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Rocketing demand for data and further expansion of digital infrastructure will require creative financing solutions in a more challenging environment, write Denis de Paillerets and Benoit Tanguy of Société Générale.

Demand for data is booming, but it can only flow if the digital age’s infrastructure is in place. Whether for e-commerce, messaging, on-demand video, the Metaverse or telemedicine, surging digital growth depends on a rapid build-out of towers, fibre optic cables and data centres. Much of this network across the globe has already been built, but there remains a long way to go.

At the beginning of our careers in the mid-1990s, we helped to finance the early foundations of this infrastructure, working on the creation of Europe’s first cable and mobile operators – 2G as it was at the time. Little did we know that this was the beginning of the digital megatrend it has become.

Over the three decades since, the digital highway has gone through several stages as millions of mobile towers have been erected, millions of kilometres of fibre optic cable laid and thousands of data centres built.

Now, the infrastructure build-out is moving to a new phase, which will require new ideas. Geographically, the fibre optic broadband roll-out that started in Europe is expanding into the US, while the establishment of data centre networks is spilling over from Asia and the US into Europe. Additionally, the consolidation of players already seen in mobile towers appears due in Europe’s fibre optic sector.

Creative financing to unlock the new phase

Hundreds of billions of dollars of capital are lined up to fund the US build-out of fibre optic networks after president Joe Biden’s 2021 Infrastructure Investment and Jobs Act pledged $65bn to help bring high-speed internet to every American. Indeed, the joint venture between wireless carrier AT&T Inc and BlackRock Inc to develop a fibre platform announced in December 2022 is a sign of things to come.

The US needs high-speed fibre optic broadband to boost economic competitiveness and narrow its ‘digital divide’. As of 2022, only half of US households enjoyed download speeds of 25mbps or more, while a third suffered speeds of 5mbps or less, and about 15% had no internet access, according to the Broadband America report by the NPD group. 

But unlocking the debt finance to lay fibre is likely to require creativity. The idea is to deliver hybrid structures combining the efficiency of infrastructure project finance seen in Europe with a US-style leverage component.

Meanwhile, as the big US data centre companies seek funding for European expansion, they too will need to adapt to local conditions. In the US, bank financing of data centres is typically being refinanced through securitised conduits, but European markets don’t offer securitisation take-out yet for this asset class, so local solutions will have to be found. This is where having a global technology, media and telecom (TMT) practice is invaluable, as it can adapt what works in one continent to another.

We also believe that in the digital highway’s new phase, Europe’s fibre companies will consolidate, with acquisitions beginning to create national champions. The billion-dollar question is when.

Solving the CO2 emissions problem

Turning to climate change, there is no denying that the digital economy is part of the problem, as data transmission results in considerable CO2 emissions. For context, the digital economy is also part of the solution, as it allows people to travel less, enables industry to optimise recycling and helps farmers to boost crop yields.

According to the UN Environment Programme’s estimates in 2021, the technology sector emits 2–3% of global greenhouse gas emissions. At current growth rates, this could more than double to 7% by 2025. And about a quarter of these emissions are attributable to digital infrastructure.

One solution for digital infrastructure to continue to expand while cutting carbon emissions is for data centres to pioneer efficient ways to use power and tap into sources of renewable energy. For instance, green loans can be used to fund new centres sourcing electricity from wind, solar or hydro power. The strong appetite for sustainable investments underpins these financings.

Funding the exploding data growth

Thirty years ago, we had little idea of what the fledgling TMT sector would become. With data traffic rocketing, the digital megatrend is getting stronger, and its infrastructure is expanding fast. This promises to make funding the digital highway’s next phase as challenging and interesting as ever.

Denis de Paillerets and Benoit Tanguy are global co-heads of TMT at Société Générale.


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