ANALYSIS
OF THE COSTS AND BENEFITS
OF THE PROJECT FOR DEVELOPMENT OF HIGH-SPEED BROADBAND
ACCESS IN BULGARIA BY BUILDING OF CRITICAL, SECURE AND RELIABLE
PUBLIC ICT INFRASTRUCTURE
[1]
Contents
Contents ........................................................................................................................................................................................................2
SUMMARY ....................................................................................................................................................................................................3
ANALYSIS OF THE PROJECT ................................................................................................................................................................4
BACKGROUND OF THE PROJECT ..............................................................................................................................................................4
ALTERNATIVE SCENARIOS .......................................................................................................................................................................4
STRUCTURE OF THE PROJECT IN TIME ...................................................................................................................................................5
Financial analysis ......................................................................................................................................................................................6
MAIN OUTPUT PARAMETERS AND ASSUMPTIONS ................................................................................................................................6
STRUCTURE OF THE MODEL.....................................................................................................................................................................6
INVESTMENT COSTS ..................................................................................................................................................................................7
ANALYSIS OF ACCOUNTING AND TECHNICAL DEPRECIATION .............................................................................................................8
FORECAST OF OPERATING REVENUES AND EXPENSES OF THE OPERATOR ......................................................................................9
Model ............................................................................................................................................................................. 9
Revenues ...................................................................................................................................................................... 9
Expenses .................................................................................................................................................................... 10
Net operating revenues ........................................................................................................................................ 11
ANALYSIS OF THE FNPV (I) AND FIRR (I) ...................................................................................................................................... 12
FUNDING SOURCES ................................................................................................................................................................................. 12
ANALYSIS OF THE FINANCIAL SUSTAINABILITY ................................................................................................................................. 12
ANALYSIS OF THE FNPV (C) AND FIRR (C) .................................................................................................................................... 12
Economic analysis ................................................................................................................................................................................. 13
EXPECTED ECONOMIC BENEFITS AND EXPENSES OF THE PROJECT................................................................................................. 13
Regional development .......................................................................................................................................... 13
е-Services .................................................................................................................................................................. 14
Telecommunication services ............................................................................................................................. 14
ANALYSIS OF THE ECONOMIC NET PRESENT VALUE AND INTERNAL RATE OF RETURN OF THE CAPITAL (RESPECTIVELY
ENPV AND EIRR)................................................................................................................................................................................. 15
SENSITIVITY ANALYSIS OF THE PROJECT TO VARIATIONS OF KEY VARIABLES .............................................................................. 17
RISK ANALYSIS ........................................................................................................................................................................................ 18
Non-quantitative risks ......................................................................................................................................... 19
[2]
SUMMARY
The main objective of the project is to develop a critical, secure, safe and reliable public
infrastructure for broadband Next Generation Access (NGA) for the needs of the egovernment and to create conditions for development of broadband services for citizens
and businesses in disadvantaged areas of Bulgaria. This will be achieved by building an
optical connection between the municipality centers that are "white areas" in relation to
NGA and the respective regional centers.
Developed infrastructure will enable connecting of state and public institutions,
including educational, cultural, social and health institutions (e.g. municipal and district
schools, community centers, hospitals, etc.) to the EECN.
The residual capacity of the infrastructure will be provided to private operators of
electronic communication services that will have the opportunity to develop the socalled "last mile" in order to provide retail services to end users (households and
businesses) within the areas selected for intervention under the project. Two subobjectives will thus be achieved: 1) development of wholesale NGA broadband market in
targeted areas, 2) creation of conditions for market development of NGA services for
citizens and businesses in those areas.
It is expected that the project will create conditions for increasing the competitiveness
of local economy as it will facilitate and encourage the use of NGA broadband access by
the IT business for the provision of new business models and new services to end users.
This in turn will increase employment and living standards.
With regard to the benefits for the population, the project will promote social cohesion
by providing access to online services for people living in poorly populated and remote
areas, thus overcoming tendencies to isolate this population from social and cultural life
of the country.
And last but not least, the project aims to strengthen confidence in Internet services by
establishing of safety and behavior standards according to modern international
standards.
The Executive Agency "Electronic communications networks and information systems"
(EA "ECNIS") will be responsible for the development of the infrastructure, which will
also be the specific beneficiary under the grants scheme under OP "Regional
Development", financed by the European Regional Development Fund and co-financed
by the National Budget of the Republic of Bulgaria. EA “ECNIS” will be the owner of the
developed infrastructure.
Planned NGA infrastructure will cover the following target areas: all municipal centers,
which are the "white" areas in terms of the NGA (currently 26) and settlements along
the route of the infrastructure to be developed: 3 municipal centers, which are "gray"
areas and 24 small settlements - "white" areas in terms of the NGA. Estimates show that
this development will require approximately 1 year and 39 million BGN.
After finalizing the development of infrastructure, the operation and the maintenance
will be outsourced to an external contractor – an electronic communication services
provided for a period of 15 years, who will be limited and shall not provide any retail
services. In order to avoid over-funding of the operator, all amounts above the
reasonable rate of return would be "seized" back under the so-called "claw-back"
mechanism and restored to the EC.
[3]
ANALYSIS OF THE PROJECT
Background of the project
The project is in full compliance with the Program in the field of digital technologies
for Europe („Digital Agenda for Europe“). The infrastructure for next generation access,
which will be developed, will serve as a prerequisite and a tool for the development of
new economic and social activities in selected areas: for business purposes, for access to
eGovernment services, for entertainment and communication.
In full accordance with the priorities set in the European strategy "Europe 2020", the
goal of which is that by 2020 all Europeans have Internet access at speeds of at least 30
Mbps, and at least 50% of European households have connectivity with over 100 Mbps,
the proposed broadband Internet access of next generation has almost unlimited
capacity, providing fast and ultra-fast internet access.
The project provides the most efficient use of modern possibilities of digital technology.
Its implementation is a prerequisite for improving of living conditions in the selected
areas of intervention, for example through the introduction of telemedicine services, the
implementation of new and more efficient and affordable means of communication and
providing a quick and easy access to public services and cultural content.
The current project proposal also pursues the objectives of the national strategy for
broadband development in Bulgaria in terms of the coverage of broadband access in
poorly populated and disadvantaged areas and connectivity to public institutions,
including schools.
This project proposal is also in full compliance with the socio-economic objective set put
in the National Strategy, related to the promotion of social cohesion by providing access
to on-line services to people living in poorly populated and remote areas.
With regard to the compliance with regional and municipal strategic documents,
there are practically no intentions in the plans of the public administration at this level
oriented to investments in development of an infrastructure for broadband high-speed
next generation access.
At the same time, almost all municipal administrations in the regions selected for
intervention under the project have included various ICT projects and initiatives in their
municipal plans and development programs that will be positively affected by the
provision of broadband infrastructure based on the NGA.
If this intervention of the state in NGA technology is not implemented now, there is a
risk a country like Bulgaria to not be able to invest independently in NGA network in the
necessary extent, which will result in deepening of digital divide.
Alternative scenarios
When preparing the project, in order to provide better argumentation, the possibility to
implement an alternative scenario "without a project" has been considered. Given the
nature of the project, however, this means an attempt for achieving of the targets for
access of end users to high-speed broadband access entirely under normal market
conditions, under which the development of the infrastructure that would enable it is
unprofitable and thus far not a priority for market participants. If we would need to
summarize - there will be no access network if there is no backbone infrastructure (the
subject of this project).
[4]
Therefore, the specific task for this ABC is to consider a scenario for development of a
backbone infrastructure and all investment and operating costs, revenues and economic
benefits of implementing the project are marginal ones and derive entirely from it.
Structure of the project in time
The project is planned to be implemented in two main stages – development of optical
connectivity and operation and maintenance of the infrastructure.
Stage 1 – includes the preparation for launching of the project and the development of
the optical infrastructure and it is expected that this stage will be completed within two
years after the launching of the project.
Given the scale of the project, it is expected that arrangements for this stage will take
nearly a year, during which tenders will be organized for contractors for routes and
networks planned divided into individual lots.
According to the preliminary estimates, approximately 870 km of fiber optic routes to
the target community centers will be necessary; this includes also 24 settlements,
through which the optical connectivity lines will pass. According to expert evaluation the
total cost of Stage 1 is estimated at 39 123 030 BGN.
Stage 2 – selection of an infrastructure operator
For the purposes of effective and competent management of the developed
infrastructure, EA "ECNIS” plans to organize a tender procedure for the selection of an
operator ("The Operator") of the infrastructure. The role of the operators will on the one
hand include the maintenance of the infrastructure, incl. of the established fiber optic
connectivity to public institutions, municipal centers and settlements, through which
optical routes pass. On the other hand, the operator will offer connectivity to
telecommunication service providers (Internet, telephone, television, etc.) in the form of
the following distinct standard "products": Gigabit / second (virtual broadband resource
unit, one dark fiber and two dark fibers (for more details, see section "Financial
Analysis" of this ACB)
NB! t is necessary to distinguish the provision of access to the transmission
infrastructure and offering of Internet access. The operator will only offer the primary
service, and this only in settlements, designated as "white areas" (see the Feasibility
Study) for next generation access (NGA), where no such access exists and its
development is considered to be financially unprofitable if implemented by the active
telecommunication companies in the country - a thesis, which is illustrated by the
financial analysis.
[5]
Financial analysis
Main output parameters and assumptions
-
A time frame of 2 +13 years is foreseen for the duration of the entire project, the
first two years covering the investment stage 1, and the subsequent 13 – the
operational life of the project;
-
All monetary values are in Bulgarian Levs (BGN), unless expressly indicated to be
thousands of BGN;
-
The discount rate used for discounting of financial revenues and expenses is the
generally applicable one for the assessment of such projects funded by the EU
and is 5%;
-
The discount rate used for the discounting of the financial and economic
expenses and benefits is 5.5%;
Structure of the model
The model is formed so as to create a flexible simulation environment for the analysis of
the target indicators (present net value, internal return rates) for evaluation of the
project at various levels of key variables.
Key assumptions for the analysis is the adopted consolidation of the forecast reports of
the EA "ECNIS" as the Beneficiary and the future Operator. This is necessary in order to
effectively address the financial and economic benefits and costs of the project. Despite
this, the model clearly distinguishes the revenues, expenditures and cash flows of the
Beneficiary and the Operator.
In general, the logical sequence of the project study does through the following detailed
estimates and analyzes:
- Investment costs;
-
Amortization schedule as per the CITA and technical terms;
-
Forecast of operating revenues and expenses of the Operator;
-
Analysis of the financial net present value and internal rate of return of
investment (respectively FNPV (I) and FIRR (I));
-
Funding sources;
-
Analysis of the financial sustainability of the project;
-
Analysis of the financial net present value and internal rate of return of the
capital (respectively FNPV (I) and FIRR (I));
[6]
-
Expected economic benefits and expenses of the project;
-
Analysis of the economic net present value and internal rate of return of the
capital (respectively ENPV and EIRR);
-
Sensitivity analysis of the project to variations of key variables;
-
Risk analysis and assessment
Investment costs
Basic assumption: all investment costs associated with the project will be made during
the first stage of its implementation under the control of the Beneficiary. Beneficiary will
organize and hold tender procedure(s) for selection of contractors for the investment
program. EA "ECNIS" will monitor and control closely the progress of the stages of the
investment program in order to ensure that infrastructure development will be
completed within the period set and at the required level.
In preparing the estimate of the investment, the distance between the administrative
points, the prevailing prices for the installation of new infrastructure (including
excavation of channels), the latest technological solutions for network equipment and an
evaluation of the costs necessary for bringing the equipment premises in a condition
adequate for the operation of sensitive communication (fire alarms, access control, etc.)
have been taken into account.
In addition to investment costs, the analysis includes also the related project expenses,
publicity expenses, as well as audit expenses for the project.
Expenses type (all values are in BGN)
Expenses for project management,
publicity and audits
Year 1
473 865
Investment costs, incl.;
Optical cables and laying
Network equipment
Equipment (premises)
Reconstruction works (premises)
Year 2
473 865
38 175 300
28 216 405
9 465 095
96 480
397 320
[7]
Analysis of accounting and technical depreciation
Project investment will include 3 main groups of assets: cable infrastructure, network
equipment and equipment for maintenance of the optimal operating conditions of the
network equipment.
Depreciation schedule (Appendix 2) contains depreciation expenses by years, according
to current tax legislation, as well as the expected useful life of the infrastructure. The
table below summarizes the depreciation rates for the different groups as per the
different assumptions:
Groups of assets
Annual
Technically
Technical
depreciation rate
useful life
depreciation rate
as per the CITA
(years)
Cable infrastructure
8%
13
8%
Network equipment
Equipment /premises
Premises reconstruction
works
30%
13
8%
30%
13
8%
8%
13
8%
In preparing the preliminary technical solution, factors such as storage environment of
the equipment, technological level and actuality and physical aging of materials have
been taken into account. Therefore, the estimates consider the realistic useful life of the
investment, so that it does not require additional investment by the Beneficiary and/or
the Operator during the operation period of the infrastructure. In the same time, it is
expected that the entire infrastructure will have a practically zero residual value, as any
further extension of its operation will require a "refreshing" of a significant part of the
facilities and the equipment.
[8]
Forecast of operating revenues and expenses of the Operator
The role of the operator will be performed by a private entity selected through a tender
procedure by the Beneficiary. The operator will have sufficient technical resources to
maintain the infrastructure, and it will also include the connection between the
premises in the municipal centers (the endpoints of the routes of the major
infrastructure), public institutions outside these buildings, schools, community
centers/libraries and hospitals. On the other hand, the Operator will only generate
revenues by offering broadband access to, generally speaking, Internet and
telecommunication services providers to end users (individuals and businesses). The
operator will not offer services such as Internet access, telephony and digital TV for end
users.
Model
The model for forecasting of the revenues and expenses of the Operator is built on a
number of empirically derived input data and expertise for the items that cannot be
derived on the basis of targeted offers, statistics and other publicly available sources.
All operating revenues and expenses do not include VAT, as it is reported that the net
financial effect will be zero (in accordance with paragraph 2.4.2.2. of the Manual for cost
and benefits analysis dated July 2008).
Revenues
Operator revenues will be formed on the basis of the expected demand of three distinct
connectivity "products", and namely gigabit/second (Gb/sec) - Virtual broadband
resource unit – one dark fiber (1df) and two dark fibers (2df) as standard market
connectivity formulations. The expected demand for these products has been tested and
measured by direct surveys with existing internet providers (IP). In this specific
analysis, it is expressed as a function of the percentage of Internet providers, who have
their interest in the relevant resource type (A), the number of identified providers being
active in the municipal centers (B) and the percentage of Internet providers that use or
intend to use and offer NGA (C). The result, which is the demand in number of products,
is equal to the product of these three factors (for example: Number of single dark fibers
sold = A(1df) x B x C).
On the other hand, the prices, at which these three products will be offered, have been
determined based on prevailing prices for such resource and are constant over the
entire project term. The tables below illustrates the number of the sold products and the
realized revenues:
[9]
Expenses
The following groups of operating expense have been defined in the forecast of the
revenues and expenditures of the Operator:
- Infrastructure maintenance expenses - include the maintenance costs for the
canal infrastructure, equipment maintenance and controlled services, and all of
them are calculated as per the scale and the type of the infrastructure and the
equipment. It should be noted that the no specific maintenance expenses for the
infrastructure and the equipment have been set out for the first because they will
be covered by the warranty and the price of that warranty is included in th
investment expenses. It is also important to emphasize that no maintenance team
has been considered, so the above estimated costs are based on indicative costs
of outsourcing maintenance.
[10]
-
Sales expenses - include the salary of an employee and deductions from te
general and administrative expenses, including office rent, communications,
transport and others expenses. The dynamics of the other expenses is expressed
as higher costs during the first 3 years of the project with a decrease during the
fourth, after which they are permanent.
-
Administration expenses – include the salaries of four employees, as deductions
from general administrative expenses, as mentioned above, and these costs have
similar dynamics.
-
Expenses for rental of premises and energy for the equipment – facilities and
energy consumption will be granted by the Municipality in exchange for the free
connectivity and its maintenance by the Operator.
Net operating revenues
The forecast of operating revenues and expenses results in the following net operating
revenues:
[11]
Analysis of the FNPV (I) and FIRR (I)
For analysis of the effective indicators of the project return, project investment expenses
and related expenses incurred by the Beneficiary in Stage 1 (Years 1 and 2) and the
operating revenues and expenses of the Operator (years 3 to 15) are compared, the
entire table is in Annex 4.
After applying the analysis of the Net present value and the Internal rate of return
obtained, negative values of both indicators are resulting amounting to approximately 31 939 thousand BGN and -21.73%. This is clear evidence that such a project is
unfeasible in the free market environment and is therefore an argument for the need of
grants in order to achieve the overall objectives of the program.
Funding sources
The amount of the investment required for the project is 39 123 030 BGN with a
maximum eligible financing (as per call for project proposals) of 39 147 764.20
BGN In addition, the letter dated 2.05.2012/ref. No 99-00-6-3293 by DG RDP and
OPRD states that funding for such a measure will be considered a state aid, on
which the EC will be notified and there is no need to calculate the financial deficit.
Therefore, funding sources for the entire amount must be in the ratio 85% cofunding by ERDF and 15% funding from the state budget, respectively 33 254 575
BGN and 5 868 454 BGN.
Analysis of the financial sustainability
When comparing all the cash flows of the project, and namely - the investment and
project expenses, the operating income and flows and funding, it is found that with the
assumptions made, the project is financially sustainable and there are no negative values
in the cumulative value of cash flows for the entire project period (Appendix 5).
Analysis of the FNPV (C) and FIRR (C)
[12]
The next step in analyzing the financial profile of the project is the analysis of the
returns compared to the investment funds by the national capital. When comparing
these two groups of variables, the result is still negative, but significantly less, as the
FNPV (C) is close to -1.845 thousand BGN and the FIRR (C) is about -1.36%.
Economic analysis
Expected economic benefits and expenses of the project
The key drivers for the project are the economic and social benefits than the far wider
strict financial implications. Focusing on them, the project aims to improve the quality of
life and the productivity in the target municipalities in accordance with the priorities of
OPRD.
Analysis of economic benefits and expenses is structured in three main directions:
- Regional development;
-
е-Services;
-
Telecommunication services.
Each of these directions is based on information available or studied in the prefeasibility study. Numerical reflection of the benefits/expenses was obtained on the
basis of projections of a set of variables that are described below as sources and expert
assumptions.
The method of calculating the expected economic benefits/expenses is based on a
development model for user groups (including Internet providers, end users,
institutions) based on surveys from the feasibility studies, statistics and expert
assumptions (see Annex 8). The main growth in the estimates is the percentage of the
population with access to the Internet and broadband access, which follows a trend of
convergence between the target municipalities and the surrounding “white areas” and
the average levels for the rest of the country.
Regional development
The Regional development direction of the project is expected to contribute to the
effective realization of the municipal projects, implementation of e-health projects and
the reduction in the rate of emigration from the target municipalities.
- Assessment of net benefits from the improved implementation of municipal
projects is a function of the pan-European projects for the targeted
municipalities. Implementation rate and percentage rate of contribution of ICT
infrastructure to the implementation of the projects;
-
The benefits of implementation of projects related to the eHealth start in the sixth
year of the project and derive from the assessment of the total anticipated cost of
financing for such projects, distributed in equal annual installments by the end of
13 years of the life of the project;
[13]
-
A particularly significant impact of the project is expected to be the reduced
"leakage" of the population of the target municipal centers and the adjacent
settlements. The expected effect as a numerical expression is a product of the
percentage of the population that will not migrate as a result of the project
implementation and the GDP per capita. The first indicator is based on the
conservative assumption that the effect on migration by the switching of IP to
offering NGA is not more than 20%.
е-Services
Gaining access to electronic services is a significant set of benefits for both institutions
and end users.
- The benefits of increasing the geographical scope of the e-government in
municipalities are based on expert assessments of the benefits of the access to
digital registers as savings of document printing and savings of processing time
established by the "Electronic government" Directorate to the MTITC weighted
by the percentage of the population in the target municipalities;
-
The expected benefits for businesses operating both in the municipal centers as
well as outside them, are quantified on the basis of time, fuel and printing
supplies savings. Expert assumptions have been made about the specific factors
such as the number of trips savings, the growth rate of companies outside the
municipal centers, using the Internet and the average expense and fuel prices;
-
Marginal benefit of obtaining access to electronic records to end users has been
evaluated using a similar principle - the average number of savings from trips,
the amount of man hours and fuel savings have been considered.
-
Relatively smaller, but still significant in terms of time share have the marginal
benefits from the increased shopping over the Internet, again distinguishing
between population in the municipal centers and the adjacent settlements.
Furthermore, the average price difference between onsite and online purchases
is added to the already known parameter of fuel savings.
Telecommunication services
These are services that generate direct economic benefits for all users of the
infrastructure, namely the Internet providers, municipalities and other governmental
institutions, businesses and individuals.
- Replacement of the Internet expenses of the municipalities and state institutions
in municipal centers. Marginal benefits for the administration and public
institutions (hospitals, schools, community centers) are calculated as the
difference between the assumption value of the current expenses for Internet
[14]
connection by private Internet providers and the marginal costs of the EECN for
the provision of Internet access through the newly developed fiber optics
infrastructure. In addition, the expenses for electricity from the network and
auxiliary equipment installed in designated premises, which are conservatively
set as constant for the entire duration of the project, are also taken into account.
-
The added value of the new and additional services include the marginal
economic impact by: The attracting of new Internet users and switching of
existing users switching to the NGA, the substitution of telephone calls with
Internet calls, as well as consumer surplus. The latter is calculated based on
willingness to pay (WTP), using the results of the surveys, which are part of the
feasibility study, and in particular 5 applications of the connectivity without
phone calls, which are separated and quantified separately.
Analysis of the economic net present value and internal rate of return of the
capital (respectively ENPV and EIRR)
Similar to the analysis of the financial performance, economic analysis compares all
actual anticipated income and expenses, including the net operating revenues for the
operator, in order to draw a broader picture of the expected impact of the project. A
significant fiscal adjustment of over 7.5 million BGN representing the VAT of the
investment should be noted. As the Beneficiary will not be able to recover this expense,
it is included in the financial justification, but it is excluded from the economic one,
because it is a neutral flow in the big picture of the marginal benefits and costs of the
project.
[15]
Again, by applying the analysis of discounted cash flows (here with the applicable
discount rate of 5.5% for EU countries with cohesion programs), respectively positive
economic net present value and internal rate of return of nearly respectively 20 834
thousand BGN and 14.93% are obtained.
[16]
In addition, the ratio factor of discounted economic benefits to the discounted costs is
1.30 - well above 1 for the evaluation of the feasibility of such projects. Therefore, based
on these indicators, a provisionally conclusion can be made that the project is viable and
will lead to significant social and economic benefits.
Sensitivity analysis of the project to variations of key variables
The results of the economic analysis are positive arguments in favor of the project.
However, it should be emphasized that the data leading to these results are based on
historical statistics and assumptions, which do not guarantee future results. It is
therefore necessary to examine the sensitivity of the financial performance to several
key factors in order to identify the most significant risks for the successful project
implementation and to plan measures for their mitigation.
Within this analysis of the expenses and the benefits of the project, the sensitivity of the
economic characteristics has been evaluated in terms of present value and return to the
basic benefits and expenses sources for the project - investment expenses, percentage of
IPs switching to the NGA (direct customers of the Operator), contribution to the
realization of municipal projects, helping to reduce emigration, time saved in working
with e-government in municipalities, the percentage of the change in the results for
Internet coverage in the municipal centers and white areas. The analysis is best analyzed
using the following chart, where the percentage deviations of the main factors on the
horizontal axis with the percentage of the EIRR change in the vertical axis:
The investment - given its considerable amount and concentration at the beginning of
the project - of course is the factor to which the rate of return is mostly at risk in case of
significant changes with elasticity over 1, and the value of the switching (essentially the
net present value of net revenues from the project) is nearly 56 million BGN.
The next important factor in terms of elasticity is the main financial income-determining
factor - the percentage of Internet providers that will actually become customers of the
[17]
Operator. This switching value here is 7.99% and is interpreted as a percentage of the
Internet providers, under which the project reaches the switching value.
Risk analysis
The results of the previous analyzes focus the attention of two main sources of
quantitative risk for the project - the amount of investment and the expected demand for
the infrastructure by the Internet providers, which are the direct "paying" customer of
the Operator.
Although the amount of investments is analytically with the highest potential for impact
on project return, it is also the part of the project that can be quantified and planed most
reliably in the context of existing solutions and current prices. It is considered that these
assumptions are made with particular attention to possible variations in the scope of the
activity for developing of the infrastructure with the contingency possible for such
projects. Risk analysis therefore focuses on this variable, which is entirely estimated in
the future, although based on actual inquiry information.
The approach chosen when applying risk analysis is based on a hypothetically set
probabilities and the assumption that they will have normal/triangular distribution.
The following chart illustrates the distribution of the main analyzed factor compared to
the specified probability distribution.
The impact of this distribution on the ENPV and the EIRR and illustrated in the following
two charts.
[18]
Non-quantitative risks
Technological risks:
1. Moral technological obsolescence of the equipment and the achieved speeds
before the end of the project. The chosen scenario for project implementation is
[19]
technologically neutral and has a huge upgrade capacity. Equipment to be
installed, however, is likely to be inadequate especially in terms of increasing
demands for speeds. In this case, the risk can be mitigated by betting on technical
requirements for the equipment, allowing easy upgrade on modular principal.
Additionally, if increased demands are associated with increased consumer
demand, an opportunity to update single modules by interested providers may be
considered. The latter also applies to users of state and municipal administration.
Administrative risks:
2. Unawareness by municipal administrations of the importance of the
objectives of the project. To date, the development of broadband access is not
covered in any municipal development program. This project will at the same
time require a certain commitment by municipal administrations for achieving its
objectives. As a strategy to deal with this situation, the beneficiary, together and
in coordination with the MTITC will develop an awareness campaign on the
benefits of the project for the municipalities and their citizens and businesses.
[20]