#124 CommsDay Summit panel: Building Australia's digital infrastructure

Music. And welcome to the show. Today, we're going to be revisiting a panel session from Comms Day Summit earlier this month.

This was a panel session looking at the issues around the construction of Australia's digital infrastructure, particularly with the view to making it AI ready. The panel featured Brookfield Global Data Center CEO, Uday Mathielagan, IberConnect CEO Mark Rafferty, Equinix Australia MD Guy Danskin, NextDC Chief Operating Officer Simon Cooper and the MC, Steve Kinane from the ABC. So this panel is going to be all about building Australia's digital infrastructure.

The panel will examine the forces reshaping digital infrastructure investment across Australia and New Zealand. We'll begin by exploring how macroeconomic pressures are impacting build decisions and capital flows. We'll then turn to AI. Then the panel will also tackle concerns around overbuild and capital discipline in the data centre market.

And we're also going to discuss the biggest barriers to project delivery and then move on to the policy settings needed to secure Australia's digital infrastructure future. So I'm first of all going to get each of the panellists to introduce themselves. Good afternoon, final session of the two days. Amazing room. Mark Rufferty, CEO of Faber Connects. Oh, thank you. Good afternoon. Thank you for the invite. My name is Simon Cooper. I'm the COO at NextDC.

Good afternoon. My name is Uday Mathialgan. I'm managing partner at Brookfield, and I'm also the CEO of our global data center platform. I'm Simon Debron Goydansk and managing director at Ecranks, and I commend you all for being in the room at 4.30 on the last day of the conference. So well done. Okay. So the first one we're going to tackle is how are macroeconomic disruptions? And by that, I'm including Trump's tariffs, rising costs of capital exchange rate movements.

How are they influencing the digital infrastructure market in Australia and New Zealand? Mark, maybe you want to kick that one off. Me first. I'd say the only real impact in our market is during construction. We started FibreConnects in 2019. We've seen the labour costs and obviously the cost of quality assurance of that construction increase by over 40%. And it's sort of been a gradual increase and we've seen a lot of pressure on the construction companies in solvency.

So we've had four major constructors go into liquidation in the last 12 months, focusing in our markets. Our biggest concerns are actually keeping those costs under control, but more importantly, the quality assurance process of that. So ours more impacted through labor costs. Simon? Thank you, Mark. Yeah, to carry on with that thread, sort of post-COVID price pressure has been significant.

And on top of that, and I think we've probably seen the same in the fiber industry, the volume of work and maybe to some extent in the data center, the volume of possible work has gone through the roof as well. I think that's contributed to it. But ultimately, managing your costs and focusing on that hasn't really prevented us from continuing our development.

On the supply chain side, we've gone through an incredible tightening where we were hearing things that would normally take three or four months to deliver could be 18 or 24 months. That's almost gone all the way back to normal. So that is what it is. These are regular cycles. I think with respect to interest rates and tariffs and so on, I think Australia is in a position where it's kind of somewhat uniquely insulated from some of that.

I've not seen anything that's tariff related that's driven different decision makings from my perspective at this point. Maybe that'll change in the next six months as it really flows through. And from an interest rate perspective, you know, we deal with that as a business. I guess there was a number of years where we didn't have to because they were low and now we do have to. So I'm hoping we continue on that downward trend, but we'll continue to deal with it.

So really, it comes back to opportunity and then just dealing with local cost and resource challenges as there's lots going on both in our industry and others. Yeah, look, I think Ian Martin touched on it a bit earlier. Cost of capital is not necessarily going up. I think the issue is more around factors with supply chain and construction costs a lot, and maybe just a global perspective.

And look, there's a lot of discussion on tariffs, but the tariff thing is, to a large extent, it depends on whether it's related to the US or not. So when you look at the supply chain, let's break it down, say, data centers or fiber networks, a lot of the componentry comes from other markets as well. So it captures the other things. And also, it's not just tariffs. It's export controls, which could have an impact as part of a trade war.

Yeah, true of that. And if you're going there, so clearly the world is almost separating into three different, I wouldn't call them blocks necessarily, but you've got the whole U.S. ecosystem. The Chinese ecosystem is very strong in certain markets. And there's a whole bunch of countries in the middle, particularly when you start thinking about and talking about sovereign AI capability, who are starting to get more concerned and worried in terms of where should they source their inputs.

And so I think we can talk a little more about AI in a minute, but just on your initial points, I think cost of capital itself is not such a big issue, but it's the risk that And when you think about the Australian context, I think construction costs have become more unpredictable and supply chain is still, you know, if you don't have it stitched up, you've got some challenges. So I think it's worth managing the risk and delivering large,

complex projects. All right, Guy, what are your thoughts on this? Yeah, on the export controls, I'm not sure how familiar people are with the AI diffusion rule, which was retired under the Trump administration. So while it's been retired, it's actually pretty indicative of how the US government thinks about Australia in terms of a strategic ally in this region. And so as we think about digital infrastructure in Australia and New Zealand, I think it.

It's one signal that we're very well placed from a strategic position. I agree with the panelists largely on tariffs. We're a global organization and we see opportunity potentially there. For example, we've got about $500 million of components on pre-buy that we've got strategically placed around. So there's opportunity there, but also risk. Just a quick follow-up about that guy, because in the free trade agreement between the US and Australia, they don't mention digital services.

But Jamison Greer, when he was being questioned in the Congress by Mark Warner, who was getting very fired up on behalf of Australia, did talk about barriers to trade in the digital space in Australia. Do you think that could become an issue? I think it is an issue. I was in the US in March, and the US government has a particular view that we have trade barriers here in terms of how we think about taxation of American technology companies.

And then, of course, in Australia here, we've got the digital tax we think about on those similar companies. So I think both countries see some potential trade conflict there in terms of non-tariff barriers. Yeah. Okay. Guy, while you've got the mic, I'll come to the second question about AI. How is AI reshaping business models and investment strategies? Are we looking at game-changing innovations or just another tech trend?

That's not another tech trend. I hope not because otherwise a lot of us are out of a job. Yeah, look, I think we're through that hype cycle, you know, the Gartner hype cycle in terms of, you know, we're two years in here. And so really it's now the adoption and the real use cases of AI.

And the thing that's exciting, certainly for our industry, and I think a lot of the folks in this room over the last couple of days, is that as we move into inferencing and the carriage and network that's required to drive that either from a mobile perspective, a sub-sea perspective, long-haul networking, you know, consumption is driven through connectivity. And I think for the folks here at Comms Day, I think that's pretty exciting. Uday, do you want to follow up on that one?

Probably a couple of comments on AI. Clearly, I think it's a general purpose sort of technology. People have given lots of different language to it. I won't add to it, but I'll give you two real examples in terms of what's happening in our firm. I mean, we own dozens of businesses across our infrastructure and private equity practice, and we've got 300 live projects just in terms of how AI can change business processes and a whole bunch of stuff.

So, you know, I'm sure the same thing's happening across the board. So it's a huge impact. But with an investor hat on, particularly around digital infrastructure, we're seeing, and back to my earlier point, there are countries that are really taking sovereign AI seriously. And so the opportunity to invest has expanded. So we've made two announcements recently. So we're working with the French government who've announced a 100 billion euro program to create a sovereign AI capability.

We're going to contribute $20 billion of that, primarily through our data center business called Data4, but it's actually a very large campus in the northern part of France, which is quite different from a typical data center. It's going to bring together industry in a different way. Similar announcement in Sweden recently. So I think, you know, I'm just posing the question.

I think there'll be countries that decide that they're going to have to take control of some elements of their AI when it comes to sovereignty. And are you seeing that here yet? But I think it's playing out. You know, I think it's, look, I think Australia is blessed with, we've got lots of data-centric, you know, good companies, great infrastructure. But I think it's, the question's out there.

It's like, to your earlier point as well, as public policy changes, how much of it do you really want to truly control? You know, so I think this is a dynamic that's playing out every day in front of us, you know, in terms of how different countries are reacting. Simon, how do you see this space evolving? Yeah, so I think innovation is really the key thing here.

And not to sort of talk to the innovation that NVIDIA or the inventor of the Tensor equivalent has driven, but just kind of how business is going to get created and driven. So to your point, I don't think at a federal level, it's really been gotten its arms around yet. But we do have land, we've got the capability to grow the power supply. And we're a nation that punches well above its weight in terms of technology adoption.

So it's coming. We did an announcement last week about another site that we're going to be developing in central Melbourne, near Port Melbourne, with a significant amount of state-level government involvement. And that's great for a couple of reasons. Obviously, the subtle changes that are required in terms of planning alignment are important. But more importantly, from my perspective, and I think from the whole industry's perspective, to see.

Politicians and their underlying sort of planning and thinking actually kind of get behind a growth opportunity and figure out how to enable it to actually grow and then how to absorb it into the sort of the local infrastructure so that it does benefit and create jobs and create opportunity as opposed to the other way around. And I would say 18 months or 24 months ago, there was a real danger here where there was, you know, stop signs going to get chucked up because nobody knew

how to cope. And we'd seen that in Ireland. We've seen that in Singapore. It's a cycle, you get through it. But I'm really excited that we're on that journey. Lots of problems to solve, but we seem to be getting genuine support. Mark, how are you feeling about it? How are we feeling about AI? Look, obviously, our biggest sort of focus area at the moment is obviously we build conduit networks that connect all the data centers. We have to be very considerate as into the architecture of that.

I mean, you can't go and rip up everyone's front lawn for three years and then say, well, I've got it wrong. I have to actually change this architecture. So we've seen the architecture requirements evolve in preparation, especially Sydney and Melbourne. But where a lot of our focus is now is, one, the capacity going into these data centers for what we believe the data centers are going to be used for, but how a customer is going to connect to it.

Yeah. So we are building a brand new fiber fabric across the country and we are building to all the corporate buildings in a predefined way. The way the stock exchange has connected any customer to its trading platform for over 20 years is focused on latency, direct point of sight. And I think the inferencing requirements and how fiber is connected to those inferencing requirements to customers is something the current architecture of Fibre doesn't do.

You have to get that capacity correct. You can't build this three times. You have to actually build it once in preparation.

We think we're probably about three years from seeing some real inferencing products coming into the corporate market, into the enterprise sort of buildings or in customers, but we're spending a lot of our time sort of talking with partners that we believe are going to be managing that product and those inferencing zones for their end customers to make sure that that connectivity is not the issue and is an assistance to guaranteeing that service.

Simon, you mentioned problems to solve. What are the problems you're seeing? So there's new supply chain problems. So let's just focus, for instance, on liquid chip. Okay. It's great. It's going to enable us to build less data centers to support way more compute. All the other challenges are still there. Power, how you reject heat from the data center, et cetera, et cetera. Great.

Now, to deliver that liquid to chip into the architecture that's been selected by the likes of NVIDIA, which is essentially the tertiary liquid flows into the device and back out, you've got a hygiene challenge there. You've got flow rate challenges.

And what we're seeing is we're moving what was traditionally a deployment in the mechanical space, and there were several subcontractors here in Australia that were very, very good at it, you've now got to a point of hygiene and stainless steel and so on that we're finding, oh, the food industry can do this. Can they cope with the workload? So that's a challenge that will be solved.

You've got the power side where our understanding is, and we've seen this in some of our conversations with our client base and some of the research that's done, that a 100-megawatt compute deployment, which in cloud world would slowly ramp, get deployed in incremental periods, and many, many customers will be using it quite differently, it could be entirely synchronized at a data center. And then depending on the particular problem or piece of work that it's doing,

could all ramp up and all ramp down. And we're talking in milliseconds. Because we have renewable energy targets for 2030, right? That's a different thing. That's a different thing. Is that going to make it harder to hit then? Personally, I think it should make it easier because growth in demand creates an opportunity to invest in power generation into a growth market, not a replace market. Now, there's tons of detail underneath that. But for me, at least that's a better thing.

System strength, which is what this is talking about, is a challenge. It'll be a challenge in any market eventually. So it'll be solved. There are solutions to it. It's about thinking it through. And the last thing I would say is that the hyperscalers are leading, but very differently. So as we speak to one, they're almost ready and they tell us things they've done when they've deployed to help us learn and deploy for them.

We speak to another and they change their mind at the last minute and say, no, we're going to stick with the air-cooled GVUs for now because we've not quite made our decision yet. So there's a little bit of turbulence there, if you like. But more exciting, I think, from everyone's perspective, is you've got this NeoCloud or the NCPs, as they were known. And it's remarkable to me that the infrastructure as a service layer has almost instantly re-emerged.

And you've got CoreWeave and probably seven or eight others not of that scale, but that are capable of getting there, having conversations. So, yeah, there's a huge opportunity and lots of problems to solve in a good way. Okay. Uday, I want you to kick off on our third topic. Is there a risk of overbuild, overinvestment for DCs? How does a platform operator differentiate themselves in the market? With so much money flowing, are investors doing the right deals or is this a case of FOMO?

I might take a counter view to that point. I just don't think there's almost enough money to build out all the data set to capacity that will be required in time. That doesn't stop speculation from happening in the interim. When you add up all the numbers, the amount of capacity required is quite large. And to Simon's point earlier, the market has grown quite a bit.

So we used to talk about hyperscalers. Now, you've got the neoclouds and you've got, you know, the whole range of, you know, just AI platforms who themselves are going directly to procure capacity. So macro level demand is very high, a lot of industry constraints. But capital itself, you know, like if you use this rough math, $10 million US per megawatt, it'll change a little bit depending on the geography. For every 100 megawatts, it's a billion dollars. and 100 megawatts is nothing these days.

You touch a campus, we're building campus hundreds of megawatts each. So each project is worth a few billion. For every billion we put in, our customers to put in three to four billion in terms of chips and liquid cooling and whatever else. So there's quite a lot required sort of macro level. So I think there's a parallel development taking place in the financial world where. You know, more sophisticated capital is required at different stages of development of digital infrastructure.

So I think this is, this will evolve over time. So you're going to start seeing even large operators selling down different pieces and parts of their businesses over time, different answers. So I wouldn't say there's too much money flowing in, but clearly there's quite a lot of speculation, particularly those who have land, who sometimes, you know, take a little bit of power and, you know, that's kind of dressed up as almost a data center.

There's a long, way to go from left to right to achieve that. But more capital at the right stage of development is going to be required than is available today in the market. Guy, what's your view on that? Yeah, look, similar to Udo, I think the demand signals are incredibly strong at the moment, and there is no shortage of capital coming into our space.

I was interested in the CommScope gentleman yesterday. I don't know if folks caught that, but he was talking about from a supply chain perspective, their concern about there being either boom or bust in our space and then trying to hedge against that. The thing I would say is, you know, Equinix has been operating for 25 years here in Australia and around the world.

Folks that are now coming up with plots of land and a little bit of energy, as Udo said, there's a long way to go from there to operating a data center, mission critical facility, I should say. And I do think that there is some speculative investment on some of that, that, you know, I think some caution would be advised. But also, as earlier said, in Australia, we're very fortunate. There's a handful of very credible established operators so there's no shortage of quality supply here.

I think as you go out into Asia and elsewhere, that starts to diminish in terms of quality. Mark, any risk of overbuild or overinvestment? I'm just a telco, mate. No. Look, I think on the capital conversation, we're in an interesting time in the market just in general. So, we've got the luxury. We have to build every data center operator. So, I think there's 32 in Sydney at the moment getting built. There's about 12 in Melbourne.

We have to be in all of them. We know what all their plans are and some of them might have slowed, but they're definitively getting built. They're not all going after the same type of customers. Yeah, I think you're going to be left with about three or four real specialists in the country that will do that. In my world, I don't think there's enough space for three or four people trying to build a new core data center connectivity network.

I think we're running an averaged capital across all regions, across all products. We can't look at a data center on its own merits to say, will we get enough business out of that one data center, which is risky. It's very, very risky for us. So, but we can't be half pregnant and only in a certain amount of data centers at the same time. So our biggest concern when we see all the data centers being built is who's going to go in them. Yeah. Are they going to be a single tenant?

And so if you don't win that customer, you have wasted your money building to that network. Is the future going to be that customers will be required to go to that data center? So like our two highest routes are between NextDC and Equinix, you know, individual services and things like that, but our highest capacity are between the self-built. Simon, what do you see are the biggest logistical challenges for digital infrastructure builders?

So just joining on to the conversation we just had, I think, I mean, there are markets where overbuild may have happened. So if we look at the Johor Bahru area, just north of Singapore there, we're starting to see data centers that were mostly built, sort of looking for change of ownership, for instance. So, but I think fundamentally what the other panelists have said, it's such an enormously complicated investment from a scale of funding and sophistication.

I don't think that's an issue. So, from a logistics point of view, if I go back to the beginning, which I think is more interesting. The risk is the number of real developments and the number of new entrants and potential solutions to those real developments can create deep confusion in part of the supply chain. So, whether that's the manufacturers who are reasonably used to dealing with that, but certainly the planners, the power networks, I think the fiber providers

are over it. What about permits? And then that could actually choke things if we're not careful. And so we've done a lot of work with a couple other self-builders and data center developers to try and lay out a fairly neutral view of what's happening and help, whether it's AEMO or the water authorities or so on and so forth, get a zoom in on what's genuinely real.

And then it really comes down to how does the construction industry respond and that's going to be very different in every state in queensland it's reasonably soft at the moment which is great but at some point they are going to actually start responding to the fact they've got the olympics yeah and so that'll change and new south wales is different to victoria so it's it's about volume and securing the expertise that you need but not too soon because you can't build until you

you've you got your certainty. Uday, what's the biggest logistical challenges in your view? I'd say two things. I mean, power is very obvious in terms of particularly with a data center hat on, having sufficient power. You asked the question about renewable energy earlier, and I think renewable is going to fill a lot of the gap.

We've got a platform here in this country called Neo, and we're seeing, and in some of the markets too, a data center is seem to be the single biggest driver in terms of our demand.

But the challenge is going to be in the grid. You know, there's going to be – renewable can't solve everything because the energy sources are not continuous and predictable. So, you're going to have to have batteries. You're going to have to. Support is required from both public and private investment in those spaces. I think power and strengthening the grid is going to be an important issue. Two, I think we've touched on earlier on construction, but just people, just finding the right talent.

I mean, digital infrastructure is physical. At the end of the day, it's got to be designed, built, operated, require specialist people. A number of countries are struggling, I think, to get the right people. Also, any policy settings or changes that can support getting more skills at the right time is going to make a difference. We're suddenly reducing immigration, including putting a cap on foreign students, aren't we? Yeah, look, it's a...

Guy, do you want to make a comment on the logistical challenges? I don't want to make a comment on foreign students. Yeah, look, picking up on what Udo said, that's something we think about a lot at Equinex is around people bringing the right folks in. As this data center industry proliferates, there's just so many being built at such scale so quickly. And these, again, are mission-critical facilities. This isn't something you can walk in tomorrow and run within two weeks.

And so thinking about that pipeline of talent through vocational colleges, through universities, outreach with programs, there's diversity challenges in our industry. And so thinking through all of that, and it's not an immediate near and present concern, but it's certainly something we've got to think about long-term, not just as my organization, but as an industry.

The other thing I'd add on to the sustainability piece, Steve, because I think you asked that question, renewable projects in Australia, there are lots. Quality renewable projects with immediate or near-term connection to the grid, there are not as many. And so as we scale up, we scale up for these customers that are very demanding on the sustainability side, as we are on ourselves, that's a challenge we're going to really address next kind of three to five years.

All right. Mark, you want to make a comment on the logistical challenges? No. Okay. We'll move on then.

So our last topic before we wrap up is what are the public policy challenges for Australia's digital infrastructure future? Who wants to take that one on first? Simon? Happy to start there. Again, as I said earlier, I think that the mood has significantly changed. So that was a challenge and I was quite concerned about it 12, 18 months ago. So that's great. What changed and who's changing it?

We went we seem to be going down a pathway where data centers were at significant risk of being blamed for not allowing some of the things that we want to do to happen and and the the grid transition was a primary one water was lurking in the background as we you know it's a it's a challenge in many parts of the country naturally and we want to expand housing and so on but i think through some significant efforts and and credit to the

folks who've been involved listening and us as a group saying, we understand we have to contribute and we will just open the doors and let us talk. So that's great. I think there's... The continuous challenges of what regulation is required and things we've maybe not even really solved yet a bit further upstream, whether it be on the social media side or so on. There's a whole bunch of sort of regulation catch up that has to happen.

And then there was the point that you made or someone made earlier about how do folks invest in the country and we've got different tax rules and import and so on. And will that stifle growth maybe at some point? But again, I've seen generally the large investors in the production platforms like the hyperscalers and so on generally move towards that.

So I think for me, it really comes down to not over-regulating and putting regulations in place that allow speed versus historically, you've got to be reliable, but you're only going to grow at 1% Mr. Water Network or Mr. Power Network. And those changes are a challenge. Guy, you want to chip in there? Yeah, I think one of the things we'd certainly like to see the government leaning on is around an artificial intelligence strategy.

We're one of the few developed countries in the world that doesn't have a government-led AI strategy. Korea's got one. Japan has one. Singapore, United States. And that's kind of, it's not giving us as much direction as we should have as a nation. When you consider the components that go into artificial intelligence, you think about the critical minerals that are sitting underneath our feet.

We have an incredible role to play in the future of AI, but without government-led strategy, that's definitely a gap that we see. So do you see a real opportunity there? Because at the moment, I can't remember what the figure is, but China has virtual monopoly of not just digging them out of the ground, but processing them. Do you see an opportunity there as well?

I mean, long term for Australia, yeah, absolutely. I mean, taking more value out of that supply chain is something we need to do, but it's a very difficult process. I think the government recognizes that, and you can see that in some of the conversations federally, but not only on critical minerals. We just talked about workforce, how we think about that leading into 2030, how we bring more people into the collective industry.

The opportunity is huge, but it does need some guidance from government. Mark, what do you think are the public policy challenges in this area? Our challenges are predominantly, so we deal with local, state and federal. Our problems are construction delays with state, state-owned assets, rail, waterways, motorways, transport. I mean, we're still three years waiting for approvals to cross some train and

motorways. You know, we have to escalate to a TIO process that takes a year to review whether it's a low impact or not. So I think a review of telecommunications infrastructure rights and compliance is definitely something I think we need to be held accountable for. So, you know, as it stands today, once you get a federal license carrier, you have rights to actually construct. And I think there needs to be a bit more governance on how people do do that.

But in return, I think we need to understand the speed of this infrastructure and how it's getting built. Yeah. The customers that are going into these data centers have seen delays due to these permitting process issues. They've had to roll back deployments. They've had to roll back workloads because they can't get ready.

We've got our beautiful union in Melbourne. They always play a role for us, but the state government and or the actual approval process to actually deal with these state departments, it's been the biggest delay in more deployments in this country. Is it better in one state or the other? Predominantly, no. No. I mean, you're looking at a 90-week approval process to cross a railway.

Yeah. And so with those processes, I think that review on us being held to account, but definitively the other departments helping us actually complete the infrastructure is critical. We need an escalation. Don't you get the final word on public policy challenges? Look, I think a lot of it has already been covered, but with, again, with an investor hat on, I'd say two things. One is, you know, from an investment perspective, we like to increase predictability.

That matters a lot. Investors don't like a lot of change. So that covers a whole gamut of things from, you know, financing structures through to physical sort of support around infrastructure creation. And two, we've actually touched on a lot of bottlenecks. So anything that can be done to make sure that the digital infra lens is also applied, because often we're talking about a zero-sum game, it's the same resources.

There's other public infrastructure being created, whether it's labor capital or whatever. So just bringing another pretty specific digital infra lens to things, because it matters. It is the lifeline of the future economy. So if you don't do that, it's going to get missed. Australia is being seen by these companies in the world as a really good place to put their infrastructure. And Sydney and Melbourne especially are only going to continue to grow.

We have to make sure we stay ahead to keep them coming. We can't become a country that had an opportunity to leverage the digital infrastructure. And so the policy around AI and our plan as a country and how we're going to support it, we need to support the digital infrastructure expansion and make sure they stay. Guys, great to get all your thoughts. Thanks so much. Please thank our panel.