Guide to broadband investment Presentation for EC open day 12 October 2011 Andrew Daly

Introduction to Analysys Mason Aims of the guide to broadband investment Stages of investment planning Choice of investment model Overall recommendations Contents 2

We have shaped landmark broadband policy and delivery initiatives Unique mix of bespoke telecoms strategy consulting supported by leading-edge research Independent and impartial Over 230 staff in 12 offices New Delhi opened recently In business for over 25 years, advising clients in over 100 countries 3 Digital Agenda for Europe benefits of bandwidth study UK fibre costing (defined Digital Britains final third) National broadband plans in, Brunei, Ireland, Malta, Morocco, Singapore, Thailand and Wales Business case for three applications for broadband stimulus funding in the USA Numerous NGA regulatory projects (OPTA, Ofcom and others) Introducing Analysys MasonExamples of our work About Analysys Mason

The guide provides best practice in planning a broadband investment Affordable, good quality and open ICT infrastructure for all will support cohesion, innovation, and social, economic and political change The guide details planning and procurement issues that must be considered for broadband infrastructure investment Targeted at all Managing Authorities in the EU Important resource for meeting DAE targets, especially for states with the facility to use funds from the and programmes Essential for managing authorities to prioritise the long term socio- economic benefit of citizens over short term private financial gain 4 Aims of the guide Due for publication end of October

The guide sets out seven key questions for planning a broadband investment 5 Stages of investment planning Why should I invest in broadband? What type of network infrastructure should I invest in? How should I invest? How do I manage/monitor the outcome? What can be done to ensure demand for services? What can be done to reduce the cost and manage risks? What are the next steps that need to be taken? Contribute to hitting the DAE targets by using EU funds quickly and effectively Include measures to reduce costs and manage risks Understand the commercial case and your potential role on the demand side Ensure successful delivery and operation, and provide evidence for audit Understand the merits of each investment model and what might work best for you Understand the costs and benefits of different kinds of infrastructure Define project aims to tackle market failures and/or deliver socio-economic benefits

Five investment models provide a broad spectrum of funding options 6 Choice of investment model 5 models Bottom-up Private design build and operate Public outsourcing Joint venture Public design build and operate Group of end users oversee the contract to build and operate their own local network Managing Authority provides a grant to private sector to assist in deployment of new network Single contract for construction and operation of network, but public sector retains ownership and some control Ownership of the network is split between the public and private sector Public sector owns and operates a network without any private sector assistance

ModelAdvantagesDisadvantagesRecommended use Bottom upLong term, non- profit view Focuses demand Localised deployments Differing technologies Targeting localised areas Leveraging small scale funding Private DBOLarger scale Low public burden Funding threshold Limited control Sufficient funding to attract operators Effective transferral of risk Public outsourcing Public financial stability with private expertise Greater control Reduced benefit to private sector Additional bureaucracy Requirement for on-going control More conservative operators Joint VentureRisk sharingPotential conflicts of interest Public/private interests closely aligned Public DBOPublic organisation has full control Size and scope limited by public expertise Requirement for absolute control Inspirational investment Summary of pros and cons of investment models Choice of investment model Each investment model will be applicable in different situations

The guide is illustrated with findings from operational projects 8 Choice of investment model

Overall recommendations are focused on delivering maximum benefit to end users Socio economic benefit must be managed alongside project sustainability to deliver long term benefits Long term control by public sector can protect end user benefit, however the private operators can bring invaluable expertise Sustainability is critical as socio-economic benefits will take time The bottom up model may suit small scale fibre projects Long term non-profit view of end users suits the fibre business case, but this may be difficult to leverage on a large scale Small investments can provide a catalyst through partnerships Open and non-discriminatory access to infrastructure supports effective competition However, the investment requirements for passive and active access must be carefully considered 9 Overall recommendations

The guide also covers funding, state aid and the steps to broadband delivery 10 Overall recommendations Preparation and planning EU funding application Procurement design State aid compliance Procurement activity Contract award Broadband delivery

Contact details 11 Andrew Daly Lead Consultant Analysys Mason Limited Bush House, North West Wing Aldwych, London WC2B 4PJ, UK Tel: +44 (0) Fax: +44 (0) Registered in England No

Bottom-up model Overview of model Group of end users oversee the contract to build and operate their own local network 12 Investment model summary Advantages Long-term, non- profit view, suitable for high-cost infrastructure (e.g. FTTH) Focuses demand and encourages local social cohesion Disadvantages Difficult to replicate local intensity on a large scale Localised deployments, with risk of differing technologies Recommended use For targeting localised areas and for gaining the most benefit from small amounts of funding

Private design build and operate model Overview of model Managing Authority provides a grant to private sector to assist in deployment of new network 13 Investment model summary Advantages Larger scale (than bottom up) Low public burden, which can lead to faster deployments Disadvantages There is a minimum funding threshold to attract private interest Limited control over operations may reduce the socio- economic impact Recommended use Larger-scale Where the level of funding attracts private interest Where the network operations (and risk) can be transferred to private sector

Public outsourcing model Overview of model Single contract for construction and operation of network but public sector retains ownership and some control 14 Investment model summary Advantages Public financial stability with private expertise Greater control (than private DBO) Disadvantages Reduced financial benefit to private sector (compared to private DBO) Additional bureaucracy Recommended use Where Managing Authority requires a high level of control over the network Where private operator has a more conservative view of risk than the private DBO model

Joint venture model Overview of model Ownership of the network is split between the public and private sector 15 Investment model summary Advantages Potential financial benefit for both parties The use of special- purpose vehicles can make the model very scalable, and allow alternative investment sources Disadvantages Potential conflicts of interest may block creation / successful operation of the JV Few examples of implemented JVs to indicate best practice Recommended use Where the interests of the public and private sectors can be closely aligned

Public design build and operate model Overview of model Public sector owns and operates a network without any private sector assistance 16 Investment model summary Advantages Managing Authority has full control to promote competition and enforce standards Managing Authority can ensure socio- economic benefits are prioritised Disadvantages Size and scope limited by public expertise Potentially excludes private sector expertise Recommended use Where a Managing Authority needs absolute control over network operations Where targeted investment will inspire investment from private sources