• End-user demand for communication infrastructure capacity is growing exponentially
• Significant investments are required to modernise the European communication infrastructure
• The “passive” communication infrastructure layer offers an attractive investment for institutional investors

Exponential growth of volumes of data traffic combined with growing business and consumer demand for constant high-quality Internet access, coupled with higher traffic allowances and faster connection speeds, puts Europe’s telecommunication markets for a challenge. An estimated € 200 – 250 billion euros must be invested to bring the European communication infrastructure up to a global competitive standard for the 21st century. The majority of this amount is necessary to roll-out a high-speed broadband fixed-line infrastructure across the EU. The largest cost item is the renewal of the connections between the nodes or distributors and residences. It is challenging for European network operators alone to be in the position to provide that amount of investment, therefore the industry is looking for alternative business and funding models.

These developments provide an opportunity for institutional investors to invest in the “passive” layer of telecommunications infrastructure, such as cable networks, communication towers, data centres, etc. This investment may involve methods such as sale-and-lease-back, which have been common practice in the real estate industry for many years. Investments in passive communication infrastructure provide stable long-term income with high barriers to market entry by competitors. When structured properly, passive infrastructures also provide protection against inflation and are suitable for risk diversification within the overall portfolio, due to low correlation with publicly-listed and fixed-income investments. Such are the findings of the study ‘Investment in communication infrastructure’ by real asset manager Bouwfonds Investment Management.

‘Communication infrastructure is one of Bouwfonds IM’s key focus sectors and we are preparing the launch of a second communication infrastructure fund with a focus on the German market,’ says Jaap Gillis, CEO of Bouwfonds Investment Management. ‘On the one hand, institutional investors such as life insurance companies and pension funds are exposed to high investment pressure due to low interest rates, which are making it difficult to honour promised returns. On the other hand, much needed investments in passive communication infrastructure offer attractive stable returns well suited for institutional investors’ requirements. It is our goal to bring the two sides together.’