Municipalbroadbandnetworks

13 November 2002

Mark Henley

Governments in many EU Member States are considering what role they can play in promoting and financing the roll-out of broadband infrastructure. This is not only to promote inward investment and revive flagging communications markets; it may also be the only way to achieve the goals set out in the European Commission’s June 2002 Communication, ‘eEurope 2005: An information society for all’ (see the Europa website).

eEurope 2005

This set out an action plan for ‘stimulating secure services, applications and content based on a widely available broadband infrastructure’, prioritising the connection of public administrations, schools and health care institutions to broadband as well as the removal of obstacles to the deployment of broadband networks. It specified the following proposals for action:

  • by 2005 Europe should have a widespread availability of broadband access at competitive prices;
  • by 2005 Member States should aim to have broadband connections for all public administrations;
  • by the end of 2004, Member States should have ensured that public services are interactive and accessible and exploit the potential of broadband networks;
  • citizens of Member States should have access to public internet access points preferably with broadband connections in their communes/municipalities;
  • by the end of 2005, Member States should aim to ensure that all schools and universities have internet access over a broadband connection; and
  • by the end of 2005, Member States should develop health information networks between points of care with broadband connectivity where relevant.

More generally, the Commission recommended that Member States ensure effective competition in local telecommunication networks and support deployment in less favoured areas, where possible using structural funds and/or financial incentives.

The public sector has a range of options for procuring broadband infrastructure:

  • grants from the European Funds for Regional Development (EFRD) to areas where broadband roll-out would never be economic for private commercial operators;
  • government grants (on a capital and/or revenue basis);
  • broadening access to existing broadband infrastructure in the possession of public bodies and state-owned utilities; and
  • joint ventures between the public and private sector.

The current state of broadband

Central government initiatives, such as the UK’s National Grid for Learning and NHSnet, have already made headway towards the creation of national broadband infrastructures, but these facilities are generally only available to closed groups of public sector users. In contrast, the major telecommunication operators have concentrated their investment on regions of high demand that offer reasonable returns in the short to medium term.

This means that citizens and businesses located in areas that have low levels of interest in broadband services or which are geographically remote are still being overlooked in the rush to roll out broadband infrastructure. This leaves the governments of Member States with much to do if they are to keep up with the Commission’s timetable for widespread availability of broadband by 2005.

Public procurement – help or hazard?

One of the main benefits of public procurement is that where a public body is responsible for purchasing the infrastructure, this will allow a wider group of commercial organisations, including SMEs, to compete for an opportunity to be involved. If a major telecoms provider goes it alone, it will usually attempt to do most of the work itself and work only with a limited number of its favoured suppliers. This limits the opportunities for smaller enterprises to enter the market and may stifle innovation.

A public sector body in the EU wanting to spend more than €249,681 (only €162,193 if it is a central government body) on broadband services will generally have to advertise the contract in the Official Journal of the European Community. Bidders may have as few as 37 days to respond, so for companies wishing to get involved in publicly-funded broadband ventures, it is essential that they keep a watchful eye on the Official Journal.

Public sector bodies are under a duty to treat bidders equally and that means every bid should get the same consideration. However, in practice there is a great advantage in having experienced the public procurement process, so for newcomers it is usually worthwhile entering into a consortium bid with a more experienced partner, rather than attempting to lead a bid. Specialist consultants with knowledge of the public procurement process can also be very helpful.

In addition, the costs of funding a bid are rarely reimbursed by the public sector and can amount to hundreds of thousands of euros. If a public sector body hosts an open meeting for bidders, this may present an invaluable opportunity to find fellow consortium members.

The financing options

Grants

If a direct government or European Union grant is available, the public sector body will have to choose a financing option that matches the payment profile of that grant. If the public sector body receives a capital grant, the public sector will wish to pay for the capital cost of the infrastructure at an early stage and pay relatively small maintenance charges over the term of the contract.

If the grant is in the form of committed ongoing revenue, the public sector body will be looking to either the bidder or third party financiers to fund the infrastructure development in the short term, eventually paying from revenue over the medium to long term. If this is the case, the public sector body will usually indicate in the OJEC advertisement that it is considering a PFI or PPP funding arrangement for the project.

One example is “Kenniswijk” (“Knowledge District”) – a Dutch PPP project for building broadband telecommunications infrastructure (see www.kenniswijk.nl). Kenniswijk is an initiative of the Dutch Ministry of Transport, Public Works and Water Management to stimulate the development of ICT services and facilities. Significant sums have been committed to the project by central and local government in the form of subsidies.

More than 40 private and public parties, non-profit organisations and local governments have worked together to develop and test broadband infrastructure and innovative services in the Eindhoven region. Companies, institutions and government authorities are responsible for providing the infrastructure and content. The opportunity to build infrastructure and develop services for Kenniswijk is open to all, any provider can enter the project at any time. Local residents are not only users of these infrastructures and content, but also form a critical test market for the development of new services and applications.

The capacity of the fixed infrastructure within Kenniswijk will be at least 10 Mb/s fibre. Other forms of high-speed infrastructure are also being offered, such as wireless and satellite technology.

A joint venture company, Kenniswijk BV, has been set up to oversee the realisation and development of Kenniswijk. The Kenniswijk BV shareholders are privately and publicly held companies, non-profit organisations and the Dutch Government.

Broadening access to existing infrastructure

Public utilities and national transport infrastructure operators often have mature communications networks, which can spin off into the private sector. For example, the RACAL Telecom infrastructure which subsequently became Global Crossing UK, was originally the British Rail internal communications network and 186k Networks was once the British Gas internal radio network.

To partially commercialise these networks so that they support a private network for Government as well as public access, where the division is made geographically or functionally, raises complex issues of security, service quality, taxation, state aids and competition law. The most popular route is usually to sell the infrastructure outright, outsourcing the public bodies’ needs to the new network owner which then uses spare capacity for commercial services.

Joint Ventures

Although many PFI/PPP projects involve the setting up of a joint venture company (see Kenniswijk BV above), another alternative is to set up a truly independent joint venture company which can follow its own agenda for developing broadband infrastructure, rather than work within the context of a particular PFI/PPP project. Specialist advice should be taken to ensure that these joint ventures are not themselves subject to the full rigour of the public procurement rules.

For further information about public/private broadband networks, contact:

David Kerr or Sally Trebble in London;
Frédérique Dupuis-Toubol in Paris;
Marjolein Geus in The Hague;
Jan Byok in Düsseldorf;
Richard Fawcett in Hong Kong;
Johan Tyden
in Stockholm; and
Catherine Erkelens in Brussels.