thing about the market, what would it be?
TM: For governments to reduce red tape and provide clearer pathways for the development and implementation of digital infrastructure. This will enable societies to recognise the significant economic and societal benefits of faster implementation.
JH: Removal of barriers which slow down or prevent build of new fibre networks.
BC: Inflation. Digital infrastructure, and telecoms in general, have proven their essential nature and resilience, and the sector requires massive investments over the next five years. It is important for telecom operators and infrastructure owners to pass on these investments through proper average revenue per user pricing and inflation.