Project Gigabit provides ISPs with GBP 5 billion grant funding to subsidise the cost of providing gigabit connectivity in rural areas. However, bidding for this grant can be a resource intensive and complex process, and some ISPs might wonder whether it’s worth the effort bidding. We think it is. This article explores, through a worked example, the financial benefits to ISPs of bidding for Project Gigabit from reduced capital investment, increased RoI, improved payback and increased enterprise valuation.
Market failure
One of outgoing UK Prime Minister Boris Johnson’s legacies will be his gigabit ambition: ‘to make gigabit broadband available nationwide by 2030’, as articulated in the Levelling Up White Paper, February 2022.
To meet Boris’ gigabit ambition, the Department for Digital Culture Media and Sport (DCMS) pledged GBP 5 billion of grant funding (through Project Gigabit) to be awarded to internet service providers (ISPs) through a competitive bid process to subsidise the cost of building gigabit broadband networks in areas where market failure has occurred. It is estimated that 15% to 20% of premises will not otherwise be served by ISPs.
“The government has already made GBP 696 million of subsidy available to ISPs”
In June 2022, the Department made GBP 543 million funding available to ISPS to enable gigabit connectivity to 380,050 rural premises. Since then, the Government has made an additional GBP 153 million available in subsidy to enable gigabit connectivity to 86,000 premises in Shropshire and Hampshire.
Complex process
We recently advised a rural ISP on their Project Gigabit bid submission to DCMS. Through that experience we have learned that Project Gigabit bid submissions require ISPs to demonstrate their social and economic impact, and to demonstrate their wholesale capability in terms of network architecture, support processes, commercials, operations and sales and marketing in addition to sustaining their current retail business.
ISPs are also required to populate a complex financial model and are required to develop and present their own financial model which evidences their own fiscal position.
“Despite being a complex process, the financial benefits of participating in the scheme far outweigh the costs”
Developing compelling bids can therefore be a resource intensive and complex process, taking many hundreds of people hours. It’s no wonder, some ISPs might wonder whether it’s all worth it. Despite being a complex process, the financial benefits of participating in Project Gigabit far outweigh the costs.
Show me the money
To illustrate the financial benefits of participating in Project Gigabit, a worked example based on a fictional rural ISP building fibre connectivity to some 100,000 premises is presented.
“The analysis shows Project Gigabit can reduce capital investment, increase RoI, improve payback and increase enterprise valuation”
The analysis showed four key findings:
The investment required is significantly reduced from GBP 232 million to GBP 47 million.
The return on investment (RoI) significantly increased from -1.37% to 14%.
The payback decreased from 15 years to 3 years significantly enhancing cashflow.
Most significantly the enterprise valuation increased by GBP 50 million.
Figure 1 – Financial benefits for a typical rural ISP participating in Project Gigabit
The above outcomes clearly demonstrate the financial benefit of participating in Project Gigabit.
“Other benefits include an increase in the cash distributable to shareholders”
There are many other benefits. With grants, there is no debt service to limit, nor additional investors to dilute, shareholder distributions. Grants are also a low form of financing compared to capital markets as financing and legal fees would be in the region of GBP 150,000 to GBP 250,000. In addition, a subsidy does not require to be repaid like a loan, nor does it present ownership or control issues like equity.
How we can help
Our expert and senior team is experienced in networks, strategy, economics, procurement and financing. We have supported ISPs with their Project Gigabit bids. Our experts can assist your team to develop a high quality and compliant bid response to maximise your success
Please contact us on info@IntelligensConsulting.com should you wish to learn more about how we can work with you or if you want to discuss anything else discussed in this article.
Intelligens Consulting is an award-winning telecoms and smart city advisor with a global client base providing investors, operators, and policy makers with technical, strategic, and commercial advice on creating Smart Connected Places and on 5G, IoT and fibre networks. Founder, Iqbal Singh Bedi has advised the most senior government ministers on telecoms policy and our landmark research has been used to inform the UK House of Commons and the Scottish Government on telecoms policy. He also advises investors and operators on their investment and market entry strategies