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Brussels, 1 June 2012

State aid: Commission consults on draft Guidelines for broadband networks– frequently asked questions

(See also IP/12/550)

What are these Guidelines about?

The Broadband Guidelines outline the rules and conditions on how public funding can be provided to build broadband networks in line with the EU state aid rules.

The Guidelines do not only address the funding of traditional broadband networks (like ADSL, cable, wireless or mobile networks), but also provide guidance for governments and public authorities on how to finance very high speed, so-called next generation access ("NGA") networks and also ultra-high speed broadband networks as defined in the Digital Agenda for Europe (DAE, see IP/10/581).

The DAE is a fundamental cornerstone of the EU's growth strategy as outlined in the Europe 2020 strategy for smart, sustainable and inclusive growth (see IP/10/225). The main aim of these Guidelines is to accelerate the deployment of broadband networks in Europe in order to achieve the DAE targets for infrastructure development.

The proposed changes of the Guidelines reflect the principles set out in the State Aid Modernisation (SAM) package, which was announced on 8 May 2012. In line with the on-going reform, the proposed changes to the Guidelines aim to ensure that state aid policy in the broadband sector will focus on facilitating well-designed aid targeted at market failures and objectives of common European interest, on streamlining rules and on taking faster decisions (see IP/12/458).   

Why do you already revise the Guidelines of 2009?

At the time of adoption of the current guidelines in 2009, the Commission had limited experience in the assessment of very high speed broadband networks. Therefore, the 2009 guidelines contain a clause requiring their revision within three years. In addition, the telecommunication industry is characterized by on-going market, technological and regulatory changes and since then, the general EU strategy for the sector has developed. Most importantly, the DAE was adopted in 2010 with clear targets for broadband infrastructure developments and a regulatory framework has been set out in the NGA recommendation (see IP/10/1142). All these changes need to be reflected in the revised Guidelines.

How will the Guidelines contribute to the EU Digital Agenda?

The DAE provides an overall strategy framework defining over 100 initiatives for a digital Europe with the objective of bringing basic broadband and internet speed of above 30 Mbps to all Europeans and ensuring that, by 2020, 50% or more of European households subscribe to internet connections above 100 Mbps.

To achieve these ambitious objectives, public funding would be necessary to complement commercial investments in areas where private operators do not plan to invest because of low return of investment. The Broadband Guidelines clarify how public funding and State aid could be targeted to achieve the DAE objectives by ensuring competition and avoiding the crowding out of private investments.

Since more and more Member States are complementing commercial investments with public funds to achieve the DAE objectives, and the EU is further increasing its efforts by earmarking regional and structural funds for these objectives, the amount of public funding channelled to this area is expected to rise further.

What were the main achievements of the 2009 Guidelines so far?

The Guidelines of 2009 created a clear and predictable framework for all stakeholders on what would be the role of State aid in this sector. Since their adoption, the Commission has authorized significant amounts of pro-competitive investments, in line with the EU state aid rules as depicted in the figure below:

Figures and graphics available in PDF and WORD PROCESSED

Figure 1 - Amount of State aid authorized per year

By 2012, nearly all Member States have designed and implemented state aid broadband schemes. The Guidelines of 2009 did not impose a "straitjacket" on all aid granting authorities but were sufficiently flexible to take into account the specificities of different countries and regions.

What are the main changes in the new guidelines as compared to the previous guidelines?

During the public consultation on the new Guidelines (see IP/11/493), most stakeholders argued for 'refining' the existing rules, rather than a complete overhaul of the methodology, rules and conditions. Therefore most changes in the new draft Guidelines are clarifications, with only a few more substantive modifications. The main changes are the following:

1. Alignment with the Digital Agenda (DAE) objectives:

The DAE has introduced ambitious broadband targets for EU member states which will require public investment to stimulate NGA deployment. However, commercial operators are also actively involved and their investment incentives should be preserved. Therefore, the draft Guidelines propose more flexibility for providing public support for genuine ultra-fast networks in areas where slower, interim, technological solutions are already available, while requiring that there is a genuine added value in terms of additional services. In addition, publicly funded networks would have to fulfil certain conditions to foster competition in the broadband market and to limit the potential distortion of competition. The public support would be limited to passive, neutral and wholesale only infrastructure.

For the time being, ultra-fast networks can only be fibre based. High investment costs of fibre networks make it likely that in many cases the roll-out of only one single infrastructure is economically viable. As a result, open, non-discriminatory access conditions are essential to ensure long term competition. They would also benefit existing operators which have not been selected to build the fibre based ultra-fast network themselves.

2. Fine tuning the effective wholesale access obligation

Especially in urban areas and in areas where private investments are undertaken, strong open access conditions are essential to allow alternative operators to use the subsidized infrastructure for providing retail broadband services to consumers. The presence of several providers will foster competition and lead to better service quality and cheaper prices.

The draft Guidelines propose to strengthen this obligation with regard to next generation access networks and to extend it to passive infrastructure elements (infrastructure elements that are not directly related to the transmission of services, such as ducts or street cabinets. Investments into passive infrastructure are particularly expensive).

At the same time, a new proportionality test for remote areas would reduce the investment costs in areas where certain types of wholesale access products would most likely not be requested thereby introducing additional flexibility to support investments in rural areas.

3. Role of the National Regulatory Authorities (NRA)

NRAs have important technical knowledge and expertise in the broadband sector and can provide valuable input to granting authorities in designing state aid measures, starting from the mapping of existing infrastructure, identifying target areas or designing the wholesale access conditions and pricing. In light of many comments in the public consultation, the revised Guidelines propose to clarify and strengthen the position of NRAs, especially as regards NGA and ultra-fast networks.

4. Increasing transparency

An early and wide publication of planned projects would allow for a better participation in the tender process, spreading knowledge about existing infrastructure would reduce wasteful duplications of investment and ex post information on the implementation of broadband projects could lead to best practice advice on successful broadband investments.

In response to numerous submissions during the public consultation, the drafts Guidelines therefore propose that Member States create a central webpage where all information on planned, on-going or implemented broadband projects receiving public funding is published. This will give all stakeholders equal opportunities to comment on a measure or to participate in a bid for state aid. A new ex post reporting obligation on certain elements of the authorised measures could be handled together with the already on-going initiative of streamlining reporting obligations of Member States.

5. Clarifications, simplification, ease of administrative burden

The draft guidelines incorporate developments in the case law of the EU courts, in particular a March 2011 ruling of the General Court in joined cases T-443/08 and T-445/08, regarding infrastructure investment at the German regional airport Leipzig Halle. Changes in EU law, in particular the adoption of a new package on services of general economic interest in December 2001 (see IP/11/1571 and MEMO/11/929). In addition, new annexes provide a description of the typical intervention models followed by public authorities and a glossary of the most commonly used terminology.

Certain concepts, such as the three year time horizon for assessing investment plans, seem to have been open to different interpretations. The draft Guidelines provide more explanations and examples on this and other notions that were not fully clear to all stakeholders.

Some stakeholders reported that the claw-back mechanism seems to have created too high administrative burden in particular for small, local projects. The draft Guidelines propose to increase the threshold for the claw-back requirement to €10 million of aid, exempting all projects below that threshold. Larger projects still have to comply with the claw back requirement, which ensures that public authorities get back money form a subsidized operator if the profitability of a project is higher than planned.

What do you expect from the new Guidelines?

The new guidelines aim to boost the telecommunication industry's role as "growth engine" of the European economy through further increased pro-competitive investments. This is expected to make a significant contribution to reaching the DAE objectives and to increasing competition in the sector. The rules enshrined in the Guidelines shall guarantee an efficient and effective spending of taxpayers' money.

The new Guidelines also proposes to shift the focus of public investments to passive infrastructure elements of the networks (ducts, manholes, dark fibre) in order to further strengthen competition particularly for very high speed broadband networks. This could reduce the entry barrier for several operators, while such 'pure infrastructure investments' could attract additional investors outside the telecommunication sector, like investment banks or pension funds.

Will it be easier for small local authorities to design State aid projects?

The Broadband Guidelines can be the most effectively applied if Member States design and implement national framework schemes, thereby taking away the administrative burden from small local authorities to seek funding or state aid approval for small, individual projects.

Thus small local projects are best implemented if each Member State has a national framework scheme approved by the Commission that 'translates' the Broadband Guidelines requirements in line with national specificities (for instance defining the size of a target area, availability of national broadband maps on existing infrastructures, existence of competence centres where local municipalities can ask detailed questions, etc.). Many such framework schemes were designed and approved by the Commission in the last years, for instance in Finland, Sweden, France, Germany or Italy. To take the example of Finland, more than 800 small, local projects will be realized under the national framework scheme aimed at ensuring that all citizens have access to a 100 Mbps connection within less than 2 kms. As a result, 800 municipalities can implement their project without having to submit individual state aid notifications to the Commission.

What are the next steps?

The draft proposal is now open for public consultation and interested stakeholders are invited to submit comments until 03.09.2012. A multilateral meeting to discuss the proposals with Member States will take place in September 2012. The Commission plans to adopt the final version of the new Guidelines in December 2012.

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