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Telecoms Still Not Seen As Good Infrastructure Investment

Paul Budde

It is interesting that when governments and financial investors, such as superannuation funds, talk about infrastructure investments and infrastructure investment funds they rarely include telecommunications in their deliberations.

It was interesting to see that the new Prime Minister of Australia has indicated that he wants to be seen as the prime minister for infrastructure, despite having at one time proclaimed he would kill the NBN — the government's national infrastructure for broadband.

While he has since reversed his opinion on the NBN, he still doesn't include it when he talks about his 'infrastructure' projects. What he sees as infrastructure includes: new roads, a second airport for Sydney, rail infrastructure and so on.

He is not alone in this. Most politicians and infrastructure investors have problems seeing telecoms infrastructure in that context.

From a visionary and strategic aspect one could argue that, at a political level at least, telecoms should be seen as, and included in any policies on, national infrastructure.

Globally it is estimated that some $50 trillion will need to be invested in infrastructure by 2030. Telecoms accounts for $10 trillion of this but ranks at the bottom of the list investors consider (after energy, roads, rail, ports, airports, waste, water and PPP models).

The telecoms industry is largely to blame for this. From an investment point of view the situation is a complex one, as telecoms infrastructure has several elements to it that as a whole do not fit easily into their investment models:

  • The passive physical infrastructure with a payback time of 10-15 years
  • The active (IT) components with a payback time of 5-7 years
  • The services on top of it with a payback time of less than 3 years

Clearly these different elements result in a mismatch between the business models and risk profiles which are needed by investors such as the superfunds.

We also see the need for separation between these telecoms elements in order to better align this infrastructure with developments in the digital economy. All industry and government sectors are increasingly relying on high-speed broadband infrastructure to deliver their services and require access to the infrastructure on a utilities basis.

The 'off-line' models that are still in use in many sectors are proving far too costly, as we have already seen in sectors such as retail, music, entertainment, publishing, photography, IT and software services. High-speed broadband infrastructure is essential to increase digital productivity and to assist the sectors in transforming themselves to take advantage of the social and economic benefits that can be delivered by and over this infrastructure.

However, most sectors are having great problems negotiating with vertically-integrated telcos who operate integrated models along the lines of the bullet points mentioned above. Also, on this commercial level, the business models of telcos and, for example, OTT players are totally misaligned.

In order to attract the $10 trillion funding that is needed the telcos need to better align themselves with the new business and investment models.

There are already some good examples of various levels of structural separation in Australia, New Zealand, Singapore, Britain and the Scandinavian countries. However much more work will need to be done by the telcos if they wish to align themselves better with the requirements of financial investors and the emerging digital economy companies in order to attract new money and new business.

There is increased awareness across all sectors that ICT/broadband are the key tools for these transformation processes, the key issue now is that many companies, organisations, sectors and countries, as well as their individual industry and government leaders, simply don't know how to make these transitions and on how to attract new investments into this sector.

Leadership is needed on all levels — government, industry and investors — to encourage the all-important investments that are needed to build smart countries, smart economies, smart cities and smart communities. This surely is in the interest of all, smart meaning here a more productive economy, a better lifestyle, and more interesting new jobs and business opportunities.

By Paul Budde, Managing Director of Paul Budde Communication Paul is also a contributor of the Paul Budde Communication blog located hereVisit Page
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