Month: April 2021

American Tower: Edge computing worth ‘billions of dollars annually’

Source: LightReading

American Tower’s CEO believes the edge computing market could eventually grow into an opportunity worth billions of dollars every year. And he said his company is well positioned to take advantage of that situation.

“Given that our attractively located tower sites have existing access to fiber and power while already hosting multiple communications providers, they are a natural candidate to represent hub locations for these low latency wireless edge data centers,” Tom Bartlett said Thursday during American Tower’s quarterly conference call, according to a Seeking Alpha transcript of his remarks.

Further, he hinted at his company’s interest in pursuing the market through a number of avenues, including potentially major partnerships.

“The early data points we are seeing throughout the industry all suggest that this can be a meaningful, scalable opportunity that can represent solid upside for us in due time,” he said. “We intend to explore global joint ventures or partnerships to effectively leverage these inherent opportunities, and we continue to work through a number of different scenarios on that front.”

The open RAN driver

Bartlett also suggested that the trend toward open RAN technology in the wireless market is helping to drive the edge computing opportunity by separating the elements of a wireless network into pieces that could benefit from edge computing capabilities at the base of a cell tower.

“It’s different types of equipment that our customers are able to put together to be able to load onto the site, and at the base level, at the baseband unit, which is where the data center element comes in,” he said.

However, he cautioned that it’s a market that is still in its infancy. “We really are at the beginning of it,” he said.

American Tower is one of the nation’s three big cell tower owners. As a result, it’s among the companies that stand to benefit from network operators’ increased 5G spending for midband spectrum like 2.5GHz and C-band.

Rising revenues

“By all accounts, 2022 should be a good year for the domestic tower leasing industry,” argued the financial analysts at MoffettNathanson in a recent note to investors. “Between initial C-band deployments, T-Mobile making progress with its 2.5GHz rollout, and Dish Network entering the early stages of its greenfield network build, there is reason for optimism that growth will accelerate for all players.”

Indeed, American Tower’s rival, Crown Castle, just last week lifted its 2021 expectations for site rental revenues; adjusted earnings before interest, taxes, depreciation and amortization (EBITDA); and adjusted funds from operations (AFFO) due to those exact reasons.

American Tower, for its part, on Thursday posted first quarter financial results showing EBITDA and AFFO significantly ahead of most financial analysts’ expectations.

“American Tower’s results today confirm that the ramp in carrier activity that we expected is indeed happening: application volumes have increased, which should drive accelerating gross organic revenue growth as the year progresses and into 2022,” wrote the financial analysts at New Street Research in a note to investors.

This growth in its core business makes American Tower’s bet into edge computing even more noteworthy. The company just this week announced it expanded and upgraded the data center it purchased two years ago in Atlanta.

5G players eye the edge

But American Tower isn’t the only tower company eying the edge computing market. For example, SBA Communications has purchased several data centers and is now selling computing services under its new SBA Edge brand.

Meantime, wireless network operators like T-Mobile and Verizon are either building their own edge sites or partnering with companies that do.

However, the financial analysts at MoffettNathanson recently argued that most edge computing services can be supplied by a relatively small number of regional data centers rather than hundreds or thousands of tiny data centers on the edge, as American Tower’s Bartlett suggested.

“We don’t doubt that edge computing is a real trend,” they wrote in a recent report to investors. “Instead, our suspicion is that most edge computing needs can likely be met with regional deployments in locations like traditional data centers rather than deployments at the base of a cell tower.”

Goldilocks, The Big Bad Wolf and the impact on wireless margins

On the heels of AT&T and Verizon’s Q1’21 results, it makes sense to take a bigger picture look at their  wireless strategies.  AT&T’s print was applauded by the Street with the stock up over 4% on the day of the report (big move for a company of this size!).  Verizon was met more by a bit of a  “Meh!” response.

For both these players, we are very much at a pivotal moment for their wireless businesses.  Both companies have more than showed their  longer term  commitments toward  this business by spending $53.9B and $28B in the recent C-Band auction (including clearinghouse fees) from Verizon and AT&T respectively.  So why  is this a pivotal moment?  Because a pricing headwind has been blowing directly in their face the past few years and 2021 will lay out the foundational path as to how they try to change the direction of this wind.

To put some meat on the bone of this pricing degradation, in a recent blog piece, the CTIA noted that for US, wireless “sticker” prices have declined 45% since 2010. And to add insult over injury, ARPU has declined 21% in the same period.   To put this in perspective, during this same period food prices are up 63%, housing up 65% and cable/satellite TV services are up 96% (!!!).  So as Fed Chairman Jay Powell goes through his  inflation ‘watch list’, it seems wireless services could safely appear at the very bottom.

While Powell may not have to worry about this trend, AT&T and Verizon sure do.   For a few  reasons, frankly.  First, profitability continues to be a challenge and the fixed cause nature of this industry is being seen on margins.   While AT&T had good news to say on the sub front in Q1’21, AT&T’s mobility business saw EBITDA margins compress by 290 bps YoY.  Verizon’s margins have also hit  troubled waters  with Q1’21 Consumer Business margins down 90 bps YoY.

Second, even with their winnings from the C-Band auction, both AT&T and Verizon  are still behind T-Mobile in terms of mid-band spectrum holdings.  Specifically,  Team Magenta still has 1.3x more mid-band than Verizon and 1.7x more than AT&T.  As a result.  T-Mo can turn on the faucet much faster and offer more to consumers for a lower price.   Simply put,  if midband is the ‘Goldilocks’ of spectrum, T-Mo can be the ‘Big Bad Wolf’ to both AT&T and Verizon given their advantage here.

Last,  if  the carriers  are getting less revenue from the ‘typical’ wireless customer, they need to branch out and diversify their revenue. They know this and are trying to do this is in different ways (VZ with more fixed wireless home and other 5G initiatives; AT&T through fiber and joining the Hollywood party).  While they have gotten the memo and understand the urgency, none of these strategies are layups given that each path faces a growing competitive field and a whole lot of capital!   This is not to say they cannot work, but the time, urgency and focus has to be put in now.  As with all things in this space, it will be incredibly fascinating to watch how it all plays out.

 

If Prime: 5G Core by Thursday, RAN by Saturday

April 22, 2021

Remember the Rokr E1? It debuted about 16 years ago and resulted from a partnership between Motorola and Apple. Back then, Motorola was a big deal in phones – along with Palm, RIM (which is BlackBerry, btw) and Nokia. The Rokr E1 failed, largely due to the lack of letters.

I remember thinking it odd that Motorola and Apple partnered particularly since the Rokr E1 was so bad. Thanks to hindsight, I must also have thought “Maybe Apple’s learning what goes into making the cellular components of a phone.” Eighteen months later, Apple disrupted the cellular and computing industries.

Which brings me to this news. A month ago, Nokia and Amazon Web Services (AWS) announced a collaboration in which “engineering teams from both companies will research how the combination of Nokia’s RAN (Radio Access Network), Open RAN, Cloud RAN and edge solutions can operate seamlessly with AWS Outposts.”

Per the press release, the project will run Nokia’s 5G virtualized distributed unit (vDU) and 5G virtualized centralized unit (vCU) on AWS Outposts using Amazon Elastic Kubernetes Service (EKS) for far edge cloud or on-premises deployments. (Kubernetes is a container management platform.)

In 5G New Radio (NR), baseband processing is split between the DU and the CU. The goal there is to put those processing elements in physical locations where it makes the most sense (costs the least and/or provides the greatest functionality). This functionality is likely to be virtualized as well, but what the radios do is not changing that much.

The third part of the collaboration will build a “proof of concept for an end-to-end solution with Nokia’s 5G Cloud RAN and 5G standalone Core network running on AWS, where end enterprise users can leverage 5G for use cases such as an industrial application.”

Undeniably, Nokia has thirty plus years of cellular radio expertise which I would guess must transfer into its virtualization efforts. And it has a large existing market that is under threat thanks in no small part to the very mobile operators it sells to.

Ostensibly, a 5G RAN service (CU/DU) is another way for AWS to position itself as an enabler of 5G services. Already, they have outposts, wavelength zones, local zones, snow-family devices, a partnership with Athonet for 4G/5G core, and one with Federated Wireless for connectivity-as-a-service (which Federated does not directly have since they only run a SAS).

Will AWS launch 5G NR RAN-based service? Who knows. All I’m suggesting is that AWS with all the resources at its disposal, is more than capable of disrupting the cellular market. Yesterday’s news is a good example – Dish is using AWS to build its 5G network.

Digital Alpha Announces Closing of Second Digital Infrastructure Fund at Over $1 Billion

Source: PR Newswire

SAN FRANCISCOApril 20, 2021 /PRNewswire/ — Digital Alpha Advisors (“Digital Alpha”), a leading digital infrastructure investment firm, today announced the closing of Digital Alpha Fund II, L.P. (the “Fund” or “Fund II”), over its initial hard cap with over $1 billion in commitments. The Fund was oversubscribed and continues the same successful strategy of investing in digital infrastructure assets, companies and revenue share arrangements as Digital Alpha Fund I, L.P. (“Fund I”), formed in 2017. Digital Alpha will also continue the successful strategic partnership it has had with Cisco since the firm’s founding, which includes preferred access to Cisco’s deal flow, engineering and sales resources, as well as access to Cisco’s broader ecosystem of channel partners and resellers. In addition, Digital Alpha is proud to cultivate strategic partnerships with other Silicon Valley technology leaders, with whom it has already executed deals in Fund I and Fund II.

As a pioneer of the digital infrastructure category since launching in 2017, the Fund will maintain its core focus of investing in operating companies and revenue share deals across three key verticals: next-gen networks (5G infrastructure investment and Wi-Fi 6 solutions globally), cloud computing and IoT-enabled smart city solutions. The mission critical infrastructure layer where Digital Alpha invests sits above the commodity layer of radio masts, fiber cables and data centers and supports the consumption layer, which is focused on digital content, apps and devices. The Fund will seek to build out a diverse portfolio of approximately a dozen “anti-fragile” investments with resilient business models in leading operating companies and related yield-oriented revenue share structures.

“We’re thrilled to announce the close of our second digital infrastructure fund to support the growth of the digital economy. We’re proud of the role our investments play in providing secure connectivity for private and public sector stakeholders during the pandemic. In addition, the strong interest we’ve had from existing and new institutional investors globally is testament to our team’s expertise, the quality of our strategic relationships and our proven track record of value creation. We’ve already deployed a significant amount of capital into differentiated and high-quality deals, and we look forward to actioning the rich opportunity set our team of experts has identified in the high-growth verticals driving digital transformation,” said Rick Shrotri, Founder & Managing Partner.

To date, the Fund has committed approximately $300 million across three deals. The first deal of the Fund created a novel network edge solution with Cisco, Qwilt, and British Telecom; this innovative outcome based financing is scaling with telecom and cable operators in markets worldwide. The Fund also recently made a $185 million investment commitment to network access provider WeLink Communications to help expand their fixed-wireless broadband footprint across the US. Finally, in March the Fund committed $100 million in outcome-based financing to fund digital infrastructure for communities across the US with Sharecare—a leading digital health platform.

Digital Alpha’s seasoned investment team is led by Rick Shrotri, Founder & Managing Partner, and Vasa Babic, Partner. Mr. Shrotri is a 10-year Cisco veteran who devised the funding model employed by the Fund during his time as Head of Business Acceleration at Cisco. As of the Fund II launch, he has collaborated with Vasa Babic on a series of market shaping deals over nearly a decade. Digital Alpha’s diverse team has deep investing and industry experience and is supported by an internal Cisco unit called the Global Infrastructure Funds (GIF) team that was created by Mr. Shrotri while he was at Cisco.

Investors in the Fund include sovereign wealth funds, pension funds, endowments & foundations, consultants, and health systems primarily from North AmericaEurope and the Middle East. Digital Alpha enjoyed a re-up rate on a dollar basis of over 100% from Fund I.

NOTES TO EDITORS

About Digital Alpha Advisors
Digital Alpha Advisors, LLC is an investment firm focused on digital infrastructure and services required by the digital economy, with a strategic collaboration agreement with Cisco Systems, Inc. As part of this agreement, Digital Alpha has preferred access to Cisco’s pipeline of commercial opportunities requiring equity financing. Digital Alpha believes that it is the first firm focused on making private equity investments in the significant growth opportunities required to underpin the Digital Economy, including smart cities, next generation broadband networks, and enterprise data management and communication solutions. Digital Alpha is headquartered in Henderson, NV, with offices in San Francisco and London, and was founded by Rick Shrotri, former Head of the Global Infrastructure Funds (GIF) team at Cisco. For more information, please visit www.digitalalpha.net.

Global X Which themes are set to be benefit from the US infrastructure plan?

Source: CMCMarkets.com

In this article, Andrew Little, a research analyst at Global X, breaks down how the US infrastructure plan will stimulate certain themes and highlights the main beneficiaries.

The long-awaited $2trn US infrastructure plan has arrived. On 31 March 2021, the Biden Administration announced the American Jobs Plan and the complementary Made in America Tax Plan. They outlined which areas could receive investment, the amount of investment required, and different ways it could get funded.

At a high level, it includes investment in:

Physical infrastructure:

  • Transportation Infrastructure ($621bn)
  • Buildings, schools, and hospitals ($250bn+)
  • Infrastructure resilience ($50bn)

Energy, water, and digital infrastructure:

  • Cleantech, clean energy, and related in infrastructure ($300bn+)
  • Water utilities ($111bn)
  • Digital infrastructure ($100bn)

Much of the plan is in line with the expectations set in advance of the 2020 presidential election, though there are some differences In addition to the above, it includes investment in care for older and disabled individuals ($400bn), manufacturing and small businesses ($300bn), innovation and research ($180bn), and workforce development ($100bn). In the next section, we will take a look at each infrastructure-related investment area. Following that, we will explore how the plan could get funded and what legislation could actually pass through congress.

Investing in physical infrastructure
Transportation: The American Jobs Plan addresses transportation infrastructure through investment in roads and bridges; public transit; electric vehicles (EV); passenger and freight rail services; and ports, waterways, and airports.

In particular, the plan would:

  • Build and repair 20,000 miles of highway, roads, and streets, as well as fix 10,000 bridges in disrepair ($115bn)
  • Establish and grow the US EV market by incentivising EV purchases, building a network of charging stations, reshoring supply chains for EVs and batteries, replacing or electrifying transit vehicles, school buses and the federal fleet ($174bn)
  • Address repair backlogs for buses, rail cars, stations, and thousands of miles of tracks and other related infrastructure, as well as expand public transit’s reach to meet demand ($85bn)
  • Bolster passenger and freight rail services by addressing Amtrak project backlogs, connecting new destinations, and enhancing services in high traffic areas ($80bn)
  • Upgrade commerce-facilitating infrastructure by improving ports and waterways, and modernising airports ($42bn)
  • Expand general transportation infrastructure in areas without affordable transportation options and where past investment created economic boundaries ($20bn)

Buildings, schools and hospitals: Other efforts to revitalise physical infrastructure encompass investment in commercial buildings, homes, schools, and hospitals.

In particular, the plan would:

  • Build, retrofit, and/or rehabilitate over two million energy efficient and electrified housing units, low and middle-income homes, and commercial buildings ($213bn)
  • Improve education infrastructure by modernising public schools, community colleges, and childcare centres with climate friendly and innovative facilities ($130bn+)
  • Upgrade Veterans Affairs hospitals and federal buildings by building state of the art, climate-friendly facilities (~$30bn)

Infrastructure resilience: Biden’s plan highlights the importance of ensuring that existing and new infrastructure is resilient to climate risk, natural deterioration, and obsolescence.

Investment areas in this vein include protection from wildfires, coastal resilience, and research and development in durable advanced materials. While the entire plan inherently seeks to build resilient and climate-aware infrastructure, it also carves out $50bn for these efforts.

Our take

Inadequate transportation infrastructure results in significant economic losses that can be avoided with investment. Every year, traffic congestion costs our economy over $160bn, motorists spend over $1,000 on lost fuel, and traffic accidents result in over 35,000 deaths (four times that of Europe per capita).

By investing in physical infrastructure like roads, bridges, ports, and airports, the US can limit economic loss by mitigating inefficiencies. Further, enhancements to public transit like offering new options, upgrading existing ones, and increasing their range can improve overall productivity by facilitating commerce and improving economic participation.

Similar benefits could come from investing in commercial buildings, homes, and hospitals. Widespread affordable housing could expand employment opportunities, while keeping consumption dollars (disposable income) in the hands of workers. The modernised nature of the structures the plan seeks to build could provide further economic benefit by improving the health of those who occupy them.

While building this infrastructure will create jobs, investment in schools can go a step further. Improving educational outcomes can ensure that more individuals are equipped with the skills needed for next-generation employment. And by offering childcare and public schooling, the US can improve labour force participation rates for caregivers, bringing back those who may have been excluded or forced to leave in the past.

Key beneficiaries

New and retrofitted physical infrastructure will be comprised of materials like asphalt, construction aggregates, concrete, steel, and copper. Construction products and equipment will be essential in building physical infrastructure, while construction and engineering service companies will likely be those putting said materials and equipment to use.

Industrial transportation companies are also a key player, bringing all the above to the areas where infrastructure is needed most. And finally, across all these segments, the plan favours companies based in America, that generate revenues in America, and already pay taxes in America.

Energy, water and digital infrastructure

Cleantech and clean energy: Investment in clean energy and cleantech is inextricable from the development of next-generation infrastructure. This is especially true given Biden’s intention to catch up with the rest of the world by achieving 100% carbon free electricity by 2035 and putting the country on a path to reach net-zero emissions by 2050.

Many of these investments are included in physical infrastructure investments. Expanding electrification and energy efficiency in buildings, homes, schools, and hospitals and growing the market for EVs means investment in the cleantech value-chain.

Other areas, however, can be considered separately, including the intention to:

  • Modernise the power sector by embracing smart grid technologies, building out at least 20 gigawatts of high-voltage capacity power lines, and creating incentives for clean energy generation and storage. This includes exclusively purchasing clean energy for federal buildings and creating energy sector jobs focused on plugging orphan oil and gas wells ($100bn)
  • Make the US a leader in climate science and innovation by investing in research and development for clean energy, utility scale storage, hydrogen, carbon capture use and storage, among other technologies ($35bn)
  • Catalyse cleantech manufacturing by procuring EVs, charging ports, and electric heat pumps with federal funds ($46bn)

Water utilities: The plan includes a significant overhaul of the US water utility infrastructure to improve the safety of drinking water.

Investment in water utilities seeks to:

  • Replace 100% of all lead pipes and service lines that deliver drinking water ($45bn)
  • Revamp and upgrade treatment plants and systems for drinking water, wastewater and stormwater ($56bn)

Digital infrastructure: The plan also seeks to expand internet infrastructure, covering 100% of the country with high-speed and future-proof broadband ($100bn)

Our take

US investment in cleantech and clean energy could provide immense economic benefit. Cleantech includes the infrastructure and technology that enables clean power implementation and adoption.

Without modern grids, utility-scale storage, and the technology that goes into clean energy sources, the ability to scale next generation power would be extremely limited. Power infrastructure in the US already desperately needs to be revitalised — the economy loses up to annually $70bn from power outages.

Investment in cleantech would support the shift to clean energy, while dampening economic losses from current inadequacies. Such a transition could also create job opportunities in installation, maintenance, and manufacturing, as well as long-term opportunities in clean energy research and development. The plan has tens of billions of dollars dedicated to creating job opportunities for those working in the energy sector and for underserved individuals.

Looking more broadly, a shift to clean energy and clean technologies would reduce levels of the atmospheric carbon-dioxide that causes 75% of global warming. Impacts of this warming include increased billion-dollar natural disaster frequency, submerged coastlines, and lethal heat waves — all things which could result in direct or indirect negative economic impacts. If warming continues on its current path, some scenarios estimate annual GDP per capita losses reaching as much as 14% in the next 80 years.

Investing in digital infrastructure will bring high-speed internet to the 30 million Americans who live in areas with no broadband infrastructure. The internet is essential to modern life and next-gen work and education. Such an investment would level the playing field for those living in underserved areas.

In the long-term, this should increase the US’s overall intellectual capital and give more people a chance to work in next-gen jobs. The plan also seeks to reduce internet costs by removing legislative barriers to competition. This should put more consumption dollars in American’s pockets.

The US is falling behind China and others when it comes to investing in these areas. Aggressively funding digital infrastructure and clean technologies could help the US become a leader in next-gen industry and innovation. Wright’s Law describes the idea that the cost of each unit manufactured decreases as a function of cumulative units produced.

So, for technologies like EVs, where the US lags the rest of the world in adoption, investment in related domestic manufacturing could dramatically increase sales by making them more affordable.

Key beneficiaries

Companies involved in the clean energy and cleantech value-chains would be well positioned to benefit from the plan. These include renewable energy producers and component manufacturers, as well as those with business activities related to electric grids, energy storage, electrification, and energy efficiency. Other efforts to reduce emissions should benefit companies involved in carbon capture, use, and storage, and renewable hydrogen.

Additionally, companies that manufacture or produce telecommunications equipment and semiconductors related to connectivity and electrical transmission could benefit from digital infrastructure spending. Construction and engineering companies could

Additional Investments

Innovation and research: The Jobs Plan underscores the importance of the US re-establishing itself as a hub of innovation. It seeks to use public funds to make the US a leader in artificial intelligence, biotech, advanced computing, clean energy and more ($180bn).

Manufacturing: Biden is seeking to bring the US back to the forefront of manufacturing and secure supply chains through investment in monitoring domestic industrial capacity and semiconductor manufacturing ($100bn). Other related efforts include those mentioned for clean energy, health care and pharmaceuticals, and assorted research and development ($300bn total).

Workforce Development: The plan includes initiatives to provide dislocated workers and underserved communities with next-gen training that would equip them with the skills needed to work in clean energy, manufacturing, and caregiving ($100bn).

Long-Term Care: Biden calls for Congress to invest in expanding access to long-term care for older and disabled individuals ($400bn).

Our take

These investments would help the US maintain its economic competitiveness through the rest of the century. Bolstered manufacturing and re-shored supply chains would increase domestic output and productivity, while research and development funding would help the country keep pace with global technological advancement. These areas would also provide jobs in the short-term, while creating new opportunities in high-skill industries.

Getting it built

The American Jobs Plan seeks to invest over $2trn in the next decade, with 1% of GDP per year invested in infrastructure over the next eight years. The Made in America Tax Plan is the complementary funding component of this effort.

The Tax Plan seeks to:

  • Set the corporate tax rate at 28%;
  • Increase the minimum tax on US companies to 21% to avoid multinational US companies receiving an exemption on foreign asset returns;
  • Limit the ability of corporations to use foreign tax havens;
  • Eliminate the ability to deduct offshore expenses;
  • Establish a 15% minimum tax on corporations’ book income.

The American Jobs Plan also seeks to activate the private sector and garner private investment for funding and participation in construction and development. It also includes innovative approaches to reducing costs and removing constraints, including changes to zoning laws, thoughtful removal of red tape, and by favouring companies based in the US and generate revenues in the country.

While the cost is steep, the economic benefits explained in the previous sections could outweigh the tax increases stipulated by the Made in America Tax Plan. Overall, S&P estimates that such a plan could create 2.3 million jobs by 2024 and inject $5.7trn into the economy, raising per-capita income by $2,400 (note this is analysis was done prior to the announcement, but is rooted in the same idea).

US GDP has levelled out at around 2% for the past 20 years, well below the 4% long-term average. Looking to history as an example, the US Interstate Highway System cost $500bn to build. In the years since, the system has returned more than $6 in economic productivity for every $1 it cost. While the American Jobs Plan is expensive, it could prove worthwhile in the short- and long-term.

Getting it passed

Speaker Nancy Pelosi set the ambitious goal of passing the bill through the house by 4 July. Unlike the American Rescue Plan (aka the COVID-19 Stimulus Package), which was an outgrowth of last year’s policy discussions, the infrastructure bill needs to be drafted into law. Passing the bill in July means the Senate isn’t likely to take it up until later in the summer, factoring in recess. This means possible Senate passage likely falls after Labor Day.

We think it is reasonable to expect that more gets added to the core infrastructure component of the plan, rather than it being trimmed down. The more legislative priorities it addresses, the harder it will be for moderate or progressive Democrats to vote no. The bill could be passed through reconciliation or majority, and while moderate Democrats have indicated that they would rather avoid reconciliation, senate majority leader Chuck Schumer has indicated there is room for a second reconciliation bill in 2021.

This article was originally written and published by Global X. The original article, which includes footnotes where readers can find the original source material, can be found here.

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