• Infrastructure
  • Real Assets
  • Infrastructure Equity

Intangible infrastructure: Storing and transmitting data

The emergence of data infrastructure was a defining theme in the last decade. As the sector matures, Laurence Monnier explains why further expansion, consolidation and the development of a secondary market are likely.

5 minute read

The transmission and storage of data support essential public needs, making these assets infrastructure-like by nature. Yet data infrastructure, which includes data centres, fibre-optic towers and mobile phone antenna, has characteristics that sets it apart from more traditional infrastructure assets such as power or transport. This is creating opportunities for investors, although capturing them is not straightforward.

Fast-changing technology and demand, coupled with less regulation, make it difficult to assess long-term demand for specific assets.  This explains why long-term investors are likely to focus on assets benefiting from contracted revenues or high barriers to entry, situated in a jurisdiction with clear regulation, and with good ESG credentials.

Here, we set out the themes likely to drive the next phase of the sector’s development.

1. The insatiable need for data underpins development of greenfield infrastructure

The world’s appetite for data is voracious, driving the need for new infrastructure to transport and store it. Driven by new applications, this trend is likely to continue. Based on Cisco’s forecast, data traffic will grow at an annual rate of 27 per cent between 2017 and 2022.

Figure 1: Growth in data
Growth in data
Source: Cisco VNI, 2019

No longer limited to the corporate world, data is now needed to support most aspects of human lives. The breadth of uses is continually growing: from online dating to video streaming, from homework to working from home, from payments to fitness, the flow of data transfer keeps evolving. Data is not only supporting, but also changing the way we live. These major societal changes have profound implications for the infrastructure required to move it.

Figure 2: A breadth of uses
A breadth of uses
Source: Aviva Investors

One thing is clear: significant investment in new network infrastructure is needed – including in fibre optic cables, mobile cells, and data centres.

Figure 3: The data ecosystem
The data ecosystem
Source: Aviva Investors

Yet, as the market matures, we also predict more consolidation among networks, and a growing secondary market.

2. Data infrastructure has unique characteristics

Resilient and fast access to data is no longer a nice to have: it is an essential public service. In that sense, data transmission and storage assets have infrastructure-like characteristics, just like water or power networks. Infrastructure investors have taken notice: a 2019 survey of European infrastructure investors commissioned by global law firm DLA Piper found debt and equity investors expected to increase their exposure to data centres by 33 and 18 per cent respectively.1

Resilient and fast access to data is no longer a nice to have: it is an essential public service

Investors typically allocate to infrastructure assets for stable, long-term cash flows. But, as previously stated, data infrastructure has characteristics that set it apart from traditional infrastructure sectors.

Rapid technological change brings obsolescence risk

The means of transporting data have evolved rapidly. Copper networks have existed for over 100 years, co-axial cable for 50 and broadband for 20. In this accelerating world, this poses difficult questions: how long term is data infrastructure; could today’s fibre-optic cables and telecom towers become tomorrow’s copper?

Demand for fibre-optic cables, mobile towers and data centres appears set to continue for the foreseeable future

Despite this, demand for fibre-optic cables, mobile towers and data centres appears set to continue for the foreseeable future, although the characteristics of the network will no doubt evolve.

In 2020, 5G development is expected to start in Europe. This technology can compete with fibre to provide data to the home. The high frequency used in 5G requires more micro cells to be installed close to buildings – rather than relying on more distant masts used by 3G and 4G macro cells. This shift could bring increased competition to existing fibre-optic and tower networks, but also new opportunities for investors: more cells will need to be installed, and more fibre will be needed to connect them.

The UK government has ambitions for 50 per cent of the population to be covered by 5G signals by 2027

Given the high investment costs, there could be infrastructure sharing between operators, increasing the revenue potential for new sites. Furthermore, the cost of installing many cells means deployment in less densely built areas already connected to broadband is a long way off, affording some protections to rural broadband investors. In the UK for instance, the government has ambitions for 50 per cent of the population to be covered by 5G signals by 2027.2

The longer-term picture is less clear, however. Technological changes could make alternative ways to relay data (for example satellite or aircraft borne) less costly and more efficient. They may also allow mobile devices to be used as repeaters or transmitters of data, instead of independent cells. These technologies could complement existing networks – much like Wi-Fi or satellites complement fibre and towers today – or could make part of the network obsolete.

Longer-term investors will seek assets with long-term contracts and will also need to be rigorous in their analysis of future demand and rent renewal risks.

From network to cloud

There is only one water pipe that brings water into homes. In the digital world, data anywhere is making demand and competition difficult to pinpoint. For example, mobile streaming means demand for online video impacts the usage of both mobile and fixed data infrastructure.

The configuration of data networks needs to adapt faster than other infrastructure networks to support evolving demand 

The advent of autonomous vehicles and internet of things also mean the number of points needing two-way data traffic will expand and transform rapidly. In a world where new applications create new demand, the lack of clarity over what piece of infrastructure is used to transport different data types is not a concern. However, the configuration of data networks needs to adapt faster to support evolving demand than other infrastructure networks.

Regulation is critical

In most cases, data infrastructure assets do not have a monopoly, and therefore no regulated revenue. Demand is high, but the price of data has been shown to drop rapidly once the network is built if competition increases.

Regulation plays an important role in setting the pace of competition

Regulation plays an important role in setting the pace of competition. By protecting a market for a period (via concessions for instance) or facilitating competition (through mandating access for new entrants to incumbents’ rights of way), regulators and legislators play a key role in determining how a market evolves.

Governments can also speed up the adoption of new technologies. For example, France has encouraged the development of rural broadband networks by allocating subsidies for specific concessions. Europe has many different models, and it is critical to understand the framework in each market to assess demand.

3. A mixed ESG picture

Faster and more secure data has been proven to support economic growth by helping businesses and consumers connect.

Access to data can also have significant social benefits

Access to data can also have significant social benefits. For example, connecting a rural community to fast broadband gives residents better access to such services as health, education and banking. It can also encourage a younger population to settle by facilitating remote working. A 2018 report by the Department for Digital, Culture, Media and Sport3 found connection to superfast broadband to be beneficial to people in rural areas, providing a wellbeing uplift equivalent to £222.25 per year per premises upgraded.

These benefits provide a clear economic and social investment case for broadband, particularly where new communities can be connected by high-connection speeds.

Figure 4: Energy consumption – Google
Energy consumption – Google
Source: Statista, enerdata

In environmental terms, data can also play a positive role – for example, by helping regulate energy consumption around times when clean energy is available.

However, storing data in hardware-filled, temperature-controlled data centres requires vast amounts of energy, as well as water for cooling.

Storing data requires vast amounts of energy. Data centres consumed an estimated 3% of world’s energy and could use one fifth of all electricity in the world by 2025

For example, Google, despite its environmental focus, last year consumed over 10,000 GWh of power.4 This is the equivalent to the consumption of 3.4 million average UK households5 – and appears to be rising exponentially.

A 2017 study estimated data centres consumed 3% of world’s energy and could use one fifth of all electricity in the world by 2025.6 Investors should therefore carefully analyse the environmental credentials of their assets - such as the source of the electricity and water consumed, and the energy efficiency of the building – to reduce the environmental impacts. Within the data infrastructure sector, data centres are most susceptible to be impacted by any regulation aligned to zero-carbon objectives.

Data: The infrastructure of the future?

Data infrastructure is growing and evolving faster than other infrastructure networks. The sheer pace of change creates exciting opportunities for investors, but also difficulties in assessing the long-term business case.

While assets such as data centres, cell towers and broadband networks look to offer resilient cash flows, the shape of future opportunities is harder to predict. Who knows: with the wide availability of data and the advent of blockchain, could data itself become the infrastructure of the future?

Want more content like this?

Sign up to receive our AIQ thought leadership content.

Please enable javascript in your browser in order to see this content.

I acknowledge that I qualify as a professional client or institutional/qualified investor. By submitting these details, I confirm that I would like to receive thought leadership email updates from Aviva Investors, in addition to any other email subscription I may have with Aviva Investors. You can unsubscribe or tailor your email preferences at any time.

For more information, please visit our privacy notice.


Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL) as at 27 January 2020. Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. This material is not a recommendation to sell or purchase any investment.

In the UK & Europe this material has been prepared and issued by AIGSL, registered in England No.1151805. Registered Office: St. Helen’s, 1 Undershaft, London, EC3P 3DQ. Authorised and regulated in the UK by the Financial Conduct Authority. In France, Aviva Investors France is a portfolio management company approved by the French Authority “Autorité des Marchés Financiers”, under n° GP 97-114, a limited liability company with Board of Directors and Supervisory Board, having a share capital of 17 793 700 euros, whose registered office is located at 14 rue Roquépine, 75008 Paris and registered in the Paris Company Register under n° 335 133 229. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material.  AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1Raffles Quay, #27-13 South Tower, Singapore 048583. In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business Address: Level 30, Collins Place, 35 Collins Street, Melbourne, Vic 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom. Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is registered with the Ontario Securities Commission (“OSC”) as a Portfolio Manager, an Exempt Market Dealer, and a Commodity Trading Manager. Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”).  AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.

Related views