Digital infrastructure value creation – what’s next?

Value creation wave 1: The recent trend of telecom companies, especially mobile network operators (MNOs), carving-out their TowerCos kicked-off the first wave of financial value creation for digital infrastructure assets. This wave was characterized by a series of spin-offs and private equity investments that were focused on creating additional value for infrastructure assets by improving their financing situation and raising additional capital. Telecom companies capitalized on the value of their infrastructure assets by spinning them off into independent entities, often attracting significant private equity investment. These spin-offs allowed companies to unlock capital and focus on core business areas, while the newly formed entities could optimize their operations and pursue growth.

Moving forward – hypothesis for wave 2: As the first wave of value creation focused on financial restructuring and capital inflows, the second wave is expected to emphasize growth and operational excellence. This next phase will aim to optimize asset performance, drive sustainable growth, and leverage new technological opportunities. Companies will need to adopt a more strategic approach, focusing on both expanding revenue streams and enhancing operational efficiency.

2. Value creation for digital infrastructure assets – wave 2

Lever 1: Growth & sales excellence
The first lever in the second wave of value creation will focus on growth, with digital infrastructure companies exploring various strategies to expand their revenue streams and enhance market reach.

• Horizontal expansion: One approach to driving growth is through horizontal expansion, which involves diversifying revenue streams by leasing infrastructure to non-mobile network operator companies and maximize utilization. For instance, TowerCos can lease space to broadcasters, emergency services, IoT companies, and other sectors that require reliable communication infrastructure. By doing so, these companies can tap into new customer segments, reduce dependence on traditional telecom customers, and enhance asset utilization. An example for this horizontal expansion was a major TowerCo that diversified its customer base by leasing space on its towers to smart city initiatives. These partnerships enabled the TowerCo to provide infrastructure for smart lighting, surveillance, and environmental monitoring, thereby expanding its revenue streams and aligning with urban development trends.
• Vertical expansion: Another strategy for growth is vertical expansion, which involves introducing new services, products and technologies to existing and new customers. Digital infrastructure companies can insource active network layers to provide connectivity-as-a-service or offer Platform-as-a-Service (PaaS). With deep integration they can combine offerings to Everything-as-a-Service (XaaS) solutions consisting of comprehensive packages that include connectivity, data analytics, and cloud integration. Additionally, deploying small cells and Distributed Antenna Systems (DAS) can enhance network coverage and capacity, particularly in urban areas and large venues. The ongoing roll-out of 5G networks presents significant opportunities for vertical expansion, as it requires denser and more advanced infrastructure.
• Offering customization: As customer demands specialize, digital infrastructure companies need to offer a higher degree of customization. This can include offering customized solutions, such as tailored connectivity packages for different industries, or developing new tailored services that leverage the capabilities of advanced infrastructure. For example, TowerCos could offer advanced analytics and monitoring services that help customers optimize their network performance. Data centers could provide enhanced security and compliance features to meet the needs of industries with strict regulatory requirements.
• Strategic partnerships: To accelerate innovation, forming strategic partnerships with technology companies, service providers, and other stakeholders can additionally enhance the value proposition of digital infrastructure companies. These partnerships can lead to the development of new products and services, improved operational capabilities, and access to new markets. By collaborating with other players in the ecosystem, digital infrastructure companies can create more integrated and comprehensive solutions for their customers. A potential strategic partnership could be a TowerCo partnering with a technology firm to develop IoT solutions for smart cities, which could provide not only the infrastructure but also the software and analytics tools needed to manage smart city applications. This comprehensive offering would enhance the TowerCo's value proposition and position it as a key enabler of smart city development.

Lever 2: Efficiency & operational excellence
The second lever, operational excellence, is critical to sustain profitability and enhancing asset value in the digital infrastructure sector. Companies must focus on optimizing their operations, reducing costs, and improving asset performance.

• Energy efficiency: Energy costs are a major component of operational expenses for digital infrastructure companies. Implementing energy-efficient technologies and optimizing energy procurement can lead to substantial cost savings. For example, installing photovoltaic (PV) systems combined with Battery Energy Storage Systems (BESS) can reduce reliance on grid electricity, lower energy costs, and contribute to sustainability goals. These measures are particularly relevant as energy prices continue to fluctuate and environmental regulations become stricter.
• Future ready operating model and efficient organizational structure: By centralizing cost-relevant departments, organizational structures can be streamlined, and internal efficiencies and economies of scale can be realized. This can be the first step to build a future ready operating model. Further steps can include leveraging advanced technologies such as AI and automation to optimize network rollout, streamline site acquisition, and enhance infrastructure efficiency. Additionally, implementing robust lifecycle management practices will help extend asset longevity, reduce operational costs, and ensure scalability to meet future demands.
• Predictive maintenance and digital twins: Another critical area for operational efficiency is predictive maintenance. By using digital twins – virtual replicas of physical assets – companies can monitor the condition of their infrastructure in real-time and predict when maintenance is needed. This approach allows for proactive maintenance, reducing downtime, minimizing service disruptions, and extending the lifespan of assets. Automation of maintenance processes can further streamline operations, reducing manual errors and optimizing workforce deployment. An exemplary case was a leading data center operator that implemented digital twin technology and saw a significant reduction in downtime and maintenance costs. By predicting potential failures before they occurred, the company was able to schedule maintenance activities more effectively, improving asset reliability and customer satisfaction.

Figure 2: Vertical expansion and horizontal expansion (wholesale)

3. Summary

The next wave of value creation in digital infrastructure is not just an opportunity – it's an imperative. Companies that act now will capture the growth and efficiency gains that others will miss, setting themselves apart in a rapidly evolving industry. By seizing this moment, digital infrastructure companies can unleash new potential, secure a commanding competitive edge, and drive exceptional returns for investors. In an industry that rewards bold moves, the time to lead with strategic focus, innovation, and excellence is now.

Authors:
Serge Hoffmann, Managing Director (Email)
Dr. Nima Ahmadi, Partner
Philip Scherbaum, Consultant
Marlin Schmidt, Associate Consultant