The investment opportunities in the innovation-led listed satellite and telecommunication infrastructure sectors
| Pages | 223-238 |
| Published date | 02 April 2020 |
| DOI | https://doi.org/10.1108/JPIF-10-2019-0132 |
| Date | 02 April 2020 |
| Author | Muhammad Jufri Marzuki,Graeme Newell |
The investment opportunities in
the innovation-led listed satellite
and telecommunication
infrastructure sectors
Muhammad Jufri Marzuki and Graeme Newell
School of Business, Western Sydney University, Parramatta, Australia
Abstract
Purpose –Communication infrastructure assets present a compelling investment opportunity for investors
interested to tap into the technology-driven and innovation-led infrastructure segments, given the need for
intensified capital deployment to prepare for the future substantial flow in volume and velocityof information.
These communication infrastructure assets exist either in the segments of satellite or telecommunication
infrastructure. This paper intends to empirically assess the performance attributes of listed satellite and
telecommunication infrastructure over January 2000–June 2019. Sub-period performance dynamics of listed
satellite and telecommunication infrastructure in the pre-GFC (January 2000–June 2007) and the post-GFC (July
2009–June 2019) investment horizons are provided.
Design/methodology/approach –Nineteen-year monthly total returns over 2000–2019 were used to
analyse the risk-adjusted performance and portfolio diversification potential of both listed satellite and
telecommunication infrastructure. The mean-variance portfolio optimisation framework using the full period
and post-GFC ex-post returns, risk and correlation coefficient of listed satellite and telecommunication
infrastructure and other financial assets was developed to determine the added-value benefits of listed satellite
and telecommunication infrastructure in an optimised investment framework.
Findings –Listed satellite and telecommunication infrastructure delivered mixed investment performance.
They were highly volatile and there was a significant discount in total return performance against the other
asset classes in the full and pre-GFC periods. However, listed telecommunication infrastructure delivered
stronger performance in the post-GFC period across all performance measures. Listed satellite and
telecommunication infrastructure offered strong diversification benefits for investors across all investment
horizons. Further, the inclusion of listed telecommunication infrastructure in both the full period and post-GFC
mixed-asset investment framework was also empirically justified.
Practical implications –Communication infrastructure assets such as satellite and telecommunication
infrastructure arethe key infrastructure assets to ensure the seamless operation of and interaction with modern
technology going forward. Whilst being a small proportion of the overall infrastructure asset class universe,
the $2.1 trillion progressively expanding listed communication infrastructure sector is having an important
role to stimulate investor capital deployments in high quality and future-proof communication infrastructure
assets. Listed satellite and telecommunication infrastructureassets are an opportunistic investment given their
future growth potential and are seen as a suitable fit for investors with a secular investment profile.
Originality/value –Despite theinfrastructure asset classbeing the focus of growing attention and empirical
analysis,nopreviousstudieshave empiricallyinvestigatedthelistedsatelliteand telecommunicationinfrastructure
sectors.This is thefirst publishedempirical researchanalysis thataims at articulatingthe investmentattributes of
listed satelliteand telecommunicationinfrastructureas a route for exposurein technology-relatedinfrastructure
assets.This research validatesand informs practicalproperty investment decision-makingfor investors seeking
exposurein the increasinglyimportant communicationinfrastructureassets sector.
Keywords Satellite, Telecommunication, Communication, Listed infrastructure, Risk-adjusted performance,
Mixed-asset portfolio
Paper type Research paper
Introduction
Since the start of the digital revolution in the 1970s, referred to as the “4th Industrial
Revolution”, communication infrastructure is having an important role on many aspects and
Satellite and
tele-
communication
infrastructure
223
This paper forms part of a special section “Industrial Infrastructure and Real Estate”, guest edited by
Professor Seow Eng Ong, Associate Professor Chyi Lin Lee.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 6 October 2019
Revised 18 December 2019
Accepted 25 February 2020
Journal of Property Investment &
Finance
Vol. 39 No. 3, 2021
pp. 223-238
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-10-2019-0132
in many areas of today’s age of information, providing a system of conduits for information to
flow (WEF, 2019). The accelerated pace of innovation and transformation in communication
technology has resulted in the growing need for not only reliable but also future-proofed
communication infrastructure to support this structural change in information technology.
By 2022, it is expected that 60% of the global population will be connected to the Internet, of
which more than half will be mobile users connecting at an average speed of 75 megabits per
second (Mbps). This will result in the global monthly data traffic reaching 396 exabytes per
month, with 20% of the volume originating from mobile users (CISCO, 2018). Further,
increased participation in the digital economy has made communication infrastructure an
essential component for the economic productivity throughout the world. These emerging
trends are some of the instances that contribute towards complex “big data”challenges, one
of which is the need to facilitate the massive flow in volume and velocity of information,
thereby necessitating the increased development expenditure to accommodate the future
demand on communication infrastructure.
According to McKinsey (2017), communication infrastructure will require $10.7 trillion in
investment volume over 2017–2035, the third largest segment after power ($20.2 trillion) and
transportation ($18.0 trillion) and account for about 15% of the total global infrastructure
development expenditure over the same period. This is consistent with the growing
investment intensity by public and private institutions in data centres (Marzuki and Newell,
2019) to overcome one of “big data”challenges; that is the increasing demand for data storage
requirements. Modern technologies such as artificial intelligence (AI), Internet of things (IoT)
and cloud computing are becoming mainstream and essential, signifying the capital shift
towards innovation-led technology-focussed infrastructure assets and further presents a
compelling business and investment case for communication infrastructure as the innovative
centrepiece in accommodating this structural impact of technology.
Importantly, satellite and telecommunication infrastructure are the key infrastructure
assets having a significant role in ensuring the seamless operation of and interaction with
modern technology; therefore justifying the continuous investment in these segments in
order to accommodate the surge in both volume and velocity of information going forward.
These drivers provide a strong innovative context going forward for satellite and
telecommunication infrastructure as the driving force for modern technology.
As the role of infrastructureis becoming increasingly significant, it has become the focus
of growing investorattention, which has resulted in the expansion of the listed infrastructure
and unlisted infrastructure spaces, and an increased appetite for infrastructure as a separate
asset class to property(Dechant and Finkenzeller, 2013;Finkenzeller et al.,2010;Newell et al.,
2011).Extensive empirical analysishas been carried out on the general benefits,characteristics
and risk factors of infrastructure (e.g.: Grimsey and Lewis, 2002;Newell and Peng, 2008a;
Page et al.,2008;Torrance, 2009) and financialconsiderationsof infrastructure investment(e.g.:
Dimovski, 2011;Gemson et al.,2012;Panayiotou and Medda, 2014).
A large number of empirical investigations has also assessed the risk-adjusted
performance and portfolio diversification benefits of both listed and non-listed
infrastructure in a portfolio across many countries such as Australia (e.g.: Bird et al., 2014;
Newell et al., 2011;Peng and Newell, 2007), USA (e.g.: Bianchi et al., 2014;Bird et al.,
2014;Martin, 2010;Newell and Peng, 2008b;Wurstbauer and Schafers, 2015), UK (Oyedele,
2014), China (Newell et al., 2009) and India (Singhal et al., 2011), as well as at a European level
(Oyedele et al., 2013) and global level (Oyedele et al., 2014;Rodel and Rothballer, 2012;Sawant,
2010). In the majority of these studies, the value enhancement role of infrastructure in a
multi-asset investment framework was evident. Several studies have also considered direct
property versus infrastructure in a portfolio for listed infrastructure (Bond et al., 2007) and
unlisted infrastructure (Newell and Lee, 2011), with Moss (2014) investigated the investment
feasibility of blending listed and non-listed infrastructure assets. Key factors in this
JPIF
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