EU policy and opportunities for promoting broadband investment

Anna KrzyzanowskaHead of Unit Unit B5: Broadband

Speeding up NGN ubiquity: a pillar for digital growth

Athens, 13-14 February 20141

We shall discuss:

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1. Broadband as an engine for growth

2. Financing and Funding3. Market Framework

Broadband as an engine for Growth

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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

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Source: Digital Agenda Scoreboard

Broadband drives competiveness

Correlation Fixed Broadband Penetration and Competitiveness

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4.2

4.4

4.6

4.8

5

5.2

5.4

5.6

5.8

0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45

Fixed broadband lines per 100 population

WE

F's

Glo

bal

Co

mp

etit

ive

Ind

ex s

core

DenmarkNetherlands

KoreaLuxembourg

Sweden

Germany

FranceBelgium

UK

Finland

Malta

USJapan

Austria

Estonia

Ireland

Slovenia

Cyprus

Spain

Italy

Czech Rep.

Hungary

LithuaniaPortugal

LatviaSlovakia

Poland

Bulgaria

Romania

"An increase in the broadband penetration rate by 10percentage 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

20% of EU fixed broadband subscriptions are NGA

Share of High-speed broadband

Source: Communications Committee 8

Financing and Funding

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• 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

• 2014 - 2020: 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)

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Connecting Europe Facility (CEF)

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• €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

ProjectCosts

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)

Project Bonds Initiative Project Bonds Initiative

Broadband financing – observations

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• 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 guidelinesAchieving 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

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• 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!

• anna.krzyzanowska@ec.europa.eu

• http://ec.europa.eu/dgs/connect/en/content/broadband-inter-institutional-negotiations-connected-europe-facility

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Market Framework

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• Non-discrimination and costing• Cost reduction measures