Broadband: Investment models

Direct investment model: the publicly-run municipal network model (public DBO)

In this model, the public authority builds a broadband network in the municipality, county or region (DBO refers to as design, build and operate). The deployment is run and directly controlled by the public authority. For this, a newly established company or a dedicated division within an existing utility deploys the network directly or through standard procurement to the market. The public authority keeps ownership of the network and runs operation and maintenance. The network is then generally made available to all market actors (open access network). The public authority or special-purpose company needs a considerable engagement and bears all the financial risks of the operation, yet it also retains full control on the design and how the network is used.

Concession model: the privately-run municipal network model

In this model, the public authority procures the building and operation of a broadband network in the municipality, county or region from a private actor (also referred to as public outsourcing or concession model), which receives a concession to operate the network over a long period of time, typically twenty to thirty years.

The contracted private firm generally builds an open, operator-neutral network over which competing service providers can deliver their services to all end users. The public authority keeps ownership of the passive infrastructure. As a network owner, the public authority has a large influence on the design and service provisioning process.

To guarantee fair and non-discriminatory conditions to all service providers, the private firm building and operating the network should ideally be barred from delivering its own services. However, this is not always the case, mainly due to the scarcity of operator-neutral network providers, and of independent service providers in certain Member States, as well as low awareness of this possibility.

The contracted firm commits the investment and takes all the revenues, but also the business risks for the whole contract period. At the end of the contract, the network infrastructure remains with the public authority, which may then decide to renew the contract, to sign a contract with another company or even change its involvement altogether and adopt a public-run municipal network model.

Community support model

In this model, the broadband investment is carried out as a private initiative by local residents (bottom-up approach). Such projects have generally been very successful in driving the take-up rate among the end users and in building financially sustainable cases. The degree of competition varies between projects using an open network business model with good levels of competition to others acting as vertically integrated operators or procuring services from one operator for a number of years.

The public authority can support co-financing and right-of-way (RoW) granting, regulation and coordination with other infrastructure deployments and access to public infrastructure and points of presence to provide backhaul connections. Public authorities can also help establish fair conditions for all operators seeking access to the infrastructure.

Operator subsidy model (gap-funding or private DBO)

In this model, the public authority is not directly involved in the broadband deployment projects of the region, but subsidises one market actor to upgrade its own infrastructure. Incumbent telecommunications operators and large alternative providers usually own the passive infrastructure, active equipment and offer services to end users in a vertically integrated model.

The public authority funds the gap between what is commercially viable and the coverage that the public authority aims to achieve. Funding is offered as a grant to one or more private operators.

The advantages of this model lie in comparatively simple contractual arrangements, the potential for relatively rapid deployment and the offset of risks to the grant recipient / operator. However, public authorities will not receive financial rewards but instead have to face higher funding request for each new deployment phase, thus leading to higher investments than intended.

Choosing the model

Questions that a public authority will need to answer before choosing an investment model are:

• How can we create an engine that ensures future investment in infrastructure beyond the immediate project and funding available?
• Are there benefits in keeping control and ownership of the passive infrastructure and in defining the deployment priorities?
• Would we rather be better off keeping the ownership of the infrastructure but let an operator define and execute the deployment?
• What are the pros and cons to involve vertically integrated operators (incumbents and others) to upgrade or expand the network?
• Do we also see scope to support local bottom-up citizen initiatives?
• Given the socio-economic conditions on the ground, which level of competition is required to facilitate penetration of high quality and affordable services?

For more details refer to the Broadband Investment Handbook.