Opportunities for infrastructure investors
Meanwhile, the mobile phone towers and fibre networks that make up the UK telecommunications ecosystem are attracting the interest of specialist infrastructure investors seeking long term and stable returns that match the liabilities of their underlying investors, such as pension funds and insurers.
"There are many opportunities for infrastructure investors in the telecoms sector, because retailers currently cannot afford the significant levels of investment required and once developed the infrastructure can be shared by a number of telecoms firms." says Nathan Luckey, Senior Managing Director at Macquarie Asset Management (MAM). "The benefit of this type of institutional capital is that it’s agnostic to the retailer. The traditional telecommunications firms are more comfortable sharing network infrastructure when it’s owned by a neutral investor, rather than by their competitors."
Interest from institutional investors in the sector could offer a new source of capital to fund the development of the UK’s telecommunications network infrastructure. The sector has become even more attractive to these investors in the wake of the pandemic. "Pension funds and others have seen how telecommunications assets are less exposed to the economic cycle. People in the UK need always-on connectivity, so the sector is now being compared to essential utilities like electricity, gas and water."
AltNets – a new role
Infrastructure developers are also looking for new opportunities in the UK market, creating growing interest in supporting alternative networks - known as AltNets. These AltNets are small, challenger network companies that are not as dependent on the UK’s existing copper network infrastructure as larger players.
Oliver Bradley, Managing Director at Macquarie Capital, explains: "Alternative networks, or AltNets, are becoming an increasingly common feature of the market as the push for universal high-speed broadband connectivity grows. These operators are typically nimbler than the traditional telecommunications firms and could make a big difference in helping to plug gaps in connectivity – particularly in key certain niches."
"Large players are reaching their maximum through put, which means AltNets can supplement their efforts and accelerate the UK’s progress in becoming a full-fibre country."
Although, when it comes to scaling up their deployment, many of these AltNets are still deemed a risky investment for conventional lenders. This raises their cost of capital – meaning more expensive deployment and higher costs to potential customers – which can reduce uptake.
However, proven infrastructure developers can use their expertise in finding sites, getting permits, negotiating contracts with constructors to help UK AltNets de-risk their projects. This expertise can significantly reduce the development costs of AltNets.
"Fortunately, there is no shortage of private capital from people like us and no shortage of appetite to invest in this sector. But it is creating the right investment landscape with the right risk profile that can help unlock this investment and accelerate universal connectivity in the UK," adds Bradley.
So, whilst the COVID-19 pandemic has dramatically increased demand for connectivity, it has also driven other trends in the sector – increasing infrastructure sharing, making digital infrastructure more utility-like, with greater diversity of developers. This means that whilst there are growing restraints on telecommunications firms, the changing nature of the UK telecommunications industry is providing more opportunities for private capital to support the sector.
- Ofcom: https://www.ofcom.org.uk/__data/assets/pdf_file/0013/220414/online-nation-2021-report.pdf