The need for more efficient public funding of new communications infrastructure in EU member states

- Investments in new fibre-based communications infrastructure are very demanding.
- Subsidies for white areas are necessary due to market failure.
- Current funding plans show inefficient contracting practice.
- Delegation of network expansion to better informed operators is desirable.
- Simple linear profit sharing contracts appear to be more efficient.

Ubiquitous coverage of new high-speed broadband networks, as foreseen by the European Commission, still appears to be a rather unrealistic objective in most European Union 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 suggests delegating 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 additional ex post verification of cost or demand data as is currently the case under claw-back rules.