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Brussels, 1st June 2005

State aid: Commission endorses public funding to bridge broadband communications gap in Wales

The European Commission has authorised, under EU state aid rules, a UK subsidy which aims at bridging the “digital divide” between areas of Wales that currently have broadband communications and those that do not. The measure by the Welsh Assembly Government, which will be co-financed by EU funds, will bring first generation broadband to currently underserved regions of Wales allowing citizens to exploit the benefits of broadband technologies. The Commission concluded that the aid was not likely to cause undue distortion of competition within the Single Market and was therefore compatible with EC Treaty state aid rules (Article 87).

“Competition Commissioner Neelie Kroes commented “I am pleased that we have been able to endorse public finance to develop broadband access for more remote areas in Wales. This will promote the economic development of these areas without distorting competition”.

One of the objectives of the Broadband Wales Program, which feeds into the UK National Broadband Strategy, is to address the current gap in broadband service delivery between those communities which can currently get affordable access and those which cannot. The Regional Innovative Broadband Support project aims at correcting this “digital divide” by awarding a grant to a service provider, who will be selected via a tender, to extend first generation broadband coverage to underserved regions of Wales.

These so called “blackspot” areas are localities where broadband services are not available and that are not considered by current market players as commercially feasible in the near future. They include the thirty five telecommunications exchange areas not figuring on BT Group’s roll-out program, as well as communities that are disadvantaged for technological or topological reasons, e.g. they are located too far from an asymmetric digital subscriber line (ADSL)-enabled telecommunications exchange.

Given its expected positive impact on regional development, co-financing by EU structural funds is planned. In addition, the selected service provider will itself fund 50% of the capital costs of the project. Providers of electronic communications services will have the opportunity to submit their proposals in response to an advertisement to be published in the Official Journal of the EU.

The Commission has concluded that the aid granted is compatible with the EU Treaty rules that allows tate aid to promote the economic development of certain economic areas (Art. 87 (3) (c)), since the subsidies are provided only to the extent necessary to develop the use of broadband services in underserved areas of Wales. The Welsh authorities implemented a number of safeguards to ensure that the aid amounts granted are kept to a minimum and do not distort competition to an extent which is contrary to the common interest. For example, the project does not favour a specific technology, enables open access for third party providers and contains a rebate mechanism under which a progressive reimbursement of public funds is envisaged as demand picks up.

The Commission adopted similar decisions in 2004 concerning the public funding of broadband projects in other parts of the UK (IP/04/1371) and in 2005 regarding projects in Spain (see IP/05/398). The measure is in line with Community priorities in the eEurope 2005 Action Plan (see IP/04/626) and the i2010 initiative.

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