Big telecoms investments are increasingly being viewed as part of infrastructure universe with both open ended and private investors broadening their approach partly driven by the dawn of 5G.
Jim Lydotes, manager of the BNY Mellon Global Infrastructure income fund, says he is seeing a big change in attitudes with firms adding telecoms to the traditional investments in the sector like utilities, pipelines and toll roads.
“People hadn’t always thought of telecom infrastructure as infrastructure investments, but I see the dialogue is changing – that is a big sea change,” he said.
Lydotes added: “We have always believed telecom assets – including fibre in the ground – are a major untapped asset. At a high level we take a broad approach to what infrastructure is.
“If you the get stable cash flows and predictable revenue that you get in other infrastructure asset ownership, you can massively expand your opportunity sets to include telecoms and healthcare real estate. In other words, you expand your investable opportunities but stay true to the attributes that people love and are drawn to the for the asset class.”
The change is also marked by some direct infrastructure investors beginning to shift the labels on their funds, such as core plus, to take broader definitions into account.
One of the drivers of the change in mindset is the increasing embrace of 5G technology, often driven by national governments.
Lydotes suggests that 5G will change views on the value of telecom investments as there will be a great deal of emphasis on ‘densifying’ networks.
He adds: “The companies that have been investing in putting that fibre in the ground are going to be rewarded. It is not easy to lay fibre.”
It also depends on the good will of the authorities, or what Lydotes describes as regulatory predictability.
Japan’s determination to make the 2020 Tokyo Olympics a show case for 5G, is an obvious signal the country is taking things seriously and it wants 5G in place this year.
The Japanese 5G network is expected to have a data rate more than 20 times faster than the current 4G network. It should have a data transfer time lag of only one-thousandth of a second, and greater device connectivity. It should also allow one million devices per 1 square kilometer to use the network at the same time.
Lydotes adds: “For all these assets, the key attribute is regulatory predictability – understanding what is going on in governments’ heads and the actions they are trying to drive as it pertains to 5G.
“The Japanese are committed to 5G. There are other countries were nothing is incentivising regulators to push for it, and you won’t see 5G very quickly. Understanding that is a critical part of our analysis when you consider the amount of private capital companies have to put in to these projects. It can be a huge swing factor in the value of these entities.”