For investors, telecom infrastructure companies have been the core holding with credit portfolio, owning to their highly resilient business models and favourable customer contracts that safeguard against cost inflation. Throughout the pandemic, these companies have maintained or improved their credit profile, providing investors a sense of security. Investors can have peace of mind across all stages of economic cycles.

Within the connectivity ecosystem, the roles of telecom towers and data centres are distinct yet equally significant.

Telecom towers are instrumental in supporting e-learning platforms, online courses, and virtual classrooms, making education accessible to all. They support businesses by providing reliable communication and data transfer, ensuring business continuity through secure data storage, efficient data retrieval and disaster recovery solutions. 

Tower lease payments are designed to align with rising costs, being indexed to inflation and including cost pass-through mechanisms. Tower operators either bill their customers directly for the electricity used by their equipment or distribute the electricity costs proportionally based on each tenant's equipment and power consumption when multiple tenants share a tower. This indexing and cost pass-through significantly safeguard the profitability of tower owners. Consequently, tower owners consistently enjoy higher operating profits compared to their tenants, telecom companies.

As a critical component of the digital infrastructure, telecom towers have proven high business resilience over the economic cycles. Their revenue streams were unshaken throughout the pandemic and the global financial crisis in 2008-09. Switching costs for their customers are high, as moving equipment from one tower to another involves substantial costs in de-installation, transportation, and re-installation.

Tower lease contracts usually span long-term periods, ranging from 5 to 10 years in emerging markets, and 10-20 years, up to 30 years in developing markets. The long-term lease commitments and early termination penalties discourage frequent switching. Customers are often large with solid balance sheet, and present a low non-payment risk profile.

Chart 3

Source : Ericsson Mobility Report

Telecom towers play an important role in facilitating access to information and educational resources, particularly for underprivileged families. Our vision is a world where access to information is universal, and telecom towers are instrumental in reducing inequality by making this vision a reality.

Telecom Tower business is scalable. Revenue growth is also supported by co-location, a multi-tenanting strategy, where two to three tenants share the same tower infrastructure. Accommodating three tenants on a single tower can potentially double the gross margin for the tower operator. The costs associated with building and maintaining a tower are relatively fixed, and spreading these costs across multiple tenants enhances overall cost efficiency. As the number of tenants increases, the per-tenant maintenance cost decreases. Regulators support co-location, ensuring independent tower operators maintain neutrality between telecom companies, facilitating fair access to data transfer.

Chart 5 – How We Consume Data

The applications in natural language processing, computer vision and machine learning will escalate the demand for data centre solutions in hosting a vast number of servers. Educational content and professional resources, from online courses to webinars, will foster continuous learning and professional growth.

NIVIDA has partnered with a data centre, allowing the data centre’s customers to own NVIDIA DGX supercomputing and software worldwide, managed by the data centre platform (DGX: deep learning GPU training system).

And very often, it is more cost efficient for hyperscale providers to rent space from traditional data centre operators for customised service and proximity to end-customers.

During the pandemic, demand for data centres surged as remote work became the norm, followed by a brief slowdown in 2021-2022. Prior to the advent of ChatGPT and the rise of generative Artificial Intelligence (AI), data centre demand was closely tied to the economic growth, the capital expenditure cycle of technology companies, and the need for cloud services. However, with the widespread adoption of generative AI, the growth in data centres has shifted from a cyclical trend to a structural trend, underscoring the critical role of data centres in our AI age.

Chart 6 – Capacity growth of data centres with current development pipeline

Source: Cushman & Wakefield

The AI-powered processors also generate substantial amounts of heat, necessitating cooling systems in data centres that can handle these dense heat loads efficiently. This cooling process typically involves cold plates, pumps, radiators, and reservoirs, to transfer heat from processors to a liquid coolant, which then dissipates the heat away from the hardware. Choosing the right cooling system depends on specific requirements for heat density, energy efficiency, and space constraints.

In addition, geographical considerations play a crucial role in selecting the locations. For instance, Madrid has emerged as an ideal hub for data centres, due to its well-developed fiber-optic network and the city being increasingly powered by renewable energy sources. West Virginia in the U.S. has attracted many data centre operators because of its low incidence of natural disasters, various tax incentives, and rich energy resources, particularly in natural gas.

They are the invisible hands that enable us to access diverse sources of inspiration and joy. Investors could take part in the investment journey while being assured of the high business resilience and positive impacts on the connected world for future generation.  

 « Connecting everyone in the world is one of the greatest challenges of our generation» Mark Zuckerberg