Decoding digital infrastructure finance

Decoding digital infrastructure finance presents the latest market trends in digital infrastructure. Using a mixed methodology that combined 71 survey respondents with interview data collected from seven consenting individuals, this report found:

Digital infrastructure is in a strong position going forward, being driven by exponentially growing demand and opportunities to invest.

Unlike every other sector of project finance except possibly renewable energy, digital infrastructure can truly say it benefitted from the Covid-19 pandemic. This is the reason why 98% of respondents reported being in a healthy and profitable position moving forward. The working from home approach adopted by almost every nation to stem the spread of the pandemic brought into focus the need for a fast and reliable internet connection. Unlike before the virus hit, where consumers of digital services may have been satisfied with a relatively stable connection, there is now a huge demand for speed and reliability. This made billions of people consciously aware of the need for improved digital infrastructure and with it, the need for suitable project financing options. 

Motivations for involvement in digital infrastructure are being driven by more than just an evidence for demand. 

User demand was reported as a key motivation for being involved in the sector, motivations also included a desire for healthy returns, and the chance to work with reputable customers. Moreover, this report finds that while the creditworthiness of customers is a key consideration for any organisation involved in digital infrastructure project finance, so too are a range of other factors, each of which depend on a participant’s view of the sector. 

The future of 5G looks bright. 

The successful rollout of 4G served to suggest that perhaps mobile data could rival, and possibly surpass, fixed point broadband, though fibre infrastructure would be key to its success. This report finds that fibre networks, data centres and mobile towers offer the best related project finance investment opportunities, particularly in the developed regions of Europe, North America, and the UK. However, there is a concern that as these jurisdictions press ahead with upgrading and installing suitable architecture that supports 5G, developing economies will not be able to keep pace. The consequence could be a widening of the already large digital inequality gap between developed and developing nations. 

Social media and wider media consumption are the two main drivers behind a growing demand for data and bandwidth. 

Compared to even just five years ago, the consumption of social media and news has risen hugely. Never has there been such a demand for more content at the consumer’s fingertips. This level of demand and consumption is only going to speed up as technology advances. This presents a truly unique opportunity for digital infrastructure project finance, as demand is currently far outstripping capacity. Project finance lenders will need to strike a balance between taking these predictions on trust – despite occasions in the past of (temporary) overbuild – or finding creditworthy counterparties to take that risk. 

There may be some role for government support, but not yet. There was an ambivalent view towards the role of governments in digital infrastructure, primarily because they might slow down the rate of progress by introducing unnecessary red tape and bureaucracy. However, it was suggested that they may have a role in providing subsidies for local digital service providers that have limited access to capital, or by providing targeted regulation that could nurture the existing potential within the market.

For more information on the report, please get in touch with our head of research, Dr Tom Parkman (tom.parkman@proximoinfra.com) . 

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