INCA Event IntroductionA brief survey of fibre finance around the world

8th May 2014

Stefan Stanislawski

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Examples of Government financed projects

Australia

• Big bang approach to major national upgrade• Urban fibre• Rural areas various tech

• Incumbent compensated by sale of customer base area by area

• Scaled to UK Govt equity component =£42bn

• High risk big bang project that seems to have gone wrong

Qatar

• Government building open fibre and also aims to buy already built operator access fibre in due course

• Entirely State funded but in unclear policy framework

• Complex politics as incumbent also largely State owned and only two operators licensed in this City State

Oman

• Open fibre built as “free rider” on sewerage system upgrade in capital city by State concession company

• Oman Broadband Company (State) being set-up to manage this asset and upgrade towers and fibre across the country

• Cautious step-by-step approach to remedy market failure

• Financed by long term loans from the State

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Examples involving both public and private (corporate) finance

Sweden

• $4bn “excess” privatisation proceeds kickstarted municipal fibre in 2003

• Scaled to UK =£17.5bn• >100 local networks

developed over time and main operator strategies fundamentally changed

• Complex market now well established - today ~3% homes fibered each year entirely privately & customer funded

New Zealand

• Government put $1.5bn up to stimulate private finance of modernisation - 33 local project areas

• Scaled to UK =£13bn • 75% to have 100M by

2020. Rural also improved

• TCNZ agreed to full structural separation in order to participate unlocking 20% of shareholder value

Europe

• In France >20 cities and towns have Gigabit fibre networks built via PPP deals

• Telecom Italia is in a couple of PPPs and considered hiving off access network into a NetCo

• Jersey Telecom is State owned but funded as a business – 100% Gigabit Isle fibre switchover well underway

USA

• Connect America and other local initiatives gathering pace

• USO funds were not being used for copper build so will be targeted at fiberization

• Pilots underway – policy should emerge later this year

• FCC supported by Commerce Dept, long established rural utilities finance organisation etc

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Examples of entirely privately financed fibre

Verizon FIOS

• 2005-2010 Upgrade of copper to fibre passing 13m homes

• Selected areas where CATV was weak and customer density reasonable

• Delivering returns largely as anticipated. AT&T copied with u-verse

• Some regulatory gains in price regulation in some States

UAE

• UAE completed the fibre switchover – copper scrapped

• Two private but part-State owned operators in friendly rivalry

• Business cases driven by lower opex and chance to sell new services

• No CATV competition in UAE so longer term also a protective strategy

Non-CATV Europe

• Fastweb, Italy• RDS, Romania

• Operator fibre land grabs in Baltic States, Slovenia, other parts of the Balkans

• ~700 Ethernet operators in Poland expected to tap EU funds for ~1000 rural FTTH schemes

Other Europe

• ~100 small projects in Germany all funded by utilities, small operators etc – no new equity investors

• Reggefiber in Netherlands highly unusual in having a billionaire sponsor – now owned by incumbent and boosting ARPUs

• Free (Iliad) & France Telecom deployed fibre in selected urban areas

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If Government funds underwrite a “bankable” deal over time then taxpayer funds could be multiplied by project finance

£1500 / home @50% take rate

• 2,500,000 UK rural homes

• ~£3.7 bn CAPEX in total

• Government has £500m to play with

~10 NetCos

• 10-12 NetCos• Spreads execution

risk• Allows some

piloting and “tail end” community schemes

Bankable

• If major brands commit …

• to pay £13.50 wholesale charge growing 2% pa with inflation

• 50% take-up…• USO funds

contribute £5 per month ...

• Requires £600m Govt support

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Observations ….

Government driven big bang projects often

problematic

Kick-starting private sector or PPP finance

works

Stable and well designed regulatory and

policy framework crucial

USO funds potentially important and should

be steered towards fibre

Despite the huge potential of project finance to leverage

taxpayer funds we have not seen it happen - yet