U.S. Digital Infrastructure Market Offers Opportunity in 2025: Key Insights from Metro Connect USA

Ropes & Gray participated in Metro Connect USA, the largest digital infrastructure conference in the United States. Leaders from every sector of the U.S. digital infrastructure market gathered in Fort Lauderdale, Florida, on February 24–26. From fiber optics to data centers, the major industry takeaway is that the sector is active, growing and continuously innovating. Here are some key insights we’d like to share coming out of the conference.

Top Market and Dealmaking Takeaways

• Deal environment in digital infrastructure is increasingly positive. Deal activity in digital infrastructure is expected to increase, including for control transactions, as both investors and strategics continue to be focused on the sector and deal market conditions improve. We have also continued to see alternative structures, including joint ventures, equity and debt investments, allow a wide range of investors to participate in digital infrastructure assets across the capital stack. Some recent examples include: KKR’s joint venture with T-Mobile to acquire Metronet, expected to close in 2025; a recent investment by Morgan Stanley Infrastructure Partners in Flexential, in which we advised the company and its investor GI Partners; and last year’s investment in Blue Stream Fiber, which we also assisted on. 
• Fragmentation in fiber will drive M&A activity. Particularly in residential fiber, fragmentation offers a massive consolidation opportunity for larger platforms and infrastructure-focused funds. Increased scale, in turn, allows access to a broader range of financing options, such as ABS structures, to fund required capital expenditures and fuel further growth. 
• Volume of debt financing will continue to grow in the sector. The need for capital expenditures in digital infrastructure is unprecedented. Both private credit and the securitization market will play an important role in meeting this unprecedented capital need, as seen in Frontier Communications’ $2.1 billion fiber broadband securitization financing that we assisted with on behalf of Frontier. 

Data Centers

• Demand for data centers continues unabated, with some emerging headwinds. Participants were uniformly bullish that we will continue to see a massive deployment of capital into the data center space, while also acknowledging emerging headwinds. These include uncertainty as to whether Javon’s paradox—the theory that with increased efficiency comes increased demand—will hold if efficiency gains in the industry lessen the need for massive hyperscale campuses. In addition, there are questions as to how the roll-out of AI-based applications and the shift to inference will impact the location and sizing of data centers. 
• Power remains the biggest issue facing the industry. Power in traditional tier-one markets is rapidly becoming unavailable, forcing data center providers to locate in secondary and tertiary markets. This issue has ripple effects throughout the digital infrastructure ecosystem (e.g., compute following power, fiber following compute). While there is continued optimism that “behind the meter” and renewable solutions can play a role in meeting the energy demand, the general sentiment is that the ability to access grid power and traditional power sources remains vital for data center development given power and redundancy demands. 
• Lenders are more focused than ever on looking through underwriting. Given the unique mix of extreme demand and forward-looking uncertainty, lenders are increasing their focusing on underwriting customer credit, which is requiring more disclosure of customer contracts in the historically confidentiality-obsessed industry. Hyperscalers and premier sponsors are still receiving a degree of deference from lenders, especially in tier-one markets, but the expectation is that disclosure of material terms of customer contracts to lenders will become more prevalent.
• Market players are focused on efficiency of capital structures. Given the scale of demand and the state of capital markets, key players and investors are focusing on the best use of their capital. This is why we are seeing headline-grabbing equity JVs and more creative JV structures, such as bifurcated structures that separate real estate from operations so that different investor bases with different return profiles can invest in the same platform. Private credit also continues to play a big role in the current capital environment. The IPO markets, when available, will be a natural exit ramp for many of the larger, privately owned data center platforms, especially given the spread between private market and public market valuations.
• Data center market is diverse, but there is upsizing across all market segments. Market participants expect significant growth in specific industry verticals, including medical (hospital campuses), banking, manufacturing and retail. While hyperscale campuses have monopolized headlines recently, participants stressed that the enterprise data center market remains robust and growing. Participants discussed the importance of offering customers flexible platforms, tailored to individual compute needs. With legacy data centers having limited or no ability to support AI rack density requirements, more specialization within the data center industry is anticipated, with data center platforms targeting specific sub-sectors of the enterprise market based on differing compute needs and physical capabilities of data centers.

Fiber

• The fiber map is expanding to meet data center needs. Data centers are now being built in more remote locations to be closer to power supplies, which requires new fiber build-outs for data transmission back to primary markets and population centers. These build-outs take time, as they involve state and local permitting processes. In some places, fiber is also approaching its end of useful life and will require replacement as part of these build-outs. The build-outs could benefit from efficiency of utilizing the same trenches for both fiber and other utilities, but different investor bases for fiber and other utilities have been a barrier to that type of colocation to date. 
• Areas of growth continue to include fiber to the home (FTTH) and middle-mile and long-haul fiber. Key competitive factors for fiber build outs are speed to completion and certainty that the project will be completed in time. 
• Consolidation in the fiber market. Similar to the consolidation in towers, wireless and cable, the fiber market will consolidate to a smaller number of players. Before considering a deal, determine who the ultimate buyer will be, as antitrust laws may be implicated. 

Tower and Wireless

• Wireless expected to see more activity. Though wireless has been quieter in recent years, we are likely to see increased activity.
• The future remains mobile. With spectrum becoming less and less available, network densification will drive demand. While there is some discussion within the industry of synergy of colocation of towers with Edge Compute, this may not come to fruition, as towers are a stable, non-speculative business and there are concerns around distraction from core competency and efficiency of credit. 
• There is an influx of smaller market participants. End users are finding smaller platforms attractive compared to “big 3” public companies because they are more nimble than larger platforms and view themselves more in the customer service business than the landlord business. 
• Satellite-based systems are not true competitors. Instead, satellite-based systems are viewed more as a network supplement. 

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