New investment models for telecoms infrastructure

March 4, 2021

Dora Petranyi and Anne Chitan, CMS

Out of the turbulence of 2020, one sector is emerging rejuvenated – telecoms. The new mega deals, especially when it comes to digital infrastructure, attest to it1. This is the acceleration of a trend, rather than a new phenomenon. If anything, lockdowns imposed to handle the COVID-19 pandemic have only served to accelerate demand2.

In the last couple of years interest by investors and governments in passive network infrastructure, in particular upgrading existing networks to optical fibre, has grown exponentially. New financial models are starting to emerge to meet the huge need for cash deployment for this attractive independent class of assets3.

The attractiveness for markets and investors of digital infrastructure, especially fibre, is due to the certain inevitability that comes with it – the inevitability that it will drive the future. This means an advantage for first movers both in terms of revenue and exit, especially in situations where there is little or no competition with only one existing network to meet the increasing demand for connectivity.

Telecoms infrastructure has always been capex intensive and one of the major cash-draining features of telecom companies’ businesses. Some financing models like network sharing have been used in recent times to alleviate this burden on individual operators. However, this approach is no longer sufficient as there is now a surge in demand for an upgrade of telecom infrastructure, especially from copper to fibre, driven by increased data consumption and the requirements of 5G.

Drivers of fibre investment

Looking at the growth of global mobile data traffic in recent times clearly shows the imperative. It reached around 33EB per month by the end of 2019, and was estimated to be at 51EB per month by the end of 2020 and is projected to grow by a factor of around 4.5 to reach 226EB per month in 20264. On the consumer side, this increase stems from the growing consumption of online videos and the growing number of connected devices. On the business side, the digitalisation of the economy is also fuelling an increasing demand for data, data speed and lower latency. This is driven by new hyper connectivity technologies and 5G5. According to Ericsson, 5G is forecast to account for 45 percent of global mobile data traffic by 2025. To support this dataflow at the right speed and with lower latency, the copper network can be boosted but this has its limits and business clearly needs networks to be upgraded to fibre.

Further, much of the future success of 5G and the acceleration of its availability depend on another technology – fixed fibre access6. Other telecoms infrastructure requires it too: data centres need fibre to carry the amount of data to and from them, subsea cables need to connect with terrestrial fibre, etc.

There are strong political incentives behind the fibre upgrade. Nations are competing with each other to drive digitalisation and growth of their economies, especially through the adoption of new technologies like 5G. 5G is expected to create USD 13.2 trillion in global economic value by 2035 and generate 22.3 million jobs7.  But while there is a broad consensus about the potential benefits of 5G deployment, in practice there is a huge disparity between countries or even within countries in terms of policies and regulations adopted in support of such political ambitions.

Individual countries still show big differences in terms of fibre deployment. This is especially true where due to a lack of economies of scale, it is difficult to make a solid business case to support investment in infrastructure by the existing market players. This is the challenge that investors in telecoms and in infrastructure are facing. A number countries have deployed fibre extensively, but others are lagging behind8. In Europe it is particularly striking that the countries with the two largest economies have some of the lowest FTTH penetration figures9.

Even where the political message focuses on the performance of the network (for example measuring access to gigabit broadband (ie download speed of at least 300Mbit/s3)) rather than nature of the network (copper/fibre/other), there is a general acceptance that the next generation of telecoms and connectivity will require more fibre and more fibre to the premises.

The upgrade is costly and requires huge investment. For example, in Europe the European Council estimated in 2017 that €137 billion would be required to complete the rollout of FTTH across all the EU28 countries to meet the Gigabit Society targets10.

And costs vary greatly on a country-by-country basis11. These variations are due to local specificities of the market (eg consumer preferences, geography, etc.) but also legal or regulatory differences rendering the build more or less expensive.

Altnets, Infracos and Towercos

Governments are mainly looking to the private sector to foot the enormous bill for all of this new investment. Telecom companies have been exploring alternative financing models for a few years, as other network upgrades have been reaching their limits. The opportunities for the private sector are not just in terms of the technology itself but also in financing where new models are being developed to attract investment. As investors become more familiar with these new models, transactions have increased in size and value, which explains the new mega deals.

One of the most successful trends is based on separation of passive infrastructure assets into other vehicles and finding separate financing for those. Some alternative network companies (the “altnets”) have set themselves up to fill this void where incumbent operators have not invested (for example building the last mile of fibre to the home). However, in recent times, telecom operators around the world have themselves begun to set up new company structures for fibre roll-out – either by splitting their businesses (essentially between passive infrastructure and connectivity services) and seeking separate financing for each, or by separating their passive infrastructure into a special purpose vehicle funded by an infrastructure fund (independently or as joint ventures).

These new infracos are operating their networks either for all players on a neutral basis, or for one telecom operator, depending on the ownership of the passive assets, the business model and the risk appetite. It is clear that investors and banks wanting to invest in these new class of assets are favouring the model of a neutral host network supported by an anchor tenant operator but opened to others as well. This is because this model has the benefit of guaranteed revenues, while the competition is focussed not on the infrastructure itself but on the services running on that infrastructure.

Investing in a fibre network is clearly more attractive in more densely populated areas, while first movers also get an advantage and competition to serve the best areas is therefore intense. This can leave less populated areas behind, thus creating or exacerbating the digital divide. There is of course a natural advantage of being a single network in an area due to a lack of competing networks willing to build out that part of the market but this may not be enough. Governments have considered many options and approaches to try to make these less populated areas attractive.

Beyond the obstacles to competitive market entry, the interest in fibre investment has been further encouraged by the success of passive infrastructure companies in relation to other asset classes.  In 2019, out of the top 10 worldwide telecoms companies in terms of return to shareholders three were towercos12. So the expectations of investors are huge, once they are made aware of the peculiarities of these markets.

Hybrid financing

It is fair to say, however, that the main change recently has been the entry en masse into the market of infrastructure funds, as well as pension funds and institutional investors, who have longer investment horizons which fit the nature of fibre as an asset class, akin to a utility. In fact, telecoms are now featuring as part of the “core” assets for infrastructure funds (rather than core +).  This can be seen as a type of serendipitous alignment of the agendas of the corporates seeking investors and the infrastructure investment funds. It has the immediate advantage of offering access to a much wider pool of funds, while it offers the opportunity for more flexibility and creativity in financing terms.

This has led to the emergence of hybrid financing products with features from both sides and aligning with the agendas of both parties. This fluidity means that the financing products and transactions are able to be tailored to the specific circumstances – market and regulatory – of each fibreco.

Risk factors: consumers, regulators and foreign players

There are a number of risks associated with this type of investment. There are concerns whether consumers will be willing to pay more for services on the upgraded network. In the UK, OFCOM’s 2020 Communications Market report in fact found a decrease in consumer spending on telecoms even though consumers were in fact consuming more data, at a faster speed. The reason may be that some paid services (voice calls and text messages) are being replaced with “free” OTT services, explaining the decrease in spending. Leaving aside the ongoing debate regarding these OTT services and the competition between companies providing those and more traditional operators, this begs the question whether consumers will be willing to pay more for more connectivity if it feels like they are getting more for less13. In Ireland, the regulator has asked specifically that question and the results are not encouraging14. So if consumers are not ready to pay more, is it worth the investment in new networks, especially in less densely populated areas? The answer is a clear yes, it is just that the financing models are different from the norm and investors need to be educated in how this new infrastructure market works in order to adjust their expectations.

A further complication has also sometimes been introduced by governments themselves, who have offered various forms of investment incentives with different degrees of success. Some incentives have in fact discouraged private investors due to concerns that over reliance on government subsidies may undermine the business case, and what will this mean when those subsidies cease, or when investment conditions are not met?15

Further, in addition to the source of funding, there is still uncertainty about regulators’ attitudes to infrastructure sharing by telecoms operators. Some regulators still insist on infrastructure-based competition as a basic principle, and hence, they are restricting the options for sharing resources and joint projects.

Regulators have also taken relatively timid steps, leaving more risk for market forces and the private sector. There are some policy questions here about the potential need for protections for independent investors, as operators are in a much better position to cover the costs of a network upgrade16.

Another difficulty is the renewed interest now being shown by governments in who is in fact behind telecoms infrastructure and the flurry of new laws that have been introduced since COVID17. Even if it may be justified for other reasons, this could potentially restrict the size of the investor pool, though considering the feeding frenzy of investors over fibre at the moment, there is little evidence so far for this.

We believe that more regulatory and government policy guidance is needed, based on a call for 

collaboration in fibre and 5G investment. This will ensure the type of growth that has been predicted based on the use cases for these technologies.

There is no one size fits all finance model

New financing and investment models need to address each of these challenges, which are often specific to a certain country or region. This means that one size does not fit all. Each financing structure, even if it is based on the shared neutral network model, needs to be adjusted to fit in with local circumstances.

This may be counter-intuitive when one considers that what is being built eventually has no geographic boundaries, which should support the need of a harmonious strategy to create a seamless network. Instead, we have a fractured approach (including in the way the network is financed) which is divided by national, regional and sometimes even local boundaries. And while the immediate impact on financing may not be obvious, as the new network is in relative infancy, this fractured approach could have a negative impact once the build has reached a critical mass and mergers are on the cards. At some stage (probably earlier than later), what will be needed is a regional, national or supra-national approach to maintain or achieve competitiveness.

To fit all of these jigsaw pieces together will require a momentous financial investment and to convince private investors to take the risk. Analysts need to assess what works well or less well from country to country and governments and industry need to be brave enough to harmonise their approaches. Meanwhile, the great benefit of current financing models has been and remains their fluidity. These emerging hybrid financing products are test beds for what will ultimately prevail, if indeed they are supported by the right regulation to build the network of the future. In this way we can meet the competing needs of all stakeholders – consumers, governments and of course business investors and we can reshape the map by tweaking an ancient wisdom: “share and conquer”.

1 For few examples see: acquisition of Deutsche Glasfaser by EQT for EUR2.8bn – KKR to sell ultrafast German internet business in €2.8bn deal | Financial Times (;  the sale by Altice Europe of a 49% stake in its Portuguese FTTH network to Morgan Stanley for EUR1.57bn – Altice completes sale of €1.57bn stake in FTTH wholesale (; the announcement that Australia NBC will spend ASD3bn on fibre roll out COVID-19 forces Australia broadband upgrade as internet use surges | Financial Times (; Oi investing R$3,531 million in capex in Brazil – Oi bolsters FTTH business with more Capex | TelecomLead

2 See CMS recent report where 92% of the respondents confirmed that the pandemic has accelerated their digital transformation [ ]


4 Ericsson Mobility Report November 2020 (

5 Smarter factories: How 5G can jump-start Industry 4.0 | McKinsey & Company  (

6 How 5G and fiber became 5iber | ITProPortal (

7 WEF_The_Impact_of_5G_Report.pdf (

8 Fiber to the premises by country – Wikipedia (

9 FTTH Europe Panorama ( –  But note in the UK after a relatively slow start the pace of build as quickened up with now 14% homes served by full fibre (doubling the figures in 18 months – OFCOM – Connected Nation Update Summer 2020:

10 FTTH Council Cost Model 2017_final.pdf (

11 For example in Asia, see: Fibre to the home: Shared fibre infrastructure is key – The Financial Express (

12 Unlocking and Building Value in Telecom | BCG (



15 Financing Stimulus for FTTH (; Microsoft Word – New EC Guide v 17.docx ( (

16 Fury as Alternative UK Fibre Networks Hit by New Openreach Fee UPDATE4 – ISPreview UK (


Anne Chitan is a partner in the banking and finance department at CMS Cameron McKenna Nabarro Olswang LLP and the Global Co-head of the CMS Telecoms Subgroup.  Anne has been at the forefront of national and international recent developments in financing digital infrastructure.  In particular Anne has been instrumental in developing and working on new structures to finance the roll out of fibre networks as a new class of assets.  Anne has advised on a large number of recent transactions in the fibre space providing counsel to alternative network providers, network owners, investors, infrastructure funds and lenders. Beyond transactional work, Anne also co-leads the sector focused CMS’s Infratech Finance working group. In this context and building on years of experience of innovation at CMS, Anne plays a major role in driving forward initiatives that guide companies, lenders, investors and infrastructure providers on solutions to tackle the challenges of a modern communications infrastructure

Dóra is a CEE Managing Director at CMS and head of Technology, Media, Telecommunications (TMT) in the Budapest office. Before joining CMS, Dóra spent over a decade in-house at the largest TMT company in the region. She is particularly experienced in telecommunications and all types of regulatory matters, having advised on spectrum licensing provisions in the Hungarian Telecommunications Act of 2014, operator licensing issues, and the antitrust aspects of the wholesale access regime on behalf of clients. She is part of the team that acts for a leading telecommunications company in Bulgaria on a network infrastructure sharing agreement with one of the world’s largest mobile telecommunications companies and co-authored CMS’s Network Sharing Studies.

Dóra is the Co-Chairman of the Regulatory Committee of the Hungarian AI Coalition and led on formulating the response of the Hungarian AI Coalition to the EU consultation request regarding the EU White Paper on Artificial Intelligence, A European Approach to Excellence and Trust. She is also a member of the Hungarian Council of Copyright Experts and a member of the Digital Civil Code Review Working Group, being the only outside counsel in the team. She is also the first and only lawyer to be a member of the co-regulatory committee between the local telecommunications’ regulatory authority and the Association of Hungarian Content Providers. She is also a member of the supervisory committee of UNICEF.

Dóra is a co-author of the CMS publications Digital Horizons – a series of reports exploring CEE’s digital future and The Cybersecurity Challenge in Central and Eastern Europe and is a regular speaker at key international conferences, including the World Economic Forum (Davos), the Mobile World Congress, and ECTA.

CMS Budapest office

T +36 1 483 4820 

E [email protected]