Fibre Broadband Networks: An Investor’s Introduction
By Mike Conradi, Rubayet Choudhury and Christian Keogh
March 16, 2020
Infrastructure and institutional investors are increasingly turning their attention to digital infrastructure assets and the global rollout of fibre broadband. Fibre-to-the-home in particular is seen as an essential component of digital transformation and as providing a large pool of investment opportunities.
Though the sector has traditionally been dominated by telecoms players, recent years have seen more interest and deal activity from infrastructure investors and their lenders.
Investments can take a number of forms, such as individual projects underpinned by project finance structures and bank debt, or through equity investments in specialist fibre developers. This has led to buoyant M&A activity. Recent examples include:
- the sale of a 50% stake in Covage (an owner of 45 European networks) by Cube Infrastructure to Altice Europe (which comprises several infrastructure funds managed by AXA Investment Managers, Allianz Capital Partners and OMERS Infrastructure); and
- the sale by TalkTalk of its subsidiary FibreNation (owner of UK networks) to CityFibre (owned by funds managed by Goldman Sachs infrastructure fund and Antin Infrastructure Partners).
DLA Piper acted for Cube Infrastructure and TalkTalk on those deals.
All this activity is unsurprising. Infrastructure investors are increasingly categorising this asset class as “core” infrastructure (in the case of PPP deals where payments are paid or guaranteed by government) or, at the very least, as “core+” where there are elements of market risk. Depending on how a project is structured, this asset class could satisfy many of the criteria investors are looking for, such as:
- high barriers to entry;
- long-term and stable returns;
- recognised and established technology; and
- transparent and stable regulatory environments.
Various rollout strategies and business models can be used for the build and rollout of a fibre network. For example:
- a mass residential build v enterprise-focused builds covering metro areas or business parks;
- targeting defined coverage areas where there is less competition v taking a more widespread coverage strategy; and
- a rollout done on an entirely commercial basis v with public support of some kind.