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Neelie Kroes

Vice-President of the European Commission responsible for Digital Agenda

Who pays what? Broadband for all and the future of Universal Service Obligations

Address at Nordic Broadband Forum

Copenhagen, 15 September 2010

Good afternoon Ladies and Gentlemen,

I am delighted to be here. By the looks of the conference programme you have been having very productive discussions. I am aware that through conferences such as these, and in the close-knit Nordic business community, there have been many recent discussions around the future of broadband.

This is undoubtedly a forward-looking and progressive event - notable because you see citizen welfare and entrepreneurial vision as closely related. If there is one thing I have learnt in my role as Commissioner for the Digital Agenda, it is that the economic and social aspects of ICTs are inseparable. We need to have broad perspectives to understand how benefits in one sphere reinforce the other.

Of course, I don't need to convince you of the potential benefits of the internet. That is indeed why you have joined the Nordic Broadband Forum! But I would like to emphasise that the Commission is 100% serious about reaching the basic goal of ‘broadband for all’ by the end of 2013. After that we will, of course, move on to meet the other broadband targets set in the Digital Agenda.

There are many risks of division in European society in coming years. These could come from dealing with the costs of ageing; from the effects of climate change; from lifestyle differences between rural areas and cities; from different peoples failing to realise what they have in common. We cannot afford to add the ‘digital divide’ to this list of risks.

On the contrary, we should use the internet to reduce the other risks. In fact, I think that the roll-out of broadband will stimulate a virtuous cycle of activity that greatly benefits European society. It will radically change the way in which we communicate and access media content, but will also revolutionise how we see and use services such as eHealth and eLearning.

People will be able to use a much wider range of tools to connect with each other – enabling them to choose how to get their message across most effectively, both in their business and their personal lives.

On the social side, these networks can be the key to vibrant remote communities. Think of how they connect young people and keep them out of trouble. Think of how economies of scale can keep local government structures viable and in touch with local needs. And think of the importance of eHealth solutions for small communities in remote areas.

It is therefore clear in my mind that broadband for all will provide a fundamental contribution to building strong and more prosperous communities.

But this virtuous circle will not happen by accident. It will take hard work and major investments. If we can work together on this – if we can work together to deliver broadband for all, and develop new, higher-performance networks, we will leave Europe a much better place than when we first got involved in this industry.

I am sure that you know our targets already! But it does not hurt to repeat those ambitious goals:

  • By 2013, basic broadband coverage for all EU citizens, a target that has been reaffirmed by the European Council

  • And by 2020, fast broadband coverage at 30 Megabits per second available to all EU citizens, with at least half European households subscribing to broadband access at 100 Megabits per second.

Universal Service Obligations (USO)

One issue that is at the heart of how we meet the target of ‘broadband for all’ is the future of Universal Service Obligations. This is now part and parcel of broadband discussions.

It is worth recalling where we come from and where we stand now on this issue, before looking at possible future actions.

The 2002 regulatory framework for telecommunications required Member States to ensure a minimum set of services would be available to all citizens. This was irrespective of their geographical location, at an affordable price and without distorting competition. To this end, end-users were to have - upon reasonable request - access to voice and data communications as well as 'functional internet access'. Such internet access was confined to narrowband connections, which in 2002 tended to be in the region of 56 Kilobits per second.

Member States were free to fix universal service at a higher level, but this had some consequences on the financing side.

In fact, where the cost of USO resulted in the imposition of an unfair burden on companies, Member States could either resort to general taxation, without any particular ceiling, or put in place a compensation mechanism (a universal service fund). Telecoms market players would contribute to such funds, but such sectoral funding was limited to the extra costs of providing the minimum narrowband access defined in the EU legislation. Although most Member States provide for a universal service fund in their legislation, only seven have active funds (the Czech Republic, France, Italy, Romania, Spain, Latvia, and Belgium). In recent years, the annual costs of these funds have ranged from around €0.5 million to over €70 million. In all cases only relatively small sums are involved.

In the last decade, of course, the internet has developed enormously, both in its scope and in its functionality. The access speeds offered by internet service providers have increased accordingly. That fact is recognised in the 2009 Telecoms Reform Package, which gives Member States the flexibility to reflect higher bit rates in universal service requirements (depending on national conditions). Moreover, the changes indirectly open the possibility that sectoral funding mechanisms could, under certain conditions, be used to finance the significant extra costs of universal service obligations extending to broadband.

However, the 2009 Reform did not draw any detailed conclusions about the financing implications of including broadband speeds within universal service in individual Member States. This is a particularly important point for those Member States with a universal service fund. These issues were left to be explored in detail in 2010.

So in the first half of 2010 we set out to review the future of universal service and its role in achieving the objective of 'broadband for all'.

Firstly, I must say that the results of our consultation show a vibrant and useful debate. And rightly so – the outcome has major social implications and involves substantial sums.

Expert estimates indicate that an EU-wide investment of around €11-14 billion over a five-year period is needed to secure 2 Megabits per second coverage at an affordable price for all households in the EU. That means €2-3 billion per year. The figure is less for 1 Megabits per second – a maximum of €11 billion. Naturally costs in each Member State will vary. They will be higher for those countries that are sparsely populated or lacking high broadband penetration rates.

The views expressed in the framework of the public consultation are very varied, ranging from the request to completely phase out EU Universal Service rules to arguments for harmonised universal broadband service obligations across the EU.

In this debate, considering the large investments involved, it is crucial to determine where an extended universal service obligation should be funded by the telecoms sector or rather a broader base, such as by the State budget.

In my view we should keep in mind that universal broadband offers benefits beyond the telecoms sector. The others who benefit range from currently uncovered citizens to companies offering internet services, content and applications.

So while it is right to expect telecom companies to invest in new and more efficient networks, and it is right to have a socially inclusive system, it might be unfair to force the telecoms companies to fund the entire exercise.

Telecoms companies should be able to realise reasonable profits from their investments at the end of the day.

We must also be mindful that cross-subsidisation – very often from smaller challengers to historic incumbents - can lead to higher retail prices and competition distortions. It is best to avoid such outcomes. I therefore think that, in adapting or developing our universal service rules to the broadband environment, we need to be careful to avoid putting the entire burden on the telecom sector.

In particular, I think that four options should be explored further:

First, to move away altogether from sector-specific universal service funding towards a publicly financed system. This would be recognition of the fact that ensuring universal broadband access, also covering remote and scarcely populated areas where the market alone would not deliver, is today a basic need. Under this option, such needs would be guaranteed by the public authorities.

A second option would be to establish a harmonised universal service obligation at a very basic speed level as a minimum EU standard. This could be financed through a sectoral fund, with the speed level being updated from time-to-time in the light of technical and social developments. The telecoms sector contribution would remain proportionate and the EU safety net would remain a real minimum safety net. At the same time, this would leave the way open for Member States to set higher national universal service standards, or promote more ambitious broadband roll-out by using general taxation (without sectoral funding). This would of course need to be in compliance with the innovative State Aid rules we adopted for broadband in 2009;

A third option is setting a cap to the funding contributions of the telecom companies. This would allow a more flexible approach that takes into account the financial strength of the companies in a given Member State while creating funds for broadband roll-out at a proportionate rate, thus avoiding undue distortions of competition. Public budgets could supplement the capped sectoral funds.

Finally, we could simply complement the EU Universal Service Directive with a guidance instrument regarding the telecoms legislation. This would guide Member States to use universal service obligations funded by the sector only where there is a true risk of social exclusion, and no risk of undue competition distortions.

These are the options that we are currently considering. We need your input, and we need the input of stakeholders beyond this conference room.

As you can see, I have not yet adopted a precise line on this thorny question. However, in my view it is clear that, whatever we decide on the future of Universal Service, the possible impact on all economic actors has to be kept in mind.

Future framework for broadband investment

Alongside these ongoing debates, the Commission is very close to adopting concrete measures to foster investment in open and competitive broadband networks. This package includes:

  • a Broadband Communication that will set out a coherent framework for meeting the broadband targets and, in particular, will indicate how public authorities may support broadband investments,

  • a Recommendation on regulated access to Next Generation Access Networks, which will lay down a clear regulatory framework, encouraging investment in such high-speed networks of the future while preserving effective competition, and

  • a proposal for a Radio Spectrum Policy Program, setting out a framework for an efficient spectrum management promoting, in particular, the development of wireless broadband.

These three documents along with the revised legislative framework for electronic Communications and the Broadband State Aid Guidelines adopted last year will be the base of the EU's contribution to ensuring Europe has a first-class, high-performance internet.

It is important that you see these documents as a package. Each document supports the others, and we need all of them to meet our broadband goals.

I will finish on that note - knowing you will all be keen to get back to your families after a busy conference. Thank you once again for your commitment to the broadband industry. Thank you for embracing the vision of ‘broadband for all.’ Together we are really going to have a major influence on how our economy and communities look in the future.

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