broadband strategies handbook.pdf - Khazar University

In the context of market-oriented economic policies, subsidies are aimedat developing sustainable markets for the private provision of services. Theyare designed to turn investments that are desirable from the viewpoint ofthe economy at-large, but not profitable by themselves, into commerciallyviable undertakings. Projects that are not demonstrably good for the economyat-large or likely to stand on their own do not justify subsidy and arerarely undertaken.Good Subsidy PracticeGood subsidy practice in infrastructure projects commits all participants tocontribute to financing the provision of services:• Service providers invest and risk their own resources to set up thefacilities and provide the services during a given time under specificconditions.• The government helps service providers to meet some of their investmentand start-up costs. 17• Customers pay for the use of services at least as much as is needed tomeet operating and maintenance costs. Where domestic installations areinvolved, customers are also required to pay part of the investment cost,as a confirmation of demand for service and commitment.The design of subsidies is closely tied to the available service deliverymechanisms. Subsidies are channeled through the service supply chain inways that aim at being neutral with respect to competition, service providers,service options, and technologies.Competition for SubsidiesSubsidies for broadband development are increasingly being determinedand allocated among firms participating in a competitive public tender thatis awarded to the firm that bids the least subsidy. This modality is sometimesreferred to as “least-cost subsidies.” Compared with traditional publicsector funding of investments, least-cost subsidies result in lower cost to thegovernment, mobilization of substantial private investment, and enhancedtransparency. Other forms of competition for subsidies include competitionamong projects proposed by communities or firms, competition amongregional governments for central funds, and competition among sectors fora share of these funds. Implicit in all modalities is competition among technologiesand business models for delivering these services.Competition among firms for least-cost subsidies to provide infrastructureservices was pioneered in Chile in the mid-1990s for the provision of172 Broadband Strategies Handbook