Fibre is fast becoming Europe’s answer to bridging the digital divide.
In recent years there’s been a surge of activity in the Telecoms sector as broadband providers tap the financial markets to fund the roll out of glass fibre networks, opening up access to next-generation broadband. This includes in rural areas that lack stable fixed broadband connections.
At the end of 2021, for example, Deutsche Glasfaser raised €5.75 billion to support its plan to bring fibre to four million homes – 10% of German households – by end-2025. Similarly, Global Connect secured €2.7 billion to expand its fibre footprint in the Nordics and northern Europe, while Adamo Telecom Iberia raised €600 million to reach over 3.2 million homes in rural Spain. Italy’s Open Fiber raised €7.2 billion in project financing for its fibre optic network – the largest yet funding for a European fibre network – as part of its nine-year plan to cover 24 million households. In the Netherlands, a new joint venture between telecoms provider KPN and Dutch pension fund APG, aims to invest €1 billion to connect 750,000 households and 225,000 businesses to a fast-fibre network.
Also in the business-to-business market operators like Eurofiber are developing their fibre networks. It recently completed a €1.5 billion sustainability-linked financing to continue investing in its 60,000 kilometre high-capacity fibre network across the Benelux, France and Germany. This forms the backbone, or ‘digital super highway’ for businesses, telecoms and data centre operators, schools, hospitals and even bridges, locks and traffic light systems.
Access for all
These investments all play into the European Commission’s ambition that by 2030 all European households have ultra-fast 1 gigabyte broadband coverage and at least 75% of European businesses use cloud computing, big data and artificial intelligence. This is to ensure no-one is left behind in today’s digital society or is unfairly disadvantaged by the so-called ‘digital divide’ between those with access to fast internet and those without. This gap is biggest in rural or less affluent areas.
The pandemic reinforced the importance of digital connectivity and boosted the demand for stable and secure broadband with fast up- and download speeds. Higher upload speeds in particular are necessary for streaming data-heavy services such as video meetings. This is where glass fibre really comes into its own.
“Fibre has much higher upload speeds than cable or copper lines, which is necessary when households are using multiple digital services at the same time, like zooming, streaming a film or gaming online,” explains ING’s Blaise van de Zwaal, managing director Technology, Media, Telecom and Healthcare sector coverage. “With fibre, the data is transmitted by light rather than by electrical pulses in copper cables, and there’s nothing faster than the speed of light.”
Sustainability at the heart
Fibre also has environmental and social advantages, points out Riccardo Papa, director in ING’s Sustainable Finance team.
“It’s more environmentally friendly and energy efficient than copper cables. And by investing in fibre networks, telecoms firms are contributing to the socio-economic development of certain rural areas that would otherwise be at risk of digital exclusion,” he says.
For this reason, many of ING’s transactions in the sector have a strong ESG component, linking the financing to sustainability performance targets. Take Eurofiber’s recent €1.5 billion refinancing, which ING supported as debt-, hedging- and sustainability advisor and includes emission reduction targets. Or the Deutsche Glasfaser financing, where ING acted as financial and sustainability advisor. It has incentives to set science-based emission reduction targets in line with the Paris Agreement climate goals and a social commitment to closing the digital gap by connecting underserved areas in Germany.
However, more data consumption generates more carbon emissions. At the same time, online meetings generate far fewer emissions than commuting to the office, or flying. Although it’s difficult to measure, some telecoms companies do report on these avoided emissions.
It’s not only the telecoms companies themselves that are under pressure to provide more bandwidth and higher speeds with more advanced technologies, such as 5G, and less emissions. Data centres are an indispensable part of the data transmission and exchange chain, and they too have to be innovative and more sustainable. For example, by using power from renewable energy sources or locating to colder climates where they need less energy for cooling purposes.
Challenges and opportunities
Given Europe’s ambitious digital connectivity target it’s not surprising that the rollout of fibre networks is often stimulated by national governments – such as Italy’s €8 billion investment in superfast broadband by 2026 – and some countries are further in their journey than others. Other factors such as the geographical and competitive situation, regulations, population density and labour costs also play a role.
For example, the Netherlands has a high broadband connectivity, of which around 20-25% is fibre, because there’s already high cable TV penetration, it’s densely populated, there’s less distance between homes and villages, and the landscape is flat, which makes it relatively easy to install. Portugal and Spain are also doing well thanks to relatively low installation costs compared to other EU countries. Germany, on the other hand, still has many underserved rural areas.
However, construction capacity and labour shortages are the biggest challenges for the fibre rollout. In some markets there is an increased risk of overbuild: when operators are looking to roll out fibre in areas where it has already been installed. Both from an investment and sustainability point of view the viability of this raises questions.
In addition to fibre to the home, there are also telecoms providers offering large capacity networks for businesses and other data-intensive users. In both these markets ING continues to see opportunities in terms of financing and (sustainability) advisory services. Over the past 10 years, ING has secured a leading position with underwriting and bookrunning roles.
“We’ve seen activity ramp up over the last decade. Recent deals such as with Eurofiber, Deutsche Glasfaser and Open Fiber demonstrate the strong demand for financing of fibre infrastructure and our strong market share is testament to ING’s knowledge and experience in this field,” says Blaise.
Read more about the opportunities and challenges of Europe’s fibre rollout towards a gigabit society on think.ing.com. Or read how telecom companies can find additional opportunities to increase revenue and enhance their contribution to society: why telecom companies should focus on the ‘s’ in esg.