Arjun Infrastructure on scaling digital infrastructure with precision and discipline

As an essential and increasingly established investment sector, European digital infrastructure offers clear opportunities for mid-market, core-plus capital, explains Arjun Infrastructure’s Rohini Pahwa.

The explosion in global data consumption and digital innovation has brought digital assets, including fibre networks and data centres, firmly into the remit of long-term infrastructure investors. As those segments have developed, more assets have matured and moved down the risk spectrum, offering attractive entry points for mid-market, core-plus managers.

European digital infrastructure presents a strong field of opportunities for investors seeking stabilised assets that combine yield with well-managed growth potential. However, it is essential to maintain a rigorous approach, focus on the strong infrastructure characteristics that mitigate risks, and understand the market dynamics and regulatory backdrops that vary across Europe, says Rohini Pahwa, a partner at Arjun Infrastructure.

How has digital infrastructure evolved as an investment sector?

Digital infrastructure has evolved multi-fold over the last decade. Fibre connectivity and data centre subsectors have seen significant growth from a build-out standpoint. Ten years ago, digital infrastructure wasn’t considered a mainstream sector. But the increased need for fast, reliable connectivity, driven by shifts in consumer behaviours (perpetuated by covid-19), internet traffic and automation of workloads, has led to an astronomic growth in data demand and consumption.

There was a clear need for investment to address the demand-supply imbalance. If you consider connectivity, we previously relied on copper or cable networks across Europe. In some cases, there had been no real upgrade to these century-old networks. At the same time, in the aftermath of the GFC, banks, governments and corporate telco balance sheets were very constrained.

The first litmus test for any asset to qualify as infrastructure is whether it offers an essential service to society. In the case of digital, the answer is clearly yes. Covid helped make that point even more strongly. Global traffic (both mobile and fixed) has grown around 25 percent in the last 15 years and is expected to grow 48 percent in the next five years. Connectivity networks, and indeed any digital assets related to data consumption, today have the characteristics of traditional, essential infrastructure.

There are also similar dynamics in data centres and towers – probably the most traditional form of infrastructure of the three – as data demand and consumption rise. Favourable tailwinds such as demand for high-speed connectivity and accelerated/targeted copper decommissioning by 2030 or earlier, combined with access to physical infrastructure and a proven wholesale model, make the investment case very palatable for core-plus infrastructure investors.

How do opportunities across Europe vary?

Europe is a heterogeneous market for digital infrastructure. Each country has a different market structure and regulatory framework, and this plays into the strong fundamentals that some of the countries display. Ours is core-plus infrastructure capital, which means we look for downside protection alongside cash yield and a return for investors. When analysing different opportunities, we focus on countries that provide the strong infrastructure characteristics we want.

We look for high barriers to entry, which in the case of fibre basically means a monopoly eliminating the risk of overbuilding your network. In France, for instance, we invested in Altitude Infra, a leading owner-operator of wholesale fibre broadband businesses.

The country has a particularly unique regulatory framework, allowing local authorities to delegate FTTH network construction operation and commercialisation in specific regions under long-term contracts in medium- and low-density (PIN) areas, thereby providing high barriers to entry and no overbuild risk. This underpinning makes fibre networks the only option available to telecoms operators, who then buy capacity on the network and resell to the end customer. This is a particularly unique model that certain countries are trying to replicate.

The second essential characteristic is long-term contracts with ISPs and O&M providers. France, Spain and Portugal have well-proven wholesale models, meaning that you get 20-year-plus contracts with counterparties. One of the problems in the UK and Germany has been the lack of those contracts because there’s no established wholesale model. This has put pressure on the operators to build an integrated retail arm, and commercialise and market the network, thereby straining the fixed cost base.

The third piece is the unit economics. How quickly can you recover euros invested from the top line or the end customer? This comes back to take-up and what’s driving it. Spain, for instance, is an extremely competitive market with cost to build out fibre as low as €150/home passed in urban areas, and average revenue per user (ARPU) as low as circa €20/month, driving high take-up at circa 90 percent.

The UK and Germany, on the other hand, have lagged behind due to high roll-out costs, especially in the latter, where lack of ducts, access to physical infrastructure and poor civil engineering, coupled with constraints on construction capacity, have resulted in costs per premise passed as high as circa €2,000/home. This has translated into higher ARPU, around 2x in Germany versus France, which has an impact on demand dynamics. The situation has been further exasperated with high interest rates and inflation.

Where is the entry point for mid-market investors with a core-plus profile?

The answer depends largely on which subsector we’re discussing. More generally, for a core-plus investor focused on downside protection and looking for upside returns, entering an asset with a proven track record – which is a market leader within its industry and offers scale – works well.

Ultimately, infrastructure is a people business, so partnering with teams with deep-rooted experience and quality management teams is crucial. You want to invest in management teams with proven track records of building out and managing assets, as well as securing contracts with the end customers.

When you’re building out networks, what matters most is your relationship with local municipalities and mayors. This is because you want to get permits in a timely fashion, without delaying capex or spending more than you anticipated. Securing contracts requires strong personal networks and relationships with counterparties.

For example, on Altitude Infra, our French fibre investment, we partnered with the Rivière family, one of the most successful telecoms entrepreneur families in France, and the Altitude management team, led at the time by David Elfassy. For Onivia, the entire management team has a rich telecoms experience in Spain, including the CEO, Jose Antonio Vazquez Blanco, who has worked at Orange and Euskaltel, and brings the right local network with regional and national operators. Our most recent investment in Data4 StableCo has a top-class management team led by CEO Olivier Micheli, who worked at NTT, with the management team coming from Google, Orange, Oracle and the likes.

What about mid-market opportunities in data centres?

Just the sheer imbalance of demand and supply in data storage has highlighted the need for data centre build-out. That in turn has created a space for investors of small-, mid- and large-cap to participate in that opportunity across the value chain.

Very simply, there are three different types of data centre – large hyperscale data centres, co-location data centres for multiple clients, and edge data centres closer to end users.

Then, depending on where the data centre sits in its development life cycle, you could have a very early-stage project where you still have to secure land, a grid connection and contracts. Or you could have a highly stabilised data centre where you have all the contracts and it’s cash-yielding, but growth opportunities are limited. Somewhere in the middle is the stabilised data centre, where you have long-term contracts, land and power, but they’re scalable platforms.

As a mid-market investor, we see opportunities across the spectrum but we always bring it back to key underlying infrastructure characteristics. Our investment thesis was exactly based on that when we invested in Data4 StableCo, a leading European hyperscale platform across Paris, Milan and Madrid. The investment is underpinned by no construction risk (land and power fully secured), a long-term O&M contract and contracts with investment-grade counterparties in large hyperscale customers. All campuses are strategically located within 20km from city centres and two milliseconds of fibre latency.

The partnership with a world-class operator in Data4 offers opportunities to scale further, neatly fits into the core-plus segment, and offers attractive cash yield with the potential to outperform base case returns.

We also see increasing demand for co-location data centres, where you provide power, shelter and other equipment for a range of business clients. The credit quality of counterparties can still be strong, but contracts are more likely to be three to five years than the typical 10 years of the hyperscalers.

The biggest mistake is to apply a broad brush. With co-location data centres, it is really important to know the mix of tenants, the quality of counterparties, their financial strength and how sticky they’ll be.

How concerned should investors be about the potential for overbuilding in data centres?

The FLAPD markets (Frankfurt, London, Amsterdam, Paris and Dublin), where data centre construction has been most concentrated, face a lot of pressure on land and power. In Amsterdam, it can take roughly seven years to connect to the grid. That means supply will take a lot of time to catch up with demand. There’s still demand-supply imbalance, with an estimated $6.0 trillion investment needed until 2030 globally, mainly driven by AI.

In Europe, physical constraints such as power, land, and grid capacity, coupled with structural features like regulation around build and environment and permitting processes, act as natural limitations to overbuilding.

Amid inflationary pressures and high cost of capital, a few identifiable risks need to be understood – how much of the development is funded by debt; is it backed by secured contracts as opposed to speculative build, which drives the top line; and how immune is the platform to power price volatility as witnessed recently? There are some parallels and lessons to be learned from fibre build-out.

What are the main risks investors face?

Going into a stabilised data centre platform, one of the key diligence items for us is the contract renewal and conviction in that. Europe is a relatively young market and so far we haven’t seen many contracts come up for renewal – or, in other words, how the counterparties would behave in practice at that point. You also need to be very careful around your lease contracts. What protections do you have as a data centre owner-operator should the contracts be terminated? What is the cost and how do you recover value from these contracts? And do you have another customer who can step into those vacancies? To mitigate that, location is extremely important and so are relationships with these customers.

We diligence these pieces very heavily. You must also consider the costs that you can pass through to customers. For instance, as demonstrated by the Iran war, are you protected from rising energy costs?

Extract from Infrastructure Investor June 2026 magazine