Maik tschentschel

Firmenkunden Immobilienkunden Kommunalkunden Zuschüsse

Optical fibre projects in SH Practical Guideline for a co-operative approach to finance FTTH-projects in Schleswig-Holstein FTTH Europe Conference, London, Feb. 19th – 21st 2013

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Agenda

  Introduction

  IBSH – a medium-sized, reliable development bank in the north of Germany

  Glimps of the local fibre market – areas of network roll out in SH

  What are the major fields of risk?

  FAQ and answers

  Which FTTx-business model fits best an how to finance it ?

  IB‘s contribution to scope with this issue

  IB.Breitband - a comprehensive approach (more than „lending“)

  Lesson learned – What comes next ?

  Co-operation is the key – You are invited

Quelle: VSG

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Introduction

  Central development institution of the federal state Schleswig-Holstein   (100%-ownership)

  Main business facts (2012)

  Balance sheet total € 18.4 bn.   new loans totalling € 4.0 bn.   Employees 490

  About 60 lending products for our clients   Municipalities

(Public sector and infrastructure financing and consulting)

  Corporates (as co-financier) (corporate financing and consulting)

  real estate (mortgage loans)

  Grants

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Introduction

Public Sector and Infrastructure Financing

Municipalities Projects Corporations

  Responsibility for a € 4.0 bn. loan portfolio

  new loans in 2012 totalling € 500 m.

  direct loans (only municipal loans with a public entity as borrower)

  with partners from banking industry (saving banks, co-operative financial institutions, commercial banks)

  „early“ advice for large and ambitious (sophisticated) infrastructure projects

  loans and grants

  bridge-financing

  Long term loans (20+ yrs.)

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Agenda

  Introduction



  What are the major fields of risk?

  FAQ and answers






Quelle: VSG

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Optical fibre networks in Schleswig-Holstein – a market overview

Diverse… •  large scale,

•  medium-sized and

•  small

….projects with different network status:

-  ready to start

-  in realiziation (construction stage) or

- partly in operation

Quelle: Netzkontor (FL)

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Optical fibre networks in Schleswig-Holstein – a market overview

Quelle: DTAG

Deployment   General Information:

  9-10 projects in realisation/ total investment € 490 m./

  Location: •  throughout SH (rural areas with ducts avail./

areas with high take rates)

  Business model (volume): •  leasing model public institutions/SPA (€

160 m)

•  full integrated or white label model by public utility companies (€ 150 m.)

•  project finance model by private Investors ( € 180 m.)

  Technology/Architecture:   FTTC/-B/-H (EPON-/GPON-/GEPON-/PON-

networks)

  Infrastructure/network owner:   Utility comp./ limit. Partnerships / SPA

(Zweckverbände)

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Optical fibre networks in Schleswig-Holstein – a market overview ( fields of risk and risk mitigation)

  Demographic and regional structural change -  „demographic trap“ / declining population in rural areas

- Lost of attractiveness for inhabitants and local business community

+ SH offers access to a data pool („broadband atlas“) containing statistical and socio-economic data of rural developement

  Customers behavior, forecast of revenues („ARPU“) and take rates - Success of the retail business depends various factors:

  the number of subscribers/take rates

  how to run the business profitable (margin)?

- Competitive market with an incumbant operator / other competitors (cable) and new entrants

+ development and adjustment of business planing/BC („financial engineering“) in a most conservative way

+ high cost efficiency during construction (key cost driver) and operating phase might offer enough „leeway“ in case of „price war“ /“high churn rate“

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Agenda

  Introduction



  What are the risks and opportunities?

  FAQ and answers






Quelle: VSG

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FAQs (Which solution/BC fits best?)

Business models

Deployment of the „dark“ infrastructure (ducts/

distribution points/PoPs)

Optical fibre network (basic infrastructure)

Stand-alone

Purchase (via partnership)

Deployment of active compon./network (and operating it)

Render active services

„Do-it-your-self“ in co-

operation

Stand- alone

in co-operation

„Triple-Play“

Voice tel.

Fast Internet

IPTV

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FAQs (Which solution/BC fits best?)

Types and stages of Implementation

Planing / civil engineering/ fibre ducts

Glas fibre cable Active components

»  How to ensure sustainability? »  How to finance it?

End-user service

„dark fibre network“

65%

Capex in „white or grey“ rural areas totals Ø up to EUR 3.000 – 4.500 € per home reached Hausanschluss

10% 25%

Long term consideration (deprec.period Ø 20-30 yrs.)

Medium-term consideration (deprec.period Ø 8-10 yrs.)

Short-term consideration

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FAQs (Business case)

  „Business planing“   Specific market / technology know how

  Size of the roll out area and architecture (at what costs?)

  Strategy and order of the roll out (“area-by-area“)

  How to market and sell the new products

  „Business case“   How to build up from the scratch a CFM ?

  Feasibility check?

  Forecast of subscriber growth rates (to optimistic/ramp up/…)

  „Cash is king“ (how to plan liquidity needs at the very beginning?)

  Investors point of view (size and timing of returns/exit strategy/…)

  Interest rate

  Due diligence process (when to start?/ who pays for it?)

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FAQs (Example: contractual structure)

Notional

„Breitbandnetz- gesellschaft

GmbH & Co. KG“

„rent“/fixed/flexible charge)

Dividens/debt service („bullet“

structured)

Equity/near equity (subordinated

shareholders loan)

Service provider (technic./products)

Maintenance

(techn. support etc.) Leasing/Purchase (active components) Management

Capex

(cable ducts/ optical fibre)

Project sponsors

Financial institutions

Debt service

Long-medium term loan

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Agenda

  Introduction




  FAQ and answers






Quelle: VSG

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IB.Breitband: a comprehensive projection

  (at early stage) Round table „Broadband“ in SH

  (followed by) Regional conferences

  (next step) Advisory servive rendered by the center of competence for infrastructure projects (business unit whithin IB)

  To seek Co-operation with:   Ministry of Economics and the Centre of broadband competence of SH

  Regional associations of municipalities

  publicly owned utility companies

  Financial institutions (in SH) and abroad (EIB, LR-Bank, KfW,…)   Chambers of Industry and Commerce

  ….

  As development bank of SH we look upon each fibre network roll out as an integrated and interrelated infrastructure project.

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Initial project scoping

-  check list

-  BC-input data sheet

Assessment of the sponsors case („credit rather than equity risk“)

- evaluation/ feasibility test

first „run“ of IB‘s CFM - tool

- „stress test“ under different scenarios

Plausibility check by technical ad-visor

- resulting in „re- planing“ of the roll out architect.

Final evaluation

-  assessment

-  discussion

Credit application and in house lending decision

IB‘s risk matrix

Financial close and credit agreement

•  Introduction of a standardised work flow to facilitate decision making process within the bank

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Business case

Credit application and decision

Checklist EIB/ risk matrix

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Market analysis

Product analysis

Competitors analysis

Roll-Out-Plan (order/technology)

Cash-Flow-spread sheet

Capex (dark infrastructure / active components/others)

Opex (techn. maintenance, overhaed costs/ current costs etc.)

Quantitative data input (price grid/take rate/roll out scheme)

Financing (equity/near equity/ term loans etc.)

Ratios (dscr, llcr, plcr, capex/opex per user ratio etc.)

Szenario analysis („stress test“)

P&L, balance sheet, sources & uses of funds

Goal

feasibility/appraisal of options sustainability

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•  IB‘s CFM „Breitband“ - covers all aspects of risk and sensitivity analysis

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Cooperation with EIB and

Rentenbank “Broadband SH“

Low interest long-term loans for

customers

Funding for participating

Partner banks

Transparency regarding the

decision to invest


IB.Broadband

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  EIB/Rentenbank:

  provide for liquidity for IB.Breitband projects in SH

  Re-financing is handled like a project loan in the view of EIB/Rentenbank

  Other sources:

  Funds provided by the EU and the Federal Government for the specific SH purpose

  Size matters:

  aggregation of numerous of projects into one by IB (European standards/requirements thus reached/met)

Cooperation with EIB and

Rentenbank “Broadband SH“

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…


Project 1

Bank C

Project 2

Project 15

funding

loans

Project 3

Rentenbank

EIB

CI CI Bank A

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but: Each project has to be profitable

in the long run !


  IBSH ….

  acts as a risk taker facilitating many of the projects by offering co-financing

  deals with each project on „same base“ approach

  evaluates the projects feasibility (risk/reward balance)

  benchmarks the projects on the base of ongoing re-evaluation

  offers co-monitoring during project life cycle

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Agenda

  Introduction




  FAQ and answers






Quelle: VSG

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Conclusions and Outlook for the local fibre market (SH)

  Key drivers for fibre market development in SH for the period to come are:  Constraints on public (gov./local municipalities) funds to cover

investments needs

 Strong demand for higher bandwidth/new products /apps. and technical service for end-users (business community/public service/households ….)

  the new broadband strategy of SH Gov. new impetus to the ongoing process

 new guarantee instruments improving projects profitability (still under

evaluation)

 Foundation of a new broadband agency centralizing/coordinating all activities fostering roll out plans in rural areas especially the process of approving (still under evaluation)

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Conclusions and Outlook for the local fibre market (cont.)

  Lessons learned from the first successful schemes rolled out in SH

  “invaluable” experiences made by the banks might facilitate future lending policy

  first experiences led to better understanding of risk analysis and risk mitigation processes…

 … and better understanding of the key drivers of success

  first experiences with the newly built IB.Broadband CFM will facilitate the analysis and application process within the bank

 …and what comes next?

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You are invited to participate in this process please contact ……

Investitionsbank Schleswig-Holstein Fleethörn 29 – 31 24103 Kiel Fax: (0431) 9905 – 3043 www.ib-sh.de

Public Sector and Infrastructure Financing Tel. (04 31) 99 05 - 35 32 [email protected] (team head) Tel. (04 31) 9905 – 3553 [email protected]

Maik tschentschel

Documents

optical fibre projects

optical fibre networks

municipal loans

direct loans

fttxbusiness model

sh rural areas

project finance model

finance ftthprojects