The Need for More Efficient Public Funding of New Communications Infrastructure in EU Member States

Abstract

A broad-scale coverage of new high-speed broadband networks as foreseen by the European Commission still appears to be a rather unrealistic objective in most EU member states without government intervention in terms of funding network deployment in unprofitable areas. We contend, however, that the current contract practice of fixing ex ante targets for network expansion is inefficient given the uncertainty about future returns on high-speed broadband services and the public authorities’ incomplete information about the costs of the network provider. This paper puts forward to delegate the choice of the network expansion to the typically much better informed network operator. Furthermore, we show that such contracts can be implemented based on existing accounting data and that it is not necessary to undertake any ex post verification of cost or demand data as is currently the case under claw-back rules.

Keywords: Contract theory, public utilities, next generation telecommunications networks, subsidies

JEL Classification: H20, L43, L44, L51, L52, L96