This article is sponsored by Vauban Infrastructure Partners
How would you describe the growth in demand for data transport, storage and processing that you are seeing? What is driving that?
The growth in demand is significant, and we don’t see it slowing down any time soon. Indeed, more and more people around the world are being connected – as are devices – new uses are being developed, existing services are being enhanced and new behaviours are emerging.
Overall, the increase in data consumption is essentially driven by three main trends:
- More of the same. People are consuming better-quality services in a more ubiquitous manner – 4K movies over Netflix, for example. As coverage of high-bandwidth networks increases (despite discrepancies between European countries, they’re all now looking to maximise coverage), more people have better access to such services and consume more data.
- More connections. Penetration of data services is high in Europe, yet it is still growing among the population to meet new behaviours (eg, working from home, even from remote areas), but also as more things get connected.
- New services. As new use cases become more accessible, we’ll see further increases in data consumption. The metaverse is an example of such services. All of this means more demand for data storage, computing and transport, which are all areas where digital infrastructure will require further investment.
Against this backdrop, where are you seeing the most interesting fibre investment propositions?
There are different ways to consider fibre opportunities, both from a geographical perspective as well as from a service perspective.
On the geographical front, there are opportunities in countries where fibre coverage (namely FTTH) is lagging relative to other European markets – for example, in Germany and the UK. The challenge is that those opportunities are highly visible, and it becomes something of a land grab. Whoever plants their flag first in a particular region will probably win due to barriers to entry. So, while there is an opportunity, it isn’t always easy to make the right investment because competition is fierce.
Then you have those countries where coverage is already high, such as France and Spain, but where further rollout is required in rural areas given the high cost of rollout. These deals typically benefit from some form of government subsidy or concession, which provides a barrier to entry for the benefiters.
Finally, there is the opportunity to consolidate specifically in markets with a lot of small local/regional players, like the UK or Spain.
There are also opportunities when it comes to other types of fibre networks, such as B2B, pan-European networks and Dark Fibre, which are typically more opportunistic.
What impact is the deployment of 5G likely to have on the fibre space?
5G is likely to have a positive impact on fibre rollout. Depending on the allocated spectrum, 5G will require densification of the mobile network, and those towers will need to be fiberised. That creates an opportunity for fibre players – as well as the tower companies, of course – which is why I see 5G as complementary to fibre, as opposed to a competing technology.
There has been much discussion as to whether 5G and Fixed Wireless Access could represent an alternative to fibre in rural areas where it has not been deployed due to cost, for example. But ultimately, if you want to provide a performance on par with fibre, you would need a high-frequency spectrum, which would mean lower coverage per site driving the need to densify the network with fibre-connected towers, which drives up the cost.
Furthermore, those spectrum levels bring with them additional considerations, such as indoor coverage requirements and whether you have line of sight. Above and beyond this aspect, when you consider some of the use cases 5G could enable (eg, autonomous cars) because of its low latency, significantly higher bandwidth and higher number of simultaneous connections to the same site, there is also an opportunity to connect new small-cell sites via fibre.
How close are we to the widespread deployment of 5G in Europe?
Although operators are rolling out 5G networks, I believe we are still some way off because the economic case for full 5G coverage is not there yet. While there are some existing use cases from a B2B perspective, there are no specific new use cases for B2C that would easily justify, from a telco perspective, the investment in a massive 5G rollout. There is nothing really new that you could do with 5G as a consumer that you can’t already do, albeit more slowly, with 4G, limiting the justification for the needed ARPU increase. We are yet to see an iPhone moment for 5G.
What I mean by that is, when 4G first arrived, data consumption remained low relative to today because people didn’t know what to do with it, given the limitations of their conventional phones. The iPhone came along and created new use cases that allowed people to maximise the value of 4G. That hasn’t happened with 5G yet. It’s a chicken and egg situation between the investment required to enable the emergence of use cases, and the uses cases to justify the investment.
What could help overcome that challenge?
I would break the challenge into two.
Firstly, we have to bridge the digital divide that could emerge since 5G is mainly deployed in dense areas and the economic case for rural areas is harder to achieve. I think we will be facing the same questions we were when it came to who should be footing the bill for fibre rollout in rural areas. It could be that we need some form of public network initiative, where you create a concession or have subsidies that enable an infrastructure operator to deploy the 5G network as a wholesaler leveraging 5G’s slicing capabilities. That would potentially make the investment viable and compensate for a potential lack of investment from MNOs.
The second challenge will be enabling new use cases to emerge, via investments in technology and partnerships between MNOs and funds to deploy a densified network. This will be an iterative process between technology evolution and network rollout.
When it does arrive, what will 5G mean for the data centre opportunity?
Virtually all IP data traffic in the world today goes through a data centre. 5G will only increase that demand as people consume more and more data and as connected devices proliferate. 5G will also accelerate the move towards edge data centres as computing power is moved closer to the consumer.
This is because many of the use cases that 5G will allow require low latency. If you put on a virtual reality mask and turn your head to the right and the screen you are seeing doesn’t move at the same speed, the human brain will register even the slightest latency and make you feel dizzy and nauseous. The implications for autonomous vehicles are even more serious, of course. Even a few milliseconds of latency could result in a collision.
Low latency means that connectivity must be super fast and computing power must be nearby. Deploying more edge data centres in order to facilitate 5G use cases is something else that has capex implications and must be taken into account.
How do you view the threat of cyberattack in the context of an ever-more connected world?
Everyone is aware of cyber-threat today. We have all seen companies that have been hacked and are aware of the issues facing individuals when it comes to protecting their online identity. Imagine, then, the scale of threat as we move into a world where billions of things, as well as people, are connected and malicious actors are potentially able to take control of those devices for their own ends.
Cybersecurity must therefore be a key consideration in any investment, in order to secure the asset and the users of that asset. We always conduct cyber-due diligence to identify any shortfalls and to ensure that we can resolve them. That due diligence not only looks at the asset itself, but also suppliers and clients because the entry point can be anywhere.
What do you believe the future holds for digital infrastructure as an asset class, particularly in the context of a more challenging and inflationary macroeconomic environment?
There is no disputing now that digital infrastructure is essential. The pandemic has proven that connectivity is not a luxury, and the sector is very resilient. There will of course be implications from inflation, but in our case, for example, most of the investments we make in this sector are CPI linked and so are typically protected from inflation.
Overall, we are excited about what the future holds and look forward to making more digital infrastructure investments given its core features, the growth in demand and the resiliency of the sector.
What are the ESG implications of data centres?
Data centres consume 1 percent of the world’s energy today and estimates for future power consumption range from 8 percent upwards. What matters, then, if we are to avoid putting further strain on the planet, is the type of energy those data centres are consuming and how efficient they are with the use of energy.
The data centres we have invested in, for example, are 100 percent powered by renewables and highly efficient. Both factors are important, not only from an ESG perspective, but from a commercial perspective as well, particularly in the current geopolitical and macroeconomic environment where energy prices are soaring.