Core at the heart of the fourth utility

PFI Yearbook
16 min read
Americas, Asia

Digital infrastructure consists of the physical network of data centres, terrestrial fibre, towers, wireless spectrum, submarine cable systems, and concomitant equipment, hardware, and software that enables the internet and telecommunications globally. Because of the centrality of the internet and telecommunications to the global economy and to society as a whole, Digital infrastructure – which has evolved considerably over the last decade – is now commonly referred to as the fourth utility. By Kemal Hawa, co-chair, digital infrastructure, data centre and cloud computing, Greenberg Traurig.

This centrality was underscored during the recent Covid-19 pandemic. Although the pandemic took a tragic human and economic toll, large swaths of the economy and society were sustained due, in large part, to the strength of digital infrastructure. Remote working enabled broad segments of the economy to continue to run seamlessly, and remote learning allowed education to continue. In addition, digital infrastructure helped maintain society by enabling record levels of social media usage, streaming video, and gaming for entertainment, as well as basic telecommunications.

The advent of new technologies has resulted in a dramatic proliferation in demand for digital infrastructure – most notably the migration to cloud computing and the advent of the Internet of Things (IoT), big data analytics, 5G, and artificial intelligence. It should be noted that the need for digital infrastructure deployment was already great for millions of people throughout the world, to close the so-called digital divide, the gap between those who have access to modern day communications and those who do not.

The foregoing leads to one fundamental question – given the dramatic growth in demand for digital infrastructure that is projected globally, how will digital infrastructure projects be financed? These projects are capital-intensive in the extreme, and the size and scale of such projects are increasing exponentially each year.

Proliferation of demand

The applications and services that comprise the internet are growing each day. Much of society accesses news, media, and other content via the internet. Social media, streaming video, and online gaming usage have dramatically proliferated. And most modern-day telephony is provided via the internet, whether it be the use of video conferencing to conduct meetings or the use of internet telephony for basic communications. As this content grows, accommodating its storage and retrieval is increasingly an issue. As a result, such content is increasingly housed in data centres – whether it be in the form of retail co-location or through the use of a cloud computing provider.

The evolution of information technology (IT) systems provides a good illustration of the migration of content to data centres. IT systems consist of the full panoply of applications, systems, services, and content that serve as the technological back-office of an enterprise’s operations – ranging from payroll, billing, and customer support software operations to basic document and email storage and retrieval (among many others).

Historically, most businesses housed their IT operations on premises. As a result of the dramatic growth of such IT operations, enterprises have – on an accelerated basis – migrated such operations to data centres. Such migration most commonly takes one of two forms. First, the enterprise may contract directly with a data centre operator, in which case the racks, servers, software, and other equipment that house the enterprise’s IT operations will be co-located in a data centre, but the enterprise will continue to play a material role in the functional management and operation of such systems. Second, an enterprise may migrate its IT operations to the cloud. In such an arrangement, the enterprise will contract with a cloud service provider – most notably the hyperscalers – which will provide all of the necessary computing power to accommodate the enterprise customer’s operations and make such operations available on demand to the enterprise user – typically via the internet.

In short, because of the dramatic growth of content, business and society as a whole are rapidly migrating such content to data centres. At the same time, the advent of new technologies – most notably artificial intelligence, big data analytics, and IoT – have resulted in unprecedented levels of demand for data centre capacity.

Data centres, however, do not exist in isolation. Rather, they are a core part of a global ecosystem of “digital infrastructure” that enables communications worldwide. In direct proportion to the growth in data centre capacity is the heightened need for terrestrial broadband fibre networks that support the transmission and routing of the content housed in data centres, as well as the need for submarine cable capacity to transmit such content between continents. Since internet applications and content are increasingly accessed via mobile devices, the need for more towers increases, as does the need for mobile broadband networks to accommodate the associated content that is transmitted. At the same time, the need for equipment, hardware, and software and their various component parts, such as GPUs, is also proliferating.

And this proliferation of demand is occurring all in the midst of an exceedingly challenging macro-economic climate marked by war, pandemic, climate change, inflation, and rising interest rates, among other challenges – all of which are combining to cause significant global supply chain shortages. In the case of digital infrastructure, the most critical input is global power availability – and virtually every major Tier-1 market in the world, ranging from Northern Virginia and Silicon Valley in the United States to the so-called FLAP-D markets in Europe (Frankfurt, London, Amsterdam, Paris and Dublin) – are facing severe power constraints.

Global power and permitting

Although the Tier-1 markets face power supply and distribution limitations, the general consensus is that distribution poses the greater challenge. Current data centre projects are expansive in scope, with campuses ranging from 100MW to 500MW of capacity. This generally has involved the construction of a new substation and the concomitant electrical power distribution facilities needed to transit such power to the data centre campus.

The construction of such electrical distribution facilities, as well as back-up power sources such as diesel-fuel generators and battery back-up, generally require governmental permits and authorisations. These are in addition to the land use and zoning permits traditionally required of data centre construction and operation.

The lag times associated with obtaining such permits can be significant, which can often cause stress on a project’s timely completion. This lag time was most pronounced during Covid, when many permitting offices were closed. Although a broader discussion of this topic is outside of the scope of this article, the key takeaway is this: global challenges require global solutions. And if digital infrastructure is so critical to society and the global economy that it is regarded as the fourth utility, governmental authorities at all levels – international, national, provincial, state, and municipal – will play a critical role in facilitating the timely and economic deployment of digital infrastructure projects, whether it be through uniform and streamlined permitting processes, or compliance with ESG requirements (discussed in greater detail below).


Having discussed the dramatic current and projected proliferation in growth of the digital infrastructure sector, the key question that arises pertains to how these projects will get financed. Digital infrastructure projects are capital-intensive; some of the larger current data centre campuses will cost hundreds of millions of dollars to complete.

* From nascent ascent class to the fourth utility – It is important to keep in mind the historical perspective in considering modern day digital infrastructure financings. Digital infrastructure is a relatively newly coined phrase – precursors of the term date back only to the 1990s – and similarly, digital infrastructure is a relatively new asset class. Indeed, until recently – perhaps the last 20 years – digital infrastructure was not financed as infrastructure at all, but rather, since it existed in some form for many years as a part of telecommunications networks and later as part of the internet backbone, digital infrastructure was financed as telecommunications, technology, or retail services, among other things.

Digital infrastructure has evolved to say the least. As stated above, in a relatively brief time-span, digital infrastructure emerged from being a nascent asset class to an asset class that is viewed in almost utility-esque terms. As such, it is now being financed as core or core-plus infrastructure.

This evolution is particularly notable given the fact that although digital infrastructure shares many of the characteristics of traditional infrastructure, there are many notable differences. Traditional infrastructure financings involve asset classes marked by long-term contracts, predictable and reliable revenue streams, and high barriers to entry, or at least some degree of insulation from competitive market forces.

At times, the digital infrastructure industry utilises long-term contracts – especially in the case of tower sitings and large data centre developments – but often term of key anchor contracts is three to five years. Moreover, the digital infrastructure industry is highly competitive, and unlike, for example, an oil pipeline, there is often no guarantee of predictable, certain revenue streams. In addition, digital infrastructure is operationally intense and complex – with stringent service level agreements – as opposed to traditional infrastructure projects where it is uncommon to make such commitments to downstream customers.

* Financing digital infrastructure projects today – Even the largest digital infrastructure providers are seeking alternative and creative structures to access capital in today’s environment, as a result of three major factors. The first is the sheer magnitude of today’s projects – again, some of the larger data centre projects under way will cost hundreds of millions of dollars to construct. The second is the imminent need for digital infrastructure globally. Whether it be data centres or towers or fibre, the need for digital infrastructure is global and immediate – thus most providers are undertaking numerous projects simultaneously to meet worldwide demand. The third is the rising cost of capital – specifically the rising cost of debt.

Digital infrastructure providers have utilised various financing mechanisms to meet these challenges. Financial sponsors have committed enormous amounts of capital to their portfolio companies. Digital infrastructure companies have entered into joint ventures with other companies and with financial sponsors to finance various projects – whether it be on a market, regional, or country basis. Companies in the sector have engaged in equity recapitalisations to strengthen their capital structure to meet the challenges of today’s environment. And asset-backed securitisations are increasingly being used to lower an enterprise’s cost of capital.

Because of the centrality of digital infrastructure to the global economy, the financial sponsors participating in such financing arrangements have not been limited to traditional private equity, infrastructure, and real estate investment funds. Rather, the sector has seen an influx of capital from a variety of non-traditional sources, including pension funds, insurance companies, endowments, large asset managers, and sovereign wealth funds.

Key issue in financings

Digital infrastructure financings are predicated on one core factor: the strength of the anchor tenant or customer contract, for example, a data centre operator’s anchor tenant lease, or a tower company’s multi-year, multi-location antenna siting contract with a mobile network operator.

One of the core benefits of such contracts is that the tenants/customers – such as the hyperscaler tenants/customers of a data centre – are some of the largest companies in the world with the highest credit ratings and the strongest financial wherewithal (these entities often construct and operate their own digital infrastructure as well).

Because digital infrastructure is, generally speaking, mission-critical infrastructure, these tenants/customers seek contractual certainty surrounding the availability and reliability of the digital infrastructure they procure. As a result, digital infrastructure operators must walk a fine line between offering their customers the contractual certainty they require while ensuring that such contracts are financeable paper.

Although a detailed discussion of the contractual provisions that financeability hinges upon is outside the scope of this article, key issues include the following: penalties for service level failures; landlord termination rights; tenant termination rights for late delivery, for chronic service level failure, for late delivery and for default; restrictions on assignment and changes of control (for both the provider and the tenant/customer); limitations of liability and indemnification obligations; parent guarantee requirements; and step-in rights, among others.

A careful, market-based strategy is necessary to approach such contractual provisions to ensure that sponsors and lenders will finance a project on favourable terms.

Legal and regulatory

Because digital infrastructure is mission-critical infrastructure that involves the transmission and routing of global content and data, the entire industry unfolds against the backdrop of significant laws and regulations, including the following: privacy and data security laws, which govern the manner in which information is handled, particularly personal information; data sovereignty laws, which govern the geographic location in which data is stored, which can also affect a digital infrastructure operator’s network architecture; and environmental, social, and governance (ESG) laws and regulations – which require that digital infrastructure projects meet new environmental and energy efficiency standards.

In addition, because of the sensitivity of content, many countries impose foreign ownership restrictions over digital infrastructure assets, an issue that must be carefully navigated, especially since many of the world’s largest financial sponsors invest globally. Finally, various national security regulations govern the industry in virtually every jurisdiction. Indeed, for particularly sensitive digital infrastructure deployments, eg, submarine cable landing stations, the owner/operator of such landing stations must enter into national security agreements in many instances that require, among other things, cooperation with the government.


In sum, digital infrastructure operators are in the midst of a highly competitive worldwide race to deploy digital infrastructure globally, and they are doing so against the backdrop of a highly challenging macro-economic environment. Those digital infrastructure providers that are most able to successfully navigate the challenges discussed in this article will be the enterprises that are able to raise capital on favourable terms, and be best positioned to meet their contractual commitments. In other words, they will be most likely to win the global race.

Photo 47341516 © Suchatsi |

To see the digital version of this report, please click here.

To purchase printed copies or a PDF of this report, please email