Water, food and shelter are universally regarded as human rights, but some believe internet access should be added to the list. Broadband connectivity, they argue, is essential for individuals to be able to enjoy freedom of expression and a range of economic and social benefits.
Accessing those benefits, however, isn’t yet possible for everyone. Internet connectivity is denied to over a third of the global population and, according to analysis by the journal Telecommunications Policy, $418 billion of investment is needed to rectify this. Sourcing that sum will depend on significant support from private investors and public organisations, often in partnership.
“The positive impacts of greater broadband investment are many. This was made clear during the pandemic,” says Jean-François Willame, operating partner at Patrizia Infrastructure. “For rural areas in particular, broadband can create an opportunity to have more of a decentralised economy and counter rural depopulation trends.
“Conversely, for urban conurbations, broadband can benefit end users in a number of different areas, from traffic management to utilities, pollution monitoring, security and more.”
Inconsistent investment
“If you go back 10 years, perhaps the majority of governments in the EU were fairly relaxed with the level of broadband coverage in their countries,” says Nathan Luckey, head of digital infrastructure for EMEA at Macquarie Asset Management. “Instead, they were focused on mobile ‘not-spots’. Over the last decade, this view has changed.”
Even if, as Luckey says, the tide is turning regarding broadband investment, the scale of the challenge remains formidable, especially when PwC expects the growth rate of fixed and mobile broadband investment to fall every year between now and 2027.
“Broadband for the whole population is not trivial and comes with a challenging business case,” says Stefaan Vanhastel, head of global marketing and innovation for Nokia Fixed Networks.
There are noteworthy broadband projects that have been able to attract private capital, including the €800 million committed by Patrizia’s European Infrastructure Fund II for the acquisition of two mid-market operators in Spain. Likewise, in the US, private equity firm Oak Hill Capital is investing $150 million in network provider Lit Communities for its fibre rollout. These are positive developments, but more widespread financing is needed.
“There has been something of a market turn due, among others, to rising inflation and interest rates,” Willame says. “The cost of broadband rollout has become higher than planned by operators, construction resources were insufficient to face the demand in some markets, some business cases were too optimistic in terms of penetration, and there is reduced funding available in terms of both equity and debt.
“This has created a heightened risk of ending up with stranded or distressed assets. Even if some of this inflationary pressure has eased since then, the business case for greater broadband investment has shifted.”
Collaborating on connectivity
In the telecoms space, the transition from public to private ownership is well established in many markets, with a history sometimes stretching back “more than 50 years”, according to Luckey.
However, while consumer prices are low, many telecom retailers are not earning sufficient returns on their capital. In fact, operators typically need to achieve at least a 35 percent network uptake to generate any return at all.
“Many of the traditional, listed telco companies don’t have the balance sheet to make the necessary broadband investment,” Luckey says. “This has created a space for outside private infrastructure capital to invest in building broadband networks, sometimes alongside those telcos.
“Typically, governments have also been quite hands-off in terms of where telcos invest. This has meant more investment has generally gravitated to densely populated urban areas and less to hard-to-reach rural ones.”
In response, governments are now intervening, not only with the aim of providing better connectivity to underserved areas, but also rectifying the “overbuild” that has taken place, where multiple fibre networks serve the same customers. For example, by 2026 Ofcom, the UK’s communications regulator, estimates that 41 percent of the country’s properties will have access to gigabit-capable broadband services from three or more providers.
“The key for an investor is to have realistic assumptions in terms of penetration, especially when you have existing or potential overbuild,” Willame explains. “The biggest risk facing investors today is having unrealistic expectations in terms of penetration – especially as some of the macroeconomic challenges around inflation and higher interest rates seem to be subsiding.”
By providing guidance as to where investment is needed most, not just for short-term returns but also for long-term economic enrichment, broadband networks would better serve all stakeholders. This could be via tax breaks, concessions, other incentives or, most notably, public-private partnerships. Often, PPPs can give way to an entirely private model once the initial government support ends. This was the case with the Metroweb joint venture in Italy’s greater Milan region, which was established by a municipal utility following a €400 million investment but is now entirely privately owned.
Building a smarter future
After years of governments largely allowing private capital to back (or not) the projects that suited investors’ individual aims, greater public-sector engagement appears forthcoming. For instance, the European Investment Bank launched its CEF Broadband Fund in 2018 to mobilise some €3 billion of investment in broadband infrastructure projects. In the US, the White House has earmarked $42 billion to increase access to high-speed broadband.
“While a healthy partnership between broadband network providers and the municipality or local government is always helpful, deeper involvement from the public sector (funding and long-term tenant agreements) is needed to bridge the business cases that private investment can’t solve for rural and demographically challenging areas,” Vanhastel says.
Any increased broadband investment is likely to prove fruitful. The World Bank calculates that raising internet access to 75 percent for people in developing nations would boost the collective GDP of those countries by $2 trillion and create 140 million new jobs.
“In terms of efficiency, productivity, innovation, social inclusion and more, broadband investment is key. Governments just need to create the right conditions for it to make the biggest impact,” says Luckey.