Putting down roots: Europe’s new multi-national digital infrastructure platform

In 2018, Digital Colony invested in three European digital infrastructure businesses: Digita in Finland, and Stratto and Opencell in the UK.  Graham Payne, formerly the CEO of Opencell and now the CEO of Digital Colony’s broader UK digital infrastructure platform spoke to TowerXchange about Digital Colony’s rationale for entering the European market now, their investment philosophy and their plans for growth in Europe in the coming months. 

TowerXchange: For those who don’t know you, please introduce Digital Colony, how you were formed and your global portfolio.

Digital Colony is a partnership between Digital Bridge and Colony Capital, who have combined to form a partnership called Digital Colony. Digital Bridge is the technology lead in this, they are currently invested in nine platforms, with over $10bn in committed capital, 150+ acquisitions and $450mn of site cashflow.  Digital Colony’s investment target is in digital infrastructure; that is datacentres, wireless towers, small cells (indoor and outdoor) and fibre. Digital Bridge is very much a digital infrastructure company, using their experience and knowledge in the partnership with Colony Capital, which is a NYSE listed company with $44bn assets under management and 400+ employees across 10 countries. 

TowerXchange: Digital Colony made three acquisitions in Europe last year, can you talk to us about those three acquisitions and how they interact with each other?

Digital Colony’s European investment started with acquisition of Digita, one of the biggest independent towercos in Finland, which is a broadcast towerco with lots of mobile tenants. We then followed with the acquisition of Stratto and Opencell in the UK. Stratto was just starting off in in-building solutions on big sites and Opencell had launched a new small cell model where the enterprise pays for the infrastructure, rather than the MNO – a model which had gained 130+ sites in the UK. By combining best of both worlds from these two companies we can cover anything from smallest in-building solutions to the largest. With Digital Colony committing to additional investment there is a wonderful in-building opportunity in the UK.  TowerXchange: Why did Digital Colony choose to enter the European market now, tell us about the market conditions or other factors which influenced the decision?

Looking at where growth is in telecoms, we believe there is no sign of a slowdown. When you look at the key metrics for Western Europe, we’re seeing subscription connection growth at 3%, which is fairly small, but the regional share of smart devices and connections are seeing massive growth with mobile data traffic up 6x and video share up 31%.  If we look at the US, Digital Colony knew the US market and compared the US to Europe: although Europe is clearly behind North America in terms of infrastructure deployment, it’s catching up. There are two clear examples of this. Firstly in fibre, where we see significantly more deployed in the US, and therefore in small cells, where the US has deployed 100,000 small cells and in Europe there are hardly any. Secondly the US has embraced hyperscale datacentres and these have yet to really roll out in Europe. A combination of both of these, coupled with good regulation and a stable investment landscape, means we still see  Europe as being a very healthy investment opportunity. 

TowerXchange: You’re well known for an innovative approach to converging infrastructure, what’s the Digital Colony stance on 5G rollout in Europe, will/how will it differ from elsewhere in the world? What do you think the biggest obstacles to 5G are in Europe?

We call it 5, 5, 5 - Digital Colony has an ambition to invest $5bn in 5G infrastructure over the next five years globally. Obviously a significant portion of that investment is targeted for the European market. We will be investing in the infrastructure which is required to support the deployment of antennae, fibre to carry signal, datacentres to house the host of server equipment which will be needed, and also small cells, not just in-building but outdoors as well, an area which hasn’t grown much in the UK.  If you look at 5G and how it will differ in Europe and the US, the biggest challenge for the mobile network operators is the investment case for 5G, and the concern that rolling out 5G infrastructure will cost a lot of money and they won’t see huge returns. They are currently scratching their heads and wondering how to fund it all. It’s a good opportunity for us because through Digital Colony’s expertise and investment, we can take a lot of that pain away for the operators and help them to roll out 5G. Growth in data traffic won’t go away and eventually 4G will run out as 3G did. The 5G standard and frequencies are so much more efficient, it’s inevitable that it will happen. In my opinion the view for the UK is that there will be pilots in 2019 and some operators with launch areas but our expectation is that rapid rollout will not follow everywhere like it did with 4G. Initially, 5G will be targeted at urban areas where populations are denser.

TowerXchange: Do you see 5G as ‘evolution’ or ‘revolution’?

A clear advantage of 5G will be reduced latency, and this will enable a step change in the way technology is used. Another advantage is the number of devices it can connect: 4G is limited in terms of the number of devices it can connect, but 5G is phenomenally more effective, you get more throughput for your buck. But to have these advantages fully working you will have to have the network fully rolled out, which takes money and time. It will be a revolution, in five years everything will be connected, we’ll see connected vehicles, better robotics, there will be a transformation. But I think at the start it will be more evolutionary, even in terms of the 5G standards themselves, the first 5G standard uses 4G signalling and only 5G for the data – so it’s a combination of both.  There will be a gradual evolution from 4G to 5G traffic initially, then as the network rolls out more and more and applications can use the faster latency and more devices will see the revolution kick off. Full deployment should happen by 2021. This is a massive investment opportunity which will need lots of network deployed in terms of fibre, and space for antennas and datacentres.

TowerXchange: The European market is quite unique in that much of the ‘towerco’ infrastructure is owned (carved out) by MNOs, who often sell a minority stake to an investor. Do you think this will have a long term influence in shaping the way neutral host operators and MNOs work together or do you see this as a stage of evolution towards a different end point? 

I don’t know how that will pan out. I founded MBNL and did the negotiation between T-Mobile and Three, following that I then became Managing Director of MBNL, then I ended up supporting Vodafone on their Beacon contract to form CTIL with Telefonica. In terms of Vodafone’s purported plans to monetise CTIL, I think that’s absolutely the right thing for these guys to do because of the return they should get from that and the funding to help them support 5G rollouts will be significant. The downside for the mobile network operators is that they risk losing some control and ability to do things quickly on their network. It doesn’t have to be the case, naturally they will want to leverage as much money out of the transaction as they can, but they will need a partner who understands digital infrastructure, has proven to be a trustworthy operator of networks and can deliver SLAs which can be flexible enough to deliver when they want to do something.  In the current climate they can’t just be doing it for money and selling for 19x multiples, they need to choose a business which can deliver fantastic SLAs, then can migrate to a neutral host model. 

TowerXchange: What’s next for Digital Colony? Will you be making more European acquisitions in 2019? What can you share of your plans for the future? 

Digital Colony is absolutely looking at making more acquisitions in Europe, and we will be looking at towers, datacentres, fibre, and small cells indoors and outdoors.   We are actively looking and engaged in a number of conversations already.