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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
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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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
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 risks and opportunities?
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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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
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 risks and opportunities?
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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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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IB.Breitband: a comprehensive projection
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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IB.Breitband: a comprehensive projection
Business case
Credit application and decision
Checklist EIB/ risk matrix
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IB.Breitband: a comprehensive projection
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.Breitband: a comprehensive projection
• 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.Breitband: a comprehensive projection
IB.Broadband
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IB.Breitband: a comprehensive projection
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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…
IB.Breitband: a comprehensive projection
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 !
IB.Breitband: a comprehensive projection
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
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 risks and opportunities?
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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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]