1. Business models and return on investment
ENGAGE, Letterkenny, 12 February 2013
Filippo Munisteri, Economic analyst, DG CONNECT, European Commission

2. Post- CEF environment (1/2)
CEF digital obtained only 1 billion EUR out of the 9.2 bn. EUR requested in the MFF negotiations concluded on 08/02/2013
This means no broadband financing under CEF for
Funds obtained will be allocated to Digital Services Infrastructure (pan-European eGov, eHealth, eInclusion platforms)

3. Post- CEF environment (2/2) – Way forward
Try to obtain from EP the inclusion of ICT in the main thematic areas for SF concentration
Work on the provision of technical assistance
Pressure on the MS to finance broadband infrastructure
Regulatory action if needed (10-points action plan announced by NK on 18/12/2012)
Continued collaboration with EIB on loans, guarantees and project bonds

4. The role of a public non for profit organisation in Donegal
Less pressure on RoI and long-term investment perspective (ERR>FRR)
Local drive foster demand aggregation
Possibility to team with private partners and companies operating in the area
Possibility to use SF
Retains the control of infrastructure after deploying
Easier to re-use existing infrastructure
Access to debt funding?

5. Role of local communities
Foster demand aggregation through awareness raising in: chambers of commerce, churches, sport centers, youth centers, pubs…
Improving digital skills (ERDF, ESF can help)
Mapping of infrastructure at the local level to identify cost-reduction and infrastructure sharing possibilities

6. Are there models which can measure the social or community RoI of deploying HSB networks in rural areas?
It is assumed that in a HSB CBA ERR>IRR
However, this has not yet being modelled at the EU level (Acreo will try)
A number of study exist for basic broadband but limited no. of papers for HSB
The first comprehensive study at EU level is by Analysis Mason

7. Which financial models do you think better fit into the current scenario?
After direct support is scrapped, SF grants remain the most likely solution for areas like Donegal where the business case is not clear
Infrastructure sharing (electric networks with areal poles in Donegal) may become crucial for the business case, but public involvement will be needed
Another option could be to wait for 4G roll-out and then rely on the fibre at the BTS

8. Which are the assumptions to bear in mind under this approach?
State aids might be an issue in the re-use of existing infrastructure if financed with public money
Impact of Basel III on long-term lending will make public intervention more likely
Impact of no-CEF on project bonds still unclear
Technical assistance needed?
Project design?
Project appraisal?
Experts or twinning?

9. Content Essential of EU financial instruments
Crowding in – crowding out
Corporate vs. ProjectTEN-T

10. Scope of Financial Instruments
Financial benefit
(Internal Rate of Return / IRR)
Result of financial modelling
Equity
Private bank
lending
EIB or other IFI/promotional bank lending
Market failure
Scope of financial instruments
Suboptimal investment situation
grants
Socio-economic benefit
(Economic Rate of Return / ERR)
Result of a Cost-Benefit Analysis

11. EIB Financing Instruments
Standard Loans
“Traditional” EIB lending instrument
Guaranteed basis
Represents the bulk of EIB’s lending volumes
Direct Loans
Public Sector
Intermediated Loans
Banks
Structured Finance
Established in 2001
Expands the ability of EIB to provide financing
Allows lending to projects with higher risk (PPP’s)
Allows for more flexible financing solutions
(PPP) Project finance with direct project risk
Project
SPV
Mezzanine
PBI / RSFF
Equity through
Funds (e.g. Marguerite)
European Investment Bank

12. Funded subdebt - Unfunded subdebt
SPV
Project
Costs
Project
Bonds
Target rating
minimum A-
SPV
Project
Costs
Project
Bonds
Target rating
minimum A-
Bond Issue and
underwriting
Bond Issue and
underwriting
Project Bond Investor
Project Bond Investor
EIB/EU
Funded
Sub-debt
EIB/EU
Un-funded
Sub-debt
Equity & Quasi-equity
up to 20% of total Bond issue
Equity & Quasi-equity
up to 20% of total Bond issue
EIB/EU Funded Sub-debt comes as a mezzanine, sub-ordinated loan – replacing part of the bond to increase its target rating
EIB/EU Unfunded Sub-debt guarantees part of the bond issued to improve the target rating
Increases the amount of bonds to be issued
Available during the whole lifetime of the project
Can address the problem of cash shortfalls during the construction period (additional liquidity)
Functioning similar to a line of credit

13. Risk sharing with the EIB
EIB separates its loans into:
Investment grade with low provisioning rates –capital in balance sheet set aside for a loan
Sub-investment grade loans with expected loss higher than 2% are classified as "Special Activities" with high provisioning rates
"Special Activities lay heavy on EIB balance sheet and limited to ca. 9% of total lending"
EIB-EC risk-sharing aims at reducing the risk provisioning for Special Activities:
splitting risk-provisioning 50/50 (old RSFF, old LGTT)
portfolio tranching (First Loss Piece and Residual Risk Tranche)
Sub-investment grade