marc perusat
DESCRIPTION
FTTH Conference 2013 Workshop Investors DayTRANSCRIPT
Marc Perusat: The Role of Infrastructure Funds FTTH Council Europe “Investor Day 2013” – 19 February 2013
The key question
Can Infrastructure Funds be legitimate equity backers of fibre operators?
2
Energy, 36%
Utilities, 18%
Transport, 23%
Waste Management,
2%
Telecoms, 6%
S ocial, 15%
Infrastructure Funds: Presence in the communications sector?
3
While the Infrastructure Funds market is large, the communications sector only accounts for a small proportion of their overall investments
Investments made by Infrastructure Funds by sector
Sources: Towers Watson Global Alternatives Survery 2012, Preqin
Less than 1% of all infrastructure fund investments have been in fibre
$80 billion of dry powder in Infrastructure
Funds
$266 billion in assets under management
globally across Infrastructure
Funds
Infrastructure Funds: Their ideal business
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Producer Consumer
Unique Infrastructure
The ideal infrastructure business is typified by stable and predictable cashflows
Dividends ─ Steady
─ Predictable
Returns on Capital ─ Regulated
Revenues ─ Availability based
─ Inflation indexed
Contracts ─ Long Term
Gas, Water etc.
Communications Infrastructure: A Complex Picture
5
Content Production Consumer
Mobile Tower Infrastructure
Distribution
TV Broadcast & Broadband Infrastructure
TV Broadcast Infrastructure
Satellite
Terrestrial
Fibre Backbone & Local Loop
Cable
Mobile Phone Towers
Spectrum
Spectrum
INTERNET
Mobile Operators
ISPs
TV Radio Broadcasters
Technology Risk
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Technology is expensive
Technology is substitutable
Returns are not typically regulated
Payback on capital project varies considerably
Infrastructure Funds prefer to invest in
“passive infrastructure”
Technology risk is a key issue for Infrastructure Funds
Infrastructure Funds: A moving feast
7
Substitutability
Cost
DSL Vectoring
DVB-T (Broadcast
TV) Fibre?
LTE
Infrastructure Funds want low capex requirements and a low risk of substitution in their investments
Unattractive to infrastructure
investors
Attractive to infrastructure
investors
Fibre: The ideal communications infrastructure?
8
High barriers to entry
“Best in class” Technology
─ Limited substitution risk for the next 100 years
─ Connection into each household and business
─ Best conduit for triple play (voice, video, data)
─ Unlimited bandwidth
─ Speed of light
Attractive fixed asset base
─ Tangible fixed asset
─ Limited maintenance costs
─ Long depreciation life
Fibre exhibits many ideal infrastructure characteristics
What would make Infrastructure Funds invest in fibre?
9
Fibre network is built ─ Limits construction risk
─ Infrastructure funds need tangible fixed assets from day 1
Network is unique ─ Limited appetite for competition or
substitution risk
─ Is this realistic at local, national or international level?
Demand is known ─ Infra Funds preference for predictable
revenues based on long term contracts with credit-worthy customers
─ Availability fees preferable to traffic-dependent revenues
Investment size is manageable ─ Availability of capital from
Infrastructure Funds will be a limiting factor
─ Consortia of Infrastructure Funds are possible
Several conditions are needed for Infrastructure Funds to invest in fibre
Investment returns are predictable
─ Regulatory framework is stable and transparent
What is the right footprint for Infra Funds?
10
Infrastructure Local opportunity may be more palatable and manageable for most infrastructure investors
Footprint
Issues
Infra Funds Sweetspot
International National Regional Local
─ Unregulated
─ Overcapacity
─ Very competitive
─ Many fibre networks
─ Competitive ─ Competition from incumbent / cable
Scope for EU to regulate development of unique fibre infrastructure (incumbent backed or not?)
Opportunities for fibre investment in
2nd tier cities
10%
30%
What capital is available to fibre operators?
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Infrastructure
Equity
Debt
Life cycle
Greenfield Funds
PE / “Core Plus” Funds
Infrastructure Funds
Banks
Construction companies
Banks Banks
Bonds
Funds
Different stages of an infrastructure project require different sources of funding
Target Equity IRR
Construction Marketing Operational
Infrastructure Funds as Owners
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─ Long term investment approach
─ “Lower” cost of capital
─ Community friendly investors
─ Communications sector expertise
─ Active investor in and out of the boardroom
Infrastructure Funds could provide many benefits as fibre investors
Conclusions
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─ Infrastructure Funds are natural owners of truly unique fibre networks
─ ... But not yet
─ Infrastructure Funds need two things
─ Further education on fibre as an investment opportunity
─ Comfort in the regulatory framework
─ Fibre operators need to rely on other sources of capital to build the networks and secure demand