CPPIB forms joint venture with AT&T, BlackRock’s GIP to expand fibre-optic network

Canada’s largest pension fund is forming a joint venture with telecommunications giant AT&T Inc. T-N and BlackRock Inc.’s BLK-N infrastructure arm to build fibre-optic internet cables to more U.S. homes.

Canada Pension Plan Investment Board, which manages $864-billion, is investing an undisclosed sum in the venture with AT&T and BlackRock-owned Global Infrastructure Partners, or GIP.

AT&T aims to use proceeds from the joint venture to speed up construction of fibre connections in communities in 16 U.S. states, including Arizona, Colorado and Florida. It is part of a plan to connect more than 60 million fibre locations in the U.S. by the end of 2030, AT&T said.

There is also increasing urgency to expand that network to meet growing demand for high-capacity broadband connections, as adoption of artificial intelligence causes traffic on networks to surge.

Building the network requires “an awful lot of capital,” CPPIB head of infrastructure James Bryce said in an interview.

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The joint venture announced on Tuesday will merge AT&T subsidiary Forged Fiber 37 with Gigapower, an existing wholesale fibre joint venture that the telecom company previously entered with GIP. The combined entity will build and operate fibre networks, and sell wholesale access to AT&T and potentially other internet providers that deal directly with households.

Financial terms were not disclosed, and the deal to fund the joint venture is expected to close in the first half of 2027. AT&T will own 50 per cent and CPPIB and GIP will own the other half.

AT&T could also use part of the proceeds to pay down debt and return capital to shareholders, according to a news release.

Companies are increasingly turning to major investors such as pension funds for transactions that are structured to give them financial flexibility. They need to secure the money to make long-term investments, keep debt at manageable levels and earn steady profits for shareholders.

In return, investors get a stable stream of cash flows over time as the new assets come online and earn revenue.

CPPIB’s infrastructure arm has committed more than $25-billion to new investments over the past three years. The largest share of those investments has been in digital infrastructure, which was one of the priority areas the fund identified as part of a revamped strategy.

Earlier this year, CPPIB and California-based data-centre provider Equinix Inc. teamed up to buy Nordic data-centre operator atNorth. CPPIB also invested US$1.75-billion ($2.4-billion) to back EdgeConneX, a data-centre developer and operator owned by Swedish-based EQT Group.

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The AT&T deal is not squarely a bet on AI, but the demand to be connected to high-capacity networks is on the rise.

“There is a huge need for greater connectivity. Not everywhere, but in specific areas where that connectivity doesn’t exist,” Mr. Bryce said.

In the near future, increasing demand for network capacity is expected to come primarily from corporate customers using AI tools and cloud computing systems in the workplace.

At the same time, “in a world in which more of us as individuals are using AI-related tools, it drives network need,” Mr. Bryce said. “And in that world, fibre is even more valuable to the customer base.”

The pressure to build more digital infrastructure also introduces the risk that developers and investors will go overboard in the race to meet surging demand. Mr. Bryce said CPPIB is trying to avoid the risk of overbuilding fibre connections with a detailed analysis of which markets are at risk of oversaturation.

For data centres, the pension fund is selective about choosing projects that have long-term customer contracts in place and counterparties with strong revenues and balance sheets.

The type of development-focused joint ventures that CPPIB has created with AT&T and Equinix are “a reference point” for what “we could do with Canadian corporates,” or elsewhere in the world, Mr. Bryce said.

CPPIB is looking to add to its infrastructure portfolio in Canada, but he said the pension fund’s challenge has been finding opportunities that meet its criteria for risk and returns.

The Canada Investment Summit that was held in Toronto in September sent an “exciting” signal that the country is “open for business,” he said.