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State aid guidelines for broadband networks - briefing

17 September 2009
by eub2 -- last modified 17 September 2009

The European Commission has adopted Guidelines on the application of EC Treaty state aid rules to the public funding of broadband networks. The Guidelines provide a clear and predictable framework for stakeholders and will help EU Member States to accelerate and extend broadband deployment. The Guidelines also contain specific provisions concerning the deployment of Next Generation Access networks, allowing public support to foster investment in this strategic sector without creating undue distortions of competition. The Guidelines take account of comments received during a public consultation.


What are the Guidelines about?

In summary, the Broadband Guidelines outline the rules and conditions on how public funding could 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, wifi networks) but also provide guidance for governments and public authorities on how to finance very high speed, so-called next generation access ("NGA") networks. These are networks that are capable of providing much higher speed and supporting new interactive and high quality content and services.

The main aim of the Guidelines is to facilitate a rapid deployment of such networks in Europe by providing to all stakeholders (including local and regional authorities, as well as network operators) a clear, predictable and comprehensive framework for the public financing of such networks.

Why are investments to broadband networks so important? What could be the role of EU State aid rules in this sector?

Investments to broadband networks are of utmost importance in today's knowledge based society. As emphasized recently again by President Barroso, " all Europeans must have access to high speed broadband". Information and communication technologies are of strategic importance to accelerate growth and innovation in all sectors of the economy as well as to contribute to social and regional cohesion.

The role of the EU state aid rules is to channel public funding to areas where private companies have no commercial incentives to invest – for instance because of the high costs of deploying broadband networks, the low population density or the low levels of economic activities. State aid can have a crucial role to extend adequate broadband services to all European citizens – no matter whether they are living in large urban areas or in small villages.

What will the Guidelines achieve?

First, by providing a clear framework for state aid assessment, the Guidelines will facilitate investments from public funds in order to bring broadband connectivity to under-served areas. Second, broadband and especially NGA networks will be deployed more rapidly and more widely thanks to the clear rules, thus avoiding the creation of a new digital divide. Third, due to the conditions laid down for the granting of state aid (such as open access, open tenders) the Guidelines will allow the maintenance of competition in this area, which will in turn contribute to ensuring better and more broadband services for European citizens. Millions of European citizens and companies will then benefit from enhanced access to telecommunication infrastructures

Will the Guidelines help to tackle the current economic crisis or contribute to the economic recovery of the EU countries?

In the current economic climate, public investments in broadband networks have the potential, both to provide short term benefits to the economies (by increasing the demand for public works) and to help the long term competitiveness of the EU. As the Guidelines could speed up public spending to broadband network, they could help European governments to fight the current economic crisis through " smart investment".

Why are Guidelines needed, as state aid has been handled on a case-by-case basis in the past?

According to estimates, investments into NGA networks will require 200-300 billion euros in the next years, primarily by private companies. To undertake such huge investments, companies need legal certainty and the Guidelines will provide clear information on how the Commission applies the state aid rules in this area.

Moreover, the Commission has earmarked extra funding in the framework of the European Economic Recovery Package to foster the roll-out of broadband network, and the Guidelines will help public authorities to channel these funds as effectively as possible to fight the current economic crisis.

Has the Commission's policy concerning aid to broadband networks changed with the adoption of the new Guidelines?

In essence, the Commission's methodological and analytical approach remains unchanged. The Guidelines build on the existing and well functioning framework for state aid assessment. The objective of state aid control in this field has always been to encourage the wide and timely roll-out of broadband networks while at the same time protecting existing or planned private investments.

The fundamental conditions to grant state aid will not change: public, local or regional authorities still have to carry out a detailed mapping of the target areas and the use of open tender mechanisms to grant the aid remains crucial. Effective open wholesale access to the subsidized network remains another of the cornerstones of the Commission's policy, in order to allow alternative operators to compete and avoid re-creation of telecoms monopolies. Moreover, the measures have to be technology neutral, price benchmarking and claw back mechanisms need to be put in place to avoid overcompensation.

These conditions are necessary to promote competition and make the best use of public monies. They form an effective tool that helps public authorities to spend state aid effectively in a way that provides the greatest benefit for local communities and taxpayers, whilst minimising distortions of competition.

Will state aid be used to fund the networks of the incumbents, thus recreating the old monopolies?

Avoiding the re-creation of old monopolies with public support is a fundamental concern for the Commission. The Guidelines contain appropriate safeguards to ensure that any broadband infrastructure funded with public money does not favour existing operator. A company that receives public monies need to provide effective open access to its competitors to allow them to compete in an equal, non-discriminatory way. The Guidelines also require that state aid funding projects respect the principle of technological neutrality without favouring a priori any given technological solution.

What is the relationship of the Guidelines with the Regulatory Framework and the NGA-Recommendation?

The draft NGA Recommendation aims at delineating specifically the regulatory environment to foster private investments of private operators – incumbents as well as alternative operators, in the telecommunications markets.

The Broadband Guidelines are complementary to the NGA Recommendation in the sense that they focus on the role of public authorities in fostering the deployment of such networks in non profitable areas that is areas where private operators do not have the commercial incentives to invest. Hence, state aid should not replace or 'crowd out' private investment, but rather complement private operators' investments and thereby achieve higher and faster broadband coverage.

Rollout of NGA networks will be different from traditional broadband. Black, white and grey areas may not be so easy to define as with traditional broadband.

Black, white and grey are useful conceptual tools used to distinguish between areas where no infrastructure exists (white) areas with only one infrastructure in place (grey) and areas where more than one network operator is present (black).

This distinction is adapted to the situation of NGA networks (whose deployment is still at an early stage), by requiring Member States to take into account not only existing NGA infrastructures but also concrete investment plans by telecom operators to deploy such networks in the near future

Can the deployment of NGA networks be considered as Service of General Economic Interest ("SGEI")? What is the difference between granting aid under the State aid rules and entrusting a firm with the operation of a SGEI?

Pursuant to the Treaty and the case law of the European courts, Member States have wide discretion in determining SGEIs. However, this discretion cannot be unlimited or arbitrary. SGEIs are complex instruments and this is especially the case in the telecoms sector, which is fully liberalised and where private operators remain the main drive of investment. Therefore, an SGEI in the broadband sector is only conceivable if the subsidized network is public, neutral and open and if the SGEI aims at ensuring universal coverage where private operators are unable to provide it.

The compensation provided by Member States for the provision of SGEIs is free of aid only if four cumulative conditions (the so-called 'Altmark' conditions established by the Court of Justice case law in the Altmark case) are fulfilled. These conditions are: (i) a clear public service remit, (ii) pre-determined compensation criteria, (iii) the compensation does not exceed the costs incurred in providing the public service and (iv) the beneficiary is chosen in an open tender or in the absence of such a tender, the compensation does not exceed the costs of a well-run company.

State aid broadband guidelines

Source: European Commission

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