There are a number of different funding vehicles that are available that can be used to fund local municipal networks.  The scale of funding required has a great deal of implications for the type of financial instruments used.  The deployment of a relatively inexpensive wireless system to provide essential municipal services with a payback period of two years can often be covered out of city revenues.  In contrast, a multi-million dollar fibre system with a payback period of 10 years requires long-term financial commitments.

 
The main sources to fund these types of capital-intensive projects are bonds, loans, grants and private equity financing.  The approach to financing these networks and the established mechanisms that are in use varies quite considerably country by country.  There are very marked contrasts between the financing of municipal networks in the U.S. and those in Europe.  The U.S. tends to use financial instruments that are normally used for funding municipal infrastructure projects and there is very little reliance on government grants.  In Europe, there tends to be a higher reliance on government grants and financing through public-private partnerships.

 
In the U.S., the principal source of financing of infrastructure projects by state and local governments and their agencies is through the use of municipal bonds. There are two types - general obligation bonds and revenue bonds.[vii]  General obligation bonds are normally issued to raise capital and are backed by the issuing government through its taxing power.  Revenue bonds are issued to fund infrastructure projects and are financed from the revenue generated by these projects.  Revenue bonds can be a riskier investment for lenders, as the repayment is predicated on the success of the project and if it fails, there is no financial obligation on the part of the government unless otherwise stipulated.  Revenue bonds were the type of financing that Utopia had originally intended to use, but lenders were unwilling to provide funds on this basis because of the absence of data on this type of open access model.[viii]

 
Since many of the U.S. municipal networks are built and operated as a division of the local government utility, loan financing is often made available from the reserves of the utility.  However, any loans have to be provided on commercial terms to ensure that there is no cross-subsidisation.  The provision of loans by private financial institutions is still relatively uncommon, but there are a few examples, such as Burlington Telecom[ix] in Vermont, where a private investor, Koch Financial, is financing most of the costs of the FTTH system. 

 
In the U.S., there is no established government policy and funding mechanism for financing municipal networks.  Although grants may be available through a number of federally sponsored regional development programmes, they do not appear to be used to any extent by local governments for network development.[x]

 
The approach to financing local municipal access networks in Europe varies from country to country based on the policy of the national government and the role of local government in the provision of services.  Countries, such as the Netherlands and Sweden have national policies and funding mechanisms to encourage the deployment of open access municipal FTTH systems, whereas, in countries where there is no such national policy, there has been very limited deployment of FTTH systems by local governments.

 
Similar to the U.S. experience, cities throughout Europe have been deploying wireless networks to provide essential services to the community at costs that are cheaper than using existing service providers.  A number of these networks have then been used to provide free high-speed Internet access services to the community.

 
Another very important factor in the case of both Sweden and the Netherlands is the role of local government and housing co-operatives in the ownership of multi-tenant housing stock.  These institutions have had a significant impact in encouraging the deployment of FTTH by both private companies, such as Bredbandsbolaget in Sweden and also municipal networks by local governments.  There does also seem to be a level of cooperation with the incumbent carrier, TeliaSonera, which has teamed up with several local municipalities and their subsidiary power utility companies to develop fibre infrastructure in Sweden’s smaller cities and towns.

 
Although both Sweden and the Netherlands are European leaders in the deployment of municipal or cooperatively owned FTTH networks, many are still in the pilot stage and so the actual number of community-wide systems that are operational is still relatively small. 

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References