Massive Investments in Digital Infrastructure and
Implications for Future Leaders

These bandwidth- and processor-hungry applications have simply outstripped the legacy infrastructure and created a new gold rush for investors (i.e., private equity funds, sovereign wealth funds, Infrastructure funds). These investors understand that first mover advantage matters and scale of infrastructure can create winning market share positions which could conceivably last multiple generations (much like the Carnegies, Rockefellers, and Flaglers) who were early investors in railroads across the United States in the 1800s.

Digital Infrastructure Defined

Digital infrastructure is not simply hardware. While fiber, networking equipment, computer servers and storage are all essential elements of digital infrastructure, the software elements are vitally important to support rapid innovation and scalability. Those elements of digital infrastructure are as follows:

Data Centers

The impact of AI on compute needs has multiple dimensions.  First, AI workloads require substantial compute power to train and run deep learning models, which require data centers to be equipped with high performance hardware such as GPUs (Graphics Processor Units) and TPUs (Tensor Processing Units).  Second, Generative AI models, such as Chat GPT and other large language models, require massive amounts of data, necessitating expansion of storage systems in data centers.  Third, AI is used to detect and mitigate cybersecurity threats and to ensure data integrity and protection, so data centers are investing in cybersecurity capabilities. Additionally, the need for high reliability data centers has spurred investments in greater network capacity as each data center needs redundant routes to eliminate any single point of failure. Some data center competitors cater to hyperscalers with needs to deploy their solutions in captive sites. Other data center competitors prefer a “retail” model where a single data center can house 5-10-100 tenants in a shared model.

Fiber Services

Fiber services have exploded with an array of different business modes including B2C (residential), B2B (business) and MDU. Dark fiber business models also exist as well as metro, regional and long-haul business models.  The initial premise to replace the aging lower-bandwidth cable HFC infrastructure with high-speed fiber sounded simple. However, increased labor costs, complex permitting, delays on government subsidies and increased competition from multiple fiber overbuilders in a single metro area have strained targeted returns on investment.

Towers & 5G Small Cells

The 4G buildout was completed with macrocells and coverage and data usage exploded. 5G promises even greater wireless data bandwidth, but the cost to acquire new spectrum and cost to deploy higher density small cells to support 5G is straining the balance sheets of telecom carriers. 5G is still waiting for that killer app to monetize the continued investment.

Indoor Wireless

5G promises increased bandwidth over 4G, but shorter propagation distances mean inhouse wireless coverage will become more problematic. A variety of indoor wireless solutions including DAS, private LTE and CBRS promise improved indoor wireless coverage. Historically, most indoor networks and services were carrier funded but now building owners are left responsible for funding critical projects and investing in infrastructure.  So, without carrier funding, third party vendors are working with building owners to offer unique business models to install and maintain indoor wireless infrastructure.

Outside Plant Engineering & Construction Services

Deployment of all this digital infrastructure (data centers, fiber services, towers, indoor wireless) is complex. The integration of technology elements into a working solution is an obvious challenge. What is less obvious are non-technology challenges involved with understaffed municipal permitting offices, the push for new fiber builds to go underground, identifying best routes to manage costs, skilled work force, utility locating services, capital structure and the need to secure utility power years in advance when billions of dollars of capital are near to being committed. Aerial construction is attractive because it is less expensive than underground fiber routes, but owners of poles for pole attachment permits want the fiber operator to pay to replace and upgrade the pole in order to secure the attachment rights.

Leadership Implications for Digital Infrastructure

Financial Acumen Required for Massive Investments

Most legacy telecom service providers operated in near-monopoly regional markets so investments could often be passed on to their customers. In today’s unregulated, hyper-competitive environment, a solid business case is needed with sensitivity analysis to be prepared for unwanted contingencies. With billions of dollars being invested, you can’t “make it up with volume” and hope to satisfy investors.

Strategic Vision and Courage to Choose a Value Proposition

The CEO and board of directors are ultimately responsible for the decision on a value proposition that delivers an acceptable return to investors. But the choice of that value proposition is critical. The CEO needs to understand the business models available in a given digital infrastructure segment, choose one and maintain visibility of forward-looking indicators (flagship customers, technology trends, competitive moves) to made mid-course correction to maintain a viable value proposition.

Operational Intensity

Most any company can acquire individual technology components from the same set of vendors at affordable prices. What matters is that an organization has discipline around the operational metrics needed for success. Most digital infrastructure players are not technology innovators but deploy capital efficiently and quickly and reduce the risks related to design, construction, and operations.

Cross-Functional Collaboration

Leaders of digital infrastructure companies talk frequently about the hundreds of cross-functional issues which much be addressed successfully to complete a given project. An executive without the DNA for collaboration and the ability to anticipate problems across functional boundaries could create massive problems for the organization.

Risk Management

Threats to the massive investments in digital infrastructure can come from many directions. Regulatory compliance, power consumption, environmental impact, social impacts, technology advances, could all have massive consequences if organizational structures are not put in place to address these issues early.

Leadership & Learning Agility

Legacy telecom, data center and cloud services executives are approaching retirement, and a new wave of talent is needed to build the new generation of digital infrastructure. These new leaders may not have the background of legacy technical skills but must be assessed to determine if they possess the needed learning agility and capacity for larger leadership roles. Equally important is the need to assess disruptive new technologies (i.e. fixed wireless, Gen AI,) that could either help or hurt existing business models.