EU Broadband Policy

Bartek TokarzDG CONNECTUnit B5: Broadband

INCA Transform Digital ConferenceLondon, 8 May 2014

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Urban(> 500 inhab.

Per km2)

Suburban(500-100 inhab.

Per km2)

Rural(<100 inhab. Per

km2)

50%

20%

30% 30%

50%

20%

% of total EU population

% of total EU wide FTTH cost

Shar

e of

inha

bita

nts

and

FTTH

cos

t

• 50% of the European population live in urban areas and additional 30% in suburbs

• Building a nation-wide NGN network in Europe would cost around EUR 200 bn*• 20% of this cost is required to

cover 50% of European population in urban areas

• 50% of this cost is required to cover the 20% of European population in rural areas

* Based on consultancy assignment commissioned by the EIB

NGN investment climateSupply: market operators invest around EUR 15 bn annually for fixed BB: cherry picking and parallel deployment in highly profitable areas

Demand: Market uptake and willingness to pay premium lower than anticipated. As a result: • Operators are scaling back their investment plans• Change to lower cost technologies (VDSL, vectoring…)

State aid for rural BB roll-out:• New member states are leapfrogging due to availability of structural funds

and high co-financing rate• Apart from EU funds, only few national state aid programs are operational

Investors hesitant to finance FTTH projects:• Long pay-back periods• Uncertain regulation increasing the risk• Small scale projects

The scale and risk of different broadband projects – EIB experience

Incumbents and alternative operators present larger projects but mainly in densely populated areas. Business risk mitigated by existing cash generation and sound business caseLocal-government supported projects: smaller in size, mainly covering grey and some white areas . Business cases are not strong, thus the government supportSmall private projects cover areas which are “overlooked” by incumbents, mainly in grey and some urban areas. Business cases vary, risk is usually high.

EC strategy for NGA investment

• Focus: Incentivising private NGA infrastructure investment by improving risk-return trade-off

Market framework: recalibration of regulatory instruments

Financing and funding

Increases private investor returns

Reduce private investor risk

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Financing and funding

Market framework

• Directive on cost reduction

• Recommendation on non-discrimination and costing methodologies

• Proposal for Regulation on Telecom Single market:

• European inputs: Spectrum coordination, access to RLAN and European standardised virtual access projdcts

• Single consumer space: Net neutrality, harmonised end user rights, roaming

• Single authorisation

• Upcoming review of recommendation on relevant markets

• European Structural and Investment Funds (ESIF)

• Connecting Europe Facility (CEF)

• Broadband state aid guidelines

Single market for telecoms

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• 2014 - 2020: ICT a priority in the European Structural and Investment Funds

• Connecting Europe Facility (CEF): Some complementary EU support by means of financial instruments

• Possibly greater EIB lending activity in ICT/broadband following capital increase

Public financing (1)

EU-level funding

EU/EIB support

Structure at project level (funded solution):

SPVProjectCosts

Equity

Sub-debt

Bank/Project Bonds

Sub-investment grade debt

Investment grade debt

EU partner (e. g. EIB)

• Sufficient increase in credit quality of senior debt so as to attract bank/ bond financing

• Sub-debt debt pricing includes fair risk margin, i. e. no subsidy

• Sub-debt can be combined with different funding sources (senior loans, bonds)

EU/EIB impact – additional factors

• Project appraisal benefits from sector-specific expertise

• EU involvement has strong signalling effect for other

investors/lenders

• Although risk-based, pricing takes into account economic

benefits/ externalities

• More favourable pricing can give additional boost to project

viability

State aid: new guidelines

Achieving the right mix between public and private investment: public interventions targeted at market failures; faster decisions.

Principles:

• Technological neutrality: Next Generation Access networks can be based on different technological platforms.

• to protect private investors, publicly financed infrastructure can only be allowed if it provides a substantial improvement ("step change") over existing networks.

• public funding of ultra-fast broadband networks (of more than 100 Mbps) will be possible also in urban areas subject to very strict conditions to ensure a pro-competitive outcome.

• when a network is realised with taxpayers' money, competitors will benefit from a truly open network for the benefit of consumers.

Thank you

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