More FTTH Co-Investment

Investment firm Meridiam is co-investing in fiber-to-home infrastructure with T-Mobile in Austria, each firm investing about a billion euros to construct facilities reaching 650,000 homes in rural areas and small towns. 

The firm began investing in digital infrastructure in 2000, and has made prior FTTH  investments in Germany and Canada. 

The deal essentially solves a problem for Magenta Telekom, namely the high cost of wiring rural and lower-density homes. 

Liberty Global, Telefonica and InfraVia Capital Partners have created a joint venture on a larger scale, aiming to build FTTH past seven million U.K. homes. 

Such moves represent a change in thinking on the part of fixed network internet service providers, who historically have favored fully-owned access infrastructure. But high capital requirements and heightened risk seem to be encouraging fresh thinking. 

Better to share financial returns and risk, the new thinking suggests. But such thinking also should raise the issue of the value of fixed network access assets. Access networks traditionally have been viewed as assets with high moats, in large part because of the high capital investment required to create them. 

But competitive local access markets also raise the issue of stranded assets as well. In markets with two facilities-based contestants, equally skilled, stranded assets (facilities generating no revenue) might represent up to 60 percent of deployed assets. 

Co-investment and wholesale business models represent a way to both lower capital investment, reduce risk and the danger of stranded assets. 

At the same time, institutional investors now view digital infrastructure as an alternative investment quite similar to the real estate and other infrastructure investments they have traditionally made: long-lived assets producing steady income and offering business moats (protection from additional competition). 

But there also are other strategic drivers. Profit margins on internet access services are harder to sustain and capital intensity seems to be increasing as well. 

All of that increases incentives to trade some revenue upside for reduced risk.