Marc perusat


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FTTH Conference 2013 Workshop Investors Day

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Marc perusat

  1. 1. Marc Perusat: The Role of Infrastructure FundsFTTH Council Europe “Investor Day 2013” – 19 February 2013
  2. 2. The key questionCan Infrastructure Funds be legitimate equity backers of fibre operators? 2
  3. 3. Infrastructure Funds: Presence in the communications sector?While the Infrastructure Funds market is large, the communications sector onlyaccounts for a small proportion of their overall investments Investments made by Infrastructure Funds by sector Telec oms,   S oc ial,  1 5%$266 billion in 6% assets under $80 billion of Waste   Manag ement,   Energ y,  3 6% management dry powder in 2%globally across Infrastructure Infrastructure Funds Transport,   23% Funds Utilities,  1 8% Less than 1% of all infrastructure fund investments have been in fibreSources: Towers Watson Global Alternatives Survery 2012, Preqin 3
  4. 4. Infrastructure Funds: Their ideal businessThe ideal infrastructure business is typified by stable and predictable cashflows Contracts Returns on Capital ─  Long Term ─  Regulated Unique Infrastructure Producer Consumer Gas, Water etc. Revenues Dividends ─  Availability based ─  Steady ─  Inflation indexed ─  Predictable 4
  5. 5. Communications Infrastructure: A Complex PictureContent Production TV Broadcast Infrastructure Distribution Consumer Satellite TV Radio Broadcasters Terrestria Spectrum l TV Broadcast & Broadband Infrastructure INTERNE Cable T Fibre ISPs Backbone & Local Loop Mobile Tower Infrastructure Mobile Mobile Spectrum Operators Phone Towers 5
  6. 6. Technology RiskTechnology risk is a key issue for Infrastructure Funds Technology is expensive Returns are not typically regulated Infrastructure Funds prefer to invest in “passive infrastructure” Technology is substitutable Payback on capital project varies considerably 6
  7. 7. Infrastructure Funds: A moving feastInfrastructure Funds want low capex requirements and a low risk of substitution in theirinvestments DSL Substitutability Vectoring Unattractive to infrastructure investors Cost Attractive to infrastructure LTE investors DVB-T (Broadcast TV) Fibre? 7
  8. 8. Fibre: The ideal communications infrastructure?Fibre exhibits many ideal infrastructure characteristics ─  Best conduit for triple play (voice, video, data) “Best in class” ─  Unlimited bandwidth Technology ─  Speed of light ─  Tangible fixed assetAttractive fixed asset ─  Limited maintenance costs base ─  Long depreciation life ─  Limited substitution risk for the next 100 yearsHigh barriers to entry ─  Connection into each household and business 8
  9. 9. What would make Infrastructure Funds invest in fibre? Several conditions are needed for Infrastructure Funds to invest in fibreFibre network is built Investment size is manageable─  Limits construction risk ─  Availability of capital from Infrastructure Funds will be a limiting─  Infrastructure funds need tangible factor fixed assets from day 1 ─  Consortia of Infrastructure Funds are possibleNetwork is unique Investment returns are predictable─  Limited appetite for competition or substitution risk ─  Regulatory framework is stable and─  Is this realistic at local, national or transparent 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 9
  10. 10. What is the right footprint for Infra Funds? Local opportunity may be more palatable and manageable for most infrastructure Infrastructure investors Footprint International National Regional Local ─  Unregulated ─  Very competitive ─  Competitive ─  Competition from Issues incumbent / cable ─  Overcapacity ─  Many fibre networks Opportunities forInfra Funds Scope for EU to regulate development of unique fibre infrastructure fibre investment in Sweetspot (incumbent backed or not?) 2nd tier cities 10
  11. 11. What capital is available to fibre operators? Different stages of an infrastructure project require different sources of funding Infrastructure Equity 30% PE / “Core Plus” Infrastructure Greenfield Funds Funds Funds Life cycle Construction Marketing Operational Banks Banks BanksTarget Construction BondsEquity companies Funds IRR 10% Debt 11
  12. 12. Infrastructure Funds as Owners Infrastructure Funds could provide many benefits as fibre investors─ Long term investment approach─ “Lower” cost of capital─ Community friendly investors─ Communications sector expertise─ Active investor in and out of the boardroom 12
  13. 13. Conclusions─ Infrastructure Funds are natural owners of truly unique fibre networks─ ... But not yet─ Fibre operators need to rely on other sources of capital to build the networks and secure demand─ Infrastructure Funds need two things ─ Further education on fibre as an investment opportunity ─ Comfort in the regulatory framework 13