Timothy Downs

Switching on Advisors to the Digital Infra Opportunity

July 6

In my humble opinion, one of the biggest challenges facing digital infrastructure businesses as well as funds is to find a way to get to talk to advised clients and their advisors. Institutions by and large understand the space as do many sophisticated private investors, especially the very active ones. But advisors tend to lump these digital assets into an alternative box alongside more traditional infrastructure assets and then treat with some suspicion, the suspicion of the ‘new’.

Yet there are signs that is changing and the example of a recently launched UK fund of funds might offer some useful clues as to what advisors might want from the digital infra sector. Gravis is a successful UK based infrastructure house that has also built up a fund of funds business that sells heavily to advisors. Its idea is simple. All these alternative investment ideas structured as funds (or opcos) are difficult to research for most advisors, so you need someone to build an overlay that finds the right funds (and single businesses) and then assembles them together in an income-oriented fund of funds. Over time its existing infrastructure and listed property equities fund have accumulated pretty big sums of money – as have rival offerings from peers – and now its launched what it thinks over time will be its biggest fund ever: a digital infrastructure equities fund of funds which invests in towers, data centres, fibreoptic networks, logistics warehouses. Or as the manager describes them physical structures, which are all tangible, and all have a bit of concrete poured in them, as well as contractual leases, producing high cashflow predictability.

In this universe, they’ve identified around 120 listed, global digital infrastructure companies although it’s interesting to note that within their definition the number of funds and businesses has doubled in terms of numbers over a decade and has increased more than six-fold in terms of aggregate market cap. More specifically Gravis analysis reveals that this universe has increased in market cap terms from £73.5bn in 2010 to £461.3bn in 2020. As for returns, between 2011 and 2020, returns have averaged c.18.9% per annum with volatility of 15.43%. From this growing universe, the Gravis team led by Matthew Norris has identified 29 businesses and funds for the portfolio which is now live and growing steadily in size.

Graphic : The growth of the digital infrastructure universe

Source: Gravis Capital Management, Ltd, 2021

As you’d expect the big sales pitch is one we’re all familiar with – as Norris observes “we’re living in the fourth industrial revolution” but the first key message from this fund is that it includes a very heavy helping of tech-enabled logistics park operators alongside the more expected tower cos and fibre operators.

According to Norris “If you go back in time, especially in the UK, data centres are actually born on logistic parks.  One of the biggest owners, possibly the biggest owner of data centres in Europe is probably property business Segro, and that data centre is on the Slough trading estate. The Slough trading estate gave birth to Segro 100 years ago and then as good fortune would have it, they found themselves close to London as well as a big fibreoptics cable from the Atlantic plus it helps that there’s access to power.” Segro has its own power station.

It is easy to see why logistics park operators will appeal to professional clients. You have classic property-based assets, with long leases and lashings of technology. As a result, the Gravis fund is exposed 45% to logistics businesses with the remainder in classic digital infra: 25% in data centres, 25% in tower cos and 5% in another bucket that includes fibreoptic networks and battery storage.

The next big lesson is that Gravis, like many advisers I’ve talked to, likes tower cos and are overweight exposure to this sector compared to their universe weights. Norris echoes those who’ve called these businesses “the best business ever”.  He likes the fact that the steel towers being put up last 25/50 years, and that according to one of the tower co operator’s maintenance capex on each is just 900 dollars per tower per year – “it’s a great asset, long-life asset”. And there’s also the increasingly obvious densification drive coming out of 5G especially in the US “where you have carrier neutral towers and the mobile network operators go to the tower codes and put their dishes on.  We are likely to see co-tenancy on towers, so competing operators on the same tower- that’s great news for the owner of the tower.

The next useful insight is that the digital infra space needs to be more vocal about its intrinsic valuation strengths as an equity asset class and not run scared of those who argue the sector is overpriced and a bond proxy. On the multiples question, Norris points to businesses that have contractual cashflows, are earning steady money, paying dividends, and increasing those dividends on average between 2 and 3%. Unlike say classic property REITs , which produce higher yields, the digital infrastructure space has very obvious drivers of huge growth “over many, many sequential years, so what you might have to sacrifice in yield you should make up for in terms of dividend growth. “

As for the cacophony of voices that say these assets are bond proxies and will falter as interest rates pick up, Gravis reminds us that these are not in fact anything remotely like fixed-income assets. “We’re talking about growth income here,” observes Norris “and there are two types of growth that you get from owning a data centre and a tower co. One is your contractual rental growth.  And then the second growth element is actually releasing up more space, growing the rental income, by hanging another dish on the same tower.  So, my response would be I hear what you say but this is not fixed income, this is growth income, plus market growth.”

I also sometimes detect another variation on the bond proxy argument which is that although there are obvious growth opportunities, most digital assets do not have explicit inflation protection, unlike say classic public-private partnership infrastructure assets. It’s a fair observation but I’ve always felt it is a misguided one. Sure, there may not always be explicit CPI agreements in place but as Norris reminds us “as long as the income can grow in line or faster than inflation then it’s going to be inflation proofed. With tower cos and data centres their top line should be rising faster than inflation just because of the growth characteristics and their cost base should be rising at or below inflation, you should see some level of operating leverage coming through.  So, I think those two sub-sections will perform very well.”

My own hunch is that these characteristics of the asset class are, in reality, fairly well understood but there’s another risk that is I think less so. Security.

I’ve visited more than my fair share of data centres and towers over the years and the first question I always ask is a security-related one. Cybersecurity tops many lists but in reality, that’s actually more of a risk for the tenant rather than the physical infrastructure owner. But physical security is very much a concern for everyone, especially the real asset owner. And here Norris at Gravis spies an opportunity, rather than a risk.

“I think that creates a barrier to entry, I think that’s why you and I wouldn’t be very successful at setting that kind of business up because you have to have a track record of building very secure, reliable centres. The ones that I’ve visited, especially the ones that have government servers in them, they literally do have those bollards around the centre to prevent terrorist attacks and when you enter the data centre you go in through one of those man trap scales that weigh you on the way in and weighs you on the way out.  So, absolutely, security is an issue but also it creates a competitive advantage.  If you are an established player in the market, you have the reputation. “

This brings us to the last key insight – ESG. I see it topping more and more financial professionals lists of concerns, and not always for the right reasons. ESG has become akin to a gateway drug that encourages all sorts of slightly inchoate concerns, mostly but not always based around energy efficiency.  According to Norris “we have done a lot of research on this and, it’s much more efficient to have servers in a data centre, in a bespoke environment. Here at Gravis, we still have a server in the corner of our kitchen.  That’s bonkers.  That’s not the right environment to have it, so we waste energy cooling that server in the corner of a kitchen.  If all businesses like ours put their servers into dedicated data centres, less power would be used…..  I think there’s more work to be done proving the point that the place for your server is a data centre because you’ll use less energy”.

This I think is a key message. Rather than focus all the attention on digital infrastructure operators own ESG policies – important though they are – also try and remind investors of their own obligations, their own inefficiencies that make the problem much worse!

Neuberger Berman Next Generation Connectivity Fund Announces $1.5 Billion Initial Public Offering

Source: PR Newswire

NEW YORKMay 26, 2021 /PRNewswire/ — Neuberger Berman Next Generation Connectivity Fund Inc. (the “Fund”), a newly organized closed-end fund, announced today the initial public offering of its shares of common stock. The Fund began trading today on the NYSE under the symbol “NBXG.” The Fund has raised $1.5 billion in proceeds, agreeing to sell 75,000,000 shares of common stock at a price of $20.00 per share.  In addition, the Fund has granted the underwriters an option to purchase up to 10,766,733 additional shares of common stock at the public offering price. If the underwriters exercise their option to buy additional shares in full, which may or may not occur, the Fund will have raised approximately $1.715 billion.  The offering is expected to close on May 28, 2021, subject to customary closing conditions.

“We believe the development and deployment of the digital infrastructure that will serve as the backbone for new technologies presents an enormous investment opportunity. The fifth generation (5G) and future generations of mobile networks , and their unique ability to enable device-to-device communication, has the potential to unlock tremendous commercial opportunities, including the expanding use of autonomous vehicles, increasing the productivity and automation of factories, and improving connected health care, such as remote care and surgery,” said Hari Ramanan, CIO, Neuberger Berman Research Funds, and one of the Fund’s portfolio managers.

In pursuit of its investment objectives of capital appreciation and income, the Fund will invest, under normal market conditions, at least 80% of its total assets in equity securities issued by U.S. and non-U.S. companies, in any market capitalization range, that are relevant to the theme of investing in “NextGen Companies.” The Fund considers “NextGen Companies” to be companies that, in its adviser’s view, demonstrate significant growth potential from the development, advancement, use or sale of products, processes or services related to the fifth generation (5G) mobile network and future generations of mobile network connectivity and technology.  The Fund’s adviser is Neuberger Berman Investment Adviser LLC and the adviser’s experienced investment team, located in the U.S. and Asia, manage over $10 billion in next generation connectivity assets, including the proceeds of this offering.

About Neuberger Berman

Neuberger Berman, founded in 1939, is a private, independent, employee-owned investment manager. The firm manages a range of strategies—including equity, fixed income, quantitative and multi-asset class, private equity, real estate and hedge funds—on behalf of institutions, advisors and individual investors globally. With offices in 25 countries, Neuberger Berman’s diverse team has over 2,300 professionals. For seven consecutive years, the company has been named first or second in Pensions & Investments Best Places to Work in Money Management survey (among those with 1,000 employees or more). In 2020, the PRI named Neuberger Berman a Leader, a designation awarded to fewer than 1% of investment firms for excellence in Environmental, Social and Governance (ESG) practices. The PRI also awarded Neuberger Berman an A+ in every eligible category for our approach to ESG integration across asset classes. The firm manages $402 billion in client assets as of March 31, 2021. For more information, please visit our website at www.nb.com.

AT&T: When you are in a hole, stop digging

I took a break from this column last week as I think I was a bit of deer in headlights as I digested the big AT&T news.  It almost was personal to me as I vividly remember when AT&T’s CFO announced during a conference at my prior firm that its Time Warner deal was being reviewed by the DoJ.  After he exited the stage that day, there were literally 100+ arbitrage investors that surrounded him (think of a rugby scrum…that is what it looked like!).  Then after that day a hard painful approximately seven months followed until the deal finally closed in 2018.  So my shock and awe when I saw the WSJ story hit that AT&T was reversing course was real.

But now a week out, I have what I think AT&T also  does….strategic clarity.  I understand for AT&T investors, employees, and probably several layers of management, that this is a painful time.  But there is an expression:  “When you are in a hole…stop digging.”  John Stankey put down the shovel.

Of course, much can be said and written about how AT&T could not compete with Netflix’s content budget, DTV was a mess, and that their trouble all started when they did not get T-Mobile deal done in 2011…but that is all rear view mirror stuff.  What happened last Monday was significant because AT&T (some would say finally) is going back to its roots and is now focused on  its pipes.  These (broadband and wireless) pipes were getting rusty.  But now they have the capital to put toward  scraping this rust off.    With a sole focus on fiber expansion (30 million homes by 2025) and 5G and smaller dividend shackles, this could get really interesting.

One thing to me that was noteworthy in listening to all the talking heads on this deal was the discussion about Comcast.  There was a lot of “Can Brian Roberts let this happen?” talk-about.  I mention this because I think most are missing a very obvious point.  If you are Roberts, you may not only be sore because you missed a media asset.  But you may have to have a heart-to-heart conversation with your Board that your broadband competition will  be getting a lot more fierce, and this broadband business is the heart of Comcast’s core profitability.   This is also true for Charter.

Altice can be separated from the conversation given its front-footed approach to fiber.  For Comcast specifically,  NBC and amusement parks are nice and all, but the broadband pipe contributes to  the majority of  its free cash flow.   With Monday’s announcement, AT&T said it plans to grow its fiber connected homes to almost 50 percent of their footprint and will be building out more homes / year than it has in the last 10.   Where AT&T has fiber, it succeeds (check their earnings supplemental if you doubt this).   What AT&T did Monday was simplify.  It used to be a company full of spinning plates – 5G, HBO, legacy Turner, Broadband, Enterprise, etc.  Going forward it won’t be anymore and that is a very good thing.  But others may be…..

In my first six weeks at my new job I have learned much from the international team here.   One of these learnings I did not appreciate as a domestic-only focused analyst in my prior life was that the Europe telecom operators who woke up to fiber gained share from cable.    The same trend is happening in Canada (Bell Canada gaining share from Rogers, etc).    The breadcrumbs for the telecom fiber-love were there before AT&T’s big announcement.  Look at what Frontier, Windstream, Consolidated, etc have all been saying and doing.  It was almost hiding in plain sight, but AT&T’s move is shining the light directly on it.   If one steps back and thinks about this, AT&T’s move may be  a much bigger issue for some of the cable players than a good media asset passing them by.


Digital Colony acquires Landmark Dividend for $972 million

Source: DataCenter Dynamics

Infrastructure investment firm Digital Colony has announced plans to acquire Landmark Dividend LLC.

Affiliates of Digital Colony this week entered into a definitive agreement to acquire the real estate and infrastructure acquisition and development company, including its Landmark Infrastructure Partners LP subsidiary, for $972 million.

“The acquisition of Landmark Dividend is our first strategic step to secure a stronger future for Landmark Dividend and its various affiliated entities, including Landmark Infrastructure Partners,” said Steven M. Sonnenstein, senior managing director at Digital Colony.

“We look forward to working with the Landmark Dividend team to advance our shared mission of acquiring and managing critical digital infrastructure assets that deliver quick, reliable and responsive service for customers.”

The deal is expected to close in the coming weeks. TAP Advisors, Simpson Thacher & Bartlett LLP, RBC Capital Markets, Latham & Watkins LLP, and Regions Securities LLC assisted in the transaction.

“As a recognized leader in the digital infrastructure space with a proven track record, we believe the Digital Colony team’s expertise is crucial to advancing our strategy in today’s rapidly evolving market,” said Tim Brazy, Landmark Dividend CEO. “We are confident this acquisition by Digital Colony will position us to accelerate our pursuit of strategic consolidation in our fragmented industry and drive growth over the long-term.”

Digital Colony, Colony Capital’s digital infrastructure investment arm, recently raised $4.1 billion for its second fund.

Landmark Dividend’s most recent data center deal saw it acquire a third data center from Chirisa Investments in March.

The company and its affiliates have acquired 17 data center assets in the last 12 months in deals totaling more than $400 million.

The importance of connectivity-rich data centers to 5G

Equinix (EQIX) recently published its third annual Global Tech Trends Survey (GTTS).  This survey gathers views and insights from 2,600 IT enterprise decision makers in 26 countries across EQIX’s three regions (Americas, Asia-Pacific and EMEA).  It never disappoints!  Given its strong connectivity reach, one could argue that more than any company, Equinix has the most ‘tangible touchpoint’ as to how enterprises are viewing the digital infrastructure space and their future needs.

While this report had many take-aways and learnings, the three most interesting data points in my view were as follows:

  1. Virtual Is Way Of Future– More than half (57%) of companies still plan to expand infrastructure but more importantly, almost two-thirds (63%) of them plan to achieve this virtually rather than investing in physical IT infrastructure.    In reading this stat, it  reminds me of what AT&T once said: ‘we are moving from a hardware company to a software one….vendors that support this will be with us…ones that do not will not be along for the ride’.
  2. The Clouds Will Continue to Get ‘Puffier’  Almost 60% of respondents are planning to invest in technology to make their businesses more agile post-COVID.   While this is not surprising – how much they are bear hugging the cloud to increase this agility is.  Specifically, 68% of enterprise respondents said plan to move more functions to the cloud.  So that runway is still very long.   Put another way, if you are a data center or fiber company, the cloud most definitely will continue to be your friend, not foe.
  3. 5G – The New “Frenemy”? –  This was the point most interesting to me.  50% of the respondents agreed that 5G will have the biggest impact in getting them  access to new technologies, but in the same breath, over one-third are nervous they will need to  “rearchitect infrastructure” to do it.   In some ways this is somewhat contradictory  to point # 1 above. Based on their answer above,  there is a realization by enterprises there is a  need to spend.  However, unlike IT infrastructure (which can bend more virtual), it is hard to get around any 5G infrastructure without a lot of physical hardware behind it.  Virtualization in 5G is happening, but you need a whole lot of physical infrastructure to get there.

It is all ol’ chicken and egg discussion with 5G: Build it and it will come, but it won’t come until it is built.   Those enterprises that sit out on this spending run significant risks of being part of the ‘left behind’.  We think most realize it and if you are a company leveraged to this space (towers, small cell, DAS owners, private network players, edge compute, etc) the roaring 20s may be just beginning!

While we know an author is always biased toward their own work, those companies which are at the center of these themes are the connectivity-rich data center entities.  Equinix and Digital Realty top this list.  A perhaps overused line in the wake of COVID has been “companies need to make a digital pivot.”  Of course this is true.  But there are layers underneath this ‘digital pivot’ that should not be ignored.  While the loud sucking sound of the cloud has been appreciated for a while, the impact of 5G on data centers has not.

In word searching the last EQIX Q1’21 earnings conference call, it is interesting to note that while the word ‘cloud’ came up 18 times, the phrase ‘5G’ came up only once.   Dollars to donuts (to quote my 75 year old mother!) that mention goes up big time this time next year.

Gravis launches digital infrastructure fund

Gravis Advisory Limited, a subsidiary of infrastructure and real estate investment specialist Gravis Capital Management Limited, has launched the VT Gravis Digital Infrastructure Income Fund (‘the Fund’) the firm’s fourth OEIC and a unique addition to its existing range.

The Fund will be managed by Gravis’ Director of Real Estate Securities, Matthew Norris and will invest in companies which own physical infrastructure assets vital to the digital economy, including data centres, telecom towers, fibre optic cable companies, logistics warehouses, and the digitalisation of transportation.

In line with the existing Gravis range, the new fund is expected to deliver capital growth by investing through market cycles in global listed securities including real estate investment trusts, equities, and bonds. It will target an annual dividend yield of 3 per cent.

Norris says: “The growth of the digital economy has moved rapidly in recent years and it now underpins huge swathes of our lives. What is taking place, largely out of the public eye, should be regarded as the fourth industrial revolution. It is almost impossible to function effectively, either in a private or business capacity, without access to the connected digital world, and the digitalisation of society is transforming the face of traditional sectors of the economy. To support the explosion in demand for connectivity, physical infrastructure assets are required, and behind the headlines a vast new infrastructure sector has been developing to support and sustain the new digital economy. The global pandemic has only hastened the transition to a digital economy, in some areas accelerating growth by five years versus expectations.”

William MacLeod, Managing Director of Gravis Advisory Limited, says: “We’re thrilled to be launching our fourth Gravis OEIC, investing in a vital but largely unrecognised sector of the global economy, and one which is growing at an extraordinary pace. We intend to invest in the companies that form not just the backbone, but the entire skeleton of our day-to-day business and home lives. The infrastructure which supports the digital world has become absolutely critical to us all, ensuring we are able to keep operating smoothly and efficiently, wherever we are.”

The Fund will launch with an offer period which will run from 4–31 May 2021, with the Fund officially launching on the 31 May 2021.

Source: PropertyFundsWorld.com

Diamond Communications to Acquire Melody Wireless Infrastructure For $1.625B

Diamond Communications LLC and Sculptor Capital Management, Inc. (NYSE: SCU) yesterday announced that they have entered into a definitive Stock Purchase Agreement to acquire Melody Wireless Infrastructure, Inc.(MWI). MWI is a private U.S. REIT that owns a portfolio of approximately 2,300 tenanted wireless communication sites. These sites include a combination of rooftop installations, communication towers and ground leases under communication towers located throughout the U.S. in all fifty states.

Steven Orbuch, President of Sculptor Real Estate (SRE), Diamond’s long-time partner and founding shareholder, said, “We are excited to be continuing our 15-year relationship with Diamond, investing in the wireless infrastructure sector, and we commend the Melody team on the quality of the assets that they have assembled.”

“Melody has built a great company with a diverse group of assets,” said Ed Farscht, Diamond’s Chief Executive Officer. “This transaction is transformational for our business and will further solidify Diamond’s position as one of the largest privately held wireless infrastructure companies in the United States. The Melody assets complement Diamond’s existing portfolio and positions Diamond to drive long-term organic growth and significantly enhance our customer relationships. We are also excited to build on our relationship with Sculptor, which has supported Diamond from our founding in 2006.”

Omar Jaffrey, a co-founder of Melody, who led Melody’s efforts, said, “I am pleased that we have found a great home with Diamond and Sculptor for an exceptional pool of wireless infrastructure assets and business that we built over seven years while delivering great value for our investors.”

The closing of the transaction is subject to customary closing conditions and is expected to be consummated by June 2021. The purchase price is for $1.625 billion, subject to certain adjustments and other conditions of the Stock Purchase Agreement.

Source: InsideTowers.com

$40 billion in Capital Expenditures. In 3 months?

Amazon’s  Q1’21 earnings report came out this past week.  While I was never a technology analyst, there was no question this print was VERY good all around.  But the number that REALLY jumped out to this old telecom analyst was in their FCF (Free Cash Flow) Reconciliation slide (slide 16 of their earning’s presenation) which outlined their “Purchase of Property & Equipment, Net of Proceeds from Sales & Incentives.”  In perusing this slide, I most definitely did a double take.  Why?  Because it said in this category, Amazon spent $40B in  Q1’21….yes – $40B in capital expenditures –  in  3 months.  To put this in perspective, this is 2.6x more than the $15.4B it spent in Q1’20.

But more importantly in reading this stat, it jogged my memory to a press release put out by AT&T on 11/8/2017.  The release was saying that AT&T would invest an additional $1B if the Competitive Tax Rate was enacted in the US.  In making its case, AT&T argued that it “Since 2012, AT&T has investment more in the US than any other public company.”  Like all carefully worded press releases, there was the all-important footnote.  The footnote noted that between 2012-2016 AT&T’s total investment in the  US, including acquisition of spectrum (never cheap!) and wireless operations, was $135B.

So going back to the earnings from Amazon this past week, consider this: the $40B Amazon spent in 90 DAYS was 30 percent of all the capital which AT&T spent in four years (or 1460 days).    While I recognize that Amazon is spending on different things than AT&T (mostly in the form of data centers vs. spectrum), one has to take a moment of reflection of how much has actually changed in the past 3.5 years.

I remember sitting on panels and one of my ‘talking points’ was that AT&T spent more capex than any US entity, second only to the US government.  And guess who was right behind them?  You guessed it…Verizon.  Now, fast forward three years…times most definitely are a changin’!

In my new job, I have spent the past month reconnecting with some of my favorite management teams and contacts.  In beginning one of those conversations, one of my smartest contacts saying: “Jen, did you think you would come back to the industry and see Microsoft and Amazon emerging as the largest telecom companies?!”  While they don’t have broadband pipes and spectrum in their tool kits, they certainly have the spending power and deep (deeeeeppppp) pockets to spend to create connectivity either through their own spending or partnerships.

On its recent Q1’21 call, Microsoft did not back away from this view.  Specifically noting: “…whether it’s on the hybrid infrastructure or the multi-cloud, multi-edge world, which I believe is going to be the world 10 years from now, we are very well-positioned. We have led in it, we currently lead in it, and we plan to continue that.

We have written before that the lines between the Communication Infrastructure silos are indeed blurring.  But maybe this ‘blurring’  it is a much bigger theme than just the infrastructure space and may apply to the carriers and tech players themselves.  If so, five years from now history will show that that quote from my very smart contact was quite clairvoyant!



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.


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.


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.