ED OWLES, WORLDVIEW FOR USAID RESEARCH REPORT BARRIERS TO INVESTING IN LAST-MILE CONNECTIVITY Connectivity Capital May 2020 1 | BARRIERS TO INVESTING IN LAST-MILE CONNECTIVITY USAID.GOV TABLE OF CONTENTS EXECUTIVE SUMMARY....................................................................................................................................................... 5 INTRODUCTION .................................................................................................................................................................... 7 RESEARCH METHODOLOGY ....................................................................................................................................... 10 BACKGROUND ..................................................................................................................................................................... 11 THE STATE OF CONNECTIVITY TODAY .................................................................................................................................................. 11 HOW NETWORKS ARE BUILT .................................................................................................................................................................... 17 TWO ECOSYSTEMS OF CONNECTIVITY: MOBILE AND FIXED ............................................................................................................. 18 INTERVIEW FINDINGS .................................................................................................................................................... 22 INVESTMENT PROCESS AND RISKS ............................................................................................................................................................ 22 BARRIERS TO INVESTING .............................................................................................................................................. 24 BARRIER 1, SECTOR RISK: LAST-MILE CONNECTIVITY IS A CHALLENGING SECTOR WITH MULTIPLE EXTERNAL DEPENDENCIES .............................................................................................................................................................................................. 25 Case Study 1: Worldlink Group, Nepal .............................................................................................................................................. 28 BARRIER 2, EXECUTION RISK: THE MAJORITY OF LAST-MILE COMPANIES STRUGGLE TO SECURE INVESTMENT DUE TO THEIR COMPANY GROWTH STAGE. ........................................................................................................................................................ 29 Case study 2: Vast Networks, South Africa ....................................................................................................................................... 31 BARRIER 3, FINANCING RISK: INVESTOR ECONOMICS AND RETURN EXPECTATIONS OFTEN DON’T ALIGN WITH AVAILABLE INTERNET SERVICE PROVDIER POTENTIAL TRANSACTIONS .......................................................................................... 33 Case Study 3: Extreme Broadband, Malaysia .................................................................................................................................. 36 BARRIER 4, REGULATORY RISK: REGULATORY UNCERTAINTY AND INEFFECTIVENESS OFTEN ADD COMPLEXITY TO ANY POTENTIAL TRANSACTION. ....................................................................................................................................................................... 38 Case Study 4: American Tower Corporation, Tanzania ................................................................................................................. 40 RECOMMENDATIONS ...................................................................................................................................................... 42 APPENDIX ............................................................................................................................................................................... 45 USAID.GOV BARRIERS TO INVESTING IN LAST-MILE CONNECTIVITY | 2 TABLE OF FIGURES FIGURE 1: BARRIERS TO INVESTING IN LAST-MILE CONNECTIVITY AND INTERVENTIONS TO ADDRESS BARRIERS ................................. 6 FIGURE 2: PREVIOUS USAID REPORTS ON LAST-MILE CONNECTIVITY ........................................................................................................................ 7 FIGURE 3: RESEARCH METHODOLOGY .................................................................................................................................................................................. 10 FIGURE 4: THE STATE OF CONNECTIVITY ............................................................................................................................................................................ 11 FIGURE 5: THE THREE PILLARS OF EXPANDING INTERNET ACCESS ........................................................................................................................... 12 FIGURE 6: AVAILABILITY OF INTERNET ACCESS .................................................................................................................................................................. 12 FIGURE 7: AFFORDABILITY OF INTERNET ACCESS ............................................................................................................................................................. 14 FIGURE 8: ADOPTION OF THE INTERNET ............................................................................................................................................................................. 14 FIGURE 9: MARKET OPPORTUNITY OF CONNECTIVITY.................................................................................................................................................. 15 FIGURE 10: ICT INFRASTRUCTURE FINANCING GAP ........................................................................................................................................................ 16 FIGURE 11: HOW NETWORKS ARE BUILT ............................................................................................................................................................................. 18 FIGURE 12: THE ECOSYSTEMS OF CONNECTIVITY ............................................................................................................................................................ 19 FIGURE 13: TRADE-OFFS BETWEEN MOBILE & FIXED ........................................................................................................................................................ 20 FIGURE 14: DUAL ECOSYSTEMS ................................................................................................................................................................................................. 21 FIGURE 15: INVESTMENT TRANSACTION PROCESS ........................................................................................................................................................... 22 FIGURE 16: INVESTOR RISK CATEGORIES .............................................................................................................................................................................. 23 FIGURE 17: BARRIERS TO INVESTING ...................................................................................................................................................................................... 24 FIGURE 18: EXTERNAL DEPENDENCIES IN LAST-MILE CONNECTIVITY ...................................................................................................................... 25 FIGURE 19: COST OF COVERAGE ............................................................................................................................................................................................. 26 FIGURE 20: SPECTRUM OF FINANCING OPTIONS .............................................................................................................................................................. 33 FIGURE 21: MISSING MIDDLE OF FINANCING ...................................................................................................................................................................... 34 FIGURE 22: ISPs VS. TECHNOLOGY COMPANIES ................................................................................................................................................................. 35 FIGURE 23: ICT REGULATORY TRACKER ............................................................................................................................................................................... 38 FIGURE 24: AMERICAN TOWERS CORPORATION AFRICAN FOOTPRINT................................................................................................................. 40 FIGURE 25: ATC TIMELINE OF EVENTS .................................................................................................................................................................................... 41 FIGURE 26: INVESTOR QUADRANTS ....................................................................................................................................................................................... 46 FIGURE 27: INTERVIEW RESPONDENTS .................................................................................................................................................................................