Structuring a community connectivity provider

One of the early decisions a network needs to make is the ownership structure and legal entity it forms.

When deciding which ownership model to adopt, Community Connectivity Providers (CCPs) will consider trade-offs between its concentration of ownership, regulatory compliance, and tax implications. This decision also affects the pathways available to financing.

In this report pullout, we look at options for ownership models, their pros and cons, and factors that networks should consider. Examining three real-world CCPs, we see the rationale behind their chosen ownership model and its impact.

This content is based on the Financing Mechanisms for Locally Owned Infrastructure report.

EXPLORE THE FULL REPORT

There are three broad ownership models for community connectivity providers.

Community networks are owned and operated by the local community of users and any profit is reinvested into the network, the community, or returned to members.

These networks often receive support from outside experts to help with technical design and installation, and typically benefit from grants and other financial assistance from public bodies or other donors. Funding can also come directly from community members. As customer demand increases, these networks become more financially sustainable.

Community ownership is common in emerging markets where incumbent operators lack the capacity or incentive to connect remote communities. In many remote & rural areas, where fees won’t cover investment costs, community-based ownership may be the only option.

There are also successful networks in developed country contexts, like B4RN in the UK, an award-winning non-profit community network that provides affordable high-speed fiber to over 9,000 rural households and businesses that previously had slow, unreliable internet access.

Publicly-owned networks typically take the form of municipal networks that are created and owned by local governments to provide internet services to residents within their jurisdiction. Any returns are used to service financial obligations or returned to the local government. This model has long been used to provide other essential services like electricity, water and gas.

Municipal networks are fully or partially built, operated, and financed by local governments, often in partnership with private contractors who provide expertise that local governments may not have in-house. These networks can take various forms, from open access networks — where a local government invites ISPs to compete to serve customers using infrastructure that it builds — to fully integrated networks where a local government operates the network and provides service directly to the end user.

This model is limited in emerging markets but more common in developed economies where there is government support and capacity to invest in capital-intensive network infrastructure.

Social enterprises are double bottom line businesses that seek both financial and social returns, and any returns are reinvested for growth or returned to business owners or shareholders.

A private entrepreneur or investor pays to construct, operate and maintain the network. Funding often comes from individuals, investors, and commercial loans.

These networks typically flourish in countries where the government supports small operator-led network development through supportive policies and simple licensing procedures where investors can access credit, financing and subsidies and where bilateral donors or non-governmental agencies provide technical assistance.

Private-sector participation is challenging in small-scale projects that may not be commercially viable. Though government incentives and other subsidies can encourage small private networks to provide connectivity in low-population, underserved areas.

Choosing an ownership model

Photo by Compare Fibre on Unsplash

Community connectivity providers typically consider three main questions when deciding on an ownership model:

What legal risks are the owners of the network subject to? (e.g. privacy laws, data protection rules, etc).
Do the owners face significant barriers if they don’t incorporate (eg. licensing restrictions, excess fees etc)?
Which type of legal entity to incorporate as? (usually depends on local and national laws).

Benefits

Two people instal WiFi mesh nodes on a rooftop

Community ownership

Networks are responsive to local community needs
Can connect people in areas where projects are not cost-effective for private investors
A high degree of local buy-in can lead to good management and delivery of high-quality services
Create local jobs and training opportunities
Keep proceeds within communities

CC BY-SA Scoletti1

Public ownership

Creates technical expertise, maintenance capacity and financial management systems
Have good access to legal services and systems to manage regulations
Often have strong relationships with local anchor institutions that can provide reliable income streams
Long-term horizon with the ability to provide low-cost services

Private ownership

Provide technical expertise that can lead to efficient operations, maintenance and management of the network
Political motivations are less likely to influence private actors
If the investment is profitable, private-sector investors can scale up operations

Challenges

Community ownership

Communities often lack the financial and technical capacity to install, operate and manage networks
Offering free or low-cost services can compromise the financial viability of the project, making it dependent on grants or subsidies
Highly dependent on local participation and effective governance mechanisms
Ensuring bill payment can be challenging

Public ownership

Sometimes impacted by short-term political agendas and operational inefficiencies
Often require private actor participation for network deployment and management
A municipality’s corporate structure and bureaucracy might not work for smaller projects
Critics argue that it is an inappropriate use of public funds that can disincentivize private actors

Private ownership

Without supportive policies, regulations and financing, serving rural or low-income areas may not meet return expectations or carry too much risk for private operators
Small-scale private operators may struggle to find local talent for network and business management
Changes in regulations or tariffs can jeopardize success
In markets with extensive regulations governing networks, lengthy approval times can delay projects

Community connectivity providers in action

Demonstrating ownership models

Community Ownership

Broadband for the Rural North (B4RN)

England, United Kingdom

Photo by Dean Vallance on Unsplash

Community ownership

Community ownership models are best suited for rural, remote, or low-income areas where connectivity is unaffordable and where the market is not attractive or viable for private or municipal operators. These networks are likely to be successful when a community supports the project and is willing to contribute time and resources to the network.

Broadband for the Rural North (B4RN) is a professionally designed fiber broadband network registered as a non-profit community benefit society.

The network was set up in a rural farming area of Northern England where there was previously slow and unreliable internet. Since then, B4RN has deployed 3,000km of fiber, connecting over 9,000 customers who can access Gigabit speeds at just £33/month. The network is run by a dedicated local team of 70 staff with the support of landowners, contractors and volunteers. As a community benefit society, B4RN can never be bought by a commercial operator and its profits can only be distributed to the community or used to expand the network.

Originally, the network was largely funded by individuals within the community investing in the network through shares, but more recently B4RN has harnessed millions of pounds worth of government vouchers and community investor loans. B4RN has more than 2,900 shareholders who invest for a target return of 5% p.a.

Case Study

Ammon Municipal Network

Idaho, United States

Photo: Scoletti1

Public ownership

Municipal networks provide an attractive model when taking a long-term view to provide affordable connectivity for a population. They can be particularly effective when attempting to lower prices, encourage more competition, and boost local economic development through the construction of infrastructure or open-access networks.

The US city of Ammon, Idaho has used this model effectively to create one of the fastest broadband networks at the lowest prices in the country.

Recognising the demand for more reliable connectivity, the city built an open access fiber network and invited multiple ISPs to offer services using this shared infrastructure. By lowering the up-front investment required by operators, the network created more competition. Customers now have a choice between multiple operators and can switch providers instantly, thanks to the software-defined networking infrastructure.

The result is that residents can access reliable broadband at Gigabit speeds and community anchor institutions like schools, hospitals, and libraries have seen bandwidth increase tenfold, enabling them to provide better services.

The cost of the network is recouped from residents in three ways: (1) residents who opt-in for a fiber connection pay a one-time $3000 fee which can be spread over 20 years (2) a monthly utility fee of ~$16.50 to cover operating expense and (3) a monthly fee to providers, as low as $9.99.

This content is based on the Financing Mechanisms for Locally Owned Infrastructure report.

EXPLORE THE FULL REPORT

About

This content was created in partnership between the Association of Progressive Communications (APC), Connect Humanity, Connectivity Capital, and the Internet Society. To find out more and read the full report, visit connecthumanity.fund/report-financing-ccps/