P3 Models for Building the Next Generation of Broadband Internet Infrastructure
Source: P3 World on November 27, 2017
What are the different models used by successful P3s? On a global basis, the reality on the ground is that different models are in use in different sectors (transport, energy, etc.). This article looks at one type of PPP, the digital infrastructure focused investments that aim to upgrade broadband connections in both cities and regions.
The principal basis for comparing the different models is to consider the respective decision rights which are shared between the public and the private sector. However, there is one key feature which they have in common: the public sector arranges the infrastructure that is necessary, and this happens before private service providers are prepared to deliver broadband services. Once committed, services made available include telephony and cable TV services, in addition to Internet broadband. While the approaches differ, each approach has enjoyed its measure of success and has attracted sufficient private sector interest. In addition, a key recurring benefit has been the effective transition from copper based networks to a high capacity fiber-optic network.
The four key P3 "archetypes" are as follows:
Private DBO
There will be many places where the demand for broadband is sufficient to attract the private sector but where additional financial support is required in the form of public grants in order to create an acceptable investment case. Under this form of P3, the private sector builds, owns and operates the infrastructure but is subject to strict controls, including the setting of roll-out targets, benchmarking as well as other clearly defined targets.
Superfast Cornwall is a project in the United Kingdom which demonstrates how this model can best be applied. BT won a public tender to provide fast fibre optic based broadband services to more than 266,000 premises including 30,000 businesses in the County of Cornwall.
An amount of GBP 132 million will be invested in providing the network infrastructure which will then be available to third party service providers on a wholesale basis. The European Regional Development Fund (“ERDF”) supported the project with GBP 53.5 million of funding. BT is providing the balance giving it strong financial incentives to ensure that not only is the broadband network constructed to the required standards but that take-up of services by various private service providers is achieved.
P3 Joint-Venture
A P3 joint venture (“JV”) involves a split in ownership between the public and private sectors. Construction and operation are undertaken by the private sector. JVs make it possible for the public sector to initiate a major part of the project but then allow the private sector to increasingly take control and responsibility based on certain key performance indicators. The public sector initially makes a larger financial commitment but the private sector then takes responsibility until the network becomes self financing.
Metroweb in Italy is an example and has successfully invested EUR 400 million in a fibre optic infrastructure that serves the greater Milan region. It was established by a municipal utility and has now evolved to position where the company is entirely privately owned. After ten successful years, self-funded expansion continues. This form of P3 makes it possible to secure private sector expertise and support while the public sector retains control in the crucial early stages of network construction and continues to have decision rights when commercial operations have been demonstrated.
Public Outsourcing / GOCO
A third approach is based on the ‘Government Owned – Contractor Operated’ (“GOCO”) P3 model. This type of contract has been used successfully in the UK and USA for politically sensitive infrastructure, for example Government laboratories operated by the private sector. It involves the construction and operation of a fully functional broadband infrastructure where the funding itself is being provided from public sector sources. The private sector operator is appointed after a competitive tender and takes responsibility for implementing the infrastructure and subsequently operating the network. In addition, the private company also has responsibility for marketing wholesale and, in certain cases, retail services.
The Metropolitan Networks Project (“MAN”) in Ireland and a P3 in the Auvergne region in France represent examples. The individual MANs are managed by e|net for a period of 15 years. Collectively, they have a network of over 1,000 km of fibre-optic capacity throughout 66 towns in Ireland. Total investment is up to EUR 170 million with local and regional authorities providing 10 percent, ERDF 45 percent and the balance funded by the Irish Government.
The infrastructure remains in the national government’s ownership. In the Auvergne project, France Telecom has a 10-year contract to operate and extend the existing broadband network budgeted to cost EUR 38.5 million. While principally based on DSL, the network incorporates fibre-optic loops that increase download speeds. In both projects, major service providers have been attracted to provide services to customers.