31 May 2021
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Infrastructure investing is nothing new. Traditionally, you might have considered investing in transport and energy but the shift to a more digital economy and the impact from the pandemic has changed the way we approach infrastructure investing. Technology was introduced as an infrastructure sub-sector several years ago, but with new projects in telecoms towers, data centres and global fibre-optic networks, and carriers reporting surges in their network traffic of 25%, progress in this area is indisputable.
A multitude of ideas and advancements are being brought to the digital space by software companies to enhance our ground-breaking connectivity, but they can only exist if we have the infrastructure to support them. Currently 98% of internet traffic between geographies is via undersea fibre-optic cabling. It’s mind-blowing that anyone in the world can access a Facebook post or a YouTube video but there’s a lot that goes on behind the scenes to make that happen. Digital access relies on hundreds of thousands of miles of undersea cables circling the globe, providing internet and communication links between nations and continents. The cable is laid across the ocean floor by ships and, to supply the ever-increasing demand for bandwidth, the technology giants have put serious money into the expansion of the network of undersea cables.
TeleGeography, a telecommunications market research company, estimates that Google, Facebook, Amazon and Microsoft have spent over $1.5bn on cable construction in the last five years, but it’s still not enough to cope with the increase in volume of internet traffic. The evidence is there: Bitcoin consumes more electricity than Argentina; the energy used by cryptocurrency mining has caused national blackouts in Iran; companies such as Zoom increased their daily users by 200 million in March 2020. Digital infrastructure is fast becoming a resilient asset class and the investment opportunity is growing day by day.
Digital infrastructure is no laughing matter. If the cables between the US and the UK were sabotaged, digital access to the US would be denied and this is a genuine, plausible fear. It’s not just about streaming Netflix, it’s about all kinds of transactions that would be disrupted if the infrastructure was impaired. The Royal Navy are currently building a surveillance ship to protect our critical undersea cabling and according to the Ministry of Defence, these ships will be vital to the global economy and maintaining communication between governments. There’s also a concern that digital infrastructure could be used for nefarious purposes. Facebook have recently dropped out of a cabling project from the US to Hong Kong because the US government are concerned about the spy risk from China. The potential threat to national security has stopped the venture in its tracks.
With funds offering exposure to the companies that own the physical infrastructure assets that are vital to the digital economy, there are several areas that you can invest in; telecom towers, data centres, fibre optic cable companies, logistics warehouses and digital transportation. Cabling companies are providing key infrastructure for the development of the internet but there’s also the remaining 2% of international internet traffic that’s transferred via satellites.
Data centres used to be considered high-risk, so direct investment in them was usually the preserve of sophisticated investors and often accompanied with a tax deduction. Before, it was a case of building one set of servers and hoping burgeoning demand was sufficient to make the project viable but now you can diversify your portfolio with a variety of digital commodities, taking this type of investment from a niche tax-advantage product to a legitimate and credible opportunity. The internet needs to be rolled out to everyone making the demand undeniable and, rather than them only being attractive to the wealthier pro-risk investor, the average retail investor can now look to invest in these products.
According to the data centre information platform DC Byte, data centre mergers and acquisitions totalled almost $35bn globally last year, more than five times the volume of deals in 2019 and $10bn ahead of the previous annual record set in 2017. The infrastructure sub-sector has earned its place. More and more investors have started to view digital products as reliable assets that have a meaningful place in their infrastructure allocation; digital infrastructure is fast becoming the asset class of the future.
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