How to finance school connectivity – A Practical Guide for Fund Administrators and Policy Makers

D.5 Fund

D.5.1    Context: Funding options

Schools and governments have to think creatively around sustainable funding initiatives that inevitably bring about economic growth, social inclusion, and accountable governance. There are two types of funding required to connect schools. The first is capital expenditure (capex) linked mainly to infrastructure related costs including:

• equipment purchases;
• buildout costs for infrastructure for power, middle and last mile connectivity;
• installation of infrastructure to classrooms (LAN/WAN);
• the annual operational costs to cover not only initial connectivity, but also the costs of expanding and sustaining Internet access such as maintenance, labour, electricity, and security.

The second type of funding is recurring expenses which include:

• usage costs, i.e. monthly broadband fees;
• network and equipment licences;
• managed services;
• maintenance and support.

A well-designed school connectivity programme will leverage different sources of funding to finance the project such as:

• regulatory incentives;
• risk mitigation mechanisms, a significant and popular financing solution for school connectivity programmes;
• financial solutions that cover infrastructure costs.

D.5.2    Regulatory incentives

Regulatory incentives will ensure that the network is extended where it is commercially feasible, and with affordable broadband access. Schools in areas where incentives have been deployed should be connected and where mapping shows schools are still unconnected, then an intervention is required, and those schools will form part of the school connectivity programme.

A popular school specific incentive is the e-rate which may be applied to increase affordability.

D.5.3    Risk mitigation mechanisms

Risk mitigation mechanisms are ideal for school connectivity funding projects and will increase adoption and stimulate demand. Choosing the right risk mitigation funding mechanisms, or schools is important:

• Grants and subsidies are available to support school connectivity projects from private sector organisations, NGOs, universal service funds and other structural funds and government agencies.
• Schools are an example of “demand aggregation”, which reassures investors that there will be users and revenue for their networks or users of their services and devices – schools can provide an advance usage guarantee that can encourage private operators to roll out using their own capital (see black boxes, financial solutions) knowing that the costs will be recouped. It should be noted, however, that where connectivity is extended beyond the school, for example through public Wi-Fi, the service is generally available to users who may not pay directly for the service. These ‘community empowerment’ related costs need to be factored in .
• The policy and regulatory regime should include incentives  that support coverage and adoption.
• School-specific incentives may include offtake agreements, facilitation of demand aggregation, and provision of e-rates.
• Countries are at different stages in terms of the approach to universal obligations, with a mixture of pay and play approaches still prevalent in many. In countries such as Argentina, Switzerland, and the United Kingdom, universal service obligations are still attached to licences. Where this is the case, there is scope to include participation in the school connectivity programme as an obligation. In such cases, licence obligations should be designed to minimise the cost of covering underserviced (and commercially unviable) areas and to avoid market distortion. Historically, school connectivity obligations have had mixed results. In some countries, the operators were left to decide what technology and devices to provide; and in most cases there was no obligation to consider use of the Internet and thus no requirement to train the school community or make broadband services sustainable.

Risk mitigation mechanisms

Mobilising funding and reducing project risk