Infrastructure REITs Are Helping to Build Digitally Connected Communities

27 October 2019

Infrastructure REITs play an integral role in shaping our communities by providing the backbone for new technology to take hold and connect us in ways barely imagined just a few years ago.

Like the rest of the REIT industry, infrastructure REITs encompass a range of specialties, but the primary purpose of those supporting the digital economy lies in cell towers, small cell technology, fiber connectivity, and data center platforms. By developing essential infrastructure, these REITs are helping to provide benefits as diverse as improved digital literacy in remote areas, access to telehealth and other online health services, and remote energy usage monitoring—to highlight just a few examples.

“Telecommunications infrastructure is at the intersection of real estate and digital technology as it helps to drive innovation and expand access to mobile broadband for communities, both urban and rural,” says Mneesha Nahata, vice president, corporate legal finance and risk management for Boston-based tower REIT American Tower Corp(NYSE: AMT). American Tower is the world’s largest REIT and a leading global owner, operator, and developer of wireless and broadcast communications real estate. She notes that the combination of real estate and digital technology will bring about “positive change on a global scale and meaningfully contribute to the sustainable development of digital connectivity worldwide.”

Maintaining world-class communications infrastructure is a requirement for success for both urban and rural communities in a rapidly changing global economy. Similar to railroads, highways, and airports generations ago, cutting edge communications infrastructure is what modern communities and countries need to stay competitive.

“In all communities, today’s businesses increasingly rely on wireless connectivity to stay competitive,” says Bob Ackerman, senior vice president and COO at Houston-based tower REIT Crown Castle International Corp(NYSE: CCI). Crown Castle is the largest provider of shared communications infrastructure in the U.S. “Small cell and fiber technology will enable the connectivity that is essential to providing our businesses with the access they need—whether it’s accepting payments on a mobile card reader, completing a sale on the go, or reaching consumers.”

Chris Sharp, CTO of Digital Realty (NYSE: DLR), a San Francisco-based data center REIT, expects the adoption of 5G-enabled sensors and devices to help urban communities become smarter cities through data and analytics.  

“The movement of people, things, and data should all become more efficient,” he says. “As a greater share of the population migrates to dense, urban environments, achieving smart-city capabilities will likely become mission-critical for many major metropolitan areas.”

The Next Generation

With the advent of fifth-generation (5G) wireless network systems, the benefits that accrue to communities from infrastructure REITs are likely to increase proportionally. 5G deployment will immediately improve the performance of current wireless services by providing higher access speeds, lower latency (less delay in processing data messages), and more system capacity.

5G is a platform for innovations that will not only enhance today’s mobile broadband services but will also expand mobile networks to support a vast array of devices and services and connect new industries with improved performance, efficiency, and cost.

The transition to this next generation is expected to be a lengthy—and likely uneven—process. Service providers will determine where to deploy 5G first, with the decision largely based on areas currently served by legacy 4G LTE networks, but experiencing capacity issues.  As with previous generations, it will take time to realize the true breadth of innovation capable of 5G networks. A typical network technology cycle lasts 15 to 20 years, with multiple network technologies in use simultaneously. As a result, 4G will coexist with 5G for a number of years, with 5G gradually taking overshare as it develops.

A recent Accenture report projected 5G wireless technology will see significant economic and community benefits, noting that this next generation of wireless technology is expected to create 3 million new jobs and boost annual GDP by $500 billion. It’s believed that by 2035, 5G will enable $12.3 trillion of global economic output and support 22 million jobs.

According to Nokia, 5G will support a 100-fold increase in network speed. 5G will also empower new user experiences like virtual reality, augmented reality, and will enable the ecosystem of connected objects—cars, machines, sensors, and other devices. 

Infrastructure REITs Are Helping to Build Digitally Connected Communities 1
5G Capabilities vs. 4G

While the potential benefits of 5G for new forms of data usage may appear limitless, those in the industry stress that there is a long lead time before these features are fully realized as it will take time to build out the necessary architecture across the country. 

For example, data centers will be tasked with significantly increasing computing capacity while vastly improving the speed at which that data is processed. Digital Realty is currently collaborating with other industry leaders within the communications infrastructure landscape to make sure its business is prepared for widespread adoption.  

Sharp says Digital Realty, which has more than 2,300 customers worldwide, is currently testing various architectures and workload performances throughout its footprint to better understand the market opportunities and 5G requirements for data centers to best position itself to either partner or prudently allocate capital. 

“We think the first wave of 5G infrastructure will be designed to accomplish two things. First, network functions will be virtualized and centralized to enable broader distribution. The next step will be to distribute infrastructure to handle the step-function growth in bandwidth that 5G will enable,” Sharp says.

Digital Realty expects the benefits of 5G to come in two primary forms: handling an explosion in the number of connected devices, and ultra-low latency.

 “Everyone from local governments to auto manufacturers to factory operators is deploying sensors in just about every imaginable type of device and machine,” Sharp says. “Existing 4G networks weren’t designed to support that many devices and all this device traffic can slow communications down so much the devices become almost unusable.”  

The REITs Helping to House Our Connected World
The REITs Helping to House Our Connected World

The low latency enabled by 5G will permit people to communicate with devices in real time, while devices will become smarter. Cars will be able to make real-time decisions with the help of core infrastructure and by communicating with the cars and other devices around them, like street lights, or even the roads themselves.  

“In a nutshell, 5G has the potential to solve current last-mile constraints, enabling users to unlock new, distributed workflows,” Sharp says. “Traffic lights and cross-walks will be able to change based on real-time conditions, businesses will be able to hire locally but operate remotely, and people will be able to automate the mundane, so they can focus on what really matters to them.”

Ultimately, communities will become more efficient—for residents, for businesses, and for the government.  

Positive Community Impact

Crown Castle’s Ackerman says that just like previous wireless infrastructure before it, 5G will have significant, positive economic impacts on communities, and will bring improvements to public safety, smart city technology, health care, entertainment, and more.

Ackerman points to research suggesting that smart community solutions, enabled by 5G and applied to the management of vehicle traffic and electrical grids, could produce $160 billion in benefits and savings through reductions in energy usage, traffic congestion, and fuel costs.

“Wireless networks and connectivity play a key role in emergency medical situations. For example, when stroke victims are connected to hospital staff by videoconference during the ambulance ride to the hospital, they can get admitted faster and get access to blood clot medicine more quickly, which will reduce brain cell loss,” Ackerman says.

Jonathan Schildkraut, chief strategy officer at Dallas-based data center REIT CyrusOne (Nasdaq: CONE), says because wireless requires so much less capital as a last-mile connection to the customer, it will likely offer a level of network performance that many residential and business locations would not otherwise be able to access. 

“In general, greater connectivity supports greater economic opportunity,” he says. “But, the speeds and capabilities from 5G will also open up the opportunity for new business models whose demands for communication into and out of the network core were not possible under early network iterations.”

American Tower’s Nahata says that the potential for 5G technology is extensive and still has not been fully realized given the early stages of the rollout. “The 5G buzz has created excitement about its capabilities such as telehealth, self-driving cars, and augmented virtual reality applications.  Most significant will be the tremendous number of opportunities that open up to businesses small and large, new and old, as this next-generation wireless network is built out across the country.” 

Telecommunications infrastructure will be the backbone of the 5G network. The expanded capacity of 5G will provide millions of jobs and support innovation by businesses and communities for years to come, she adds.

“Many people see 5G as the next transformative technology that will change lives,” Ackerman says. “Deploying 5G is not only exciting for consumers and businesses—it will be essential to catapult today’s industry; maintain America’s leadership in technology and telecommunications innovation; and protect our national security.”

Benefits To Urban and Rural Communities

The roll-out of the next generation will help bridge the digital divide and close the technology gap that many rural communities experience. This development may also bring business to rural areas, as better network access will allow companies to take advantage of the cost savings of cheaper land and labor in rural communities.  

“The response has largely been favorable, and anticipation has been the name of the game,” Sharp says. “Local communities see the many benefits next-generation technology will bring, but they also are aware of the potential drawbacks. The growth in bandwidth that will enable wireless broadband will create competition and new opportunities that should benefit local populations.” 

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