The investment concerns 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.
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 (e.g. lamp-posts or equipment cabinets).
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.
The authority can offer financial support 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, a guarantee or security against other loans taken out by the entity.
The authority can cooperate with banks on attractive terms to encourage other investments. This financing would not be considered as state aid as long as the terms and any related interest rate does not deviate from the market investor principle, i.e. equivalent to those that would be offered by commercial markets.
Public authorities may assist an entity by offering this loan on more favourable terms with banks than the entity can expect to achieve on open markets. However, this would provide a benefit to the entity and would therefore be considered state aid.
An authority may choose to provide an entity with a grant to assist in building and operating high-capacity networks. This is extensively used in the operator subsidy model.
Other types of support
A region can actively improve demand side conditions, e.g. by using ICT innovation vouchers for SMEs, either to cover parts of the end users-costs of installation or purchase of broadband devices or of the monthly subscription. However, it has to be verified whether state aid rules apply.