In recent years infrastructure investors have started to look at telecoms as a new asset class. Initially with towers offering long term visible yields, the need has expanded to data centres and more recently fibre assets (or ducts). Lockdown has tested the robustness of infrastructure assets the world over and in turn highlighted the growing importance of, and dependency on, digital infrastructure.
While digital infrastructure is not sacrosanct, throughout the pandemic it has been shown to be an intrinsic component in functioning international economies. Over the last few months consumers have found a new love of keeping in touch via social media platforms, voice communication and video calling. Global adoption of working from home en masse has also transformed usage and network dynamics, further illustrating the need for more distributed telecoms infrastructure, rather than the centralised grids relied upon for decades.
This is not new and has been a growing theme in recent years, but the pace of change has just been accelerated, especially in Europe. Over the next decade the industry’s investment focus will be concentrated on suburban and rural environments, rather than well-established business and commercial centres.
In the public markets, the telecoms sector has been on a multi-year downward trend since the prime of the dotcom boom a few decades ago. The boom was premised on the expectation of dramatic growth in monetisable data usage. Although data growth expectations were premature by a decade, the challenge for operators has been more on the ability to monetise, with average revenue per user (ARPU) under continued pressure - despite exponential growth in data volumes. The COVID-19 lockdown period has further stimulated a significant uplift in data volumes and more consistent usage throughout the day – creating demand for higher speed broadband connectivity.
So, what can we expect in the future?
It would be rational for consumers to review their current telecom services and assets post lockdown. Some may be more price aware and seek better value in the future, whereas others may look for the comfort of overprovision – should we ever see a repeat of the global lockdown. But this creates another opportunity for operators. By investing more in digitisation to reduce costs, operators can at the same time improve service levels and remain within an overarching sustainability framework.
There is also likely to be a political desire to see an accelerated pace of network upgrades. Not only to improve digital infrastructure, but to stimulate investment and aid wider economic recovery. This coupled with demand from consumers, could lead to a greater desire to accelerate network upgrades.
Operators will have high hopes that this drives the penetration of new services and therefore reduces investment risks. With balance sheets fuller than they once were, the dilemma for operators will be the significant boost required to short and mid-term capex - already at peak levels. This may necessitate a smarter approach to funding and greater levels of shared networks, and an increased focus on returns may position the sector in a more sustainable position going forward.
Only time will tell if there will be a permanent impact on the telecoms industry, but these are the areas we believe changes could be seen in the short term.