15 / 02 / 22 - 5 minute read
The coronavirus pandemic has demonstrated that significant social change can happen quickly and that infrastructure must be able to adapt just as swiftly. Nowhere has this been more apparent than digital infrastructure: fast, reliable internet has powered the economic shutdown.
In a recent report, PATRIZIA examined the way demand for the internet surged in the days and weeks after global economies were shut down and assessed how networks around the world coped. Pandemic punch and the power of digital explores the rise of broadband networks and data storage as infrastructure investment and consider whether the pandemic-induced taste of a slower, more sustainable and flexible lifestyle will spur the rise of the smart city.
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The impact of the coronavirus on infrastructure impacted assets in different ways. Some saw demand drop off a cliff (think toll roads and airports), while those not demand driven (such as essential services and contracted assets) experienced no significant change. Others experienced a massive demand surge as life abruptly shifted online.
As governments worldwide implemented mass lockdowns, white-collar workers abruptly left their offices and worked from home. This mass migration meant suburban locations experienced a strong surge in demand for fast and reliable internet to power teleconferences, Zoom/Webex/Teams calls and general connectivity to work systems and networks.
Of course, it was not just workers relocating to their homes – everything seemed to move online. Schools closed, children moved to online learning, doctors went virtual as telehealth took off and people stayed home. Gaming and streaming entertainment moved online as pubs, restaurants, cinemas and theatres closed their doors.
Source: Analysys Mason, BT, Chorus, Financial Times, PATRIZIA
On the whole, existing networks held up, but there were performance issues as the pressure mounted. British Telecom reported in March that weekday fixed broadband traffic increased between 35-60%, peaking at 7.5 terabits per second. However, this is still only around half the average evening peak and within the networks 17.5 terabits per second capacity.
European digital networks bolstered resilience by calling on global streaming companies, including Amazon, Netflix and YouTube, to reduce their bandwidth by offering only standard definition rather than high-definition content, reducing demands on broadband networks. Such actions significantly increased the performance of Europe’s digital infrastructure at exactly the time it was needed.
While global broadband networks withstood the coronavirus-induced demand surge, this conclusion ignores differences between countries and between urban and regional areas. The report shows shows the disparity between OECD countries regarding the percentage of the broadband network that is fibre, highlighting the potential opportunities for investors in this space to deploy capital. There are only nine countries where fibre makes up more than 50% of the broadband network, while the likes of Australia (19%), the UK (2%) and the US (16%) lag well behind the OECD average.
The report also highlights countries that have made a significant investment into fibre networks in recent years. It is particularly worth noting Spain, where 70% of its citizens have fibre to the premises (FTTP). This primarily results from a regulatory regime that encourages investment in full fibre networks over the decade following the global financial crisis (GFC).
Given that the pandemic has underlined the criticality of reliable, fast internet, the report considers that countries with less than adequate broadband networks – in terms of coverage and quality – will be looking to shoring up this critical infrastructure, including the provision to regional areas. The raw economics of building fast, reliable broadband networks in regional and remote areas are not likely to stack up. It is hard to see private money flowing to solve this problem without proper government intervention.
Demand for cloud computing technology surged due to the overnight migration to working from home. A structural element to these changes provides further tailwinds for this sector, whose tendency to run on a subscription basis has largely protected revenues throughout the economic shutdown. For these reasons, the leading players in the loud computing industry – Alibaba Cloud, Amazon Web Services (AWS), Google Cloud and Microsoft Azure – have generally outperformed equity markets over the pandemic period.
The PATRIZIA report considers that investment opportunities in the data storage space will continue to grow, driven by the combination of soaring demand, strategic importance and the importance of provider diversification. Further, there is a growing case for edge data centres, which are data stores located close to where the data is used. Edge data centres address strategic concerns around offshore data storage and improving performance.
There is no doubt the real infrastructure story of the pandemic has been digital, and the way networks and storage facilities have proven their futureproof credentials by enabling workers to keep the economy going at home throughout the shutdown. But there is still much investment needed in digital infrastructure around the world.
Urban residents in developed countries have generally accessed fast, reliable internet throughout the pandemic. Less so for regional and rural residents and people in countries with less fibre coverage (typically but not always in the developing world). The pandemic has also underlined the critical nature of cloud computing and data storage and the strategic nature of these assets.
While future portfolios will continue to hold assets like utilities, transport and energy assets, the PATRIZIA report also expects these assets will become more digital, adaptable, sustainable and resilient over time. Renewable energy assets will increase in allocation size, transport assets will be electrified, and digital assets will become a core element of the portfolio.
Download the report Pandemic punch and the power of digital