EU policy and opportunities for promoting broadband investment Anna Krzyzanowska Head of Unit Unit B5: Broadband Speeding up NGN ubiquity: a pillar for digital growth Athens, February

We shall discuss: 2 1.Broadband as an engine for growth 2.Financing and Funding 3.Market Framework

Broadband as an engine for Growth 3 What is it all about …

Challenges ahead for fast and ultra- fast broadband coverage and take-up "close to target" in areas such as eGov, internet usage and partly eCommerce Basic broadband target achieved in autumn 2013 EU Digital Agenda targets: Progress 4 Source: Digital Agenda Scoreboard

Broadband drives competiveness "An increase in the broadband penetration rate by 10 percentage points raises annual growth in per-capita GDP by 0.9 to 1.5 percentage points". Faster broadband = higher growth. (Czernich et al. - CESIFO WORKING PAPER NO. 2861, Ifo Institute for Economic Research, 2009)

Standard fixed broadband* availability Basic broadband for all by 2013 adding wireless, EU coverage is 99.97% *xDSL, Cable, FTTP and WiMax; Source: Point Topic 6

3 rd broadband target 7 EU is doing fine on basic broadband penetration, but penetration with very high speeds is in its infancy Sweden, Finland, Lithuania and Latvia among more advanced countries in the EU Source: OECD, COCOM, Digital Agenda ScoreboardSource: COCOM, Digital Agenda Scoreboard

20% of EU fixed broadband subscriptions are NGA Share of High-speed broadband Source: Communications Committee 8

Financing and Funding 9 ESIF CEF Broadband State Aid

EU public funding Possible EAFRD support: Complementarity in a few Member States: FR, DE, SE, UK, SI Possibly need for reinforcement of administrative capacity

EU public funding A significant share of the EU budget is spent on cohesion policy (ESIF) with ICT (incl. broadband) being one of multiple "thematic objectives" 2007 – 2013 (previous budgetary period): ―c. €2.3bn allocated to broadband, c. €14.5bn to ICT ―Further resources from Rural Development Funds (c. €688m from EAFRD + EERP) ―GREECE: 12.5 bn ERDF Community Contribution – 850 m ICT reduced to 605 m due to lack of timely absorption : ICT one of four "concentration themes" in the European Regional Development Fund (ERDF) ESIF can act as source of non-negligible ICT/broadband funding if MS: ―select ICT/broadband as thematic objective ―build an executable investment pipeline and ensure projects are carried out and funds are used Member States are currently drafting their frameworks for ESIF spending (Partnership Agreements and Operational Programmes) 11

Connecting Europe Facility (CEF) 12 €150m for high-speed broadband – small budget, but potentially high multiplier effect (depends on instrument) CEF facilities designed to stimulate development of new financing models in the sector (e. g. project finance) which enable more efficient risk-sharing between investors Possibly considerable transformative impact if this succeeds in establishing new role models that are widely replicated Currently project bonds pilot – open for project proposals! CEF technical assistance will improve the pipeline of broadband projects in general and make more projects financeable (regardless of instrument) EIB standard operations (senior lending) and RSFF offer options for corporate financing EU level financial instruments

EU/EIB support Structure at project level (funded solution): SPV Project Costs Equity Sub-debt Bank/ Project Bonds Sub- invest ment grade debt Invest ment 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) Project Bonds Initiative

Broadband financing – observations 14 Market players are exploring alternative models for structuring and financing high-speed broadband roll-out "One-size-fits-all" solution unlikely, but these efforts will be positive for deployment While new financing models can make a contribution, they are no panacea for unviable projects However: ICT is not a static market, but a dynamic ecosystem in which devices, services and connectivity are closely intertwined and evolve rapidly More innovation in applications and devices will likely trigger demand for higher speeds and will shift the boundaries of commercially viable roll-out in the short to medium term Broadband financing

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. Transparency has been reinforced: publication of documents, a centralised data base for existing infrastructure and ex post reporting obligations to the Commission. State Aid -Public financing

Conclusions 16 Project Bonds pilot phase – still open for project applications! CEF will ensure continued availability of EU financial instruments through 2020 ESIF are an important source of funding – time for advancing project proposals is now! Broadband financing

THANK YOU! dband-inter-institutional-negotiations-connected- europe-facilityhttp://ec.europa.eu/dgs/connect/en/content/broa dband-inter-institutional-negotiations-connected- europe-facility 17

Market Framework 18 Non-discrimination and costing Cost reduction measures

Main principles Ensure equivalence of access (EoI, and if disproportionate, at least EoO) Technical replicability where EoI is not or not yet fully implemented Compliance monitoring: KPIs, SLAs and SLGs BU-LRIC+ (current cost of an efficient NGA network capable of delivering the DAE targets) Different asset valuation for reusable civil engineering (indexation method) Engineering adjustment of the NGA cost (e. g. FttC as the NGA network) or modeling of an NGA overlay network to estimate copper costs Indicative band of likely outcomes, €8-10, 2012 prices Non-discrimination and costing 19

ConditionsMarket 4Market 5 EoI√√ (both in markets 4 and 5) Technical replicability√√ Economic replicability√√ Competitive safeguards: Copper anchor√ Take-up of upstream passive wholesale inputs √ Infrastructure competition√√ EoI deemed to be implemented when a roadmap is included in the measure Economic replicability deemed to be imposed when details and procedure of the test are included in the measure Non imposition of cost orientation on NGA 20

Increased use of passive infrastructures suitable for high speed internet network rollout Increased cooperation in civil engineering works Streamlined permit granting procedures Increased number of buildings ready for high speed internet access Investment costs are expected to be reduced by 20% to 30%  potential savings up to 60 bn EUR across the EU Proposal on measures to reduce the cost of deploying high- speed electronic communications networks Cost reduction measures (1) 21

Proposal on measures to reduce the cost of deploying high- speed electronic communications networks (II) Proposal adopted by the College on 26 March 2013 Negotiations in Council and Parliament ongoing Adoption envisaged by Q2 of 2014, as part of the Single Market Act II, cf. December 2012 European Council Conclusions Targeted measures, based on existing best practices, allowing Member States significant organisational flexibility …yet at the same time a holistic approach, with ambitious objectives, in line with the DAE targets Cost reduction measures (2) 22