1. EIB financing for broadband infrastructures
IDATE DigiWorld Summit 2013
NGN Funding: Public / Private Interplay
Jussi Hätönen
Economist (ICT and Telecommunications)
Projects Directorate
European Investment Bank (EIB)

2. General Disclaimer
This Presentation is incomplete without reference to, and should be viewed solely in conjunction with,
the oral briefing provided by the European Investment Bank (“EIB”). The terms and conditions are
intended as an outline for discussion purposes only and made on an indicative basis. All figures set
forth in this Presentation are subject to change, to a satisfactory due diligence and to all necessary
internal approvals of EIB (in particular of its credit committees).
The information in this Presentation reflects the prevailing conditions and the view of EIB as of this
date and are accordingly subject to change and based on carefully selected sources believed to be
reliable. EIB has not independently verified this information and does not make any representation or
will be liable that such information is accurate, valid, timely and complete.
This Presentation is provided without any liability whatsoever by EIB and shall not constitute any
obligation of EIB to extend credit facilities to the Company or to carry out a due diligence review of
the aspects relevant for the financing of the Project.
Neither this presentation nor any of its contents may be duplicated, published or used for any other
purposes without the prior written consent of EIB.
European Investment Bank
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3. Agenda
NGN investment environment in Europe
The EIB financing of broadband infrastructure
EIB instruments and criteria for broadband projects
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4. Agenda
NGN investment environment in Europe
The EIB financing of broadband infrastructure
EIB instruments and criteria for broadband projects
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5. The scale and risk of different NGN projects
Incumbents and alternative operators tend to present larger projects but mainly in densely
populated areas; white and light grey areas may be bundled together. Business risk is
mitigated by existing cash generation and sound business cases of projects.
Local-government supported projects tend to be smaller in size, mainly covering grey and
some white areas (mixed with urban). Business cases are not strong, thus the government
support
Small private projects presented to EIB tend to cover areas which are “overlooked” by
incumbents, mainly in grey and some urban areas. Business cases vary, risk is increased by
size, history, up-take agreements, market uncertainties etc.
29/11/2013
Projects Directorate | Digital Economy and Education| European Investment Bank
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6. Experiences from the European NGN investment environment
1. Market operators continue to invest around EUR 15 bn annually for fixed
network roll-outs in Europe
•
•
Cherry picking and parallel deployments in most profitable areas
Unwilling to participate in subsidized roll-outs in rural areas
2. Market uptake and willingness to pay premium for FTTH lower than anticipated
•
Operators are scaling back their investment plans and change to lower cost
technologies (VDSL, vectoring…)
3. Several governments have created subsidy schemes for rural BB roll-out
•
•
Since 2010 there has been 60 state aid approvals spread across 16 countries
(including 14 national schemes for rural broadband)
Apart from EU funds, only few national subsidy programs are fully operational
4. Investors (debt and equity) are hesitant to finance FTTH projects
•
Long pay-back periods and uncertain regulation increasing the market risk
5. Public sector projects increasing to complement the market failure
•
•
•
29/11/2013
High fragmentation and lack of coordination between projects
Several different models applied making it difficult to benchmark
New subsidy programs (CEF, MFF etc.)
Projects Directorate | Digital Economy and Education| European Investment Bank
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7. Private versus public sector business case in FTTx build-outs
Private investment
Public investment
Construction cost
Capex + VAT
Capex * conversion
-5-30%
Revenues
ARPU*uptake
ARPU*uptake +
economic externalities
1.2-2x
OPEX
OPEX * conversion
-2-5%
Equity + debt
Debt
-10-5 pp
( ~10%)
(~1-5%)
Operating costs
Cost of capital
Investment life
Asset
(~20 years)
IRR > 0
29/11/2013
Market
(10 years)
ERR > 0
Projects Directorate | Digital Economy and Education| European Investment Bank
+10y
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8. Agenda
NGN investment environment in Europe
The EIB financing of broadband infrastructure
EIB instruments and criteria for broadband projects
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9. EIB direct broadband lending in 2007-2013
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In 2012 the EIB approvals for broadband
projects reached close to EUR 2.5 bn
By November 2013 the approvals have
amounted to over EUR 2.3 bn for the year
•
After the period of LTE auctions and rollout of mobile broadband networks in
2010-2012, there is an increasing
emphasis on fixed (namely fibre-based)
network projects
•
In addition broadband has been
supported through EIB’s intermediated
lending operations
7
2000
5
9
5
EURm
1500
Since 2007 EIB has approved EUR 12.6
bn of direct loans for broadband
infrastructures spread across 52 projects
•
11
•
•
2500
4
1000
500
0
2007
2008
2009
Fixed
2010
Mobile
2011
Mixed
2012
Nov-13
Number of projects
29/11/2013
Projects Directorate | Digital Economy and Education| European Investment Bank
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10. EIB types of broadband infrastructure lending
Corporate finance to telecom operators
Public sector finance
Intermediated loans for broadband
Infrastructure and PE funds
Multi-sector intermediated loans for SMEs and Mid-caps
Direct lending
29/11/2013
Indirect lending
Projects Directorate | Digital Economy and Education| European Investment Bank
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11. Examples of recent FTTx projects
Breitband Schleswig –
Holstein
(Germany)
2010
Reggefiber Group B.V.
(The Netherlands)
2010 / 2012
Świętokrzyskie Regional
Infrastructure
(Poland)
2013
EIB loan: EUR ~2m (cofinancing with structural
funds)
RAIN Rural Broadband
(Lithuania)
2012
EIB loan: EUR 125m
(intermediated by IBSH)
EIB loan: EUR 9.1m (cofinancing with structural
funds)
EIB loan: EUR 130m
(Project 1), EUR 140m
(Project 2)
Deutsche Telekom
(Germany)
2012 / 2013
Iliad SA
(France)
2009 / 2012
EIB loan: EUR 300m
(Project 1), EUR 450 m
(Project 2)
EIB loan: EUR 150m
(Project 1). EUR 200m
(Project 2)
SONAECOM
(Portugal)
2010
EIB loan: EUR 75m
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Innovation Haute Savoie
(France)
2013
EIB loan: EUR 50m (cofinancing with national
grants)
Fastweb
(Italy)
2009/2013
M-Net Breitband Munchen
(Germany)
2009
EIB loan: EUR100m
EIB loan: EUR 350m
(Project 1), EUR 350m
(Project 2)
Projects Directorate | Digital Economy and Education| European Investment Bank
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12. Agenda
NGN investment environment in Europe
The EIB financing of broadband infrastructure
EIB instruments and criteria for broadband projects
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13. Addressable market segments
Estimated total investments EUR150-220bn until 2020* - on average c. 50% of the total market cap for the sector
White & Certain Grey Areas
Government funding plus “New risk-sharing instruments” or
modified existing ones will be needed
Grey + White
Black areas
Certain Grey
Areas
EIB Existing Instruments
Projects must be:
• Technically sound
• Financially viable
Black Areas
• In compliance with regulation
• Show acceptable economic return
Source: EIB estimates
* Band based on various studies and assumptions
** Black areas estimates based on industry forecasts
29/11/2013
Projects Directorate | Digital Economy and Education| European Investment Bank
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14. EIB finance instruments for broadband financing
Corporates
Financing to telecommunications operators, utilities
companies etc. to deploy broadband infrastructures
Project finance
Financing to ring-fenced projects of a special purpose
vehicle (SPV) formed by a private and/or public sector (joint
ventures, off-balance sheet etc.)
Public sector
Grant element
(Grant + EIB loan max 90%
of the project cost)
Financing for public sector initiative typically together with
EU and/or national grants
Others
Intermediated loan structures and framework loans to
financial institutions, local governments and other 3rd parties
Investments into infrastructure funds
New instruments
RSFF/GFI
Project bonds
…
Advisory services (EPEC, JASPERS/JEREMIE etc.)
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EIB loan
(up to 50% of the project cost
or credit risk limit)
Projects Directorate | Digital Economy and Education| European Investment Bank
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15. EIB benefits for beneficiaries
Pricing advantage (EIB’s AAA rating and non-for-profit pricing)
Long maturities of up to 10 years for corporates (potentially longer for project finance)
Direct EIB financing from EUR 7.5m up to EUR 200m per transaction (for cross-over or subinvestment grade counterparts; other limits may apply in line with the internal credit policy of the
Bank)
Strong technology/industry expertise
EIB does not sell assets on the secondary market (buy and hold strategy)
Relationship with co-financing partners: no cross selling of other products (just long-term lender)
Signalling Effect: EIB as a quality stamp
Diversification of funds
Note: EIB products are not grants but loan products
29/11/2013
Projects Directorate | Digital Economy and Education| European Investment Bank
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16. THANK YOU
Jussi Hätönen
Economist (ICT and Telecom)
Digital Economy and Education Division
Projects Directorate
Phone:
Mobile:
email:
(+352) 4379 88610
(+352) 621 368 547
hatonen@eib.org
European Investment Bank
98-100, boulevard Konrad Adenauer
L-2950 Luxembourg
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