broadband strategies handbook.pdf - Khazar University

delivering fiber-based coverage at 100 Mbit/s to 93 percent of all premisesand fixed wireless and satellite coverage at 12 Mbit/s to the rest. The totalconstruction and initial maintenance cost was estimated at $A 35.7 billion,including $A 27.1 billion of equity contributed by the Australian government.A study in 2009 also estimated that the cost of the network wouldexceed its benefits by between $A 14 billion to $A 20 billion (present valuein 2009). The study concluded that the investment should not be undertakenif the total cost would exceed $A 17 billion, even accounting for risingdemand for broadband-enabled services and the negative outcome that thetypical end user would not have access to more than 20 Mbit/s (Ergas andRobinson 2009).Fiscal support often involves the direct use of government money. Subsidizinginvestment requires cash outlays up-front that will never be recovered.Subsidizing use involves payments during a long time, possibly for thelifetime of the strategy. Investing equity in public-private partnerships(PPPs) involves cash contributions up-front that may be recovered in thelong run (for example, as dividends) to the extent that the ventures are commerciallysuccessful. Long-term debt financing comprises cash outlays thatmay be recovered over the years, provided the beneficiaries do not defaulton repayment obligations.Fiscal support that does not involve direct use of government moneyalso has a cost. Giving investors free use of spectrum for last-mile accesshas an opportunity cost related to the revenues that the government couldobtain from the sale of spectrum licenses for profitable business use.Preferential taxation (for example, income tax holidays, custom dutyexemptions) implies fiscal revenues forgone. On-lending internationaldevelopment loans and credits reduce the funding available from thesesources for other initiatives in the same country. 9 Regulatory risk (for example,changes in the pricing rules) can be mitigated through governmentguarantees, which create contingent liabilities. The government can pickup part of the commercial risk of uncertain market outlook for new investmentsby committing to future purchases, which may result in obligationsunrelated to actual need.Estimating costs and benefits. In order to determine whether to move aheadwith some form of fiscal support for broadband development, the costs andbenefits must be determined. Economic costs and benefits of a componentof the broadband strategy are valued to reflect real scarcities of goods andservices. Financial analysis values costs and benefits at market prices. Botheconomic and financial analyses compare the situations with and withoutthe component. Sunk costs are not taken into account.Policy Approaches to Promoting Broadband Development 67