Marc Perusat: The Role of Infrastructure Funds FTTH Council Europe “Investor Day 2013” – 19 February 2013

The key question

Can Infrastructure Funds be legitimate equity backers of fibre operators?

2

Energy,  36%

Utilities,  18%

Transport,  23%

Waste  Management,  

2%

Telecoms,  6%

S ocial,  15%

Infrastructure Funds: Presence in the communications sector?

3

While the Infrastructure Funds market is large, the communications sector only accounts for a small proportion of their overall investments

Investments made by Infrastructure Funds by sector

Sources: Towers Watson Global Alternatives Survery 2012, Preqin

Less than 1% of all infrastructure fund investments have been in fibre

$80 billion of dry powder in Infrastructure

Funds

$266 billion in assets under management

globally across Infrastructure

Funds

Infrastructure Funds: Their ideal business

4

Producer Consumer

Unique Infrastructure

The ideal infrastructure business is typified by stable and predictable cashflows

Dividends ─  Steady

─  Predictable

Returns on Capital ─  Regulated

Revenues ─  Availability based

─  Inflation indexed

Contracts ─  Long Term

Gas, Water etc.

Communications Infrastructure: A Complex Picture

5

Content Production Consumer

Mobile Tower Infrastructure

Distribution

TV Broadcast & Broadband Infrastructure

TV Broadcast Infrastructure

Satellite

Terrestrial

Fibre Backbone & Local Loop

Cable

Mobile Phone Towers

Spectrum

Spectrum

INTERNET

Mobile Operators

ISPs

TV Radio Broadcasters

Technology Risk

6

Technology is expensive

Technology is substitutable

Returns are not typically regulated

Payback on capital project varies considerably

Infrastructure Funds prefer to invest in

“passive infrastructure”

Technology risk is a key issue for Infrastructure Funds

Infrastructure Funds: A moving feast

7

Substitutability

Cost

DSL Vectoring

DVB-T (Broadcast

TV) Fibre?

LTE

Infrastructure Funds want low capex requirements and a low risk of substitution in their investments

Unattractive to infrastructure

investors

Attractive to infrastructure

investors

Fibre: The ideal communications infrastructure?

8

High barriers to entry

“Best in class” Technology

─  Limited substitution risk for the next 100 years

─ Connection into each household and business

─ Best conduit for triple play (voice, video, data)

─ Unlimited bandwidth

─ Speed of light

Attractive fixed asset base

─  Tangible fixed asset

─  Limited maintenance costs

─  Long depreciation life

Fibre exhibits many ideal infrastructure characteristics

What would make Infrastructure Funds invest in fibre?

9

Fibre network is built ─  Limits construction risk

─  Infrastructure funds need tangible fixed assets from day 1

Network is unique ─  Limited appetite for competition or

substitution risk

─  Is this realistic at local, national or international level?

Demand is known ─  Infra Funds preference for predictable

revenues based on long term contracts with credit-worthy customers

─  Availability fees preferable to traffic-dependent revenues

Investment size is manageable ─  Availability of capital from

Infrastructure Funds will be a limiting factor

─  Consortia of Infrastructure Funds are possible

Several conditions are needed for Infrastructure Funds to invest in fibre

Investment returns are predictable

─  Regulatory framework is stable and transparent

What is the right footprint for Infra Funds?

10

Infrastructure Local opportunity may be more palatable and manageable for most infrastructure investors

Footprint

Issues

Infra Funds Sweetspot

International National Regional Local

─  Unregulated

─  Overcapacity

─  Very competitive

─  Many fibre networks

─  Competitive ─  Competition from incumbent / cable

Scope for EU to regulate development of unique fibre infrastructure (incumbent backed or not?)

Opportunities for fibre investment in

2nd tier cities

10%

30%

What capital is available to fibre operators?

11

Infrastructure

Equity

Debt

Life cycle

Greenfield Funds

PE / “Core Plus” Funds

Infrastructure Funds

Banks

Construction companies

Banks Banks

Bonds

Funds

Different stages of an infrastructure project require different sources of funding

Target Equity IRR

Construction Marketing Operational

Infrastructure Funds as Owners

12

─ Long term investment approach

─ “Lower” cost of capital

─ Community friendly investors

─ Communications sector expertise

─ Active investor in and out of the boardroom

Infrastructure Funds could provide many benefits as fibre investors

Conclusions

13

─ Infrastructure Funds are natural owners of truly unique fibre networks

─ ... But not yet

─ Infrastructure Funds need two things

─ Further education on fibre as an investment opportunity

─ Comfort in the regulatory framework

─ Fibre operators need to rely on other sources of capital to build the networks and secure demand