If your community decides that it must proceed with building a network, there are many different ways to fund it so as to protect municipal finances and reduce the risk of failure. They include:
Capitalizing the network
Capitalizing construction is the biggest challenge to the new network build-out. About 80% of costs are for the civil works involved in laying cable and building and powering wireless towers. Intelligent Communities have found numerous ways to defray the risks and upfront costs:
- Aggregating demand from public agencies and using it to attract a company to construct and operate a core network serving them.
- Establishing public-private partnerships that provide a local carrier with access to municipal-owned underground and overhead infrastructure, reducing the costs and risks of the build.
- Obtaining grants from government agencies seeking to address digital equality problems.
- Negotiating a leaseback deal with an existing local carrier, in which the municipality builds the network but receives a guarantee of lease payments to cover its debt service.
- Using tax-increment financing and other financial strategies to offset current capital expenses with future tax and service revenues.
Whatever the approach, Intelligent Communities proceed step-by-step: creating a core network to serve a high-demand location such as downtown business district and making it cash positive, then expanding into new areas. Stockholm, Sweden operates one of the oldest and most successful broadband networks, and it was built in stages over time, with each stage proving its economic viability before further expansion took place. On a net basis, it required not one penny of taxpayer financing.
Managing operating costs
Capitalizing a network is such a big challenge that communities frequently ignore operating costs. But these can equal 20% of capital expenditures every year for new installations, provisioning and monitoring, change management, maintenance contracts and people. These costs must be carefully estimated in advance and the operating business model must ensure a return not only on the capital investment but on the running costs of the network.
Want to know more? ICF’s partner network offers experts to provide a no-cost, no-obligation consultation to answer your initial questions on funding. Ask for a free referral →
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