How Telecom Infrastructure Impacts the Competitive Landscape

Today, consumers expect online access at any time and from anywhere. We expect the ability to complete tasks quickly and seamlessly—whether that means checking work email, uploading photos, conducting video calls with friends and family or making last-minute dinner reservations.

“Whether you’re looking at your phone, your TV or your tablet, you don’t want to worry about where the online connectivity is coming from or how the content’s getting there. You just want it there, and you want it to be convenient, and you don’t want to pay six bills for it,” says Pete Foley, Head of Technology, Media & Telecommunications Group at Fifth Third Bank.

To meet these ever-increasing consumer expectations, especially as our daily lives become more dependent upon online connectivity, telecommunications providers must take note of opportunities to expand their regional presence by investing in new infrastructure or consolidating operations where it makes sense. So, how can telecom providers capitalize on today's industry trends, keep up with consumer expectations, and potentially increase their attractiveness to future acquirers?

5G Technology and Unprecedented Times Drive Expectations and Infrastructure Investment

For decades, the telecom industry’s focus has been on transitioning from analog to digital. Because digital now means “anytime, anywhere,” customers with 5G devices will expect this level of service. By investing in infrastructure, telecom companies can provide the 5G capability customers will demand. Significant investment in telecom towers and high-bandwidth fiber in urban, suburban and rural markets are projected to accelerate substantially in the coming years, as this infrastructure is the backbone of our digital economy.

“Fifth-generation wireless is where public policy is focused, and that is really driving all the investment that we’re seeing in towers, fiber and data centers," says Valerie Schanzer, Managing Director, Technology, Media & Telecommunications Group at Fifth Third Bank. "This move to fifth-generation wireless is all being driven by the desire for ubiquitous coverage.”

In addition to 5G migration, the pandemic environment in which all people in every community are currently living, has brought the importance of telecom infrastructure even further into the spotlight. Workforces have quickly become decentralized resulting in new pressure on existing digital infrastructure where remote desktops and cloud data storage have dramatically modified the flow of data. Stress on existing networks has increased and networks will require further augmentation with additional fiber capacity, edge colocation facilities, and software enhancements to bring full network capabilities closer to a much more remote end-user base.

State-of-the-Art Infrastructure Required Beyond Urban Markets

Telecoms are investing and consolidating at a record pace, largely to meet today’s rising expectations of mobility and data consumption. Additionally, new investors are recognizing the significant opportunity in the U.S. and are eager to participate.

Telecom has always been a game of scale. Larger and more urban markets have traditionally seen early investments from major telecom players, as they present a significant revenue opportunity. As these markets mature, many are turning their focus to smaller more regional markets. Cable One’s acquisition of NewWave Communications and their agreement to purchase Clearwave Communications are pertinent examples of this.

However, the purchasers are not only strategic buyers. Private equity firms and both U.S. and international infrastructure funds have also been very active in these markets, as telecom companies provide added diversification to infrastructure funds that have historically invested in various sectors including airports, manufacturing, energy, transport and others.

Regional Telecom Providers Quietly Upgrading Networks

Many smaller markets with family-owned or cooperative telecom companies are consistently investing in their business, and they now have first-class infrastructure. In rural communities, Telcos have taken advantage of government funding programs aimed at increasing investment in previously underserved areas.

“Telecom infrastructure expansion is not a ‘build it and they will come’ scenario. The demand side of the equation has proven out not only in large cities but also in more rural markets. This demand has justified significant capital spending to create high-quality networks that are more attractive to large infrastructure investors seeking telecom platform companies to drive further operating efficiencies,” says Eric Oberfield, Director, Technology, Media & Telecommunications Group at Fifth Third Bank.

Select examples include:

• Grain Management’s acquisitions of Great Plains Communications and Ritter Communications
• Macquarie Infrastructure Partners’ purchase of Bluebird Network and pending acquisition of Cincinnati Bell
• AMP Capital’s acquisition of Everstream
• iCON Infrastructure’s purchase of TruVista

These larger companies have available capital and lower relative return hurdles to pay more attention to these smaller markets and invest capital in providing superior infrastructure. Add to that the trend of more international attention and interest—EQT buying Zayo, for instance—and the competitive landscape across telecom is entering a new global dynamic.

But what does all this mean for the end customer?

As companies consolidate and improve infrastructure, end customers typically see changes—both positive and negative. With improved networks, customers often see a dramatic improvement in reliability and speed. Additionally, customers find that new networks are often simpler and easier to use.

However, customers who have been doing business with the same regional provider, often for decades, are concerned about having a less personal relationship with the larger companies. Thus, when acquiring regional providers, it is important for the larger players to proactively connect with customers and show that they can provide a personalized experience.

Infrastructure Investment: A Trend for Today and Tomorrow

The cycle of investing and consolidating will continue, especially regarding infrastructure. The need for digital infrastructure will grow even larger as both Internet-of-Things (IoT) and Artificial Intelligence (AI) become more integrated into the business world and personal daily tasks. Businesses with a vision looking for opportunity will continue to invest in companies and seek acquisitions in the digital infrastructure industry.

“I can guarantee you that people are going to be working on improving networks and coming up with new uses in ways that we just haven’t seen," Foley says. "This will require an investment that’s going to start small, but eventually, the digital infrastructure for telecoms will far exceed today's uses or expectations."

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