Digital technologies have taken hold during the pandemic. But they’re here to stay, and I think there’s a significant long-term opportunity.
Take the example of the McDermott family. I was one of millions working exclusively from home; my children were in distance education; we shopped online and communicated with the outside world through cellphones, social media and Zoom calls.
And the importance of this growing theme cannot be underestimated. For example, while many of us knew that doctors and nurses were considered key workers during the pandemic, did we all know that people working in mobile towers and data centers had the same status?
Much has been written about the reversal of certain trends now that the pandemic is hopefully behind us – think of the sharp drop in online subscriptions for Netflix. But make no mistake, the digital movement is here to stay and is already embedded in our daily lives with figures showing that by 2025 we could see up to 5,000 digital interactions per user per day.
What is a digital infrastructure?
The so-called fourth industrial revolution, in which digital technologies pervade all areas of life, is well underway. For me, this covers three specific areas – mobile towers, data center and fiber optic cables (the latter is used to connect the former two).
Perhaps the best way to explain it is to look at it in the context of the broader infrastructure asset class. We need roads, schools and hospitals to support our daily lives. And, as the population increases, more must be built and others renovated.
It is the same for digital infrastructures. We need more phone towers for communication and bigger data centers to store the huge amounts of data.
A report by Ernst & Young in collaboration with the Digital Infrastructure Providers Association (DIPA) estimated that the industry needs an investment of up to $23 billion by 2025, to support the growing demand for digital services and the increase in online traffic.
The report revealed that up to 330 million people will use 5G, while sectors like e-commerce, education and healthcare will increase their online presence. To meet demand, the report suggests that investments in the order of $7 billion to $9 billion each for macro tower additions and fiber deployments will be required.
An additional $2-3 billion for small outdoor cells (which will be important for 5G deployment), $500-800 million for Wi-Fi and in-building solutions, $500-700 million for edge data centers and $500 million for data centers will be required.
Schroder Digital Infrastructure Co-Head, Tom Walker, underscores this by pointing out that the United States currently has some 300 million people, but only has 2,500 data centers, while India has 1, 6 billion inhabitants and has only 127 data centers.
What is important to remember is that this is a global megatrend. On the one hand, Western countries are looking to upgrade from 4G to 5G, with existing infrastructure needing to be upgraded to meet these demands. The other part of the story is in emerging markets, many of which are moving from 2G to 3G, but they won’t have the mobile towers or data centers that developed countries have.
Countries around the world are putting measures in place to keep up with this exponential growth, and that’s why I think this is an important long-term opportunity.
Think of all the things you do in a single day that take 60 seconds. Make your bed, clean your computer desk, pick up all the mugs in the house and put them in the dishwasher, etc.
In that minute alone, 5.7 million Google searches will have been performed and 272,000 apps and games downloaded – and those numbers will only grow!
In a world full of economic headwinds, this is a market sector with undeniable tailwinds for long-term growth. Whether it’s using the internet, GPS while on the go, online payments, chatting with people on your mobile, ordering items from anywhere in the world and remote work – its growth is undeniable.
Funds like Schroder’s digital infrastructure or M&G Global Listed Infrastructure are ideal starting points, both also offering clients an attractive income. Another consideration is VT Momentum Diversified Income fund, which has exposure to the asset class through two specialist trusts, such as Digital 9 Infrastructure plc.
Darius McDermott is Managing Director of Chelsea Financial Services & FundCalibre