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 (or network) fees depending on the business model in place. This can indeed become a major financing source, once 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 a stable return on investment and may focus on safe, tangible assets such as high-capacity 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 for the deployment project 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 enable economic and social improvement and are available at local, regional and national government levels, as well as at EU level.
At EU level, the following funds are available:
The European Structural and Investment Funds (ESIF) which include:
- The European Regional Development Fund (ERDF) aims to strengthen economic and social cohesion in the EU by correcting imbalances between its regions.
- The European Agricultural Fund for Rural Development (EAFRD) aims to support rural areas of the EU to meet the wide range of economic, environmental and social challenges.
- The European Social Fund (ESF) aims to support jobs and employment opportunities for all EU citizens.
- The Cohesion Fund (CF) aims to reduce economic and social disparities and to promote sustainable development.
The European Fund for Strategic Investment (EFSI) aims to mobilise private investment in projects that are strategically important for the EU.
The Connecting Europe Facility (CEF) together with the European Investment Bank (EIB), is specifically dedicated to the goals of the Digital Single Market, the Digital Agenda for Europe and to support the strategic objectives of the European Gigabit Society Strategy. The Connecting Europe Broadband Fund provides equity and quasi-equity to smaller-scale, higher-risk broadband projects, which do not have sufficient access to financing, in (under-served) suburban and rural areas.
Discover how to combine the European Structural and Investment Funds with EFSI. Moreover, EU Member States have established national broadband strategies and policies, financial instruments and dedicated funds for investment in high capacity broadband projects.
Bottom-up community financing
Communities can raise financial resources to support the deployment of high-capacity broadband 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, usually with a strong urge for high-speed connectivity.
Generally, in bottom-up community financing, 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.