FTTH Council MENA report:

Assessing potential of infrastructure finance


A recent report produced by FTTH Council MENA highlights the potential for infrastructure finance to fund FTTH investments. The report includes an assessment of different approaches to funding fibre deployments, including National Broadband Networks (NBNs).

Jan Schindler


In the MENA (Middle East and North Africa) region, infrastructure investors already have trillions of dollars invested in airports, roads and real estate. These investors often seek long-term positions (20-30 years) in inherently inflation-proof infrastructures. Infrastructure funds are increasingly interested in investing in fibre. Packaging FTTH projects as infrastructure investments can tap into pools of money available to invest over a long time horizon. The ability to amortise the high capital investment in fibre over many years makes projects that could not be funded by conventional corporate finance viable. Jan Schindler, Chair Market Intelligence/Development Committee FTTH Council MENA, offers some insights:


“Several factors can make investing in FTTH/FTTx attractive. For one thing, Total Cost of Ownership is materially lower than copper or copper upgrade. High reliability can bring 20%-80% network OPEX reduction. Happier customers and fewer calls also save on cost. The sales proposition is an attractive one: simple but powerful (wholesale) products mean much higher productivity and less IT spending, and there’s no longer a treadmill of endless upgrades and new technologies to worry about.”


“Proceeding with caution is wise. An NBN can be a very complex, large, financially risky programme where the payoff is either relatively uncertain, or may only happen indirectly through economic development. The NBN can also present a clear and prescient threat to existing cash flows from rival infrastructure. Creating a bankable NBN project is far from easy but the process forces both short and long-term financing issues to become explicit, particularly those relating to non-economic areas. This, in turn, prompts clarity and therefore stability of government and regulatory policy, of pricing, cross subsidy and so on. All of these factors help improve the effectiveness and efficiency of the NBN in the long term.”


“Significant involvement of private financial institutions creates the possibility for the participation in ownership by established operators. At the same time, it also contains the risk of institutional capture by those same operators.  This may help the NBN generally gain acceptance and guaranteed migration, specifically from those established operators, greatly benefiting the overall NBN initiative.”


“An NBN can increase significant economic impact and benefits. The enhanced value will – over time – result in greater pricing power. Special platforms for subscription increase flexibility and, therefore, the number of users and revenue. However, one key issue in making an NBN a success is ensuring it is future proof. The initial rollout needs to be done once, and it needs to be done right the first time. By opting for fibre and Active Ethernet, the risk of technology becoming obsolete is avoided. A fibre infrastructure will serve the country for the next 30 years. Fibre assets’ long life makes them ideal for infrastructure financing.”

NBN financing models: example 1 – Government only

A Ministry of Finance grants funding or provides a non-recourse long-term loan to the NBN company. A loan made at a low interest rate and repayable over 20 years is ideally suited to a fibre NBN. Such Finance Ministry loans are common in the cash-rich Gulf States. The downside is that an NBN relying completely on government finance will not face the same degree of financial discipline that private sector banks or investors would impose. Also, policies may change with governments, so such funding may not be stable in reality.

NBN financing models: example 2  – Mixed, such as a Public Private partnership (PPP)

Part of the project is funded by the government and part by the private sector.  This can be done simply as a joint venture on equal terms but more usually the government takes the high-risk elements of project, which gives enough comfort for the private banks to lend money over a long period of time. In theory, PPPs bring private sector incentives and efficiencies to public sector projects, but in reality this is not always the case.  Particularly for innovative or unusual PPPs the allocation of risk may end up mainly on the public sector with private investors largely protected from delays, overruns or revenue shortfalls.

NBN financing models: example 3 – Privately financed

The most direct form of private finance for a fibre network is corporate finance provided to the incumbent or a well-established mobile operator.

NBN financing models: example 4 – Project finance

An alternative approach uses project finance work to fund a particular project, rather than an overall company. This approach requires a comprehensive set of long-term enforceable contractual arrangements to be in place on both the supply side and the demand side (for example an anchor tenancy agreement with the incumbent). The regulator will also probably need to provide waivers regarding future regulation, to some extent. Such deals are very difficult to put together and we are not aware of any for FTTH so far - although the idea is gaining currency in different parts of the world.

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© Copyright Prysmian Group.

All rights reserved.