BLOG: Why digital infrastructure is a no brainer for growth
Digital technologies came to the fore during the pandemic. But they’re here to stay, and I fell there is a significant long-term opportunity.
Take the McDermott household as an example. I was one of the millions working exclusively from home; my children were being taught remotely; we bought our groceries online and our communication with the outside world was via mobile phones, social media and Zoom calls.
And the importance of this growing theme cannot be understated. For example, while many of us knew doctors and nurses were seen as key workers during the pandemic – did we all know that people working in mobile towers and data centres were given the same status?
A lot has been written about the reversal of certain trends now the pandemic is hopefully behind us – online subscriptions for Netflix falling markedly comes to mind. But make no mistake, the digital move is here to stay and is already embedded in our everyday lives with figures showing that by 2025 we could see as many as 5,000 digital interactions per user per day.
What is digital infrastructure?
The so-called Fourth Industrial Revolution, in which digital technologies pervade every area of life, is well under way. For me it covers three specific areas – mobile towers, data centre and fibre optic cables (the latter is used to connect the first two).
Perhaps the best way to explain it is to consider it in the context of the wider infrastructure asset class. We need roads, schools, and hospitals to support our everyday lives. And, as the population grows, more need to be built and others renovated.
It’s the same for digital infrastructure. We need more phone towers for communication and more/bigger data centres to store the huge amounts of data.
An Ernst & Young report in collaboration with the Digital Infrastructure Providers Association (DIPA) estimated the sector needs an investment of up to $23bn by 2025, to support the growing demand for digital services and rising online traffic.
The report found as many as 330 million people will be using 5G, while sectors like e-commerce, education and healthcare will grow their presence online. To meet the demand, the report suggests investment in the range of $7-$9bn each for macro tower additions and fibre deployments will be required.
A further $2-$3bn for outdoor small cells (which will be important for the roll out of 5G), $500-$800m in Wi-Fi and in-building solutions, $500-$700m in edge data centres and $500m in data centres will be needed.
Schroder Digital Infrastructure co-manager Tom Walker highlights this by pointing to the fact the US currently has a population of some 300 million, but only has 2,500 data centres, while India has a population of 1.6 billion and only has 127 data centres.
What is important to remember is this is a global megatrend. On the one hand you have Western countries looking to move from 4G to 5G, with existing infrastructure needing to be upgraded to meet those demands. The other part of the story is emerging markets, many of which are moving from 2G to 3G, but they won’t have the mobile towers or data centres the developed world has.
Countries across the world are putting in place measures to keep up with this exponential growth, and that’s why I feel this is a significant long-term opportunity.
Think of all the things you do in a single day that take 60 seconds. Make your bed, clean your computer desktop, pick up all the cups around the house and put them in the dishwasher etc.
In that single minute, there will have been 5.7 million Google searches conducted and 272,000 apps and games downloaded – and those numbers are only going to get bigger!
In a world full of economic headwinds, this is an area of the market with undeniable tailwinds for long-term growth. Be it internet usage, GPS when you are out and about, online payments, speaking to people on your mobile, ordering items from anywhere across the globe and working remotely – its growth is undeniable.
Funds like Schroder Digital Infrastructure or M&G Global Listed Infrastructure are ideal starting points, with both also offering clients an attractive income too. Another consideration is VT Momentum Diversified Income fund, which has exposure to the asset class through a couple of specialist trusts, such as Digital 9 Infrastructure plc.
Darius McDermott is managing director of Chelsea Financial Services & FundCalibre