As competition in the rollout of high-speed broadband intensifies, there has been a renewed push to connect non-commercially viable areas. Public funding has been made available, but some governments are being more supportive than others
Governments are offering subsidies to spur private investment, with funding varying significantly. The US’s $65bn (£50.6bn) scheme is the greatest in scale, but headline figures should not be taken at face value. On a per household basis, Germany is offering the most support among the study countries at £442, followed by the US (£385), Switzerland (£322) and the UK (£177).
Though the overall funding earmarked by the UK looks low compared to other major economies, Project Gigabit appears relatively generous in light of its clear focus on a small proportion of premises in the most rural areas, which are the most cost prohibitive to connect. However, concerns over delays to awarding the subsidies could put the Government’s gigabit ambitions at risk.
Operators are footing most of the bill to meet national broadband targets, accounting for on average over 80% of total investment. The Swiss Government will contribute a relatively large share (35%) compared to the US (9%), but it is unclear where the required funding will come from.
There are concerns that high subsidies could tie up scarce construction resources in subsidised projects, impeding their more efficient use by the private sector. This is the case in Germany, where the Government has increased the amount of public funding available annually.
Public subsidies are needed to connect uneconomic areas, although those on offer vary significantly between countries
Deployments of gigabit-capable networks continue at pace, with legacy copper being replaced with modern digital infrastructure. As rollouts progress, the race to connect uneconomic areas has also intensified in an effort to reduce the urban-rural divide. Operators’ commercial investments have been the primary driving force behind the growth in coverage, although many are experiencing heightened political pressure to extend or improve connectivity in hard-to-reach locations where deployment costs can be prohibitive to the private sector. Governments are setting stretching targets (see Figure 1), typically for nationwide access to high-speed broadband.
Alongside a well-defined strategy and enabling regulatory environment, public financing can remove cost barriers to deployment, which is required in those expensive remote or low density areas where the business case does not stack up. Governments are therefore putting in place subsidy programmes to facilitate broadband rollouts (see Figure 2). In the countries we’ve analysed, the amount of public funding that will be made available varies significantly. In Switzerland, the Government is poised to invest CHF1.4bn (£1.3bn) in fibre and the UK will provide £5bn in funding for ‘Project Gigabit’ – some of which has already been allocated. We expect Germany to provide €21bn (£18bn) in total by 2030, while the Infrastructure Investment and Jobs Act in the US has signed off $65bn (£50.6bn) to tackle both demand- and supply-side challenges.
Even when these amounts are considered per household, there are still considerable differences between the study countries. Under its ‘Gigabit Funding 2.0’ plan, Germany will provide the greatest level of support, equivalent to £442 per household. While the US Government’s programme is the largest overall, it will offer subsidies per household worth £385. In comparison, Switzerland will provide £322 per household, while the UK’s programme has earmarked the lowest level of funding among the four countries, with just over £177 available per household.
Comparing the size of commercial and public investments once again points to variation between the study countries (see Figure 3). Public subsidies as a share of total investment is relatively low in the US and UK at 9% and 11%, respectively. In Germany, 23% of total funding will be provided by the Government, which has recently moved to increase the annual support it offers. The highest share of public investment will be in Switzerland, although subsidies will not be distributed until at least 2028. This is several years later than in Germany, the UK and the US, with the Swiss Government yet to establish the legal framework and funding sources.
The focus in the US is on supporting demand among low-income households, but much more funding is needed for this to continue
The US broadband market is characterised by limited competition at the retail level (which fuels prices) and poor connectivity in some rural areas. To go some way to address this, in November 2021, President Biden signed the Infrastructure Investment and Jobs Act, with $65bn (£50.6bn) earmarked for broadband investment. The plan seeks to address the lack of minimally acceptable speeds (i.e. 25Mbps) for more than 30m people – approximately 9% of the population – and facilitate a reduction in prices. The ultimate aim is to future-proof broadband in the US and to close the digital divide, potentially by the end of the decade. While the headline figure appears considerable, it is less than the average $80bn (£62.7bn) invested by broadband providers annually. Should industry maintain current capex levels out to 2030, this would create a pool of resources worth $705bn (£552.6bn), to which the Government would make a 9% contribution.
Over 65% ($42.5bn (£32.9bn)) of the total federal support will be allocated to states and territories via the Broadband Equity, Access and Deployment (BEAD) programme, which is being managed by the National Telecommunications and Information Administration (NTIA). The initiative is therefore armed with £2,742 per household to improve connectivity for the 30m+ Americans unable to access 25Mbps speeds. The scale of financial support isn't necessarily an issue, but knowing where to spend it has been given notoriously poor mapping of broadband coverage by the Federal Communications Commission (FCC). The regulator has now overhauled its methodology, which has been used to determine how the majority of BEAD funding will be distributed.
The FCC will be responsible for allocating a further $14.2bn (£11bn), 22% of the total, as subsidies to low-income users through the Affordable Connectivity Program (ACP). This builds on the Emergency Broadband Benefit scheme that started during COVID-19, extending support indefinitely and widening eligibility. However, while 20m households have been enrolled, the initiative is expected to run out of funds in 2024 – and to also require $5-6bn (£3.9-4.7bn) every year to remain effective. With concerns that the prospect of the ACP lapsing would harm both poorer consumers and private investment incentives, stakeholders have called on Congress to provide assurances about its future, even suggesting policymakers divert money from other sources such as the FCC’s Universal Service Program for High-Cost Areas and/or its Lifeline scheme.
The Swiss Government is yet to determine where the required public funding will come from
In Switzerland, fixed broadband access is virtually universal as a result of the USO that has included it for many years. However, the Federal Council has taken a dim view of the country’s full fibre coverage, which at 41% is distinctly below the EU average. In response, in June 2023, the Federal Council approved a new ‘Federal Strategy for a Very High Capacity Network’, which outlines an objective of 1Gbps broadband coverage nationwide by 2033. It estimates that achieving this would cost up to CHF4bn (£3.6bn) and that 35% of the necessary investment – CHF1.4bn (£1.3bn) – would have to be provided through public subsidies.
The Federal Council is seeking to ensure no one is disadvantaged by poor broadband speeds; however, its strategy recognises that commercial investment will only extend fibre networks to where it is financially viable. With annual investments of around CHF1.6bn, Swisscom plans to increase fibre coverage to around 55% of households by the end of 2025, and to 70–80% by 2030. The strategy considers that investments beyond this point, specifically to 19% of Swiss premises (more than 740,000), would be unable to generate a return. The Government will therefore provide time-limited support for the deployment of gigabit-capable broadband in (rural) areas where expansion by operators would be uneconomical. Funding will be available primarily for the rollout of fibre, although other technologies such as mobile may be considered in certain scenarios.
To prevent the scheme slowing down or crowding out private investment in commercially viable areas, public subsidies will not be available until 2028, after which CHF280m (£250m) will be provided annually for a five-year period. This equates to £1,694 per household, or little over half the level on offer under the UK’s Project Gigabit. However, before public subsidies can be allocated, the Government must establish the relevant legal basis and instruments to underpin Switzerland’s broadband strategy. It has also not yet determined where federal funds will come from. The Federal Council has presented several options, including the Government’s ordinary budget (potentially with contributions from individual cantons) and revenue from future spectrum auctions. By the end of 2023, the Federal Department of the Environment, Transport, Energy and Communications (DETEC) has been directed to outline recommendations for how to finance the plan.
Germany has increased the amount of financial support it provides each year, but not without concerns
Germany has provided around €17bn (£14.6bn) in broadband subsidies since 2015; however, full fibre coverage of 32% is low when compared against similar countries. To address this challenge the Government has laid out plans for a ‘digital awakening’, aiming for nationwide fibre access by 2030 (with an interim milestone of 50% of premises reached by 2025). The ‘Gigabitstrategie’ – which is the responsibility of the Federal Ministry for Digital and Transport (BMDV) – sets out Germany’s fibre roadmap, and certainly reflects more ambitious policymaking than under the previous administration.
To meet its objectives, in April 2023, the BMDV announced it was elevating the level of annual federal support to €3bn (£2.6bn) as part of its ‘Gigabit Funding 2.0’ plan. According to the regulator BNetzA, Deutsche Telekom and altnets together invested €13.1bn (£11.3bn) in 2022, with 78% of this figure – or €10.2bn (£8.8bn) – dedicated to deploying new broadband infrastructure. As such, Government support will be significant, equating to just over 29% of industry capex and 23% of aggregate spend by the public and private sectors. These percentages may decrease, with total operator investment having risen every year since at least 2012.
The Gigabit Funding 2.0 scheme uses a points-based system and cross-industry dialogue in order to direct money to areas (typically rural ones) where the need is greatest without crowding out commercial investment. Compared to the original funding regime, the new plan will adjust the allocation model and prevent operators from gaining full ownership of the networks they partly finance, which would remain in the hands of municipalities. There are concerns this will inhibit private sector engagement and that the designation of priority areas could see unconnected premises outside of these zones fall through the net. Bitkom (Germany’s digital association) considers there is a risk that competition between state and private funding leads to scarce construction resources being tied up in subsidised projects and therefore no longer being available for faster commercial use.
As well as the Gigabit Funding 2.0 plan, subsidies are available from individual states, which can then be combined with federal financing. The Government-owned development bank KfW and the Landwirtschaftliche Rentenbank (Germany's development agency for agribusiness and rural areas) both also provide loans for digital infrastructure projects.
The UK’s subsidy programme is relatively generous when considering its focus on the most rural and costly premises to connect
Fibre has now reached over half of UK premises and gigabit-capable coverage exceeds 75%. Though private capex is predominantly responsible for recent progress, Building Digital UK (BDUK) is playing an active ancillary role, including managing the delivery of two programmes: the Shared Rural Network and Project Gigabit. The latter is the Government’s £5bn initiative to enable hard-to-reach communities (and some pockets of urban areas) to access gigabit-capable broadband. It is targeting homes and businesses that do not feature in operators’ rollout plans because connecting them would not be commercially viable. The programme includes two sub-initiatives: a £210m Gigabit Voucher Scheme and a £110m GigaHubs project for public sector buildings (such as libraries and schools). It is also complemented by the devolved administrations’ individual rollouts:
Project Stratum, Northern Ireland: £197m to deliver substantial enhancements to internet connectivity for around 85,000 premises;
The Reaching 100% (R100) programme, Scotland: £612m to ensure 30Mbps+ broadband access for all premises; and
Superfast Cymru, Wales: Working in partnership with Openreach, £56m to bring full fibre to 39,000 premises.
As part of Project Gigabit, BDUK is launching phased contracts to help towards rollout costs in specific areas. The aim is for the programme to reach 5% (1.56m) of UK premises. BDUK states that 600,000 have already been reached, primarily by reconfiguring existing contracts awarded during the rollout of superfast broadband. Though the funding earmarked by the Government may look low both overall and on a per household basis, it is relatively generous given the number of premises it is targeting, which are the most challenging and expensive to serve. Project Gigabit will make £3,205 available to connect each home or business in the final 5% – £463 more than the BEAD initiative will provide in the US.
However, there have been strong criticisms of Project Gigabit’s success to date. In January 2022, the Public Accounts Committee stated that it was not convinced the Government was on track to meet its goal of 99% gigabit broadband coverage by 2030 and was relying too heavily on commercial providers. With operators investing £4bn each year in fixed access networks, the fact that Project Gigabit could account for just 11% of the overall money needed to fulfil the UK’s ambitions could actually represent a positive for the Government and the sector’s ability to attract investment. The scheme’s pace of delivery has also been called slow, with delays to procurement a major source of frustration. Less than 18 months until the Government’s interim target of 85% coverage by 2025, only £1.2bn of the total support has been allocated. A further £3.8bn is set for distribution post-2025, although it is unclear exactly when that will be unlocked.
Policymakers are rightly targeting support towards unprofitable areas, although some will face pressure to distribute funding
Governments across the study countries are making, or will make, significant public subsidies available for high-speed broadband rollouts. The US is making the largest total investment to close the digital divide, equivalent to 40 times greater than what Switzerland will provide, and is second only to Germany in the amount of funding per household. On this basis, the German Government’s scheme will deliver 2.5 times (or £265) more per household than the UK. Nevertheless, the UK’s programme is relatively generous given the scale of the problem it is looking to solve. Focused on connecting around 1.56m premises in the costliest areas, the UK will offer 1.9 times more support than Switzerland and almost 1.2 times more than the US.
Encouragingly, it does seem that public funds are being directed appropriately – i.e. towards areas where it is not commercially viable for the private sector to roll out. For instance, Switzerland and the UK are explicitly looking to award public contracts in locations outside of operators’ rollout plans, while the US and UK have stated they will prioritise premises with the lowest available speeds. Governments in the countries we’ve analysed therefore appear to be striking the right balance, ensuring taxpayers are not subsidising profitable deployments.
However, some programmes have been beset by frustrating delays. The UK Government has allocated less than a quarter of the money available under Project Gigabit. Without timely distribution of the remaining funds, concerns about risks to meeting future broadband targets will only grow and become more widespread. In Switzerland, it could be the best part of five years between the Federal Council’s announcement of public support and financing actually being allocated to operators. While this has been framed as a strategy to avoid crowding out private investment – a criticism levied against the German Government – it is unlikely to provide comfort for those impacted by the absence of decent connectivity.
It is also often the case that subsidy programmes are centred around addressing supply-side barriers, with the demand side of the equation not always a core feature of policymakers’ thinking. The US is the only one of the study countries to make a meaningful attempt to support adoption. Given that the potential of gigabit broadband can only be realised if it is taken up and used, governments and regulators should supply and demand in the round, considering to a greater extent key needs and issues affecting adoption as network deployments progress further.
