1

FINANCING MECHANISMS FOR LOCALLY OWNED INTERNET INFRASTRUCTURE

Connectivity Capital in collaboration with Association for Progressive Communication (APC), Internet Society (ISOC), and Connect Humanity

SEPTEMBER 2022

Photos from TooMuchWifi and AirJaldi

© Connectivity Capital 2022 | Some rights reserved. This work is licensed to the public through a �Creative Commons Attribution-Non-Commercial-Share Alike 4.0 International license (CC BY-NC-SA 4.0).�Suggested citation: Connectivity Capital (2022). Financing Mechanisms for Locally Owned Internet Infrastructure

Acknowledgements

STUDY AUTHORS

This report was authored and prepared by Connectivity Capital:

• Jim Forster
• Ben Matranga
• Anoop Nagendra

CONTRIBUTORS

The following individuals provided valuable contributions in the form of significant editorial suggestions, critical feedback, and additional comments:

• Christine Yee (Connectivity Capital)
• Marc Goldburg (Connectivity Capital)
• Brian Vo (Connect Humanity)
• Calum Cameron (Connect Humanity)
• Debora Prado (APC)
• João Paulo de Vasconcelos Aguiar (ISOC)

INTERVIEWS & CASE STUDIES

Case study contributions were sourced from or verified with the following individuals and their organizations:

• Barry Forde, Chris Conder, and Helen Eastwood (B4RN)
• Carlos Rey-Moreno and Sol Luca de Tena (Zenzeleni)
• Bruce Patterson and Jeff Christensen (EntryPoint Networks/City of Ammon Fiber Optics)
• Ramon Roca (Guifi.net)
• Peter Bloom, Erick Huerta, and Steve Song (Rhizomatica)
• Nicolás Echániz (AlterMundi)
• Fr. Joseph Okumu and Daniel Komakech (BOSCO)
• Gustaff H. Iskandar (Common Room)
• Patrick Byamungu and Heri Cihimba (La Différence)
• Nisarat Tansakul (Net2Home)

STEERING COMMITTEE

The steering committee consists of members from the sponsoring organizations (APC, ISOC and Connect Humanity). The committee met monthly and provided continued guidance on the report:

• Steve Song (APC, Connect Humanity, Many Possibilities)
• Carlos Rey-Moreno (APC)
• Mike Jensen (APC)
• Jochai Ben-Avie (Connect Humanity)
• Jane Coffin (Connect Humanity)
• Juan Peirano (ISOC)

About the study partners

3

�UK Aid

�The UK Government promotes the inclusive, responsible and sustainable digital transformation of partner countries. Its flagship Digital Access Programme (DAP) - led by the Foreign, Commonwealth & Development Office (FCDO) - operates in Brazil, Indonesia, Kenya, Nigeria and South Africa. The DAP includes a partnership project with APC in support of community networks as complementary models of inclusive connectivity.

�Connect Humanity

�Connect Humanity is a fund advancing digital equity that supports, catalyzes, and scales holistic solutions providing people with the internet access and means needed to participate fully in a digital society. The fund’s approach centers on community connectivity providers and civil society organizations who are demonstrating progress in connecting historically underserved communities, pioneering efforts to make the internet more affordable, providing digital literacy training, and more.

�The Internet Society (ISOC)

�ISOC works for an open, globally-connected, secure, and trustworthy Internet for everyone. ISOC is the world’s trusted independent source of leadership for Internet policy, technology standards, and future development. More than simply advancing technology, ISOC works to ensure the Internet continues to grow and evolve as a platform for innovation, economic development, and social progress for people around the world.

�The Association for Progressive Communications (APC)

�APC is an international network of civil society organisations dedicated to creating a just and sustainable world by harnessing the collective power of activists, organisations, excluded groups, communities and social movements, to challenge existing power structures and ensure that the internet is developed and governed as a global public good. Local Networks (LocNet) is an initiative led by APC in partnership with Rhizomatica that aims to directly support the work of community networks and to contribute to an enabling ecosystem for the emergence and growth of community networks and other community-based connectivity activities in developing countries.

PARTNERS

SPONSOR

Financing Mechanisms for Locally Owned Internet Infrastructure

About the study author

4

�Connectivity Capital

​

Connectivity Capital is an impact investment firm focused on expanding Internet access in developing countries. Connectivity Capital manages the world’s first impact investment fund that identifies, invests in, and partners with market leading Internet Service Providers (ISPs) that expand access to connectivity in underserved communities. The firm provides investment management and advisory services to partners that share their passion that affordable broadband connectivity should reach every community in the world.

ADDITIONAL REPORTS

Open-source ISP Business Toolkit�(www.affordablebroadband.org)

USAID-Connectivity Capital Barriers to Investing Report

Financing Mechanisms for Locally Owned Internet Infrastructure

Foreword

5

Since the pandemic, there’s been a growing appreciation of the economic and human costs of a world in which half the population lives without internet access and the tools needed to meaningfully participate in a digital society. This has come with a new energy to close digital divides. But the discussions among policymakers, development experts, philanthropy, and corporations too often focus on how much money is needed and not enough on how money needs to be used differently.

​

We commissioned this report to help change the conversation. The second half of humanity will not be connected in the same way as the first — by large for-profit incumbent telecommunications companies. While these firms have connected billions of people in the last 25 years, they are meeting their limits. It is simply not in their business models to invest in low-income, often rural, communities that do not offer the profit margins they have come to expect. They have not and will not connect everyone.

​

The digital divide is not a problem the market alone will solve. We need to do things differently. Globally there is a growing movement of community connectivity providers — including community networks, municipal networks, cooperatives, and social enterprises — connecting underserved communities, often at faster speeds and lower prices than incumbent providers.

​

These are the networks we need to promote, support, and invest in. Yet, almost all of them struggle to access capital. This is a nascent movement and the financial tools and capital stacks have not yet matured to meet the needs of these networks and the communities they serve. We now need to cultivate the financial infrastructure that will allow community connectivity providers to grow and scale.

​

This report is designed to provide a foundation of understanding about what these providers look like, their various ownership and operating models, and how they can be financed sustainably. It is a practical tool for those who want to build networks and for funders and investors. The report’s 10 case studies show where and how community connectivity providers are already getting the job done and demonstrate how underserved communities can build their own internet infrastructure and take control of their digital futures.

​

We hope this report will help more communities to achieve digital equity, catalyze more funding for community connectivity providers, and accelerate access to the internet and digital tools so that everyone can fully participate in our digitalizing world.

Jochai Ben-Avie

Chief Executive

Connect Humanity

Financing Mechanisms for Locally Owned Internet Infrastructure

Executive Summary

6

Recommendations are targeted toward the three major stakeholders that influence the ecosystem and flow of capital to CCPs:

BACKGROUND

KEY TAKEAWAYS

RECOMMENDATIONS

The purpose of this report is to increase the understanding of financing mechanisms available to Community Connectivity Providers (CCPs). CCPs, including community networks, municipal networks and social enterprises, are locally-owned and operated networks that fill gaps and provide access where traditional telecommunication networks do not.

Three billion people around the world still remain offline without access to the transformational power of the internet. These communities are falling further behind as the world becomes increasingly digital around them.

The majority of the unconnected communities are located in low income or rural regions of the world.

Despite a growing number of innovative and successful CCPs, there has been minimal research about financing CCPs.

CCPs HAVE DISTINCT COMPETITIVE ADVANTAGES

The financial feasibility of CCPs are largely determined by the degree to which they can avoid or decrease costs of building & operating a network. CCPs that leverage community assets and resources to lower the cost of deployments have a higher chance of sustainability.

ALIGNMENT OF FINANCIAL EXPECTATIONS IS KEY

When choosing between different financing mechanisms, CCPs have to evaluate trade-offs, cost of capital, and return expectations. CCPs that match financing sources with appropriate projects and return profiles are most likely to have access to sustained funding.

STAGE & STRUCTURE AFFECT CAPITAL AVAILABILITY

CCPs that are self-reliant, growing in scope and scale, or have specialized local registration status have an enhanced ability to deliver connectivity at scale and attract larger amounts of capital from various sources.

1. GOVERNMENT & POLICY MAKERS

Create an enabling regulatory environment that allows CCPs to operate cost-effectively and encourage investment through fiscal incentives, subsidies, and technical assistance.

• CCPs

Prioritize cost-efficient deployments and diversify revenue streams with a focus on financial sustainability and self-reliance. Identify stage-appropriate sources of capital that fit needs.

• FUNDERS & INVESTORS

Unlock grant & sub-commercial capital to CCPs that are financially sustainable and generate significant social impact connecting unserved communities.

Financing Mechanisms for Locally Owned Internet Infrastructure

Overview

7

• Document and analyse the ecosystem of investment and sustainability strategies that Community Connectivity Providers (CCPs) including community networks and municipal networks have employed in recent years.
• Identify how existing financing mechanisms can be adapted to finance CCPs.
• Identify financing and sustainability strategies from other sectors that may have application for CCPs.
• Reduce friction between community connectivity providers and funders, thereby catalyzing more funding towards community-owned internet infrastructure.

• There has been minimal research about innovation in financing of locally-owned community connectivity providers.
• Despite a growing number of success stories of Community Connectivity Providers (CCPs), most of which have required innovative financing, there has been limited written about these approaches.

Context

Purpose

Financing Mechanisms for Locally Owned Internet Infrastructure

Scope of the report

• Community Connectivity Providers (CCP): The spectrum of connectivity providers that are locally-owned and prioritize digital equity and the needs of underserved communities. These include community networks, cooperatives, municipal networks, small operators, and social enterprises.
• Financing Mechanism: The way in which an organization receives the funding necessary to remain operational. This report classifies main financing mechanisms as grants & subsidies, equity and debt.
• Emerging Markets: Those countries designated by the IMF, UN, and World Bank as ‘Developing’ and ‘Least Developed’. These are usually characterized by low-mid per capita income, high market volatility, transitional nature and high growth-potential.

• Identify the challenges and funding constraints of community connectivity providers in emerging markets
• Explore the relationship between an operator’s ownership structure, operating model, stage of growth, and available financing mechanisms.
• Showcase different financing mechanisms and owner-operator models of community connectivity providers.
• Identify ways to reduce friction and increase alignment between expectations of capital providers & operators of CCPs.

• While we acknowledge their importance, we do not focus on other aspects of an organization’s sustainability that may include governance mechanisms, technology adoption, human resource planning, environmental risk management etc.

8

Problem Scope

Community Connectivity Providers

Organizational �Sustainability

Operational �Sustainability

Financial �Sustainability

>

Important Definitions

In-scope activities

Out-of-scope activities

Financing Mechanisms for Locally Owned Internet Infrastructure

How to read this report

• The context of the digital divide from the lens of community operators - reframing the problem and examining the underlying factors and challenges prevalent in emerging markets.
• An update on the current state of connectivity globally with an overview of the funding gap and key interventions required to close the digital divide with a focus on the challenges and the role of community connectivity providers (CCPs).
• A description of the stages in the life cycle of operators - breaking down down the economics of operating a network (costs, revenue, retained earnings & funding). A simple way to calculate a Return on Investment (ROI) equation to influence different levers of growth. A definition of the different milestones and metrics to consider on the path to financial sustainability.
• Ready-to use tools, resources, and workbooks available for operators to understand their economic viability.

• A comparison of the trade-off that operators consider when deciding on their ownership structure, legal entity, and operating models. An analysis of different operating models along with the degrees of participation in the network architecture.
• Examples of a variety of CCPs and the rationale behind the choice of their unique owner-operator model.
• An introduction to the process of developing a financing plan, the main financing instruments, and the sources of capital and return expectations.
• Opportunities for funders to participate in the blended capital stack and identify the evolving financing needs and capital structures of a CCP over its life cycle. Novel ways to consider linking financing mechanisms to financial sustainability milestones.

• An overview of the key stakeholders and the case for increased funding allocation to CCPs
• Recommendations for governments and policy makers to create an enabling regulatory ecosystem that incentives funding to CCPs.
• Recommendations for operators to enhance financial sustainability and investment readiness at various stages of growth.
• Recommendations for investors to understand the risk profiles of community connectivity providers and develop financing strategies.

9

FOUNDATION��Section 1: Background�Section 2: Role & Development of CCPs

DEEP-DIVE��Section 3: Owner-Operator Models �Section 4: Financing Mechanisms

ACTION��Section 5: Recommendations

Financing Mechanisms for Locally Owned Internet Infrastructure

Target audience for the report

10

This report has been designed for community connectivity providers and funders or investors to identify financing mechanisms and sustainability strategies that are applicable to to expand access to connectivity through CCPs.

​

The two main emphasis for this report are:

1. Community Connectivity Providers (CCPs): To improve operations and be investment ready at various stages of growth�
2. Funders and investors: To understand the different risk profile and tradeoffs associated with a variety of different operating models

Key Audiences

Financing Mechanisms for Locally Owned Internet Infrastructure

Case studies

11

This report covers the following broad topics:

​

Operator life-cycle and stages of growth

​

Economics of operating a network

​

Ownership structures

​

Operating models

​

Financing mechanisms

11 case studies across 10 countries…

Financing Mechanisms for Locally Owned Internet Infrastructure

Summary of case studies (1/2)

12

Broadband �for the �Rural North Ltd (B4RN)

Organization

Country

Year Founded

Legal Registration

United �Kingdom

2011

Non-Profit Community Benefit Society

Technology

Gigabit Fiber Optic Network

Key Takeaway

Government sponsored voucher schemes provided the incentive for B4RN to accelerate growth and reach scale to access a crowdfunded bond promoted by a bank

Zenzeleni Networks

South�Africa

2012

Non-Profit Company

Wireless Mesh & Fixed Wireless

South Africa’s first cooperative-owned ISP, Zenzeleni is pursuing financial sustainability aided by grant funding and anchor client revenue

City of Ammon Fiber Optics

USA

2011

Municipal Utility

Software-defined networking over Gigabit Fiber

The Ammon model proves out the benefits of broadband infrastructure as a utility, where residents own the fiber and providers compete to serve

Guifi.net

Spain

2004

Private Not-for-Profit Foundation

Wireless & Fiber

Guifi paves the path for a disruptive open and neutral model based on an “infrastructure-as-a-commons” network deployment

Rhizomatica

Mexico

2009

Not-for-profit organization

Licensed IMT (mobile) spectrum

Demonstrates how flexible regulation can enable local sustainable economic development in underserved localities through community-owned infrastructure

Financing Mechanisms for Locally Owned Internet Infrastructure

Summary of case studies (2/2)

13

RS Fiber

Organization

Country

Year Founded

Legal Registration

2012

Cooperative

Technology

Wireless & Fiber

Key Takeaway

A subordinated development loan backed by a general obligation tax abatement bond seeded the construction of RS Fiber’s cooperative-owned broadband network

AlterMundi

Argentina

2011

Non-profit association / Civil association

Mesh WiFi

Systematically lowered the cost of deployments by developing their own low-cost hardware and gaining free access to unused upstream bandwidth

BOSCO

Uganda

2007

Not-for-Profit Organization

Unlicensed WiFi

Leveraged local and international partnerships to provide connectivity to isolated communities in Northern Uganda

Common Room

Indonesia

2006

Non-Profit Organization

WiFi

In partnership with the local ISP and residents, Common Room has brought affordable internet access to the indigenous communities in West Java

La Différence

DR Congo

2017

Cooperative and Charity

Unlicensed Fixed Wireless

Pamoja Net, operated by La Différence cross-subsidizes its free off-peak public WiFi access by leasing fixed lines to local businesses and NGOs in Idjwi Island, DRC

USA

Net2Home

Thailand

2013

Social Enterprise

Mesh WiFi

Combines external support and an entrepreneurial franchise model to provide affordable wireless internet access in a low-density rural agricultural area in Thailand

Financing Mechanisms for Locally Owned Internet Infrastructure

Glossary & Additional Definitions

14

Internet Service Provider (ISP): An organization that provides services for accessing, using, or participating in the Internet. In this report, ISPs refer mostly to access networks.

​

Mobile Network Operator (MNO): a cellular communications service provider that provides wireless voice and data. MNOs usually operate over licensed spectrum and provide capped mobile data over 2G, 3G, or LTE technologies

​

Community Connectivity Providers (CCP): The spectrum of connectivity providers that are locally-owned and prioritize digital equity and the needs of underserved communities. These include community networks, municipal networks, social enterprises, small local operators, and cooperatives.

​

Community Network (CN): Collectively owned and managed communications networks that are usually not for profit and community goals oriented.

​

Municipal Network (Muni network): Broadband Internet access owned by public entities with services provided either fully or partially by local governments to residents within certain areas or jurisdictions.

Average Revenue Per User (ARPU): The average revenue generated per active user or subscriber, usually measured monthly. Useful to understand the company’s revenue generation capability and growth at the per-unit level.

​

Cost of Goods Sold (COGS or Cost of Sales): The direct costs involved in provision of connectivity services, usually includes the cost of backhaul/IP transit, tower rent / lease, cross connect fees etc.

​

Gross Profit (GP or Gross Margin): A company’s net sales minus its cost of sales. An initial measure of financial health that reflects a company’s efficiency in using raw material.

​

Earnings before Interest, Depreciation and Taxes (EBITDA): A measure of profitability that eliminates the effect of financing and capital expenditures. Useful to understand a company’s cash flow & debt-service level.

​

Earnings before Interest and Taxes (EBIT or Operating Profit): Analyzes core operational profitability without the costs of capital structure and tax expenses.

​

Profit After Tax (PAT or Net Profit): Often referred to as the “bottom-line”, PAT is an all-inclusive measure of overall financial performance over a defined period of time.

​

Low and Middle Income Countries (LMIC): A World Bank classification that includes 137 countries with a Gross National Income (GNI) per capita of $12,695 or less.�

Emerging Markets: Those countries designated by the IMF, UN, and World Bank as ‘Developing’ and ‘Least Developed’. These are usually characterized by low-mid per capita income, high market volatility, transitional nature and high growth-potential.

​

Least Developed Countries (LDCs): As defined by the United Nations Committee for Development (UNCDP), LDCs are a group of 46 low-income countries confronting severe structural impediments to sustainable development. They are highly vulnerable to economic and environmental shocks and have low levels of human assets.

​

Landlocked Developing Countries (LLDCs): A group of 32 countries that face serious challenges to socio-economic development because of lack of territorial access to the sea, isolation from world markets and high transit costs.

​

Small Island Developing States (SIDS): A distinct group of 58 island countries that face unique social, economic, and environmental challenges, mainly as a result of their remote geography.

​

​

​

​

​

​

Telecommunication

Financial

Geographic

Financing Mechanisms for Locally Owned Internet Infrastructure

Table of Contents

15

Background

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Section 1

Role & Development of CCPs

Section 2

Ownership & Operating Models

Section 3

Financing mechanisms & de-risking strategies

Section 4

Recommendations

Section 5

Financing Mechanisms for Locally Owned Internet Infrastructure

Section 1: Background

16

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Background

Section 1

Role & Development of CCPs

Section 2

Ownership & Operating Models

Section 3

Financing mechanisms & de-risking strategies

Section 4

Recommendations

Section 5

Financing Mechanisms for Locally Owned Internet Infrastructure

Section 1: Background

• The internet continues to be unavailable, unreliable, and / or unaffordable for many. Covid-19 has only underscored the global digital divide. 37% of the global population, ~2.9 billion people, are still non-users of the internet and are predominantly located in rural and low-income regions of the world.
• Inclusive internet access can only be unlocked through funding and policy interventions. While a significant amount of investment is required to close the digital divide and ensure universal connectivity, policy and regulatory reforms play a large role in enabling access to affordable connectivity.
• Many emerging markets lack the fixed infrastructure ecosystem needed to deliver robust and affordable uncapped connectivity. A confluence of positive developments (cheaper landed bandwidth, affordable network equipment, and increased device ownership) over the last decade make this the right time to invest in community connectivity providers.

‘Section 1: Background’ explores the context of the digital divide through the lens of smaller local operators across global markets. This is critical to reframing the problem and examining the underlying factors prevalent across various unserved and underserved regions.

This introduction also serves as the foundation for the rest of this report and begins with a brief update on the global state of connectivity. We revisit the different types of connectivity gaps and emphasize the importance of providing universal and meaningful connectivity.

The section concludes with an overview of the funding gap and key interventions required to close the digital divide. The focus is primarily on the challenges of connectivity in low-income and rural regions around the world.

What to expect in this section?

Key Takeaways

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

17

Financing Mechanisms for Locally Owned Internet Infrastructure

• The state of global connectivity
• Connectivity in emerging markets

Section 1: Background

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

18

Financing Mechanisms for Locally Owned Internet Infrastructure

State of Connectivity: The world is divided - separated by communities who can and can’t reap the benefits of internet access. Covid-19 has only underscored this divergence.

19

Source: Google, Nokia, Lightwave

• Internet traffic volume has grown ~50-60% since pre-pandemic levels, driven primarily by working from home (video conferencing and collaboration, VPNs), learning from home (video conferencing and collaboration, e-learning platforms) and entertainment (online gaming, video streaming, social media).
• At the same time, the COVID-19 pandemic illuminated a long-standing issue: The many low-income communities around the world that lack reliable and / or affordable access to connectivity are being left further behind.

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

State of Connectivity: 37% of the global population is offline, predominantly in emerging markets

20

• The global online population has accelerated during the pandemic, increasing by nearly 20% since 2019 to 4.8 billion users.
• 96% of the 2.9 billion offline population live in developing countries and face multiple barriers to access.

Global Participation in the Digital Economy

Total global population

7.8bn

Offline Population by Region

The Americas

18.6%

Europe

12.8%

CIS

17.7%

Asia & Pacific

39.4%

Arab States

33.7%

World

37.5%

Africa

67.2%

Developed

9.7%

LDCs

73.0%

Source: ITU Measuring Digital Development Facts & Figures, 2021; GSMA Mobile Economy 2021

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

State of Connectivity: Coverage has been steadily increasing but connectivity gaps still remain for various reasons

21

Coverage Gap

Upgrade Gap

The part of the population that is covered by mobile or fixed network services that do not qualify as broadband e,g, 2G mobile networks or dial-in PSTN/ ISDN fixed networks.

The part of the population that is not covered by any connectivity infrastructure, mobile or fixed - typically because they are in rural or remote areas with low population density.

Broadband users and connectivity gaps across regions (in millions of users and % of population)

Source: Adapted from 21st Century Financing Models for Bridging Broadband Connectivity Gaps

447 (33%)

77%

AFRICA

909 (67%)

8%

16%

387 (59%)

270 (41%)

LATIN AMERICA

91%

2,404 (52%)

2,257 (48%)

ASIA

87%

9%

Adoption Gap

The part of the population that is covered but not connected - either because of a lack of affordability, local content, digital skills, or a variety of complex cultural barriers.

9%

4%

Broadband Users

Broadband Non-Users / Connectivity Gap

Adoption Gap

Upgrade Gap

Coverage Gap

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

State of Connectivity: Inclusive growth stems from internet provision through networks with sufficient capacity, quality and speed to support more advanced usage

22

• An individual’s use of the internet can encompass many characteristics depending on the user’s skills, preferences, spending power and proximity to high-speed access.
• Current usage can be categorized into five distinct maturity levels, each characterized by what people do online and the skills their activities require, as well as by the minimum quality of service that allows them to carry out the activities.
• Importantly, the boundaries, definitions and number of maturity levels are likely to shift as additional uses of the internet emerge over time.
• While much of the developing world is still at ‘Level 1’ or ‘Level 2’ internet usage, the minimum standards of meaningful internet access are now increasingly being defined in terms of ‘Level 3’ usage - near-constant connectivity that is provided at 4G-like speeds (minimum of 25 mbps)

Source World Economic Forum - Financing a Forward Looking Internet for All (2018) :

World Economic Forum Taxonomy of Internet Maturity

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

State of Connectivity: Moving beyond basic access to universal and meaningful connectivity is important to unleash the internet’s true potential

23

Source: ITU, Achieving universal and meaningful digital connectivity (2022)

• The ITU has developed a new framework for assessing internet access which goes beyond a single metric such as ‘share of the population connected’. The framework is deliberately agnostic about the interventions needed to achieve universal and meaningful connectivity, and the applications of connectivity.
• While ‘universal connectivity’ means connectivity for all, ‘meaningful connectivity’ is a level of connectivity that allows users to have a safe, satisfying, enriching, productive online experience at an affordable cost.
• The two dimensions are complementary: neither universal connectivity with poor quality nor meaningful connectivity for the few will yield significant, society-wide benefits. At the same time, the two dimensions obviously reinforce each other: more use can lead to more meaningful connectivity, and vice versa.
• Universal and meaningful connectivity is key for enabling digital transformation.

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

State of Connectivity: Affordability continues to be one of the most significant barriers to sustained usage

24

• In least developed countries (LDCs), while the median price for entry-level broadband has been declining, it remains beyond the means of the average consumer in all but 4 of the 43 LDCs for which data could be obtained.
• For fixed broadband, among the 33 LDCs for which data is available, only one has met the two per cent target.

Source: ITU Measuring Digital Development Facts & Figures, 2021, ITU ICT Price Baskets

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

UN Broadband Commission 2% Affordability Target

Cost of a Fixed broadband basket (min 5GB) as a % of GNI (2021)

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

State of Connectivity: A significant amount of investment is required to close the funding gap and ensure universal connectivity

25

Infrastructure Funding Gap - Key Statistics

$100 Billion

UN Broadband Commission estimate of additional investment requirement to connect 1.1 billion offline users in Africa

$428 Billion

ITU, GSMA, A4AI estimate of additional investment requirement to connect 3 billion offline users globally

$1 Trillion

World Economic Forum estimate of global ICT infrastructure gap by 2040

Investment Gap for Universal Broadband Coverage

~USD 428 Billion is needed to achieve universal broadband connectivity across the world

Source: ITU Connecting Humanity (2020); Broadband Commission - Connecting Africa through Broadband (2019) World Economic Forum - Financing a Forward Looking Internet for All (2018)

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

State of Connectivity: Policy and regulatory reform can unlock tremendous value in the push towards universal connectivity

26

Source: 21st Century Financing Models for Bridging Broadband Connectivity Gaps, World Economic Forum - Financing a Forward Looking Internet for All (2018)

• There is a ‘trap of value’ - locked out by current regulatory and policy guidelines that are stifling competition, demand and network deployment.
• The reform of policies and regulations is highly cost-effective as they can make a significant impact on the connectivity gap without requiring an equally significant budget effort.
• These efforts include facilitating an enabling environment for access to wireless spectrum, passive infrastructure sharing, open-access backbone networks, demand stimulating measures, etc.

Illustrative impact of policies & regulations

Coverage Gap

Upgrade Gap

Adoption Gap

For operators to address gaps that remain after policy interventions

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Section 1: Background

• The state of global connectivity
• Connectivity in emerging markets

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

27

Financing Mechanisms for Locally Owned Internet Infrastructure

Connectivity in emerging markets: In developed markets, a dual ecosystem approach is the norm but emerging markets lag behind due to historic geopolitical and infrastructure issues

28

• In emerging markets, mobile broadband is the predominant ecosystem due to a historic lack of major fixed-line telecom infrastructure (copper, cable, fiber).
• Dual ecosystem (fixed and mobile) use is the norm in developed countries, where users demand both affordability and convenience.
• Mobile internet has allowed emerging markets to leapfrog the infrastructure gap but fixed services must evolve to handle capacity needs over time.
• Fixed networks carry a majority of the global internet traffic and provide uncapped, affordable, reliable and high-speed connectivity, which unlocks the transformational potential of the internet.

Source: Connectivity Capital Analysis, Cisco VNI Global IP Traffic Forecast, 2017-2022

IP Traffic Forecast (Illustrative)

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Developed Markets

Emerging Markets

The “Mobile” ecosystem refers to connectivity delivered wirelessly (eg. radio frequency) directly to mobile devices. From example from a base station to a cell phone. Mobile connectivity (mobile data) is usually provided by cellular network providers (Mobile Network Operators) and allows the user to access connectivity on-the-go within a large coverage area.

The “Fixed” ecosystem refers to connectivity delivered through a combination of wired (“fixed-line”) and fixed-wireless mediums. Fixed connectivity is usually provided by ISPs and allows connectivity only to users within a specific local location.

• “Fixed-line” refers to connectivity delivered by wired telecom systems, such as copper, cable, or fiber.
• “Fixed wireless” refers to connectivity delivered wirelessly between two fixed locations. For example from a base station to a receiver on the roof of a home. The receiver could then use wired (LAN/Ethernet) or wireless (WiFi) mediums to propagate connectivity to devices within the building.

Fixed

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Connectivity in emerging markets: Understanding the barriers to access within the context of the developed and emerging markets is important to initiate appropriate interventions

29

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Availability

Affordability

Adoption

Availability

Affordability

Adoption

Availability

Affordability

Adoption

Availability

Affordability

Adoption

Very High

High

Medium

Low

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Connectivity in emerging markets: The market is primed for a new fourth wave of internet infrastructure delivered by non-incumbent community connectivity providers

30

Major waves of investment in connectivity infrastructure

Mobile Networks �(1990s – present)

Submarine cables �(2009 - present)

• Remains the largest with continuous investment by operators every year
• 4G and 5G expansion will drive further required investment

• Investment continues and is quite similar in scale to mobile network investment (2Africa, Equiano)

Data Centers & National Backbone�(2013 - present)

• Pan-continental transactions and investment commitments of $2B in 2021�(Equinix-MainOne, WIOCC-Open Access Data centers, Digital Realty, Liquid-Africa Data centers etc.)

Uncapped Fixed Broadband

Delivered by community connectivity providers

• Uncapped connectivity is a prerequisite to a full potential, digital economy
• Landed fiber capacity needs to be distributed to homes, SMEs, and businesses via fiber and high-capacity fixed wireless links

Source: Connectivity Capital Analysis

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Connectivity in emerging markets: A confluence of positive developments over the last decade make this the right time to invest in community connectivity providers

31

, (2016-2020)

Trends accelerating growth of connectivity across emerging markets are driven by secular supply and demand factors

Source: Hjort, et. al. (2019), TeleGeography (2021), Ericsson Mobility Report

Device penetration

• The cost of smartphone devices has fallen significantly, dramatically increasing ownership and demand for more data

Explosion of applications and content

• New apps, including VoIP (voice over internet protocol), mobile money, and social media, provide considerable value to customers; driving demand for connectivity

Landed international bandwidth

• Several submarine cables arrived on the African continent from 2009 to 2012. New cables are expected to increase capacity further

Falling capex

• The price of fiber and high-capacity wireless equipment (radios, antennas, etc.) has fallen significantly. The total CapEx for network build out is decreasing. However, this is fairly offset by persistent high labor costs to implement new infrastructure

Demand factors

Supply factors

Image: NBER, Jay Fitzgerald

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

“ Value continues to accrue to those with affordable access to communication infrastructure while the unconnected fall further and further behind by simply staying in the same place.

​

Those who most desperately need support are cut off from access to opportunity, to social and healthcare safety nets, to education, to information that can improve lives, and to platforms to demand change.

​

It is ironic, or perhaps tragic, that the voices of the unconnected are not heard on this issue for the very reason that they are unconnected. And the problem extends beyond the unconnected. There are also the underserved.

​

Lack of choice in access alternatives often results in a cost of access that is unaffordable for a significant percentage of the population (especially in rural areas) and/or in low quality or speed of service.

​

In a context where government shutdowns are becoming a trend, and data privacy is becoming a growing concern to many, this lack of alternatives also compromises the freedom of expression of many users. ”

--- Extract from “The rise and fall of community networks” � by Steve Song, Carlos Rey-Moreno, Anriette Esterhuysen, Mike Jensen and Leandro Navarro � published in the Global Information Society Watch 2018, APC

Section 2: Role & Development of CCPs

33

Background

Section 1

Role & Development of CCPs

Section 2

Ownership & Operating Models

Section 3

Financing mechanisms & de-risking strategies

Section 4

Recommendations

Section 5

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Section 2: Role & Development of CCPs

• CCPs are locally-owned and operated networks that fill gaps and provide access where traditional commercial networks do not. They have the potential to deliver uncapped connectivity to low-income and rural areas but are often constrained by a lack of capital.
• The stage of a network in its lifecycle often dictates its goals, key activities, and available financing mechanisms.
• The journey to financial sustainability for a CCP is a journey to decrease its dependence on external funding support by generating revenue or decreasing costs.
• Understanding the economics of operating a network is important to be able to manage, control, and optimize the levers of growth.
• Over time, as an operator evolves and matures, it must move upwards on the curve of financial sustainability from partial cost recovery (cover recurring operating expenses) to total cost recovery (cover past and future capital expenditures and service its cost of capital).

‘Section 2: Role & Development of CCPs’ introduces and defines Community Connectivity Providers (CCPs). We discuss the different types of CCPs, their characteristics, and unique role in the connectivity ecosystem.

In this section, we consider the fundamental questions considered by CCPs regarding their purpose, operations and sustainability. Understanding the stages in the life cycle of network operators is critical to being able to appreciate the financial needs and underlying risks associated with different growth stages of operators.

This section also examines the economics of operating a network - the costs, potential revenue models, retained earnings & funding. We define different milestones and metrics to consider on the path to financial sustainability.

The section concludes with a host of tools, resources, and workbooks available for operators to understand their economic viability.

What to expect in this section?

Key Takeaways

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

34

Financing Mechanisms for Locally Owned Internet Infrastructure

• Community connectivity providers
• Stages of network development
• Economics of operating a network

Section 2: Role & Development of CCPs

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

35

Financing Mechanisms for Locally Owned Internet Infrastructure

Role of CCPs: What makes a Community Connectivity Provider?

36

• ‘Community’
• People-built around a common interest or goal�
• Participation
• Build, maintain, operate or simply benefit from the infrastructure�
• Local Ownership & Governance
• Locally owned as a common-pool resource

• Nodes �(points of redistribution or delivery)
• Routers
• Clients & Servers

​

• Backhaul �(interconnection within & between network)
• Links (Wireless or Fiber) & Backbone
• Gateway to the Internet

COMMUNITY

CONNECTIVITY

Community connectivity providers refer to a wide variety of efforts by local communities �to build and manage all or parts of the infrastructure required to enjoy and co-create the internet.

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

BACKGROUND

ROLE OF CCPs

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Role of CCPs: CCPs come in a variety of different sizes, setups, purposes, governance models and levels of professionalism

37

Source: Adapted from ISOC, APC published material

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

BACKGROUND

ROLE OF CCPs

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Role of CCPs: Defining features & characteristics: Community Connectivity Provider vs Traditional Operators

38

• Profit-driven
• Commercially-minded
• Centralized infrastructure
• Privately or state-owned
• Profit-extraction
• Professional and top-down
• Knowledge concentration / specialization
• Investment from traditional sources
• No / minimal user participation in network governance (design, deployment, operation)

• Socially focused & purpose-driven
• Community-led
• Open and carrier-neutral networks
• Decentralised nature
• Localised - locally owned or operated
• Not for profit / cost-recovery model
• Grassroots / bottom-up
• Collective ownership
• Self-deterministic

COMMUNITY CONNECTIVITY PROVIDER

TRADITIONAL OPERATOR

VS.

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

BACKGROUND

ROLE OF CCPs

Illustrative

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Role of CCPs: Three broad categories of community connectivity providers

Main Objective:

• Deliver affordable broadband connectivity to underserved urban, rural, and remote communities

CNs are owned by the local community of users and any returns are reinvested into the community or returned to members

Municipal networks are owned by the government within defined jurisdictions and any returns are used to service financial obligations or returned to government

Social enterprises are double bottom line businesses that seek both financial and social returns, and any returns are reinvested for growth or returned to shareholders

39

Key Criteria:

• Local ownership structure (reinvestment criteria)
• Accountability to the social mission (measurement)

Community Networks (CNs)

Municipal Networks

Social Enterprises

Community-owned

Publicly-owned

Privately-owned

Community Connectivity Providers (CCPs)

Value retained �within local community

HIGH

MEDIUM

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

BACKGROUND

ROLE OF CCPs

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Role of CCPs: Community connectivity providers are often complementary - filling gaps and providing access where traditional commercial networks do not

40

Source: Adapted from ISOC, APC published material

• Traditional solutions are showing signs of having reached their limits: Mobile network operators, who have been efficient in high-income & urban areas, are struggling to find viability in markets with subsistence-level incomes and/or in sparsely populated regions, where ROI is scarce.

​

• Varied attempts to address this problem, through universal service strategies/ funds, private sector initiatives or philanthropy, have met with limited success.

• CCPs can move towards closing connectivity gaps: They often service unconnected areas that are not profitable for commercial operators or precede other forms of internet development. �
• CCPs also bring connectivity to those otherwise excluded: Either because of geography, topography, size, or income level, and enable local development, lead to local business development, and encourage civic participation. �
• CCPs help keep profits local: Generally reinvest any proceeds in the local community and its network.

The large-scale, commercial, telco network model has done wonders for coverage but, on its own, is insufficient to connect everyone affordably.

CCPs are feasible alternative solutions in environments where traditional networks fail �or are reluctant to operate.

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

BACKGROUND

ROLE OF CCPs

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

• Community connectivity providers
• Stages of network development
• Economics of operating a network

Section 2: Role & Development of CCPs

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

41

Financing Mechanisms for Locally Owned Internet Infrastructure

Stages of network development: Key characteristics of each network stage

42

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Stages of network development: The stage of the network determines the financing mechanism available to an operator

43

Traditional sources of capital �(only become accessible when operator has achieved operational or financial sustainability and risk is relatively low)

Level of Risk

High

Low

Size of Network (Revenue, Nodes, Users)

Access seed capital, deploy network & get first customers

Understand unit cost economics and reach financial sustainability

Grow into new regions and scale network deployment and user growth

Re-invest in & upgrade the network

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Small

Large

Use of De-risking Mechanisms & Blended Finance

The quantum of capital availability is larger for later-stage, low-risk, traditional for-profit operators

Capital is scarce for CCPs; limited mostly to grants from technical organizations or civil society. Even some CCPs that have grown beyond the initial stages have struggled to access larger pools of capital

Innovations in Grants & Subsidies

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Stages of network development: Community connectivity providers must consider five fundamental questions relating to their purpose and operations

44

How is this going to get done?

SUSTAINABILITY

05

ACCOUNTABILITY

04

HOW

03

WHO

02

WHY

01

Why is this network needed?

Who is going to build and operate the network?

What are mechanisms to ensure it gets done?

How long can we keep the network active?

KEY QUESTION

SCOPE

• Financial (costs, revenue, and funding)
• Non-financial sustainability (community participation, organizational, legal)

• Roles and responsibilities
• Governance mechanism
• Navigating the principal - agent relationship

• Area of coverage identified
• Technical skills and expertise required
• Equipment and infrastructure needs

• The initiating energy for the project
• The community champions

• Market context that necessitated the network
• Impact of not intervening - digital divide and communities left behind

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Stages of network development: While a lot has been researched about the first four aspects, this report focuses on financial sustainability of community connectivity providers

45

1. These areas are a prerequisite for sustainability

SUSTAINABILITY�Key question: How long can we keep the network active?

05

ACCOUNTABILITY�Key question: What are mechanisms to ensure it gets done?

04

HOW�Key question: How is going to get done?

03

WHO�Key question: Who is going to build and operate the network?

02

MAIN FOCUS OF THIS REPORT�is on financial sustainability

WHY�Key question: Why is this network needed?

01

• The order of priorities is constantly changing over time with stage of growth and size of network

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Stages of network development: The owners of the network often overlap with the beneficiaries in the case of community connectivity providers

Goal: Alignment of incentives between different actors to push through difficult periods

46

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

• Who finances the network build out?
• Who is the ultimate counterparty?
• Who pays for internet use?

• Who uses or benefits from the service?

• Who owns the network resources?
• Who governs the network assets?

• Who manages the customer relationships?
• Who monitors and maintains the network operations?

PAYERS

USERS

OWNERS

OPERATORS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Stages of network development: The owners of the network often overlap with the beneficiaries in the case of community connectivity providers

47

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

PAYERS

USERS

OWNERS

OPERATORS

Government: voucher scheme�Investors: crowdfunded bond�Individuals: shares

Partial cost recovery from NGOs & local businesses.�Grant supported by APC, ISOC, and other corporate partners.

Residences and businesses in rural Lancashire and neighboring counties in England.

Free public wifi access facility for individuals & Dedicated leased lines for NGOs and local business

Community members through shares. Registered as a Community Benefit Society

Community cooperatives across Idjwi island

Dedicated local team of 70+ staff with support of landowners, contractors and volunteers

Co-designed, installed, and operated by La Différence along with local communities

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

• Community connectivity providers
• Stages of network development
• Economics of operating a network

Section 2: Role & Development of CCPs

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

48

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: Financial sustainability is achieved by offering services in a manner that completely covers the cost of providing such service

49

Internal

Financial Sustainability

Revenue & Retained Earnings

Costs

Sources of Funding

Fixed Costs

Variable Costs

Salaries

Rent / Lease

Backhaul

Equipment Cost

External

Funding

Income to cover costs

If there is no internal revenue or it is insufficient to cover costs there is a need for external funding

Equity

Grants & Subsidies

Debt

Expenses incurred to provide services

Power / Utilities

License Fees

OpEx

CapEx

Initial costs to setup & upgrade the network

Recurring costs to operate and maintain

Covered in Section 4

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: It is important to distinguish between initial and recurring costs and understand the importance of each cost category

A CCP must continuously track the money needed to �(i) start the network, (ii) keep it up and running, and (iii) replace/grow/upgrade the network

Initial costs: Everything you have to purchase to start – the one-off starting costs (equipment, license etc.) aka Capital Expenditures (CapEx)

​

Recurring costs: Ongoing costs to operate and maintain your network (labor, tower lease, backhaul etc. aka Operating Expenses (OpEx)

50

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: The CapEx spend is heavily influenced by choice of technology and represents a bulk of the upfront costs to deploy the network

51

Depreciation Period (Years)��Useful life of the underlying asset �(dependent on technology)

Fixed Wireless ��(Microwave, WiFi�TV White Space)

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Annualized CapEx ($)

# of sites to be connected��A site in this case is defined as a redistribution point / node (Tower, Junction Box, POP)

CapEx per Site ($)��Depends on the technology used to connect the sites. A network could use a combination of different technologies in its deployments

Wired ��(Fiber, Copper, Cable)

Mobile Internet��(2G, 3G, 4G/LTE)

Satellite

Cable Distance (km)

Cost per km

# of high-sites

Cost per high-site

# of base stations

Cost per base station

# of ground stations

Cost per ground station

Source: Adapted from the Meaningful school connectivity report published by Giga & BCG (2021)

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: Operating expenses can be further broken down into fixed and variable costs

Fixed costs: Cost that stays the same regardless of the amount of goods or services produced or sold

Variable costs: Costs that change in proportion as a company produces or sells goods and services

52

• Backhaul Fee - monthly fee to provision bandwidth and connect backhaul provider. Usually a large impact on overall operating costs.
• Energy Costs - cost of electricity generation and battery backups
• Customer Installation Cost - Cost to purchase and install equipment at a customer location (price of hardware and cost of labor)

​

• Infrastructure Rent - cost paid to lease/rent space on towers, buildings, or network equipment
• Regulatory Costs - Requirements to pay for license, spectrum, business, import duties, and other fees
• Administrative and human resources costs - costs of engaging talent and manpower
• Insurance - costs of protecting an organization from unexpected financial losses
• Software - cost of using or developing tools to monitor and optimize network performance

​

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: Keeping usage-independent fixed-operating costs to a minimum can unlock huge savings

53

Fixed Costs

Fixed Costs

Variable Costs

CCPs try to keep fixed costs minimal to focus on customer acquisition. �Variable costs provide more flexibility.

Cost

Quantity

Most networks start out with having a high fixed cost

Cost

Quantity

Status Quo

Target

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Variable Costs

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: The financial feasibility of CCPs are largely determined by the degree to which they can avoid or decrease the costs of building & operating a network

54

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Source: Adapted from Global Information Society Watch (2018) published by APC

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: Generating revenue through a variety of business models can also decrease the dependence on external funding and increase self-sustainability

For many CCPs in emerging markets, revenue is often insufficient to cover costs.

55

Source: Last-Mile Internet Connectivity Solutions Guide, ITU; Innovating Business Models, World Bank

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: Retained earnings can be an important source of financing future capital expenditures and working capital

Retained earnings via new paying customers can often be the cheapest form of financing

56

• Definition: Refers to the accumulated portion of a business’ profits that are not distributed as dividends to shareholders but instead are reserved for reinvestment back into the business. The decision to retain the earnings or distribute them among the shareholders is usually left to the company management.
• Key Principle: Retained earnings can be used by an organization to finance its own expansion activities, for working capital or capital expenditures or to pay off any debt obligations
• Connectivity Sector: Many operators have used historical retained earnings to roll-out network deployments and expand into new markets. In fact, operator retained earnings, combined with other sources of financing are one of the primary sources of financing for ICT infrastructure.
• Sources: Operator revenue

RETAINED EARNINGS

REVENUE

EXPENSES

NET PROFIT

DIVIDENDS

RETAINED EARNINGS

Used for reinvestment into the business to finance working capital, capital expenditures and expansion activities

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: Operators need to ascertain how much of their cost base can be covered through revenue or retained earnings

57

• Key question for service providers/CNs: �How much of the cost structure (A+B+C+D) is supported by existing revenue (E).
• This will also enable operators to determine how much funding (F) is required.
• For operational sustainability, it is critical that operators are able to meet ongoing / recurring expenses (A+B) from revenue streams (E) �i.e. E ≥ (A+B)
• This will enable any additional financing to fund one-time equipment or infrastructure costs.
• Funding can be any of the following: retained earnings, new equity, debt, subsidies etc.

Funding�Y%

F

Cost Structure

A

Cost of Sales �(Backhaul, Lease)�~30%

B

Operating Expenses �(Salaries, Marketing, Admin, Power/Utilities, License fees)�~35%

CapEx�(Depreciation)�~35%

Passive Infrastructure

Active Infrastructure

C

D

Funding Mix

E

Revenue�X%

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: Thinking through the ROI equation can help operators identify levers to manage sustainability

C + O ⇔ (1-r)R

58

How to reduce

How to increase

• CapEx: Build to demand, access to poles, facilities, regulatory time
• OpEx: Integrate with existing customer service & billing platform, ongoing regulatory costs
• Risk: Demand aggregation, pre-sales, anchor tenants, train staff, systems & processes, develop business & management acumen
• Churn: Deliver a great service, leading to loyal customers

• Subscriber Growth: strategic & low cost-marketing initiatives, new regions & customer segments
• ARPU: new services, upselling & cross-selling, long-term anchor customers

R = (s - c)*a

​

Takeaway

Identify deployment models that reduce CapEx + OpEx; focus on managing risk and booking revenue to hit ROI benchmark

C = Capital Expenditures (in $)

O = Operating Expenditures (in $)

r = Risk (Probability of project failure in %)

R= Revenue (in $)

s = No. of subscribers added

c = No. of subscribers churned

a = Average Revenue Per User (ARPU)

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: New sources of capital become available as operators navigate up the financial sustainability curve

59

• There are 3 milestones to sustainability:

� Operating Break Even = Gross Revenue > 100%

EBITDA

​

Total Cost Break Even = Gross Revenue > 100%

EBIT

​

Financial Break Even = Gross Revenue > 100%

PAT

​

• The first goal of a CCP is to reach operating break even. Many CCPs leverage grants to be able to do so�
• Many CCPs, especially those without external investors, may not need to go beyond Total Cost Break-Even as they may not have to service cost of capital

There are various ways to track the network’s sustainability ratio every month.

The aim should be to reach 100%, which can be achieved either by growing revenue or cutting operating expenses

Financial break-even (PAT)

Revenue

Operating Expenses

Total cost incl. depreciation�(OpEx + portion of CapEx)

Operating break-even (EBITDA)

Total cost break-even (EBIT)

Depending on �the cost of capital

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

The Financial Sustainability Curve

Money ($ or Local Currency)

Duration (# of years)

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: Community connectivity providers are seen as having higher actual or perceived levels of risk; resulting in limited availability of financial resources

60

Regulatory �Environment

• Restrictive license issuances
• High licensing costs
• Taxes, customs, and import fees
• Low availability / access to spectrum for smaller networks to use or share
• Government bureaucracy, delays and long waiting periods to obtain permissions & licenses

Technical and Organizational Expertise

• Lack of initiative, leadership & skills to set up broadband projects in rural areas
• Limited managerial experience
• Lack of awareness of benefits of creating own network
• Perpetual cycle of training and retraining because of talent drain to other opportunities

Operational Difficulties

• Lack of affordable or reliable energy supply
• High costs for backhaul connectivity
• Low availability of international bandwidth of transit
• Lack of coordinated activity between MNOs and infrastructure providers
• Lack of mapping of existing infrastructure
• Theft of equipment
• Political risk and currency volatility risk

Financial Resources

Demand-side issues

• Very limited availability of financial resources
• High cost of credit
• Heavy reliance on philanthropy (limited pool of grant funders) and contributions from governments, USFs
• Limited options for monetizing services
• General lack of land or other marketable assets
• Choosing between other vital necessities such as food or healthcare

• Limited availability of information on demand
• Low affordability of services
• Prohibitive cost of devices
• Lack of digital literacy and awareness
• Low perceived relevance and attractiveness of content for end-users
• Demand volatility

Source: Adapted from ISOC, Global Information Society Watch (2018) published by APC

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Economics of operating a network: Tools and resources for operators to understand their economic viability and return on investment ROI

61

Facebook: RoI Estimator Spreadsheet�https://www.facebook.com/isptoolbox/get-spreadsheet/?fin[0]=15000&fin[1]=1000&fin[2]=500&fin[3]=200&fin[4]=5&fin[5]=200&fin[6]=70

USAID: LMC Business Modelling Tool�https://www.digitaldevelopment.org/resources/last-mile-connectivity-business-modeling-tool

Connectivity Capital: ISP Toolkit�www.isptoolkit.org

Outpost Plus: Start Your Own ISP�https://startyourownisp.com/

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

ISOC: CN Finance Workbook�https://www.internetsociety.org/wp-content/uploads/2022/05/Step-by-Step-Guide-to-Complete-the-Finance-Workbook.xlsx

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Section 3: Ownership & Operating Models

62

Background

Section 1

Role & Development of CCPs

Section 2

Ownership & Operating Models

Section 3

Financing mechanisms & de-risking strategies

Section 4

Recommendations

Section 5

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Section 3: Ownership & Operating Models

• In deciding their ownership model, CCPs usually consider trade-offs between concentration of ownership, regulatory compliance, and fundraising and tax-efficiency. While the type of legal entity is usually dictated by the laws of the local jurisdiction, ownership is usually either community, public, or private. Possible owners include governments & municipalities, communities, private businesses / individuals or some combination of these actors.
• The operator model adopted by a network usually reflects the local conditions present - community agency & participation, regulations & support from local authorities, income-levels of the region, technical & managerial know-how, availability of backhaul infrastructure etc.
• The choice of owner-operator model is also key in unlocking different pathways to financing - CNs primarily rely on the communities they serve, municipal networks rely on public funds, and social enterprises rely on equity investors.

‘Section 3: Ownership & Operating Models’ dives into the various parameters and trade-off that operators consider when deciding on their ownership structure, legal entity, and operating models.

One of the early decisions that a network needs to make is regarding its ownership structure and operating model. This choice has a major impact on the concentration in ownership, regulatory requirements, tax implications, operational complexity and ease of fundraising, among many other factors. We analyze a framework of different operating models along with the degrees of participation in the network architecture.

With real examples of a variety of CCPs, we discover the rationale behind the choice of their unique owner-operator model.

What to expect in this section?

Key Takeaways

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

63

Financing Mechanisms for Locally Owned Internet Infrastructure

• Choosing an ownership structure
• Choosing an operating model

Section 3: Ownership & Operating Models

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

64

Financing Mechanisms for Locally Owned Internet Infrastructure

Ownership models: CCP ownership varies from project to project and is often influenced by local institutional arrangements and regulations

CNs are owned by the local community of users and any returns are reinvested into the community or returned to members

Municipal networks are owned by the government within defined jurisdictions and any returns are used to service financial obligations or returned to government

Social enterprises are double-bottom line businesses that seek both financial and social returns. Owned by entrepreneurs or investors and any returns are reinvested for growth or returned to entrepreneurs / shareholders

• Usually receive external help with financing, design and installation. An outside organization provides technical capacity building, and a public entity or donor provides grants or other financial assistance.
• Common in emerging markets where incumbent operators lack the capacity or incentive to connect remote communities. In many remote & rural areas, where fees won’t cover investment costs, community-based ownership may be the only option.
• More likely to succeed alongside programs that promote digital skilling and productive uses of connectivity. Over time as customer demand and ability to pay increase, the CN becomes more financially sustainable.

• Fully or partially facilitated, built, operated, or financed by local governments, often in participation with private contractors.
• Can take various forms: (i) a passive infrastructure model; (ii) a wholesale access model; or (iii) a fully integrated model.
• Often use subsidies to keep tariffs affordable and in many cases cross-subsidize low-priced community connectivity with higher-priced dedicated connections to anchor and business customers.
• Limited in emerging markets and more common in developed economies where there is government support for roll-out of municipal broadband.

• A private entrepreneur or investor pays to construct, operate and maintain the network. Funding often comes from individuals, investors, and commercial loans.
• Typically flourish in countries where the government supports small operator-led network development via supportive policies and simple licensing procedures where investors can access credit, financing and subsidies and where bilateral donors and/or non-governmental agencies provide technical assistance. Government incentives in a supportive environment include concessions and output-based subsidies.
• Private-sector participation is challenging in small-scale projects that may not be commercially viable.

65

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

As discussed in Chapter 2, three principal actors — local communities, municipalities, or private entrepreneurs —can own, install, manage, operate and/or maintain a community connectivity provider. In some cases, such as a public-private partnership there could be hybrid ownership.

Community Networks (CNs)

Municipal Networks

Social Enterprises

Community-owned

Publicly-owned

Privately-owned

Key Features

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Ownership models: Choice of legal structure is driven by regulatory compliance and affects capital availability and tax efficiency

By owner type

By (explicit) legal entity

66

owned by the government within defined jurisdictions and any returns are used to service financial obligations or returned to government

​

Ex.: City of Ammon Fiber, EPB Chattanooga, Stokab

PUBLIC

2

owned by the local community of users and any returns are reinvested into the community or returned to members

​

Ex.: B4RN, Guifi, RS Fiber, Murambinda, CommonRoom, Zenzeleni etc.

Company

Non-Profit

Co-operative

Social Enterprise

Govt-Owned Enterprise

Other

Shareholders with limited liability. Could be a private or a public limited company.

Government or state has significant control through full, majority, or significant minority ownership.

Applies commercial strategies to maximize improvements in financial, social and environmental well-being. Can take various forms depending on local jurisdiction (ex. benefit corps, social business etc.)

an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned enterprise

organized and operated for a collective, public or social benefit; subject to the non-distribution constraint; usually with tax-exempt status

Other unique types of legal entities depending on local laws and regulations (for example - associations, societies etc.)

PRIVATE

3

owned by its founders, management, or a group of private investors. Owners can choose to have an explicit social purpose.

​

Ex.: Habari Node, AirJaldi, Althea, Net2Home

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Ownership models: Community connectivity providers must balance various parameters to decide on an appropriate legal status and ownership structure

Key Parameters

Impact on CCP

67

Key questions to consider:

1. What legal risks are the owners and operators of the network subject to? (privacy laws, data protection etc.)
2. Does the operator face any significant barriers if they don’t incorporate (ex.licensing, fees etc.)?
3. Which type of legal status can the operator consider? (depending on local & national laws)

Community connectivity providers largely optimize for 3 main parameters

Ownership & Control

Fundraising & Tax Efficiency

For volunteers, donors, investors

Regulatory Compliance�Business Registration,� ISP-specific license, if applicable

Ownership Structure

Operating Model & �Network Architecture

Business Model

License Requirement

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Ownership models: CNs benefit from community-led initiation, muni networks often have a long-term horizon, while social enterprises can tap into technical & managerial expertise

• Can often avail strong technical expertise, maintenance capacity and financial management systems
• Often have good access to legal services and systems to manage regulations
• Often have more relationships with local anchor institutions that can offset initial demand requirements
• Long-term horizon with ability to prioritize low-cost service provision with access to budgetary resources

• Responsive to local community needs
• Can connect areas where projects are not cost-effective for municipalities and private investors
• High degree of local buy-in, which can facilitate proper management and delivery of high-quality services
• Can create local jobs and training opportunities
• Communities can keep proceeds local
• Network self-determination

• Availability of technical expertise and acumen leading to more efficient operations, maintenance and management of the network
• Political motivations are less likely to influence private actors
• If the investment is profitable, private-sector investors can scale up operations

68

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Community Networks (CNs)

Municipal Networks

Social Enterprises

BENEFITS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Ownership models: CNs often lack technical acumen, muni networks are plagued by bureaucracy and social enterprises struggle to navigate regulatory hurdles

• Communities often lack the financial and technical capacity to install, operate and manage networks.
• Offering free or low cost services can compromise the financial viability of the project, rendering it perpetually dependent on grants or subsidies
• Highly dependent on local participation and effective governance mechanisms
• Enforcement and ensuring payment can be challenging

• Sometimes plagued by short-term political agendas and operational inefficiencies
• Often require private actor participation for technical management and network deployment
• The municipality’s corporate structure and bureaucracy might not work for smaller projects
• Critics argue that it is an inappropriate use of public funds that can disincentivize private actors

• Without supportive policies, regulations and financing for CCPs, rural or remote connectivity may not meet return expectations or may be too risky.
• Small-scale private operators also struggle with finding local talent for network and business management
• Changes in regulations or tariffs can jeopardize success.
• In markets with extensive regulations governing networks, lengthy approval times can delay projects.

69

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Community Networks (CNs)

Municipal Networks

Social Enterprises

CHALLENGES

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Ownership models: CCPs must understand the local context to choose an ownership model that suits their distinctive scenario

70

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Community Networks (CNs)

Municipal Networks

Social Enterprises

BEST FIT

In rural, remote, or low-income areas where connectivity isn’t affordable, delivering services isn’t profitable for private or municipal operators, and the community supports the project and is willing to contribute non-financial resources or pay for services.

When taking a long-term view of providing affordable connectivity for a region or population, especially when attempting to lower prices, spur more competition, and boost local economic development through the construction of infrastructure or open-access networks.

When government has created an enabling environment (policy, subsidies, concessions) and effective procedures (for licensing & spectrum use) that in turn, promote the deployment of private networks in hard-to-serve locations that can meet return expectations.

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

• Choosing an ownership structure
• Choosing an operating model

Section 3: Ownership & Operating Models

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

71

Financing Mechanisms for Locally Owned Internet Infrastructure

Operating models: Based on scope & size of the network and level of community involvement, there emerge various operating models for community connectivity providers

72

Meso Organization*

Public Design Build Operate (DBO)

Community Network Operator

Private Networks with Social Purpose

Management Contacts / Lease and Affermage

Concessions & Build Operate Transfer (BOT)

Infrastructure projects managed by local communities with minimum intervention or involvement from private or public players

Public entity owns, constructs, deploys, and operates without any input from private sector actors

Public entity owns or builds a network and engages private actors to manage specific functions or maintenance and operations of network infrastructure

Public entity awards long-term right to use asset(/s) to a private operator

Projects entirely managed, funded, owned, and built by private actors

Source: Adapted from 21st Century Financing Models for Bridging Broadband Connectivity Gaps

Community Networks (CNs)

Municipal Networks

Social Enterprises

Community Managed

Public-Private Partnerships

Community Connectivity Providers (CCPs)

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

* Meso Organizations are discussed on Page 73

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Operating models: Community managed operator models can be further defined by degree of participation in the network architecture stack

73

73

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

PASSIVE INFRASTRUCTURE: The physical non-electronic medium over which information can be transmitted; typical lifespan of >50 years. Examples are ducts, Masts, Poles, NOC, Fiber etc.

ACTIVE INFRASTRUCTURE: Electronic equipment needed to encode information sent over the network into physical signals; typical lifespan of 5-15 years. Examples are switches, routers, servers

SERVICES: Sales, Customer Care, Billing, Internet, Conferencing and other services for end-users

[P]

[A]

[S]

3-layer network architecture

A community network can choose to build, operate, and maintain one or several layers of the network

A broadband network typically consists of passive

infrastructure, active equipment components implementing the technology and services that are delivered on top of the infrastructure.

Common CCP operator models*

[P]

[A]

[S]

1.�Integrated operator

• Ex: B4RN, RS Fiber, EPB Chattanooga

Operates across all layers of the network architecture

[P]

[A]

[S]

2.�Open �Access

• Ex: Guifi, City of Ammon, Stokab, Dark Fiber Providers

Builds physical network infrastructure and offers wholesale services

[P]

[A]

[S]

3.�Service �Provider

• Ex: Murambinda Works, Common Room, Net2Home

Builds small sites or leases space on towers; installs own equipment to offer retail services

[P]

[A]

[S]

4.�Reseller�

• Ex: Wiki Katak

Does not own network infra over which it operates and provides services

CONCLUSION

*Operator models listed here are a sampling of some of the most common types and are not meant to be an exhaustive list

Financing Mechanisms for Locally Owned Internet Infrastructure

Operating models: CCPs may optimize their operating model based on capital availability and local context

74

74

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CAPEX INTENSITY

OPEX �INTENSITY

CONCLUSION

Size of bubble represents the degree of operational complexity

Financing Mechanisms for Locally Owned Internet Infrastructure

Operating models: Meso organizations are emerging as a new class of CCPs that are seeding and supporting community networks while enjoying certain economies of scale

75

75

75

Zenzeleni

Rhizomatica

Meso Organization�(Typically) Registered as a Not for Profit entity

​

Role:

• Source funding to meet opex and capex financing gaps
• Seed and establish new micro-level CCPs in different locations
• Train and develop local capacity to ensure sustainability
• Provide technical expertise - develop and maintain backhaul infrastructure
• Integrate and develop free and open-source software to facilitate small-scale deployments
• Continuous technical support & mentorship on governance, legal, admin etc.
• Policy advocacy with local government (spectrum usage, license exemption, USAFs)

Micro-level�

Local community-owned CCP

Micro-level�

Local community-owned CCP

Micro-level�

Local community-owned CCP

Micro-level�

Local community-owned CCP

Micro-level�

Local community-owned CCP

AlterMundi

Micro-level Organization

(Typically) Registered as a cooperative or unregistered

​

Role:

• Own, govern, install, operate and maintain the network within respective communities
• Offer services to anchor customers, local businesses, and households
• Reinvest income back into networks
• Convene community for digital skilling & literacy initiatives

Examples

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Source: Adapted from Zenzeleni, Rhizomatica and Altermundi websites

CommonRoom

La Différence

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Operating models: Municipal networks can take on a variety of different operational partnerships

76

Source: Adapted from 21st Century Financing Models for Bridging Broadband Connectivity Gaps

Public �Design Build Operate (DBO)

Management Contracts / Lease & Affermage

Concessions & �Build Operate Transfer (BOT)

Maturity

Scalability

Replicability

Sustainability

Maturity

Scalability

Replicability

Sustainability

Maturity

Scalability

Replicability

Sustainability

Strengths

Weaknesses

Takeaways

• Simple & well established model
• Public sector retains control and decides priorities

• Public sector may lack technical & commercial know-how
• Does not exploit economies of scale & efficiency

• Suitable when public sector needs to retain control or small targeted investment to spur pvt sector participation

• Least politically sensitive, ensure business continuity and can be implemented quickly
• Transfer operational risks to private sector

• Limited potential to incentivize investment
• Lack of transparency and most risks borne by government
• May need considerable regulatory oversight

• Good transitional arrangements
• Good to combine public financing with private efficiency and risk transfer to private sector

• High level of private investment, reduce and transfer risk to private operator
• High potential for efficiency gains

• Require complex contracting that may take a long time
• May require updated regulations for tariffs & performance monitoring

• Suitable when government wants to profit from network and retain ultimate control but trusts private operator with responsibility over the long-term

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Very High

High

Medium

Low

Financing Mechanisms for Locally Owned Internet Infrastructure

Operating models: The choice of operator models adopted by a network reflect the different local conditions present at each location

77

FACTOR 1

​

Regulatory Environments & support from local authorities and / or external organizations

FACTOR 5

​

Sense of community agency, local culture, and traditions

FACTOR 2

​

Income levels, availability of finance/credit, literacy and other developmental indicators

FACTOR 4

​

Awareness of technical options & access to technical / management skills

FACTOR 3

​

Availability of supporting infrastructure - backhaul capacity & energy

Local conditions affecting choice of operating model

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

The choice of owner-operator model also dictates, to a certain extent, the sources of financing available to a CCP

78

• Customers and community members
• Individual donors and volunteers
• Grant-providing institutions
• Government subsidies

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

Community Networks

Municipal Networks

Social Enterprises

Current

• Public funds & budgetary resources
• Municipal and infrastructure bonds
• User financing (pre-sales)

• Bootstrapped by individuals
• Seed funding from friends, family and angel investors
• Impact investors

Sources of Financing

Future ?

• Development finance institutions
• Multilateral development agencies
• Social Impact Bonds
• Impact Investors
• Financial Institutions

• Universal service funds
• Impact-first Investors
• Multilateral development agencies
• Cooperative or community banks

• Development finance institutions
• Institutional investors
• Commercial banks

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Section 4: Financing mechanisms & de-risking strategies

79

Background

Section 1

Role & Development of CCPs

Section 2

Ownership & Operating Models

Section 3

Financing mechanisms & de-risking strategies

Section 4

Recommendations

Section 5

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Section 4: Financing Mechanisms

• Financing internet infrastructure is ultimately a pathway from high-risk to long-term yield. Financing mechanisms are an exercise in blending sources of risk capital to get to that long term yield
• The variety and quantum of financing mechanisms available to an operator is directly linked to the stage in its lifecycle.
• The key trade-offs of the three main financing instruments (grants, equity, and debt) are between economics, control & transaction costs. Operators need to understand the true all-in cost of capital associated with each financing instrument when deciding their capital stack.
• De-risking strategies and tools form the bridge between sub-commercial or grant-supported financing and traditional commercial sources of capital - mitigating risk through financial and non-financial means to attract and mobilize greater private sector participation and investment.
• The innovation in financing mechanisms is less about novel funding approaches and more about accessing sub-commercial and traditional sources of capital.

By pursuing network deployments in regions that are reportedly unprofitable for commercial operators, CCPs inherently operate in very challenging environments. Partly because of this, CCPs have historically had limited access to commercial financing, having been restricted to financing operations primarily through grants, in-kind donations, and in many cases, community contributions.

‘Section 4: Financing Mechanisms’ aims to help CCPs transition from these valuable but limited pools of philanthropic capital to accessing the larger quantum of commercial and sub-commercial financing that is potentially available. Readers are introduced to the process of developing a financing plan, the main financing instruments, and the sources of capital and return expectations.

This section also aims to help funders of broadband infrastructure identify opportunities for investing in CCPs. Funders can consider participating in the blended capital stack and identify the evolving financing needs and capital structures of an CCP over its life cycle. Presented is also a novel way to consider linking financing mechanisms to financial sustainability milestones.

What to expect in this section?

Key Takeaways

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

80

Financing Mechanisms for Locally Owned Internet Infrastructure

• Developing a financing plan
• Financing mechanisms
• Sources of capital

Section 4: Financing Mechanisms

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

81

Financing Mechanisms for Locally Owned Internet Infrastructure

Developing a financing plan: Financing internet infrastructure and CCPs is a pathway from high risk to long-term yield

• Internet infrastructure is ultimately a long-term yield play
• Financing mechanisms are an exercise in blending sources of risk capital to get to that long term yield
• During early years of the network’s conception and development, the investor pool is relatively limited as the risk and commensurate return expectation are very high
• As the network grows and matures, larger pools of capital become available as the risk profile steadies.

82

HIGHER

Risk & Expected �Return Profile

LOWER

Project Maturity &

Investor Point of Entry

RISK CAPITAL

LONG-TERM �YIELD

Source: Adapted from NetEquity Networks

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Developing a financing plan: Investing in passive infrastructure is typically capital intensive and represents a critical hurdle in deploying networks

83

• High operational expenditure (OPEX)
• Economies of scale
• Subject to limited regulation
• Subject to fast obsolescence due to technological innovation and electronics development

PASSIVE INFRASTRUCTURE

Source: Adapted from European Commission’s Guide to Broadband Investment (2014)

ACTIVE INFRASTRUCTURE

• High capital expenditure (CAPEX) & Low operational expenditure (OPEX)
• Low economies of scale
• Stable returns from low rates over a long period
• Inherently subject to regulation because it most often constitutes a natural monopoly. Regulations can be highly localized and fragmented to dig streets, for pole access etc.
• Higher risk and longer payback period
• Permanent asset - once deployed, life measured in decades

ICT infrastructure investing differs from other types of infrastructure, most significantly in the relative extent of private and public-sector involvement. Most ICT infrastructure financing has traditionally come from private-sector companies.

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Developing a financing plan: 3 step process to match funding needs to capital sources

Once an operator has understood their financial position and funding gap (as discussed in Section 2.3 of this report), the following steps can help chart a path forward to a financing plan:

84

USE OF PROCEEDS

SOURCES OF CAPITAL

DEVELOP CAPITAL STACK

03

02

01

• Identify priorities for funding need
• Develop a short-term and medium term capital expenditure and procurement plan

• Identify available sources of capital and key trade-offs
• Understand qualifying criteria and cost of capital

• Design a blended capital stack to meet funding requirements

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

• Developing a financing plan
• Financing mechanisms
• Sources of capital

Section 4: Financing Mechanisms

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

85

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: The three main types of external financing instruments are unique in their characteristics and usage

86

Trade-offs: Economics - Control - Transaction Costs

1. What stage is the operator at in its company lifecycle? �Starting, Sustaining, Growing or Maturing

​

• What type of control is the operator willing to give up? �Ownership, approval, information, etc?

​

• What is the true cost of capital? �Transaction cost, control premium, and all-in cost of capital?

Key Questions to Consider

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: Introduction to Grants & Subsidies

87

• Definition: Government-issued incentives, usually in the form of cash, grants or a targeted tax cut. They can be used at multiple stages in the investment process to either demonstrate a beneficiary’s business case or reduce business model risk.
• Key Principle: Subsidies stimulate investment that would otherwise prove too costly for companies to pursue. Effective subsidies are outcome based and linked to certain policy conditions.
• Connectivity Sector: Subsidies are intended to encourage network deployment or local manufacturing by businesses and increase affordability for individuals.
• Sources: Local and national government, telecom regulatory authority

GRANTS

SUBSIDIES

• Definition: Funds given by an organization (generally without expectation of return) for a specific purpose linked to public benefit. Especially important in riskier countries and less mature sectors.
• Key Principle: Funds do not have to be repaid to the grantor, provided that the grantee complies with the contractual terms
• Connectivity Sector: Grants are often used to finance capital expenditures of network build out in an underserved region, to support ongoing operating expenses, or to support the provision of free-connectivity.
• Sources: Local and national government, international & multinational development agencies, telecom regulatory authority, internet technical community, CSR programmes, academic & research institutions, philanthropic organisations

Grants and subsidies do not necessarily cover all the costs of a project. Beneficiary organisations often have to �secure other means to finance their project, either with own equity or with support from a debt-providing institution.

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: Types of Grants & Subsidies

88

GRANTS

SUBSIDIES

• Tax-exempt Donations: Provision of tax benefits or deductions for donations to non-for-profit companies, as often local community connectivity providers are recognized as providing infrastructure for the public good
• Asset contribution / In-kind Infrastructure: Contribution that consists of giving (or allowing the use of) a physical asset (infrastructure or equipment for example) or an intangible asset (such as spectrum or permit/RoW).
• Human Capital support: Contribution that consists of offering human resources and/or technical expertise to build, operate, or commercialize the service.
• Grants: financial donation given to an organization for a specific social purpose. Grants are typically made by a foundation. corporation or government agency.

• Universal service and access funds (USAF): Public funds, financed primarily through contributions made by mobile network operators and other telecommunications companies, intended to expand communications services to underserved areas and populations.
• OpEx/Roll-out subsidies: Government subsidies distributed to compensate the operating costs of the network. Some countries are restructuring their USAFs to support local operators, such as Kenya’s initial plans with the Universal Service Fund for CN funding exploration (Communications Authority of Kenya, 2021), and Argentina’s new Roberto Arias Connectivity Programme which supports all startup costs and initial operating costs or community networks.
• Connectivity coupons: A demand-side subsidy at the user level that may target affordability issues, content attractiveness, and digital awareness and literacy.

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: Introduction to Equity Financing

89

• Definition: Equity represents a share of a company. If a company decides to offer equity to finance its initiatives, a part of the company is being sold. As a result, for the investor, the return on investment is variable and is based on the company’s cash flow and increased/decreased value of assets. Equity is, therefore, a risk-bearing instrument.
• Key Principle: Capital contribution in exchange for ownership via an equity stake
• Connectivity Sector: Most ICT infrastructure financing has traditionally come from private-sector companies, namely network operators, ISPs and tower builders, who are motivated to make often substantial equity investments based on the prospect of commercial return.
• Sources: Community, crowdfunding, impact investors, direct investment from government, development finance institutions, angel and seed investors, asset managers, pension funds, private equity & venture capital investors

EQUITY

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: Types of Equity Financing

90

• Patient equity: Development and impact investor contribution to the infrastructure project that happens in the form of equity participation generally accept returns below market rates.
• Government/Development Finance Institution (DFI) equity participation: Equity financing through government or DFI capital contribution. Government/DFI has an equity stake and is directly involved in network deployment.
• Social / Development impact bonds (SIB/DIB): Outcomes-based financing that does not offer a fixed rate of return but rather one in which repayment to investors is contingent upon specified social outcomes being achieved.

EQUITY

• Quasi-equity: Hybrid form of finance that offers non-dilutive equity risk capital that is paid back based on the performance of the company. Usually in the form of revenue shares or convertible loans.
• Market-return equity: Capital for which the risk-adjusted expected return should be comparable with other forms of long-term equity market investments. Equity can be contributed both through private placements and through the issuing of securities.
• Equity capital markets (ECM): Equity financing from global ECM where companies raise capital (in general with the help of a financial institution) from savers, banks, and investors. The ECM covers more activities and financial instruments than the stock market.

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Example: A Social Enterprise that expands with retained earnings vs. raising equity

There are tradeoffs to ownership, control and growth expectations.

91

Raise debt

• FLEXIBLE TIMELINES
• NON-DILUTIVE
• MORE FINANCIAL DISCIPLINE
• LESS OVERSIGHT / GOVERNANCE REQUIREMENT
• SLOWER GROWTH
• FEWER RESOURCES

TIME

TIME

CASH FLOW

CASH FLOW

Raise equity

Raise equity

• MORE RESOURCES
• SURVIVE IN COMPETITIVE MARKET
• COMPLIANCE COSTS / TRANSPARENCY
• RIGID TIMELINES
• HIGH GROWTH EXPECTATIONS
• LESS OWNERSHIP

Raise equity

Raise equity

30-50%

FOUNDERS SHAREHOLDING

60-90%

FOUNDERS SHAREHOLDING

Bootstrap

Option 2: Raise Equity

Option 1: Retained Earnings

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: Introduction to Debt Financing

92

• Definition: Debt is a deferred payment that becomes due in the future. It usually consists of the original amount to be repaid and a recurring interest payment due before a specified date, included in the contractual terms and agreement.
• Key Principle: Investment for yield return with a fixed cost of capital.
• Connectivity Sector: The various flavours of debt products have been used by public and private institutions and DFIs to finance ICT infrastructure, services and devices for many years
• Sources: Community, cooperative banks, impact investors, government, commercial banks, non-banking financial institutions, development finance institutions & multilateral banks, private debt funds

DEBT

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: Types of Debt Financing

93

• Concessional debt: Soft loans offered for no interest or a below-market rate of interest. They could be offered with lenient terms, such as extended grace periods or interest holidays.
• Government loan: Contribution from the government through the provision of a loan to finance infrastructure set-up.
• Vendor financing: Equipment vendor contribution through financing the supplied equipment in full or in part.
• Municipal bonds: Debt securities issued by states, cities, counties and other governmental entities to finance connectivity projects and network roll-outs

DEBT

• Infrastructure bonds: Whether secured or serviced by project cash-flows, are used to raise debt to finance construction of infrastructure facilities.
• Market-return debt: Capital for which the risk-adjusted expected return should be comparable to similar debt market investments. Usually made through private placement or issuance of securities.
• Debt capital markets (DCM): International market where companies and governments raise funds through the trade of debt securities, including bonds.

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: Introduction to De-risking Strategies

De-risking strategies and tools form the bridge between sub-commercial or grant-supported financing and traditional commercial sources of capital

94

De-risking tools allow operators to access commercial sources of capital by blending down risk profile

A

Grant-Supported

B

Sub-Commercial

• Definition: These strategies usually do not comprise direct financing but do protect financiers against regulatory, liquidity and sometimes technology and execution risks, facilitating access to commercial finance at a lower cost.
• Key Principle: Mitigate risk through financial and non-financial means to attract and mobilize greater private sector participation and investment
• Connectivity Sector: De-risking strategies and risk mitigation tools are especially important in incentivizing operators to expand connectivity to areas that are hard to reach and expensive to roll-out infrastructure. They also offer effective ways for public authorities to contribute to catalyzing private investment
• Sources: Government, regulatory authorities, impact investors, philanthropic donors, multilateral or international institutions

RISK MITIGATION / DE-RISKING STRATEGIES

RISK

HIGH

LOW

RETURN

LOW

HIGH

C

Commercial

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: Flavours of De-risking Strategies

95

• Demand Aggregation: Aggregation of multiple users to sign up for a service, which can help to finance the underlying infrastructure. Mitigates risk by reassuring investors that there will be users and revenue for their networks or users of their services and devices.
• Pre-sales / down payments: Cash contribution from advance sales closed before project completion and thus before service delivery.
• Anchor tenant contract: Agreement with a key client that engages to buy the service for many of its sites within a network coverage area. This client is often the government or a public entity willing to connect public sites, schools, hospitals etc., and provides enough revenue assurance to deploy the infrastructure.
• Bundling / Dual service provision: An additional product sold on top of connectivity subsidizes the service. As an example, the operator can roll out infrastructure to provide both energy and connectivity. This not only lowers costs, but the other service could be more profitable and cross subsidize the connectivity.

• Technical assistance: Specialized technical or expert consulting providing targeted support to an organization with a development need or problem. It is an effective method for building the capacity of an organization.
• Credit enhancement / Loss guarantee schemes: Complementary guarantee issued by governments or international institutions against the failure or unprofitability of the project, protecting especially against political or currency volatility risks that may deter private investors from investing or make them demand a high risk-adjusted yield
• Investments in digital literacy and community engagement: Some organizations, especially local grassroots organizations, play an important role in addressing barriers to digital adoption - digital literacy, local content, social and gender norms around technology usage etc. through community engagement, education, and awareness creation.

RISK MITIGATION / DE-RISKING STRATEGIES

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: De-risking deployments using the Anchor-Business-Community (ABC) model allows CCPs to effectively serve rural and low-income areas

The ABC model allows CCPs to:

�(1) reduce risk by creating stable cash flow,� �(2) reach financial sustainability faster, and ��(3) lower cost of connectivity for the community

96

Step 1: Identify and sell capacity to large customers in the community (eg. schools, libraries, banks, health clinics etc). These are usually financially sound, have consistent connectivity demand, and provide stable cash flow for the CCP. Access to stable revenue has a positive impact on sustainability and helps improve their bankability.

Step 2: Expand deployments to serve local commercial business �that require high-bandwidth, often dedicated, connectivity for productive use but do not require continuous demand. Business customers are connectivity power users during the day but generally do not require large bandwidth at night.

Step 3: Expand to serve households and the broader community �that require ad-hoc or inconsistent connectivity for basic household needs (information, education, services, etc.) and where affordability is a major concern. Community demand usually represents a risky segment to the operator as it can be highly intermittent or uncertain.

Source: USAID, GIZ, Duke University, GSMA

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: The different financing instruments and risk mitigation strategies can be combined to make up a blended capital stack for an operator

97

Blended finance refers to the mixing of concessionary capital, which can take risk without commensurate return, with market-rate private investment. The concessionary capital catalyzes additional private capital for several reasons:

​

• Viability / validity: The presence of a sector-specific player acting as concessionary capital signals that the fund and investment thesis are sound
• Risk-return profile: The concessionary capital improves the risk-return profile of the investment for other investors
• Impact: The catalytic nature of the funding, and the improved viability of the fund, creates outsized impact

BLENDED CAPITAL & WHY IT IS NEEDED

DE-RISKING STRATEGIES

GRANTS

EQUITY

DEBT

BLENDED CAPITAL STACK OF A CCP

Blended finance allows organizations that have different objectives to collaborate and invest alongside each other while achieving their own financial and/or developmental objectives

With the range of potential financiers and magnitude of gaps in terms of connectivity, it is necessary to find strategic ways to pool resources to increase the available funding to close the related funding gaps.

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Financing mechanisms: The capital structure and funding mechanisms change based on the stage and risk level of the CCP

98

Capital Structure

GRANTS

EQUITY

GRANTS

DEBT

EQUITY

DEBT

EQUITY

DEBT

EQUITY

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

Certainty of revenue

Investment Risk

Initial CapEx

OpEx

Funding�Focus

OpEx

Expansion CapEx

Maintenance & Upgrades

Likely�Investors

Grant-Supported

Sub-Commercial

Commercial

Grant-Supported

Sub-Commercial

Commercial

Grant-Supported

Sub-Commercial

Commercial

Grant-Supported

Sub-Commercial

Commercial

Source: Adapted from Meaningful school connectivity report published by Giga & BCG (2021)

Years

Core & Distribution CapEx

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

• Developing a financing plan
• Financing mechanisms
• Sources of capital

Section 4: Financing Mechanisms

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

99

Financing Mechanisms for Locally Owned Internet Infrastructure

Sources of capital: To obtain external funding, CCPs may need to achieve initial milestones and demonstrate a path to sustainability

100

8. Clear use of proceeds

4. Access to reliable & affordable backhaul

3. Access to land �for site construction

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

9. Business plan &�sustainability strategy

1. Strong local team with project champion

2. Community support �and involvement

5. Regulatory approvals �or exemptions

6. Strategic partners with technical expertise

7. Customer segments with purchase intention

10. Social and environmental impact

11. Project Plan �& Timelines

12. Training & Capacity Building Plan

ILLUSTRATIVE CHECKLIST FOR CCPs SEEKING EXTERNAL FUNDING

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Sources of capital: The spectrum of financing providers range from no return expectation to capital preservation to above market-rate return expectations

101

Type of investor

‘RESPONSIBLE’ / ESG-led

TRADITIONAL

PHILANTHROPY

Traditional

Financial Goals

Complete capital loss

Partial capital preservation

Below market or� concessionary returns

Competitive risk-adjusted financial returns

Expected Return on Capital �over 10-year duration

Degree of:�

Commercial orientation

Concentration of ownership

Profit extraction

LOW

HIGH

Venture

IMPACT-DRIVEN

Finance-first

Impact-first

Concessionary

Market-Rate

Anticipated Return �(IRR)

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

Limited capital for CCPs at this stage

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Sources of capital: Commercial capital is available to traditional operators and incumbents that prioritize maximizing financial return

• Passive Impact
• Mitigate risky environmental, social or governance practices in order to retain or enhance value
• Accept disproportionate risk-adjusted returns

• Lower or Uncertain Returns
• Address societal challenges that typically generate a below-market or concessionary financial return
• Strive for capital preservation while prioritizing social outcomes

• No Financial Return
• Seeking specific impact with no / minimum expectation of financial return
• Address societal challenges that typically do not generate a financial return
• Ready to accept partial or full loss of capital

• Financial Returns Paramount
• Limited regard for social or environmental and social factors with a focus on maximizing financial return
• Accept competitive risk-adjusted returns

102

Type of investor

‘RESPONSIBLE’ / ESG-led

TRADITIONAL

PHILANTHROPY

Traditional

Venture

IMPACT-DRIVEN

Finance-first

Impact-first

Concessionary

Market-Rate

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

CONCLUSION

FINANCING MECHANISMS

Financing Mechanisms for Locally Owned Internet Infrastructure

Sources of capital: More capital is required to support CCPs, especially those that are working toward sustainability milestones and have high impact potential.

103

Complete capital loss

Partial capital preservation

Below market or� concessionary returns

Competitive risk-adjusted financial returns

C

Commercial

A

Grant-Supported

B

Sub-Commercial

B1

Capital preservation

B2

Positive

absolute returns

C1

Not market-validated

C2

Market-validated

EXPECTED MARKET IMPACT

EXPECTED FINANCIAL RETURN

New paradigm of impact investing

Traditional mechanisms

Concessionary

Market-Rate

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

Financial Goals

Moving beyond classic philanthropy

Focus of this report is on increasing financial resources to scale CCPs

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Sources of capital: The typical financing pathway for CCPs depends on the financial sustainability of the underlying network

104

`

• Tax-exempt Donations
• In-kind Infrastructure / Asset Transfer
• Traditional grants
• Tax Credits
• Impact Incentives
• Universal Service & Access Funds (USAF)
• Start-up subsidies
• Broadband vouchers

• Recoverable grants
• Quasi-Equity
• Revenue Based Financing (RBF)
• Convertible Loan
• Patient equity
• Outcome based financing
• DFI/Gov Equity
• Bonds (Municipal, Infrastructure)
• Concessional loans / guarantees

• Demand Aggregation
• Pre-sales / down payments
• Anchor tenant contract
• Bundling / Dual service provision

• Investments in digital literacy and community engagement

• Credit enhancement / Loss guarantee schemes
• Risk-sharing
• Novel forms of collateral

• Private equity
• Venture capital
• Bank loans and commercial credit
• Vendor Financing
• Equity capital markets
• Debt capital markets

C

Commercial

A

Grant-Supported

B

Sub-Commercial

Fundamental Question: Is the network ‘financially sustainable’?

De-Risking Strategies

YES

ALMOST

YES

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

NOT YET

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Sources of capital: The types of funding available changes as CCPs navigate along the Financial Sustainability Curve

105

B

Sub-Commercial

Financial break-even (PAT)

Revenue

Operating Expenses

Total cost incl. depreciation�(OpEx + portion of CapEx)

Operating break-even (EBITDA)

Total cost break-even (EBIT)

Depending on �the cost of capital

PHILANTHROPY

IMPACT-DRIVEN

‘RESPONSIBLE’ / ESG-led

TRADITIONAL

0x

1x

2x

3x

Complete capital loss

Partial capital preservation

Below market or� concessionary returns

Competitive risk-adjusted financial returns

C

Commercial

A

Grant-Supported

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

The Financial Sustainability Curve

Money ($ or Local Currency)

Duration (# of years)

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Section 5: Recommendations

106

Background

Section 1

Role & Development of CCPs

Section 2

Ownership & Operating Models

Section 3

Financing mechanisms & de-risking strategies

Section 4

Recommendations

Section 5

BACKGROUND

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

ROLE OF CCPs

Financing Mechanisms for Locally Owned Internet Infrastructure

Section 5: Recommendations

• Among other factors, the impact of CCPs depend on their ability to: �(i) leverage community assets to lower the cost of deployment, �(ii) optimize owner-operator model to appropriate stage & context, �(iii) prioritize financial sustainability and align financial expectations
• CCPs play a vital role in addressing unserved & underserved regions in a cost-efficient and scalable way. Moreover, most CCPs operate to bridge the digital divide in regions that have traditionally been deemed “unprofitable”. Importantly, CCPs help create and retain value within local communities. For all these reasons and more, governments and investors should consider increasing capital allocations towards these type of operators.
• The key stakeholders can all play a role in unlocking more funding:�(i) Government: Create an enabling regulatory environment that supports CCP development�(ii) CCPs: Prioritize cost-effective deployments to achieve financial sustainability and maximize impact through each stage of growth�(iii) Funders: Provide effective subsidies, multi-cycle grants & sub-commercial capital to financially sustainable CCPs

The last section in this report is geared towards actionable recommendations for various stakeholders in the financing ecosystem.

First, we recap the key takeaways from this report, highlighting the distinct competitive advantages of CCPs, the stage-dependent availability of capital, and the importance of aligning financial expectations.

Next, we address the question of why CCPs are deserving recipients of additional financial capital.

Finally, we split our recommendations for three primary stakeholders - governments & policy makers, CCPs, and current & potential funders - to unlock more capital to this segment of operators.

Along with the case studies featured in Annex A and the country policy reform initiatives highlighted in Annex B, readers of this report should have a broad understanding of the background of connectivity, the role and development of CCPs, the various owner-operator models, and the financing mechanisms & de-risking strategies to fund and grow these networks.

What to expect in this section?

Key Takeaways

BACKGROUND

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

ROLE OF CCPs

CONCLUSION

107

Financing Mechanisms for Locally Owned Internet Infrastructure

Key Takeaways

108

CCPs HAVE DISTINCT �COMPETITIVE ADVANTAGES

STAGE & STRUCTURE AFFECT CAPITAL AVAILABILITY

ALIGNMENT OF FINANCIAL EXPECTATIONS IS KEY

• The financial feasibility of CCPs are largely determined by the degree to which they can avoid or decrease costs of building & operating a network.
• CCPs that engage local stakeholders, and leverage community resources to lower the cost of deployments have a higher chance of sustainability.

• The capital available to CCPs is a function of their stage of growth, financial sustainability, and choice of owner-operator model
• CCPs that are self-reliant, evolving into meso organizations, or have specialized local registration status have an enhanced ability to deliver connectivity at scale and attract larger amounts of capital.

• When choosing between different financing mechanisms, CCPs have to evaluate trade-offs, true cost of capital, and return expectations.
• CCPs that match financing sources with appropriate projects and return profiles are most likely to have access to sustained funding.

BACKGROUND

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

ROLE OF CCPs

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Three major actors influence the impact of CCPs

109

• CCPs operate in unserved and underserved communities where traditional commercial operators do not.
• CCPs address market failures and serve nascent markets that commercial operators believe to be unprofitable.
• CCPs have demonstrated viable, alternative, low-cost strategies that are adaptable to local context and can scale.
• CCPs prioritize locally owned and operated projects that retain value within the community, create local employment, and support self-reliance.

Major Stakeholders in Financing Ecosystem

Why Allocate Additional Capital to CCPs?

BACKGROUND

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

ROLE OF CCPs

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Recommendation for government & policy makers: Create an enabling regulatory environment that supports CCP development and encourages investment

110

• INTEGRATE all types of CCPs (CNs, Municipal Networks, Social Enterprises) into the national broadband strategy and digitization policies
• SIMPLIFY and streamline licensing regulations and procedures that provide legal status to CCPs
• ESTABLISH clear options for affordable spectrum usage, pole and duct access, and infrastructure sharing policies
• CREATE transparent wholesale open access to backhaul through open data platforms or investments in physical infrastructure (dark fiber, conduits, etc.)

Enabling regulatory environment for CCPs

Encourage investments into CCPs

Light-touch and proportionate regulations for CCPs to keep transaction costs affordable and reduce barriers to entry

Targeted & transparent ‘smart’ subsidies that reduce over time with an end-point and incentivize investments

• FISCAL INCENTIVES: Fee exemptions (customs waivers on import duties for open-source hardware/software) and tax breaks for investors�
• FINANCIAL CONTRIBUTIONS: Dedicated USAF allocation for CCPs, voucher schemes, grants, low-interest loans and loan guarantees�
• TECHNICAL ASSISTANCE: For capacity building, feasibility studies, quality assurance, technical and management expertise, governance models, open-source tools etc.

Source: Adapted from APC and ISOC materials

BACKGROUND

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

ROLE OF CCPs

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Recommendations for CCPs: Prioritize cost-effective deployments to achieve financial sustainability and maximize impact through each stage of growth

111

• Align mission with financial sustainability from the onset
• Keep costs low
• Engage community and chart a path to self-reliance

• Focus on user growth
• Maintain focus on lowering the cost of network build and operations by leveraging the strategic advantages of a community-driven model

​

• Focus on replicability or sharing of best practices, open-sourcing information, influencing capital availability, and advocacy

​

• Leverage mechanisms to bring economies of scale:
• Bandwidth buyers club
• Shared technical & admin resources
• Meso org structure

• Right size costs for stage of life-cycle with a sharp focus on network economics and sustainability metrics
• Target the next sustainability milestone by developing business models for sustained self-generated revenue
• Diversify income streams by creating multiple revenue and funding sources
• Identify the stage-appropriate sources of capital and consider key trade-offs, true cost of capital, and return expectations
• Prepare for investment readiness by showing demonstrable impact, defined use of proceeds, and pathway to sustainability

Recommendations by Stage

General Recommendations

BACKGROUND

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

ROLE OF CCPs

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Recommendations for funders: Unlock additional funding for CCPs that are financially sustainable and generate significant social impact

112

• Recognize and value the unconventional assets built up by the community - local community engagement and participation, access to property and rights of way, access to spectrum and/or social-purpose spectrum licenses
• Reduce transaction costs by fronting key issues (financial and impact targets, reporting frequency and metrics, terms)
• Provide more capital and liquidity to operators with demonstrated track record and meso organizations
• Use innovative mechanisms - blended finance, concessional loans, credit guarantees etc.

A

�Grant-Supported

B

�Sub-Commercial

• Reduce the transaction costs of subsidies & grants - increase flexibility, simplify impact metrics, and streamline reporting requirements
• Consider one-time grants to offset client installation costs
• Right-size grant support based on stage of CCP and scale of operations
• New multi-cycle phased grant making strategies that encourage operators to move to next sustainability milestone and unlock larger funds at each subsequent stage

​

BACKGROUND

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

ROLE OF CCPs

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Annex A: Case Studies

113

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

United Kingdom: B4RN

114

Source: B4RN Bond Offer, Triodos Bank, ISPreview

Case Study

Government sponsored voucher schemes provided the incentive for B4RN to accelerate growth and reach scale to access a crowdfunded bond promoted by a bank

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

United Kingdom: B4RN

115

Financing mechanisms over the lifecycle

2011

• Minimum/maximum shareholding: £100 / £100,000.
• All shareholders are members of B4RN.
• One member one vote.
• Shares must be held for a minimum of 3 years.
• Investment in shares attract the current rate of 5% which can paid out or reinvested year on year.
• Some shareholders choose to invest £1,500 and claim free connection worth £150.
• Shares can only ever be sold back to B4RN at £1 each.

Deploys its network into communities predominantly by issuing of shares in B4RN to raise the investment to cover the labour and materials needed

B4RN Launched & Registered as a Community Benefit Society

2018

UK Gigabit Broadband Voucher Scheme (GBVS)

Triodos Bank Crowdfunding Bond

2019

Registered supplier of the GBVS scheme, which provides eligible areas across the UK with vouchers to cover the installation costs of bringing gigabit connectivity to people’s homes and businesses.

Raises £3.3 million through a bond crowdfunding campaign promoted by Triodos Bank. The bond pays 4.5% p.a. (tax-free) for its 7 yr term with a min. investment of £50. The bonds are unsecured with a fixed repayment date.�Investments were received from both retail and institutional investors such as Esmée Fairbairn Foundation’s social investment fund.

The funding will enable B4RN to install 500 properties per month from 150 per month and quadruple its network to 20,000 properties by 2023

Soft loan from Esmee Fairbairn Foundation

2014

Source: B4RN Bond Offer,Triodos Bank

Case Study

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Initial focus on investing in backhaul (leasing dark fiber) to peering point in Manchester

Financing Mechanisms for Locally Owned Internet Infrastructure

South Africa: Zenzeleni

116

Case Study

SA’s first cooperative-owned ISP, Zenzeleni is pursuing financial sustainability aided by grant funding and anchor client revenue

Source Zenzeleni

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

South Africa: Zenzeleni

117

Financing mechanisms over the lifecycle

2016: Recipient of ISOC & APC�‘Beyond the Net’ Grant�2017: Innovation Bridge Social Innovation Award, 2nd Runner-up in Mozilla's Equal Rating Innovation Challenge

2012

ICASA licence exemption

granted

Zenzeleni launched

2016

Own backbone built

2019

Zenzeleni Networks Mankosi registered as a

Cooperative

2014

2017

Zenzeleni NPC registered

Zenzeleni Networks Zithulele Coop registered

University of the Western Cape (UWC) supported activities through research and studies enabling Zenzeleni to access national tertiary education grants

Additional revenue generation and cost recovery through end-users: prepaid WiFi hotspots, wireless links to anchor clients (businesses and public institutions),

Ongoing support, training and mentorship

7 �communities

Case Study

2nd Coop seeded and supported by The South African Department of Science and Technology and the Technology Innovation Agency

Source Zenzeleni

2022

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

USA: City of Ammon Fiber Optics

118

Source: Open Technology Institute, Strategic Networks Group, Information Technology & Innovation Foundation (ITIF), Benton Institute & ILSR, EntryPoint

Case Study

The Ammon model proves out the benefits of broadband infrastructure as a utility, where residents own the fiber and providers compete to serve

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

USA: City of Ammon Fiber Optics

119

Source: Open Technology Institute, Strategic Networks Group,Benton Institute & ILSR

Financing mechanisms over the lifecycle

Estimated cost of $717,000 to connect 2 neighbourhoods - Funded by property owners through a local improvement district (LID) model with up-front or amortized payment plans

2008

Private providers to pay the city for use the fiber to offer broadband service to customers over the network. Open access to foster competition and lower prices

Ammon broadband policy adopted

2014

Start build of residential FTTH service

2019

Ordinance passed for a city-owned and operated fiber optic system

2011

800 of 1,500 households and 50 businesses passed join the network.

Municipal network planned for government internal use - connecting anchor govt institutions

2016

Backbone network built

City invested �$ 1 million from 2011-14 to connect various anchor institutions with financial support from FCC’s E-Rate program. Started with Public Works Department and expanded to schools

2021

1,200 households and 100 businesses

are connected�In the middle of LID 5 - $1.5 million project passing 3300 homes

Further expansion using the LID financing mechanism

Case Study

BACKGROUND

ROLE OF CCPs

OWNER-OPERATOR MODELS

FINANCING MECHANISMS

CONCLUSION

Financing Mechanisms for Locally Owned Internet Infrastructure

Spain Guifi.net

120