The OECD’s “Financing Broadband Networks of the Future” report examines current trends in broadband network financing and their implications for future connectivity. In an increasingly interconnected world, continued investment in broadband infrastructure is crucial to ensure universal access to high-quality connectivity. This connectivity is essential for digital transformation, economic growth and prosperity.
From connectivity to the connectivity ecosystem
Digital innovation and the growing demand for data has transformed connectivity into a connectivity ecosystem. The term “ecosystem” reflects the complexity and interdependence of the multiple actors contributing to today’s global connectivity.
This ecosystem comprises a range of interconnected and interoperable actors and elements that facilitate communication and data transmission between devices, fixed and mobile networks, satellites, data centres, submarine cables, platforms and applications.
Traditional telecoms operators are joined by new players such as big technology companies, tower companies and private investment funds. Interdependence and cooperation between the different players are key to boosting investment and technological development.
The OECD’s “Financing Broadband Networks of the Future” report analyses how the different actors in the connectivity ecosystem contribute to its proper functioning through their investments.
Financing broadband networks
In this context, the OECD report identifies five actors involved to varying degrees in broadband infrastructure investment: telecommunications operators, tower companies, large technology companies, infrastructure investment funds, and the public sector.
Telecommunications operators are, and will continue to be, the key players and investors in the deployment and upgrading of fixed and mobile broadband networks. They are at the heart of the connectivity ecosystem, ensuring the efficient and continuous operation of broadband networks and enabling the development of digital services.
Tower companies are emerging as new players due to their role in managing the infrastructure that supports mobile networks. Their role has evolved from merely owning passive infrastructure to providing services through agreements with data centres.
The report also includes large technology companies whose involvement in the ecosystem is evolving. These companies are investing in specific segments of the communications infrastructure, such as submarine cables, cloud services and data centres.
Meanwhile, financial asset managers, including private equity and pension funds, are investing in wholesale fibre access networks.
Finally, the public sector continues to play an important role in the financing of broadband networks, through subsidies and other initiatives.
Key findings of the OECD report
When analysing the financial performance of the abovementioned players, the report highlights that telecom operators worldwide have achieved an average revenue growth of 2.1% between 2008 and 2022, with stable profit margins. However, the report finds that operators’ return on invested capital (ROIC) has gradually declined. In addition, the analysis shows an upward trend in debt levels, as evidenced by net debt to EBITDA ratios. This is a challenge that, according to the report, may require a renewed focus on maintaining financial stability and continued investment.
In the area of tower companies, the report notes that mobile network operators have divested tower assets to free up capital, giving rise to specialised tower companies. These changes reflect the evolution of business models and an adaptation to new market demands and developments.
Using the success stories of the five largest technology companies by market capitalisation, the report examines their investments. It highlights their increased investment in infrastructure such as submarine cables and data centres.
For financial asset managers, including private equity firms, hedge funds and pension funds, low interest rates have boosted significant investment in communications infrastructure. However, rising financing costs could present challenges for future investment projects.
Finally, regarding the role of the public sector, the report points out that its financial contribution promotes connectivity and sustainability in remote and hard-to-reach areas. In addition, the public sector needs to promote policies that incentivise investment without compromising other objectives, such as promoting competitive markets or innovation-friendly ecosystems.
Regardless of the type of investor, the OECD report emphasises the need to promote sustained investment in broadband infrastructure to ensure prosperity.
Strengthening the investment capacity of the telecommunications sector
The OECD report offers an innovative approach by analysing the investments of different actors in the connectivity ecosystem. The inclusion of telecom companies, tower companies, large technology companies, financial asset managers and the public sector reflects the complex nature of the connectivity ecosystem and the need for collaboration for technological development and an interconnected society.
In this framework, telecom operators are central to the financing of broadband networks, not only because of their ability to manage key infrastructure for digital communications and services, but also because of the strategic importance of their investments in national, aggregation and access networks, the backbone of the connectivity ecosystem.
However, the current landscape for operators is characterised by a delicate balance between opportunities and challenges. It is essential that public policies encourage investment in the roll-out of ultra-broadband networks and create a framework that incentivises investment and innovation and reduces barriers to the deployment of connectivity infrastructure in the telecoms sector. Similarly, it is crucial to enable companies to compete on a level playing field in the connectivity ecosystem.
