Access to adequate broadband services has crucial importance to our economic and social development. To achieve the Digital Agenda targets, substantial investments are required. While most of this investment must come from private operators, it is clear that in certain areas some form of public financing will be necessary.
Broadband projects are initiated by different groups of project promoters and target areas with different degrees of commercial viability. Consequently, projects often rely on a variety of funding sources Many of these sources can be used in combination: EU funding can often be combined with national or local public sector funding and should also aim to leverage private sector investment where possible. (See also the Guide to broadband investment, issued by DG Regio.)
A key distinction is to be made between two forms of public intervention: on the one side, grants or subsidies can be given to cover (parts of) the costs of network rollout. On the other hand, public entities can support projects through so-called financial instruments such as loans, guarantees, and project bonds. These instruments can be an effective means of support for infrastructure projects which have potential for commercial revenues but which face constraints in accessing usual sources of financing. In providing support through financial instruments, public authorities cooperate with promotional banks such as the European Investment Bank (EIB).
Some forms of support by public authorities is referred to as “state-aid”. In the broadband market, where investment should generally come from private operators, state aid by national, regional, and local authorities is in principle prohibited. However, particularly in areas where the market does not provide the necessary infrastructure investment, state aid can be permissible if certain conditions are met. The relevant conditions are laid down in general state aid rules which are complemented by broadband specific state aid rules and guidelines (notably the EU Guidelines for the application of State Aid rules in relation to the rapid deployment of broadband networks).
State aid for broadband projects can be provided by many different funds such as
These two funds form part of the broader suite of European Structural and Investment Funds (ESIF).
The EAFRD is designed to contribute to enhancing quality of life and to fostering economic activity in rural areas. A key objective is to encourage ICT development in rural areas. EAFRD money can be used for infrastructure investment, but also in development of services and IT businesses in rural areas, demand stimulation measures, and vocational training in ICT. Projects funded through the EAFRD could cover broadband infrastructure, including its construction, upgrading and expansion, passive broadband infrastructure and provision of access to broadband and public e-government solutions.
One of the thematic objectives of the ERDF is to enhance access to Information and Communication Technologies (ICT) and its use and quality, especially extending broadband deployment and the roll-out of high-speed networks that contribute to achieving the high-speed broadband targets of the Digital Agenda for Europe (full coverage with 30 Mbps by 2020 and at least 50% of households subscribing to connections of 100 Mbps or higher by the same year). ERDF money is used for co-financing of project costs and has to be supplemented by some funding from other sources at European, national or local government level, or from the private sector.
The responsibility for the management of the Structural Funds, including ERDF and EAFRD, are shared between the European Commission and so-called Managing Authorities in the Member States and regions. Citizens and enterprises interested in funding opportunities for broadband projects should first contact the relevant Managing Authorities.
More information about State aid regulation.
Besides the Structural Funds there are also EU level financial instruments for broadband roll-out.
Digital infrastructures represent one of the priorities of the Connecting Europe Facility (CEF) which spans the transport, energy and ICT sectors. For broadband, the Connecting Europe Facility will provide seed funding for a limited number of broadband projects, together with the European Investment Bank (EIB), as well as technical assistance. Projects that wish to benefit directly from CEF will need to demonstrate state-of-the-art technological solutions and represent either innovative business models or highly replicable solutions (including those which successfully combine grants and long term financing). The pilot scheme for project bonds which is currently being implemented will be continued under CEF and serves to facilitate the access of projects to capital market financing solutions.
Member States notify their individual programmes, which have to be approved by DG Competition before implementation. Learn more about national financing of broadband projects.
In practice state-aid (and public funding) is mostly combined with private financing, for example to close the profitability gap which keeps private operators from investing in a given territory.
Usually it is neither feasible nor useful to finance large projects only with equity, but with a mix of equity and debt. The most common source of debt for the implementation of broadband projects is bank loans, either from commercial banks or banks with a public sector mission (promotional banks). Loans by promotional banks sometimes offer better terms with respect to interest rates or repayment periods. Alternatively, public sector bodies often offer guarantees which cover a part of the exposure of commercial lenders. This can have a similar effect on terms and conditions of loans.
For project companies or public-private partnerships, project bonds might also be an alternative to medium- to long-term loans. In this case debt is raised by issuing bonds in capital markets. The bonds are usually not bought by a single creditor, but rather by a larger group of investors who purchase the securities. One possible type of bond is a municipal bond which is issued by towns, cities or counties.
The ENGAGE project aims to help rural regions across Europe to better understand and address the building of high speed broadband networks at efficient cost, translating best practice into effective and efficient policies. The investments required are significant and the technical issues are really complex. Find out more about ENGAGE projects.