Choosing a broadband public-private partnership (PPP) is a multi-stage process. Once the scope and type of PPP are deﬁned, examining the legal and regulatory framework can help streamline the decision-making process.
Most countries in the world understand that broadband Internet is critical to becoming a knowledge-based economy, central to fostering sustainable economic development and job creation, and strategic to the goals of reducing poverty and boosting shared prosperity. However, making broadband Internet ubiquitous and affordable remains challenging. While Internet access in urban areas can be expected to be financed primarily by the private sector, there are considerably greater challenges in extending coverage to less populated areas.
In the global race for increased broadband penetration, public-private partnerships (PPPs) are an ever more useful instrument for implementing fiber optic projects required to carry the growing broadband Internet traffic. Lessons learned from the World Bank’s lending operations can guide officials on how PPPs can facilitate new fiber optic broadband networks in emerging and developed economies.
Defining the scope of the broadband PPP
Competition is the driving force for accelerated and sustainable telecoms market development. The experience of mobile communications, developed in most countries in a competitive environment, has allowed developing and emerging markets to reach levels of penetration similar to those of high-income countries in a short period of time. Competition triggers private investment and incentivizes operators to be more efficient. As a result, it ensures maximum benefits for end users, both in terms of quality and prices.
Consequently, it is key to ensure right from the outset that the scope of the broadband PPP does not reduce competitive dynamics. Broadband PPPs should focus on infrastructure that the private sector would not do alone for quite some time, either on a stand-alone basis or by engaging voluntarily into some form of infrastructure sharing to reduce investment costs. In developed countries, authorities have set up so-called infrastructure databases to keep track of existing and planned fiber rollout, and agreed on an appropriate time horizon (typically around three years) to identify areas where the private sector is considered unlikely to invest. Similar principles should be applied in developing and emerging countries by consulting operators in a transparent process. This would involve discussion of planned fiber optic investments in their strategic plan, which often spans three to five years. In some small or fragile states, this may lead to a need for a PPP for international fiber connectivity in the form of a submarine cable landing station that the private sector is unable to finance on its own. When authorities are striving for national fiber connectivity to all provincial capitals and borders to create a national backbone to support broadband traffic throughout the territory, a PPP on some or all missing fiber optic links may be advisable.
Finally, there will also be a need to expand broadband in rural or remote areas using public subsidies. In this case, it’s necessary for the PPP to ensure that public objectives are met. Avoiding the creation of a digital divide, which exists in many developed countries, is key.
Once the scope has been defined, selecting the appropriate type of PPP is important. The decision should be made to ensure that public funds will be used in the most effective and efficient manner while encouraging as much private sector involvement—and especially risk sharing—as possible.
These PPPs can take a variety of forms. For example, in Mauritania, lease/affermage and design build operate PPPs were the two forms evaluated to fill the missing links of the national fiber backbone. In the Democratic Republic of Congo, lease/affermage and concessions were the best fitting PPP forms assessed. Analysis of pros and cons in the specific country context should be conducted in a transparent manner. The decision on the type of broadband PPP is easier once a reasonable consensus on the business case has been achieved. Because broadband Internet is a new service in many developing countries, demand is uncertain and growth cannot be reliably predicted. This is particularly acute for investments in less populated areas, where there is a need for so-called “patient capital.” For the backbone missing links in Mauritania, for example, analyses on the capital expenditures show positive internal rate of return (IRR) after 20 years, whereas the private sector typically expects positive IRR up to 10 years.
Legal and regulatory framework
At the sector-specific level, a telecoms regulatory framework is central for a broadband PPP’s effectiveness. First, in terms of licensing and authorization, there is a need for a “carrier’s carrier” status. In order to preserve competitive dynamics at the retail level, it is best practice to require the broadband PPP to be active purely at wholesale level, providing the existing operators and service providers with the necessary inputs (such as dark fiber, capacity expressed in Mbit/s) that will enable them to serve end users.
Should the broadband PPP be the sole provider of the necessary inputs—as is the case with international submarine capacity in Sierra Leone; the national fiber optic capacity between the capital city and the provincial capitals in Burundi; and the local capacity in the Limousin Region in France—there is also a need for market power regulation. This will prevent any abuse of a dominant position that would negatively impact the downstream broadband value chain. It involves a complex establishment of service, content, and application providers.
As these examples illustrate, deciding on a broadband PPP is a multi-stage process. As many developing countries are still in the process of visualizing, implementing, or revising their generic PPP framework, the lessons learned so far can guide the process. As with PPPs in every sector, due diligence conducted at the outset will go a long way toward guaranteeing that the type of PPP reaches its goal of serving a large number of people effectively.