If the public authority chooses a public-run municipal network investment model, it generally receives revenue from wholesale dark fibre lease and/or transmission services, as well as retail infrastructure lease or connectivity fees (or network fees) depending on the business model in place. This can indeed become a major financing source, when the network is complete and companies, public bodies and end users start using it.
This source of financing only materialises once the core of the infrastructure is in place and services are offered over the network. It is therefore suitable to recover public sector funds, to accelerate infrastructure deployment or lower costs. To start a project, other financial sources are needed.
Private capital and financial markets
Financial markets can be accessed for investment funds that provide equity or debt financing as well as hybrid solutions (mezzanine funding). Investment funds seeking for a stable return on investment may focus on safe, tangible assets such as NGN broadband infrastructure:
- Banks, investment funds and private equity investors may be interested in providing early-stage financing, looking for a higher risk premium and an exit between 3 and 7 years once the business is established.
- Infrastructure funds, pension funds and other institutional investors may invest in established infrastructure from the above after 3-7 years and seek long term investment at lower interest rates.
Other sources, such as venture capital, are usually not used for investing in infrastructure as they focus on short-term higher risk opportunities and demand high interest rates with early exit options.
Government-backed bank loan and bonds
Public authorities can secure their initial financing through soft or commercial-terms bank loans. For this to be sustainable, a valid business plan must be presented, in which medium- and long-term revenue exceed the negotiated loans including principal and interest.
Favourable interest rates in soft loans (obtained thanks to the government backing guarantee) should be treated as state aid. If it can be proved that the loan was received according to market conditions, the Market Economy Investor Principle (MEIP) applies.
Public funds can generally be used to finance a broadband deployment project. Grants enable economic and social improvement and are available at local, regional and national government levels, as well as at EU level through the European Structural and Investment Funds which include the European Regional Development Fund (ERDF), the European Agricultural Fund for Rural Development (EAFRD), the European Social Fund (ESF) and the Cohesion Fund (CF). The Connecting Europe Facility (CEF), together with the European Investment Bank (EIB), is specifically dedicated to the goals of the Digital Agenda for Europe.
Bottom-up community financing
Communities can raise financial resources to support the development of infrastructure in their region. Typically, this takes place in community broadband projects, particularly in rural communities or clusters of such communities and smaller urban communities.
Generally, in bottom-up community financing, “stock” or shares are sold to a community company, which either implements and runs the network itself or commissions this through suppliers. Citizens are often also asked for “pre contract agreements” to take high-speed internet services once the network is operational as part of the stock package.
It is recommended that every region or member state produces a manual on how local initiatives can manage bottom-up financing and how this can be matched with other financing tools.