Monday, 18 November 2019

Digital infrastructure is the key to new business in the German market

By Chris Kelly, Total Telecom
Wednesday 23 October 19

In the run up to the Connected Germany event in Frankfurt next month, we caught up with Steffen Leiwesmeier, head of financing digital infrastructure, Hamburg Commercial Bank AG

Tell us a little about the role of HCOB in Germany’s connectivity market  Hamburg Commercial Bank was the first German bank to finance an optic fiber project in Germany in 2014: this was Deutsche Glasfaser. They were pretty small back then but very smart from scratch. We started with just a little tranche together with a consortium of three Dutch banks. Today our digital infrastructure portfolio totals 1 billion euros. This has grown enormously in a very short time.    What are the key trends you are noticing developing in the market at the moment? …

Tell us a little about the role of HCOB in Germany’s connectivity market 

Hamburg Commercial Bank was the first German bank to finance an optic fiber project in Germany in 2014: this was Deutsche Glasfaser. They were pretty small back then but very smart from scratch. We started with just a little tranche together with a consortium of three Dutch banks. Today our digital infrastructure portfolio totals 1 billion euros. This has grown enormously in a very short time. 

 

What are the key trends you are noticing developing in the market at the moment? 

Digital infrastructure is the most important component for new business in our area. Network expansion, FTTH network expansion, financing of bridge technology, FTTC, and above all data centers. Hyperscaler data centers, there are 30 worldwide, but up to 3000 are needed. This shows the huge potential here. This does not include the Tier2 and Tier3 data centres, which are also important for German medium-sized businesses/midcaps. 

  

What changes are you noticing in the market? 

We have accompanied our customers through their growth. We've all noticed that the volume has multiplied. Our advantage is that we have identified the market at an early stage, that we understand the risks that exist. The financing model has established itself. We were the pioneers here, now there are many banks in this sector. We also exchange ideas with the other banks and want others to come in because it is such an interesting market. The topic Origination to distribute (OTD) is also interesting for us. And over the years we taught a lot of banks and made them feel comfortable with this sector. 

We are also the first mover to include promotional loans from development banks such as KfW and Rentenbank in the financing. We have concentrated on smaller SMEs and accompanied their growth path. The new KfW promotional programme for digital infrastructure also incorporates much of our experience. 

We are now seeing the first major purchases on the market, affecting our clients. EQT bought inexio, KKR bought Hyperoptic. This underlines the fact that the business model has established itself and that there is a great deal of potential in it. We also see this independently of the economic development or recession, which are gathering. This benefits everyone, from small businesses in the area to large companies. it's interdependent. 

  

What predictions do you have for the market over the next 12-18 months? 

The next 18 months will be thrilling: In terms of growth, I am expecting  that public incentives towards fibre-based technologies will accelerate FTTH growth throughout Europe. In the long run some of the incumbents will be migrating from copper-based and cable-based architectures to full-fibre solutions in the coming years (e.g. BT in UK ). Certainly, these substantial investments will be a key enabler of growth. 

In terms of business, what we observed so far, that the delayed responses by incumbents have led to increased investment in alternative FTTH operators. But the incumbents will strike back and will start to accelerate the network builds (such as in UK). 

In Germany we will see more agreements to deploy FTTH services between private players, utilities companies and local authorities with the aim to generate a convergent portfolio where different services can be provided using the same infrastructure (telecom services, smart cities solutions and utilities). 

In general, based on recent announcements, 5G will be a key factor for the promotion of fibre deployments and therefore, it will boost investments from public and private players. 

Evolution from previous years have showed that cable-based and copper-based ISPs have started to diversify its core technologies towards fibre. Certainly, many of these players have implemented full fibre solutions and it can be appreciated that FTTH services are now part of its service portfolio. 

HCOB continues to have big goals here. We accompany our customers throughout Europe, in the UK, despite Brexit, Spain, Portugal, Ireland and Austria. We are also looking at Scandinavia and pitching for several structuring mandates across Europe. I believe we are all excited in this sector about moving forward together in the right direction. 

 

Connected Germany will bring together the key stakeholders from Germany's mobile and fixed line connectivity sectors. Click here for a full agenda and to find out how you can be a part of the show.  

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