Global Offsite: Digital assets need ‘sticky customers’

The nascent digital infrastructure sector needs customers committed to long-term contracts, to de-risk new technology, and provide capital for new projects where governments can’t.

The most appealing types of digital infrastructure assets are those secured by long-term contracts with “sticky customers,” a panellist at Infrastructure Investor’s Global Offsite told attendees on Tuesday.

Jérôme Leyvigne, a director and portfolio manager at US private equity firm BlackRock, said customers that become dependent on the services provided by telecommunication towers, fibre cables or data centres are necessary to make a strong case for institutional investors to commit long-term capital to such assets.

“You want to have sticky customers,” he told the audience in an online forum. “Assets may not necessarily be bad, but you need to be very careful about their contractual nature.”

He added that, while pandemic-related work from home trends are likely to continue well into the future, competition for communication services may make residential customers come and go when it comes to developing fibre-to-home connections. “One of the issues we’ve seen is that, clearly, people want higher broadband speeds, but are they willing to pay for it?”

Jan Vesely, a partner at Swedish private equity firm EQT, agreed about work from home trends being the new normal for office jobs around the world. However, Vesely believes this will only enhance the “accelerating trends of people upgrading” their high-speed communications.

“My view is that [work from home] will generally require strong upgrades everywhere. People are realising the benefit of having fibre connections to their home,” he explained.

Vesely said his biggest concern for the nascent sector centres around technology risk, agreeing with Levyigne’s point that digital assets with long-term contracts have the strongest investment case.

Canan Anli, head of business development ICT at Mubadala Investment Company, said one of the most promising but less talked about parts of the digital infrastructure sector is the natural alignment between the government and the private sector for new developments.

“I expect governments to look for private capital” to support the build-out of greenfield projects,” Anli said. “The investment opportunity is so huge, as well as the capital need, it doesn’t make sense for governments to do this alone.”