In case private actors owning existing infrastructure are willing to cooperate with the public authority to build a municipal network (public- or private-run), the investment effort is partly supported by the private actor concerning the deployment and operation of the passive infrastructure. This attracts other private investors as it provides greater stability to the equity base and improves the credit rating of the project company or joint venture.

Person typing onto a calculator

Equity Finance

In a public-run municipal network, the public authority invests in a commercial entity that will build and operate the broadband network. This can take the form of cash or bonds that the entity can use as security or physical assets such as ducts, fibre cables and street furniture such as lamp-posts, equipment cabinets etc.

The authority would receive shares equivalent to the value of the investment in the entity. These must be treated in the same way as any other share paid for by “normal market investors” in the entity alongside the authority. This is an important test of whether the Market Economy Investor Principle (MEIP) applies and state aid rules need to be respected.

Debt Finance

The authority can offer finance by providing a loan to the entity. This loan would normally be cash, but could also be long term use of assets where the authority retains ownership and title or a guarantee or security against other loans taken out by the entity.

The authority can offer to facilitate this finance with banks on attractive terms to encourage other investment, in the same way as “patient capital” above. As long as the terms and any related interest rate are equivalent to those that would be offered by commercial markets, this finance would not be considered as state aid, as the MEIP would apply.

Public authorities may assist an entity by offering to facilitate this loan on more favourable terms with banks than the entity might reasonably expect to achieve on open markets. However, this would provide a benefit to the entity and would be considered as state aid.

Grants

An authority may choose to provide an entity with a grant to assist in building and operating the next-generation passive infrastructure and active layer as required by the strategy and necessary level of intervention. This is extensively used in the operator subsidy model.

Other types of support

A region could decide to actively improve demand side conditions e.g. by using ICT innovation vouchers for SMEs, either to cover part of the end users  costs of installation or purchase of broadband devices, or of the monthly subscription. However, it has to be checked whether State aid rules apply.

Published: 
24 April 2015
Last update: 
9 May 2017
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