Sleepy European telcos turn to data centre craze

European telecoms groups have scant access to exciting investment trends. They operate in mature, competitive markets, grow their top lines by a couple of percentage points a year and struggle to lift returns above their cost of capital. But, in one aspect of their business at least, they now resemble much racier US neoclouds such as CoreWeave: Europe’s push for tech sovereignty is turning them into data centre builders.

In the UK, BT is partnering with US chipmaker Nvidia and Nscale to build up to 14 megawatts of AI data centre infrastructure across three existing BT sites. France’s Orange, together with private equity firm Morrison, is developing data centres with a €3bn investment that will increase its current capacity 10-fold, while Iliad too has earmarked €3bn for data centre infrastructure.

The sector doesn’t have a great record when it comes to jumping on to tech bandwagons. Just think of the giant debt piles accumulated in the 2000s by companies overpaying for 3G mobile licences and vainglorious mergers. But with data centres, they may finally be on to happier hunting grounds.

For one thing, they don’t have much competition. Europe is keen to reduce its reliance on US hyperscalers: domestic builders don’t run the risk of having to hand over data to the US administration, as could be the case with Google and Amazon operating on European soil. Deutsche Telekom has leaned into these fears, touting its services “made for Germany, made in Germany”. And, with the European hyperscaler conspicuously absent from the ecosystem the telecoms groups, which already run critical infrastructure and are tightly regulated, have an unimpeded shot at the prize.

Returns, too, come without taking on too much risk. In this cycle of telco investment, the big operators are teaming up with providers of tech and finance rather than just overextending their balance sheets and throwing around cash.

Europe’s sovereign cloud market will be worth $70bn next year, forecasts Polaris Market Research. That is small by hyperscaler standards — Anthropic alone will spend that much on AI infrastructure in a year and a bit, according to Reuters — but helpful for the sector’s pedestrian growth.

Chances are that these numbers will continue to grow. Canada’s decision last month to build its own sovereign broadband backbone to connect the country from coast to coast, rather than continue to route data through the US, highlights erstwhile allies’ anxiety. A fracturing world could pay dividends for tech-adjacent domestic companies.

louise.lucas@ft.com