Page 77 - SAMENA Trends - January 2020

ARTICLE SAMENA TRENDS

traditionally engaged in financing telecom projects across geographies and in developing countries, bringing together
infrastructure however in a limited manner. technologies. Beyond risk diversification, ICT infrastructure project owners with
project bundling also allows the investor investors, public sector players and other
Given the criticality of telecom/ ICT deploying the infrastructure to exploit stakeholders to understand the project in
infrastructure for development of gigabit economies of scale and to achieve detail, discuss potential investments and
society/ economy and the benefits that contracting efficiencies, there reducing arrive at combined funding arrangements.
such a society/ economy would unlock overall cost. As an example, the state of A simpler solution beyond marketplaces
for various stakeholders, that is, the Kentucky in United States awarded in 2018, entails setting up organizations funded
government, private sector enterprises as a bundled contract to develop several fiber by governments, development banks or
well as individuals, there is an increase in optic infrastructure projects that totaled NGOs that support telecom operators to
the number of entities keen to fund this a network of approximately 3,000 miles. solicit funds from other players towards
telecom/ ICT infrastructure deployment. Another formula, that involves support expansion or upgrade of infrastructure.
Governmental entities in some markets of public entities or development banks, A case in point is the ‘Mobile Solutions
are already making regulatory changes consists of backing a project with a credit Technical Assistance and Research
to promote investment, and are even guarantee. A guarantee diminishes risk not project’ funded by the U.S. Agency for
taking an active role as direct investors by reducing the probability of default, but International Development (USAID) that
in some instances. Financial players and by altering the exposure to losses ensuring offers a service where it supports telecom
technology companies are also joining either complete or partial compensation. operators to attract project-based co-
in. Given their ability to have longer-term Guarantees are generally granted to investment from other private entities
investment horizons and their acceptance projects that observe high risks but present beyond the telecom industry.
of relatively lower return expectations for high potential socio-economic returns for
a lower risk infrastructure business, vis- a location. In 2017, the World Bank through The financing model to prevail in the
à-vis fully integrated telecom operators, its Multilateral Investment Guarantee future shall depend on multiple factors,
they are expected to become formidable Agency (MIGA) offered ~USD 115 million including investment amount required,
players in the game going forward. guarantee to the Second HyalRoute Fiber risk associated with the project and
Optic Cable Network Project of 4,500 km in competitive landscape of telecom
In addition to “who funds it?”, there is also Myanmar to the Industrial and Commercial market in the country. Governments in
an increase in the types of assets, that is, Bank of China that was funding the project. Middle East have demonstrated a strong
“what is being funded?” and in the ways To limit the risk and attract even more interest in development of telecom/ ICT
these investments are structured, that is, risk-averse investors, additional levers infrastructure, considering that the sector
“how is it funded?”. can be introduced around structuring shall be a key pillar in achievement of
of investments (“how”). Identifying their ambitious national strategies. For
One example of the type of assets (“what”) different investors and aligning on example, In Bahrain, Telecommunications
is asset bundling, an asset class that their contributions towards telecom/ Regulatory Authority (TRA) is the primary
has been widely used in transportation ICT infrastructure projects can be a driver behind many ongoing developments
and civil infrastructure projects and is challenging task. To overcome the that shall improve both telecom
now entering the telecom/ ICT space. complexity associated with this process, infrastructure and services. Additionally,
This product spreads the risk of small innovative approaches are becoming favorable regulatory environments are
unattractive ICT infrastructure projects more mainstream to ensure that projects being promoted in an attempt to attract and
by bundling them with larger projects that are paired with operators and adequate localize investments in the sector, as is the
expect strong potential financial returns. financing opportunities. For example, case with Communication and Information
The portfolio of projects is offered under a the establishment of infrastructure Technology Commission (CITC) in Saudi
single procurement contract and can cover marketplaces is becoming more popular Arabia. In addition to the public sector,
private players have also shown interest
in investing in the region. In October
2019, the German development finance
institution DEG (Deutsche Investitions-
und Entwicklungsgesellschaft) together
with the EIB (European Investment
Bank) announced a co-investment in
modernization of infrastructure for the
telecom industry in Lebanon. In summary,
it is clear that co-investment shall be a
key funding approach for these critical
projects going forward, and that the
telecom operators shall have access to
an active ecosystem of players willing to
Figure 1: Evolution of key funding/ financing approaches partner with them in this journey.

77 JANUARY 2020