Impact of EU Policy options for revision of the Universal Service provision

EUROPEAN COMMISSION Information Society and Media Directorate-General

Impact of EU Policy options for revision of the universal

service provision

Assignment under the Framework Contract

for Impact Assessment and Evaluation-Related-Services

N° 2007/035 – LOT 2

FINAL REPORT

25 October, 2010

Report submitted by the consortium lead by Van Dijk Management Consultants and comprising SVP Advisors and time.lex

VAN DIJK – MANAGEMENT CONSULTANTS AVENUE LOUISE 250 – BOX 14 – B-1050 BRUSSELS (BELGIUM) – WWW.BVDMC.COM

•VAN DIJKMANAGEMENT CONSULTANTS

**** ** ** ** * *

Contact for this assignment : Ms Tine DEBUSSCHERE

Director eCommunication Services Administrator

VAN DIJK MANAGEMENT CONSULTANTS Avenue Louise 250, b 14

B-1050 BRUSSELS Belgium

Tel.: +32 (0)2 641 00 00 Fax: +32 (0)2 641 00 30

E-mail: [email protected]

The opinions expressed in this report are those of the authors and do not necessarily reflect the views of the European Commission

Document Control Document Final Report for the study on the Impact of EU Policy options for

revision of the universal service provision

Prepared by Tine Debusschere, VDMC; Alexandre de Streel, on behalf of VDMC; Leen Moria, VDMC; Laurence Mourlon-Beernaert, on behalf of VDMC Julio Villalobos, SVP Advisors

Date 25 October 2010


mailto:[email protected]

Table of Contents

1. INTRODUCTION ..............................................................................................................7

1.1. The concept of Universal service in the European Union............................................................9 1.1.1 The origin of the USO concept....................................................................................................9 1.1.2 The concept of USO in the 2002 Directive................................................................................13

1.1.2.a General principles .............................................................................................................13 1.1.2.b The Scope of universal service..........................................................................................13 1.1.2.c The designation of universal service providers .................................................................16 1.1.2.d USO financing....................................................................................................................17

1.1.3 The current state of affairs as a result of transposing the 2002 Directive in the EU Member States .................................................................................................................................................21

1.1.3.a Scope of the universal service at MS level ........................................................................21 1.1.3.b The Designation of Universal service providers................................................................22 1.1.3.c Financing of USO ...............................................................................................................22

1.1.4 Further evolutions at the EU level since the 2002 Directive.....................................................23 1.1.4.a The reviews of 2005/2006 and of 2008 ............................................................................23 1.1.4.b The 2009 reform ...............................................................................................................24

1.2. The scope of this study ...........................................................................................................25 1.2.1 Current EU concept of USO.......................................................................................................26 1.2.2 Services considered ..................................................................................................................26 1.2.3 Relation to the periodic review of the scope of universal services ..........................................28

2. IDENTIFICATION AND ASSESSMENT (DEFINITION) OF THE PROBLEM ... 29

2.1. Identification of the problem (‘What is the problem’)..............................................................29 2.1.1 Development of the broadband market...................................................................................29

2.1.1.a Technological developments in the broadband sector.....................................................29 2.1.1.b Infrastructure versus service competition ........................................................................31 2.1.1.c Market development in the EU Member States ...............................................................31

2.1.2 The future broadband development ........................................................................................42 2.1.2.a Release of “Digital dividend” will increase availability of spectrum for wireless broadband services in the coming years .........................................................................................................42 2.1.2.b Convergence of fixed and mobile networks (FMC)...........................................................43 2.1.2.c Evolution towards Next Generation Networks (NGN) ......................................................43 2.1.2.d Evolution towards Bundled offers ....................................................................................45

2.1.3 What elements of market evolution could impact the appropriateness of USO as a tool to advance broadband development?...................................................................................................45

2.2. Assessment and description of the problem............................................................................47 2.2.1 What are the reasons behind the problem?.............................................................................47

2.2.1.a Problem of insufficient broadband coverage....................................................................47 2.2.1.b Problem of insufficient broadband take‐up......................................................................48

2.2.2 Who is affected by the problem (specific actors, sectors …)? ..................................................54 2.2.3 What is the scale of the problem?............................................................................................56 2.2.4 Why is public intervention necessary, why at the European level? .........................................58

2.2.4.a Need for public intervention.............................................................................................58 2.2.4.b Why intervention at the EU level? ....................................................................................61 2.2.4.c Can EU act, and if so, how: the principles of subsidiarity and proportionality .................64

2.2.5 How was the problem avoided or reduced via other institutional contexts, regulations or policies? .............................................................................................................................................65

Assessment of appropriateness of universal service for advancing basic broadband development Final report

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2.2.5.a At the EU level...................................................................................................................65 2.2.5.b At the Member States level: The National Broadband plans............................................73

3. DEFINITION OF THE POLICY OBJECTIVES........................................................... 75

3.1. General objectives ..................................................................................................................75

3.2. Specific objectives ..................................................................................................................76

3.3. Operational objectives............................................................................................................77

4. IDENTIFICATION AND DESCRIPTION OF POLICY OPTIONS.......................... 79

4.1. Option 1: ‘No policy change’ (2009 Regime) ............................................................................79

4.2. Option 2: ‘No EU regulation related to USO’ ...........................................................................80

4.3. Option 3: ‘Mandating broadband internet access for all citizens at a speed of 2Mbit/s’ ...........81

4.4. Option 4: ‘Refinement of the 2009 regime’..............................................................................81

4.5. Option 5: ‘A reformed and focused USO’.................................................................................85

4.6. Summary of the main differing characteristics of the policy options regarding broadband and USO at the EU level .......................................................................................................................87

5. ASSESSMENT OF THE POLICY OPTIONS............................................................... 92

5.1. Qualitative assessment ...........................................................................................................92 5.1.1 Preliminary assessment of elements with major national flexibility ........................................93

5.1.1.a Mechanisms available for providing financial support to specific user groups ................93 5.1.1.b Sources for funding of USO net cost .................................................................................95 5.1.1.c Conclusion .........................................................................................................................98

5.1.2 Overall qualitative assessment of the economic, social and environmental impacts of each policy option ......................................................................................................................................98

5.1.2.a Identification of the relevant impacts...............................................................................98 5.1.2.b Qualitative assessment of Option 1: No policy change (2009 regime)...........................102 5.1.2.c Qualitative assessment of Option 2: No EU regulation related to USO ..........................103 5.1.2.d Qualitative assessment of Option 3: Mandating 2 Mbps access for all EU citizens........104 5.1.2.e Qualitative assessment of Option 4: Refinement of the 2009 Regime...........................105 5.1.2.f Qualitative assessment of Option 5: A reformed and focused USO................................107 5.1.2.g Comparison of the options..............................................................................................109

5.2. Quantitative assessment.......................................................................................................112 5.2.1 Assessment of the cost of ensuring full coverage (availability) ..............................................113

5.2.1.a Cost of ensuring full coverage in the EU 27 ....................................................................113 5.2.1.b Assessment of the cost of ensuring full coverage with 2Mbps connectivity ..................123 5.2.1.c Estimation of the part of the cost of full coverage to be funded by the sector under each option..........................................................................................................................................125

5.2.2 Assessment of the cost of ensuring affordability ...................................................................126 5.2.2.a Estimation of the cost of affordability of broadband services........................................126 5.2.2.b Assessment of the estimated cost of affordability .........................................................131 5.2.2.c Comparison of the cost of affordability between options ..............................................135

5.2.3 Assessment of the costs of managing the universal service system ......................................136


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5.2.3.a Identification of cost categories......................................................................................136 5.2.3.b Conclusion.......................................................................................................................140

5.2.4 Overall quantitative assessment.............................................................................................140

5.3. Overall cost‐benefit assessment of each policy option...........................................................142

ANNEX 1 : OVERVIEW OF NATIONAL BROADBAND PLANS (SITUATION AS OF DECEMBER 2009) ..........................................................................................................144

ANNEX 2 : DETAILED QUALITATIVE ASSESSMENT OF EACH POLICY OPTION..............................................................................................................................................157

Policy option 1: ‘No policy Change’ (2009 Regime) .......................................................................157

Policy option 2: ‘No EU Regulation related to USO’ ......................................................................161

Policy option 3: ‘No policy Change’ (2009 Regime) .......................................................................164

Policy option 4: ‘Refinement of the 2009 Regime’ ........................................................................167

Policy option 5: ‘A reformed and focused USO’ ............................................................................171

ANNEX 3 : DESCRIPTION OF THE TECHNOECONOMIC MODEL FOR THE CALCULATION OF THE NET COST OF MANDATING BROADBAND INTERNET ACCESS FOR ALL EU CITIZENS AT A SPEED OF 2MBIT/S ..................................176

General architecture of the Techno‐Economic Model...................................................................176

Description of the Techno‐Economic model main assumptions ....................................................178

Inputs of the Techno-Economic model...................................................................................181

ANNEX 4: BREAKDOWN OF NET COST OVER THE DIFFERENT TYPE OF AREAS (PER COUNTRY) ...............................................................................................186

Calculations based on the least expensive offers..........................................................................186

Calculations based on the median value offers ............................................................................187


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List of Abbreviations ARPU Average Revenue per User BIAC Broadband Internet Access Cost CAPEX Capital Expenditure DAE Digital Agenda for Europe DG INFSO Directorate General Information Society and Media DSLAM Digital Subscriber Line Access Multiplexer DOCSIS Data Over Cable Service Interface Specification eSGEI Services of General Economic Interest in electronic communications EAFRD European Agricultural Fund for Rural Development ERDF European Regional Development Fund FMC Fixed-Mobile Convergence FTE Full-Time Equivalent FTTx Fiber to the x, where x can be filled in by home (H), curb (C) , building

(B)… HH Households IA Impact Assessment ICT Information and Communication Technologies ISP Internet Service Provider LTE Long Term Evolution MS Member States NBS National Broadband Scheme NGA Next Generation Access NGN Next Generation Networks NRA National Regulatory Authority OPEX Operating Expenditure PON Passive Optical Network P2P Point to Point SGEI Services of General Economic Interest SMEs Small and Medium Enterprises TFEU Treaty on the Functioning of the European Union USD Universal Service Directive USO Universal Service Obligations USP Universal Service Provider VAT Value Added Tax WiMAX Worldwide Interoperability for Microwave Access xDSL Different Digital Subscriber Line technologies, e.g. ADSL, ADSL2+,

SDSL


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1. INTRODUCTION The present report constitutes the final report for the study on the “Impacts of EU Policy options for revision of the universal service provision”. This study supports the European Commission Directorate-General for Information Society and Media (DG INFSO). It aims in particular to assist the formulation of potential policy options and providing qualitative and quantitative assessment. The key issue of the study is whether universal service at the EU level is an appropriate tool to advance basic broadband development and if so, when and how it should be used, or whether this should be left to other EU policy instruments or national measures. The report presents the outcome of the three tasks – divided over two Stages – as identified in the terms of reference for the study. Between Stage 1 and Stage 2, a public consultation was organised by the Commission1. The link between the two Stages of the study, the study tasks and the impact assessment steps is illustrated in the following figure:

Figure 1: Overview of the scope of the study

1 See http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm


STAGE 1

\\

Main Impact Assessment steps:"

.Identification and assessment(definition) ofthe problemITASKl: Data gathering, I

a na Iys is of in puts

,------------------------------------~'"'"..,I

I

_--------------------- 1 §Ib9~_~_----------~+-...--------------+~-----------, ... !oo

,/ • Defin ition ofthe policy objectives TASK 2: Supporting the \

: • Identification and description of a na lysis of contributons: the main policy options to public consultationI

TASK 3: Assessment ofpolicy options

,.....------------------,~~::::::::::::::::::_-

• Specification of monitoringandeva luation ofthe preferred policyoption

\

TASK 3: Assessment ofpolicy options

r.--- ---..• Ana lysis ofthe impacts ofthepolicy options and comparison oftheoptions

• Compa rison ofthe options and,where possible and appropriate,

\ identification of a preferred option "

\'~----------T-+-------------.....~-----------~... ... ... ----------------


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The present report will thus first of all identify and define the problem and define the objectives for the sought after solution for dealing with this problem (cf. Chapter 1). Referring to the tender specifications, the problem definition will strongly focus on universal service obligations for broadband services and particular attention will be given to the broad range of policy initiatives that have been taken in recent years for improving the penetration and take-up of these services. Regarding the objectives (cf. Chapter 2), distinction will be made between general, specific and operational objectives. The relation with the objectives of other policy initiatives will be made. After all, the analysis of the impacts of EU policy options for the revision of the universal service provision should be based on the potential of the policy options to attain the objectives that are defined in order to tackle a well-defined problem. In a next step (cf. Chapter 3), policy options are identified. The policy options that are presented relate first of all to the minimal set of options as presented by the Commission in its tender specifications (Options 1, 2 and 3). This list has been completed with two additional options that are inspired by the detailed problem definition. For each policy option, a detailed description is provided, making explicit reference to the policy objectives in Chapter 4. The detailed qualitative and quantitative assessment of each policy option is presented in Chapter 5. The qualitative assessment presents to what extent each option is more or less contributing to achieving the different policy objectives. The quantitative assessment provides indications of the cost of overall availability and affordability of basic 2Mbps broadband access services as well as indications on the cost of managing the Universal Service system. Finally, all of the above-mentioned steps have been further refined and / or completed based on the contributions to the public consultation on “Universal service principles in e-communications” that was organised by the Commission between 2 March 2010 and 7 May 20102. The report was prepared for and funded by DG INFSO and will serve as an input into their own regulatory impact assessment exercise, if any. The analysis in this study is based on information regarding policy and market developments available at the end of September 2010. The calculations presented in Chapter 5 take into account costing and pricing elements from end 2009 - beginning 2010. Before presenting the actual impact assessment of EU Policy options for revision of the universal service provision, the concept of universal service as well as the scope of the study is introduced in more detail. 2 See http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/universal_service2010/presentations/questionnaire_en_100302.pdf



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1.1. THE CONCEPT OF UNIVERSAL SERVICE IN THE EUROPEAN UNION

A profound insight in the concept and reasoning behind imposing universal service obligations (USOs) is a basic requirement for a good understanding of the ideas presented in the different parts of this impact assessment study. Therefore, an important part of the introduction is devoted to resuming:

The origin of the USO concept ;

The concept of USO in the 2002 Universal Service Directive (USD) ;

The current state of affairs as a result of transposing the 2002 Directive in the EU Member States;

Further evolutions at the EU level since the 2002 Directive.

1.1.1 THE ORIGIN OF THE USO CONCEPT

Universal Service Policy may have different meaning and objectives depending of the country and the development of the network.3 It may vary from a social safety net to an industrial policy tool.4 The wide range of possibilities in universal service policies, are clearly shown in a table composed by Claire Milne, as reproduced below:

3 For example, the origin dates back to the beginning of the 20th century when it was decided in the USA that all of the distinct local network would be integrated into one global network, offering “universal access” to all subscribers: see M. Muller (1997), Universal Service: Competition, Interconnection, and Monopoly in the Making of the American System, MIT Press. 4 An “industrial policy” refers to a set of actions taken by government in order to affect the way in which factors of production are being distributed across industries.


Stage 1: network

establishment

Stage 2: wide geographic

reach

Stage 3: mass market

Stage 4: network

completion

Stage 5: services to

individuals

Teledensity* GDP per capita rage Business take-up Household take-up

0 to 5 per 100 Low income 0-30% 0-10%

1 to 20 per 100 Lower middle income 20-80% 5-30%

15 to 40 per 100 Upper middle income 70-100% 20-85%

35 to 60 per 100 High income 100% 75-100%

Over 50 per 100 High income 100% 100%

Typical telephone company culture

Entrepreneurial Administrative (govt. dept.)

Operational (huge workforce)

Commercial (maybe privatised)

Competitive

Typical management preoccupations

Large scale capital investment in new technology

Technical network (improvement, public service)

Growing the network

Growing call revenues (marketing)

Profitability

Main constraints to network expansion

Investment funds, appropriate technology and skills

Limited demand due to due to high prices (of low incomes) and use of alternative communications

Manpower for plant installation to meet mass demand (waiting lists)

Affordability of service to poorer households; cultural acceptability of telephony

Market appeal

Typical public policy measures (telecom)

Investment incentives

Govt. control (for national security and economy); geographically uniform charges

Installation and rental charges kept low to stimulate line demand

Network competition, cost-oriented tariffs

Free, fair competition

Universal service goal type

Technological (acquire new technology)

Geographic (maintain regional parity)

Economic (stimulate economy)

Social (achieve political cohesion)

Libertarian (individual right to communicate)

Examples of universal service goals

Long distance service linking all major centres; public telephones where demand warrants

Telephone service available in all population centres; widespread adoption of telephony in business

Widespread residential take up of telephony; meet all reasonable demands for telecoms

Telephone affordable to all; telephone service adaptable to special needs

Everyone can meet basic communication needs; public access to advanced services (esp. education, health)

Typical market research focus

Payphone rates and locations

Main small business requirements

Main household requirements

Rural, disabled, low-income needs

Needs created by new services (e.g. mobility, internet)

Typical public policy measures (universal service)

Licence conditions on network rollout

Profitable licences subject to unprofitable obligations

Control speed of prices rebalancing

Targeted subsidies

Identify and meet non-market demand

Table 1: The five stages of universal policy development

(Source: C. Milne (1998), “Stages of universal service policy”, Telecommunications Policy 22, p. 776)


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As the table above clearly shows, there is not one ‘universal set of characteristics’ that unambiguously defines the concept of USO and that is thus applicable in all circumstances. This said, it is important for our study to understand how the concept of USO has been defined in the regulatory framework for electronic communications services in Europe. In the EU, the concept of universal service is linked to the liberalization process that took place during the nineties and was conceived as a social safety net and not an industrial policy tool.5 It covers a number of particular or specific objectives, contributing to general public interest6, which were previously – i.e. in a monopolist context - ensured by a public service policy defining the monopolist organizations (i.e. by regulation). These objectives are availability, affordability7 and accessibility8. Moreover, in pursuit of these objectives, ensuring adequate quality must be monitored. With the opening of the market, new approaches, methods or tools have been defined in order to pursue these same public interest objectives as mentioned above in a competitive environment. In this way, the concept of universal service obligations in Europe is thus directly linked to the change from a monopolist to a competitive context. More precisely, USO should remedy the shortcoming of the competitive environment for attaining the objectives listed above. Furthermore, the concept of USO in se does not provide any indications on who should be responsible for financing the cost related to providing the universal services. Regarding the link between USO and the competitive environment, it should be emphasized that the introduction of competition itself was motivated by its expected positive contribution to the same objectives of quality, availability and affordability. More precisely, USO was defined as a measure accompanying the introduction of competition, allowing public intervention in case the previously regulated monopolist situation of certain citizens would deteriorate after the market opening in the sense that existing services would no longer be provided. Therefore, this context of competition requires that any universal service obligation is implemented in a way that results in minimal market distortion. After all, the starting point for the European electronic communications sector policy is that stimulation competition is the preferred approach to achieve the three objectives mentioned previously. At all times, market development based on competition should thus be given priority.

5 On the origins of the concept of universal service in the EU, Communication from the Commission of 15 November 1993 Developing universal service for telecommunications in a competitive environment, COM(93) 543, and Council Resolution of 7 February 1994, OJ 16.2.1994 C 48/1. 6 Please note that general public interest refers more generally to equality and continuity. 7 ‘Affordability’ refers to the fact that maintaining and using a service does not place an unreasonable financial burden on consumers, particularly on vulnerable disadvantaged consumers. 8 ‘Accessibility’ refers to the fact that services must be useable by all social groups and in particular by the disabled.



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In theory, it could thus be argued that all public intervention measures or tools that contribute to the objectives of availability, affordability and accessibility in a competitive environment can be referred to as universal service obligations. In practice however, the implementation of USO in Europe includes the possibility of sector specific funding for the cost of universal service provision (cf. also section 1.1.2.d). As a consequence, all other and subsequent policy choices for the practical implementation of USO (e.g. the listing of services, the designation of the universal service provider(s) (USP), the development of a pricing policy in general and for specific disadvantaged groups in particular) need to take into account this additional aspect of USO in Europe. More precisely, the success of USO as a ‘safeguard’ that the competitive environment actually attains the three public service objectives for the services in its scope, will depend on the extent to which USO can find the right balance between the positive impact of preventing exclusion of certain disadvantaged citizens and the negative impacts of the financial burden placed on the sector (e.g. in terms of increasing overall prices and thus reducing overall affordability). Furthermore, the EU legislation balances carefully European harmonization and flexibility left to the Member States. For the services which are harmonized at the European level (the scope of the USO), the modalities of their provision leave some flexibility to the Member States. Conversely, for the services that are not harmonized at the EU level (other services than in the USO), the rules related to the modalities leave less flexibility to the Member States.

Scope of USO Designation and Financing schemes

EU level 4 services in USOs (harmonization)

State and/or sector fund (some flexibility)

National level Other services to be decided by Member States (flexibility)

State funding only (some harmonization)

Table 2: Overview of required balancing between the scope of the USO services and the financing mechanisms

The universal service at the WTO level

Finally, the concept of USO as defined at the EU level is consistent with9 the provisions in the WTO Reference Paper on basic Telecommunications of 24 April 1996, Art 3, stating that: ‘Any Member has the right to define the kind of universal service obligation it wishes to maintain. Such obligations will not be regarded as anti-competitive per se, provided they are administered in a transparent, non-discriminatory and competitively

9 See USD 2002/22/EC, Recital 3 USD



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neutral manner and are not more burdensome than necessary for the kind of universal service defined by the Member’. 1.1.2 THE CONCEPT OF USO IN THE 2002 DIRECTIVE

The main elements of this Directive, further defining the concept of USO at EU level, are presented in the following paragraphs.

1.1.2.a GENERAL PRINCIPLES

The Universal Service Directive provides that any measure taken to guarantee universal service should meet the principles of objectivity, transparency, non-discrimination and proportionality.10 It should also fulfill two important but subtly different principles: competition should not be distorted and distortions within markets should be minimised.11 The first principle, which stems directly from the Treaty, entails that universal service measures may not distort competition between undertakings active on the same market. This, in turn, implies that all undertakings active on a relevant market could be designated as a universal service provider, or that each provider that incurs a net cost for doing so should be compensated on the same basis. At the same time, even if the state of competition may not be altered by universal service measures, markets are often nonetheless distorted, because at least some universal services have to be provided at prices that depart from normal commercial conditions (i.e. at below market-prices or even below their costs of provision); therefore the provision of such services may require subsidising, which in turn may require taxes or levies to be imposed. Therefore, in accordance with the second principle, these markets distortions have to be minimised. This implies that the least costly way of ensuring the provision of universal service should be chosen by the Member State and, if compensation is to be provided from within the sector, the base of contributors should be as wide as possible.12 The principle of the minimisation of market distortions should be seen as a gateway for the economic principle of efficiency to enter the policy and regulatory arena.13

1.1.2.b THE SCOPE OF UNIVERSAL SERVICE

In Article 3 of the USD, universal service obligations are in general described as: ‘Member States shall ensure that the services set out in this Chapter are made available at the quality specified to all end-users in their territory, independently of geographical location, and, in the light of specific national conditions, at an affordable price’. 10 See USD 2002/22/EC, Art.3(2). 11 See USD 2002/22/EC., Arts.1(2) and 3(2) and Liberalisation Directive 2002/77/EC, Art.6(1). See R. Cawley, “Universal Service: specific services on generic networks – some logic begins to emerge in the policy arena”, presented at the 2001 TPRC Conference and available at http://tprc.si.umich.edu/tprc01/Program01.HTM. 12 See USD 2002/22/EC, recitals 4 and 23. 13 This principle was heavily relied upon by the Court of Justice in Case C-220/07 Commission v France [2008] E.C.R. I-95, paras.29 and 31.


http://tprc.si.umich.edu/tprc01/Program01.HTM


14

The scope of the current universal service is described in Articles 4 to 7 of the 2002 Directive14.

List of services to be made available

Firstly, it comprises access15 for a connection to the public telephone network at fixed location, allowing end-users to make and receive calls, fax, and data communications. The data rate should be sufficient to permit functional Internet access, taking into account prevailing technologies used by the majority of subscribers and technological feasibility. In 2002, this was limited by the Directive to a single narrowband network connection at 56 Kbps16. As the Directive is technologically neutral, the connection at the fixed location or address17 could be fulfilled via wire or wireless technologies (including cellular) provided they allow call, fax and data communications to be carried out and that the tariffs for outgoing and incoming communications are structured in such a way as to meet the affordability criterion. Moreover, Member States should choose the least expensive technologies among those available because the provision of the universal service should minimise market distortions. Secondly, universal service comprises at least one comprehensive and regularly updated directory, in a printed and/or electronic form approved by the national regulatory authority (NRA). The directory should list fixed and mobile subscriber data in a non-discriminatory way, and abide by the ePrivacy Directive, under which all subscribers listed in a directory have to give their consent18. Moreover, a comprehensive directory enquiry service should be available. Thirdly, sufficient public pay telephones (that inter alia enable the placing of emergency calls free of charge) should be available to meet the reasonable needs of end-users in term of geographical coverage19. Finally, with respect to accessibility, it is foreseen that disabled people can have an equivalent access to the above mentioned services as that enjoyed by other end-users (connection at a fixed location, directories and directory enquiry services, public

14 I.e. scope in the narrow sense, meaning the list of services to be made available. The full scope of US obligations, including provisions on the designation of undertakings, on affordability of tariffs and on control of expenditure, can be found in Articles 3 to 10. 15 This ‘Access’ obligation refers to the objective of ‘availability’. 16 See Recital 8 of the USD 2002/22/EC that left some flexibility to Member States for allowing a data rate below the upper limit of 56 kbps to exploit the capabilities of wireless technologies that may be of particular relevance in some future Member States. 17 It should thus be underlined that connection at fixed location does not mean connection via fixed public network, but only connection at a specified address, which Member States may restrict to the end-user's primary location/residence (see Recital 8 of the 2002 Directive). 18 See ePrivacy Directive 2002/58/EC, Articles 12 and 16. 19 Nevertheless, to ensure minimum regulation, an NRA may decide not to impose these obligations if, after public consultation, it considers that these facilities or comparable services are widely available. More generally, when the market is satisfactorily providing for the elements of universal service, the Member State may not designate a universal service provider.



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phone boxes). For example, specific services such as textphone for the deaf or speech-impaired people, or billing in specific formats such as Braille for the blind or partially sighted, could be made available free of charge20.

Affordability and quality

In the European context, universal service implies not only availability, but also affordability. Moreover, it implies a certain specified quality of service. On the determination of both of these characteristics, Member States enjoy some flexibility to ensure, in accordance with the principle of subsidiarity, that universal service fits national circumstances. Tariffs for the universal service should be affordable, in the light of specific national conditions in particular in relation to national consumer prices and income.21 For instance, affordable tariffs may be linked to the penetration rate or to the price of a basket of basic services related to the disposable income of specific categories of customers. Particular attention should be paid to the needs and capacities of vulnerable and marginalised groups. To achieve affordability, Member States may require that the designated universal service providers offer tariffs which depart from those offered under normal commercial conditions (i.e. which are at lower prices or even below cost), that they comply with a price cap, or that they offer similar tariffs across the whole territory. Among all these possibilities, Member States should choose the combination that minimises market distortions.22

Empirical evidence has shown that affordability is not only linked to the level of expenditure, but also to the way customers can control it. Therefore, the universal service providers should also offer, at no additional cost, facilities and services that enable subscribers to monitor and control expenditure and avoid unwarranted disconnections.23 In addition, to limit the expenses of the subscribers, universal service providers may not require consumers to subscribe for additional facilities or services which are not necessary or not required for the service requested.24

Quality of service is a factor that is as important as price. Therefore, information on service quality should be made available and NRAs may impose credible

20 See Recital 13 of the 2002 USD. 21 See Art.9 of the 2002 USD. 22 It has been shown that self-selected tariffs (where the universal service provider proposes a suite of tariff plans that consumers can choose, depending on their consumption pattern) may be efficient, as it gives an incentive to consumers to reveal their preferences and limit the subsidy to those subscribers that are really in need. Moreover, subsidies that are targeted to a specific group of citizens or specific area are more efficient than a general geographical averaging of tariffs. It might also be appropriate to choose two different mechanisms, one for uneconomic areas and one for uneconomic customers in economic areas. In the first case, tariffs below costs could be imposed on the designated operator(s), whereas in the second one, vouchers could be distributed to those specified customers, who could then themselves choose between providers and benefit from competition between them: J.M. Cheffert (2000), “Universal service: Some observations relating to future European debates?”, Info 241. 23 See USD, Art.10 (2) and Annex I, Part A. 24 See USD, Art.10 (1).



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performance targets taking into account the views of interested parties.25 Providers of universal service should thus publish adequate and up-to-date quality of service information, based on both standardised parameters26 and any other parameters developed by the NRA, in particular those that take into account the specific needs of disabled users. Moreover, NRAs can set performance targets, and persistent failure to meet these would result in sanctions being taken against the universal service providers.

1.1.2.c THE DESIGNATION OF UNIVERSAL SERVICE PROVIDERS

If necessary, Member States may designate one or more undertakings to guarantee the provision of universal service, in part or all of the national territory27. In order to fulfil the principle of avoiding distortions of competition, the method used to designate providers should be transparent, objective and non-discriminatory. Hence, all undertakings that are able to provide the universal service28, irrespective of technology used, should be entitled to participate in the designation process and be aware of it. In order to fulfil the principle of minimising market distortions, the method should ensure that universal service is provided in a cost-effective manner, i.e. in the least costly way. If it is efficient, different undertakings could be designated to provide different elements of universal service and/or to cover different parts of the national territory.29

In practice, a whole range of designation mechanisms is allowed: tendering, public consultation or when those can not work, direct designation. Auctions30 can be efficient and should be used when there is already sufficient competition on the local access market. Otherwise, they may be problematic, due to the difficulty of ensuring that sufficient undertakings are in a position to bid against the incumbent (as new entrants would need to use alternative network infrastructure or use the incumbent’s assets) and because of the asymmetry of information between the incumbent and

25 See USD, Art.11. 26 See USD, Annex III, 27 See USD, Art.8. 28 Sufficient coverage is hereby not a pre-condition per se for being able to provide universal services. 29 To guarantee the principles of non-discrimination and the minimising of market distortions, national law may not require that the provider of the universal service should be able to cover the entire national territory: Case C-220/07 Commission v France [2008] ECR I-95, para.34. Also the pending Case C-154/09, Commission v Portugal which concerns the ability of the Portuguese legislator to designate the incumbent PT Comunicações as the universal service provider until 2025 without relying on an efficient, objective, transparent and non-discriminatory procedure. 30 For a typology of auctions and the criteria to be taken into account when designing an auction for universal service obligations: Sorana, “Auctions for universal service subsidies”, (1998) 18 Journal of Regulatory Economics, 33; Nett, “Auctions: an alternative approach to allocate universal service obligations”, (1998) 22 Telecommunications Policy, 661; Competition Economists Group, 33-36. See also Weller, “Auctions for universal service obligations”, (1999) 23 Telecommunications Policy, 645, who details the scheme proposed by GTE in the United States for an auction leading to in-market competition, which was criticised by Laffont and Tirole, at 244-260.



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potential entrants, e.g. concerning the net costs and benefits of serving particular groups of subscribers.

1.1.2.d USO FINANCING

The USD specifies that : “Where, on the basis of the net cost calculation referred to in Article 12, national regulatory authorities find that an undertaking is subject to an unfair burden, Member States shall, upon request from a designated undertaking, decide:

a. to introduce a mechanism to compensate that undertaking for the determined net costs under transparent conditions from public funds; and/or

b. to share the net cost of universal service obligations between providers of electronic communications networks and services.”31

Two funding or financing mechanisms can thus be applied by the Member States: public funding and sector specific funding. Moreover, it is allowed to use ‘different elements of universal service through different funding mechanisms, and/or to finance the net costs of some or all elements from either of the mechanisms or a combination of both’32. These mechanisms can only be activated after determining the net cost of the universal service obligations. Furthermore, the activation is dependent on the obligatory assessment by the NRA of the unfair burden of this cost. This procedure is presented in the following scheme:

OR

Direct designation of US provider(s) by the

Member States

USO may represent

unfair burden?

Unfair burden

confirmed?

OR

* Based on accounts and/or other information that is audited or verified by the national regulatory authority

Designation of US provider(s) by a

designation mechanism

(e.g. tendering)

Net costs are identified by designation

mechanism

Calculate net cost of USO

("ex-post"*)

If YES: If NO:

Activate sectoral or public funding No funding

Graph 1: Consecutive steps preceding the financing of the USO net cost

Referring to the link between USO and the competitive environment (cf. supra), it is furthermore specified that: “A sharing mechanism shall respect the principles of transparency, least market distortion, non-discrimination and proportionality”33 and “this

31 See USD, Article 13, 1. 32 See 2002 USD, Recital (21) 33 See USD, Article 13, 3.



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means that the transfers result in the least distortion to competition and to user demand”34. “Least market distortion means that contributions should be recovered in a way that as far as possible minimises the impact of the financial burden falling on end-users, for example by spreading contributions as widely as possible35”. Remark on the appropriateness of financing procedure for substantial new investment

Graph 1 presented above clearly indicates that– even in the case of e.g. auctions for the selection of the most cost-efficient universal service provider – no guarantee can be given to the selected provider that the costs incurred for providing the universal service are indeed going to be considered as an unfair burden36. As such, the USO financing mechanism brings about important uncertainties and could possible discourage undertakings from being a candidate provider.

Also, the current compensation mechanism implies an important delay between the moment of the actual investment for providing universal services and the recuperation of the net cost.37 In practice, several years can thus elapse before funding is received. This again could possible discourage certain undertakings for which pre-financing is very difficult or even not feasible38.

The next paragraphs further comment on the two mechanisms that are currently foreseen for financing the net cost of USO.

a.1. Sector specific funding

The undertakings that are currently eligible for bearing a part of the net cost of USO are providers of electronic communications networks and services. These actors – e.g. an Internet Service Provider, offering access to the Internet – can also offer other services that do not fall under the electronic communications services, such as the provision of web-based content39. Undertakings that only provide other services than electronic communications services are however not eligible for contributing to the net cost of USO.

Intuitively, the contributions of providers of e-communications networks and services to the net cost of USO could be regarded justified because of the benefits these operators derive e.g. from the wider roll-out of infrastructure, the larger

34 See USD, Annex IV – Part B: Recovery of any net costs of universal service obligations 35 See USD, Recital (23) 36 The importance of respecting the consecutive steps for the activation of a USO fund and especially of making the assessment of the unfair burden has been stressed by the Commission when it brought Belgium to the European Court of Justice. The Commission considers that Belgium has not correctly transposed provisions of the USD as the Belgian Law provides for no assessment of the question whether the provision of social tariffs represents an unfair burden for the undertakings concerned. 37 See 14th Implementation Report – Volume 1 – Part 2 (page 45): “In majority of those Member States where a decision to activate the compensation mechanism has already been taken, […] effective compensation faces long delays due to administrative procedures, appeals and court proceedings.” 38 This difficulty has also been raised by Cheffert (2000). 39 See also Framework Directive 2002/21, Recital (10).



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number of customers receiving and making calls, etc. This rationale behind the sector-specific funding for mainly voice telephony could be further transferred to the context of broadband in the information society. Very soon, it then becomes clear that there might be a case to extend the scope of eligible actors for the sector specific funding, in order to include e.g. providers of web content or web based services (both private and public, cf. e.g. eHealthcare, eGovernment). After all, these actors would directly benefit when broadband services would be available to wider customer bases. Finally, it is foreseen that not all undertakings providing electronic communications networks and services are obliged to contribute since “the net cost of universal service obligations may be shared between all or certain specified classes of undertakings.”40 For example: “Member States may choose not to require contributions from undertakings whose national turnover is less than a set limit.”41 Results of the public consultation In the contributions to the public consultation on universal service principles in e-communications (March 2010)42, some operators argued – given the convergence of the internet, media and telecommunications industries – for extending the contributory basis to e.g. web content providers. Also some national governments noted there might be need to consider whether content providers should also be obliged to contribute in the future. Other market players however believed that such an approach is not feasible provided e.g. the managerial difficulties and the endless disputes on the calculation of the contribution of each contributor. Furthermore, since current broadband offers are sold without subsidies from content providers, including them in the universal service financing system for broadband would easily distort the market.

a.2. Public funding (government budgets or ‘general taxation’)

The possibility of financing the net cost for USO by means of public funding was added in 2002 compared to the 1998 framework43, where the possibility of financing was limited to the sector. In general, economic literature has shown that, unless there are significant inefficiencies within current taxation, compensation of the net cost of USO by means

40 See USD, Recital (23) 41 See USD, Article 13 (3). 42 See http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm 43 See Directive 98/10 of the European Parliament and of the Council of 26 February 1998 on the application of open network provision (ONP) to voice telephony and on universal service for telecommunications in a competitive environment



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of public funding is less distorting and more efficient than the use of a sector specific fund44. This is because the taxable basis is broader, thus the distortive effect of the taxes is accordingly smaller. Opponents to public funding for universal service argue that allowing public funding could generate competitive distortions between Member States, and competitive disadvantage for the countries using sector specific funds compared to those using the general budget. Such fears however are unfounded as differences in compensation mechanisms are similar to divergences between Member States in other economic factors, such as the cost of labour or capital or the taxation regime. Moreover, the universal service net cost burdens are small-scale when compared with overall economic activity. Finally, undertakings in the electronic communications sector still generally compete within national markets, even if communication is by definition an international activity. Regarding the list of services that are included in the scope of USO in relation to the financing source, national public budgeting procedures could require NRAs to provide politicians with detailed estimates for the upcoming cost of USO. As such and in comparison with financing based on sector specific funding, NRAs could be stimulated to focus more strongly on limiting USO to situations in which market failure is clearly demonstrated.

a.3. Remark on other financing possibilities

The procedure to be followed for activating the USO fund somehow limits the possibilities of financing. After all, any possible financing mechanism required that the burden on the undertaking providing the universal service is first assessed. Because of that, the following financing approaches are excluded in spite of their advantages:

Direct subsidy to end-users (‘vouchers’): efficient to meeting universal service objectives in a very much directed way;

Direct subsidy to operators: enables operators to have a pre-financing of the required investments;

Pool operator together to invest in infrastructure: this approach would by definition guarantee open access to networks.

44 See e.g. Report of the Competition Economists Group (CEG) on “Reforming Universal Service Policy” (2007, Report for GSM Europe) in which it was estimated that the welfare loss from using industry funds may be as much as three times higher than funding from general taxation.



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1.1.3 THE CURRENT STATE OF AFFAIRS AS A RESULT OF TRANSPOSING THE 2002 DIRECTIVE IN THE EU MEMBER STATES

1.1.3.a SCOPE OF THE UNIVERSAL SERVICE AT MS LEVEL

As Member States enjoy a certain level of discretion with respect to universal service, some heterogeneity in scope of the services included in the national obligations, and in their evolution, can be perceived. More specifically, the following observations45 can be made:

• In recent years, several Member States have limited the scope of the universal service obligations as some universal service elements are being delivered by the market under normal commercial conditions. Illustrative of this is the following non-exhaustive list of examples:

- Directory and directory enquiry services have been taken out of the scope of USO in the Czech Republic, and are only intended to be designated for certain groups of disabled users in Denmark;

- Provision of access at a fixed location is removed out of the scope of USO in the Czech Republic and Hungary, and Latvia has proposed a similar measure;

- A reduction in the number of public payphones required can be observed in some Member States such as Hungary and Slovakia, and payphones are not included at all anymore in the USO scope in Denmark;

• Measures for the disabled and users with special needs often consist of different forms of special tariff plans and prices, discounts for connection and call making, and obligations concerning the provision of public payphones with specific requirements for usage by disabled users. It has been observed that there is some heterogeneity in the measures employed by the Member States, and that the depth and scope of their impact also varies;

• A small number of Member States have recently enlarged or are contemplating of enlarging the scope of the services included in USO. These elements, for which no sector-specific funding is/would be possible (see 1.1.2.d), include:

- ISDN services, leased lines and maritime emergency services in Denmark;

- Broadband services: next to Finland, also other Member States such as Spain46, France, Cyprus and Romania have initiated considerations in this regard. So far, Finland is the only country taken concrete measures to designate universal service providers for broadband47.

45 Examples drawn from the 13th, 14th and 15th Report on the Implementation of the Telecommunications Regulatory Package. 46 In Spain, a legislative proposal foreseeing universal access to the internet at a speed of 1Mbps at “affordable rates” from the 1st of January 2011 is currently being considered. 47 FICORA has designated 26 telecom operators as universal service providers in various parts of Finland. The universal service obligations started at the 1st of July 2010. The connection speed must be 1 Mbps. No price cap for the broadband subscription fee was fixed



22

1.1.3.b THE DESIGNATION OF UNIVERSAL SERVICE PROVIDERS

It is left to the discretion of Member States to determine the most efficient and appropriate mechanism for selecting the undertakings to supply universal service, provided that the requirements of the framework are respected. This implies that Member States should ensure the provision of universal service in a cost efficient manner, whilst respecting the principles of objectivity, non-discrimination and minimum market distortion. In this regard, the mechanism used to designate operators for the provision of universal service must not a priori exclude any undertakings, and the conditions of the designation procedure must allow for evaluation of all offers of interested parties to provide particular elements in the whole or part of the national territory48. A number of Member States have not yet designated universal service providers in a way that is based on the rules of the current US framework. These countries include Belgium (other than social tariff component), Bulgaria, Greece, Italy, the Netherlands, Portugal, Spain. Three of them (Greece, Portugal and Spain) are currently in the process of preparing new designations. Eight Members States designate universal service providers based on a tendering procedure: these are the Czech Republic, Estonia, France, Hungary, Poland, Romania, Slovenia and Cyprus. 1.1.3.c FINANCING OF USO

Currently, sector specific funding for USO is foreseen as the only or main financing mechanism for the net cost of USO in most of the EU Member States. Finland and Sweden, and most recently the Czech Republic are the only three Members States providing for a financing mechanism from public fund only. Malta and Portugal allow both public and sector-specific funding. In Latvia, the law requires setting up of a specific sector-sharing mechanism for the compensation of universal service net costs but until such a mechanism is established compensation should be paid from the state budget. A compensation mechanism is currently only activated in a minority of Member States. These are Belgium (for social tariffs only), the Czech Republic, France, Italy, Latvia, Romania49 and Spain.

in advance, but FICORA indicated that a monthly fee of 30 to 40 EUR would be reasonable in most cases. A reasonable delivery time and price will be determined case-specifically. See: http://www.ficora.fi/en/index/viestintavirasto/lehdistotiedotteet/2010/P_27.html 48 See 14th Report on the Implementation of the Telecommunications Regulatory Package. 49 The Romanian compensation mechanism is currently under scrutiny of the Commission services for compliance with the framework;


http://www.ficora.fi/en/index/viestintavirasto/lehdistotiedotteet/2010/P_27.html


23

Country Year USO net cost USO net cost per

capita Belgium 2003 48.4 million EUR 4.61 EUR50 Czech Republic 2006 13.8 million EUR 1.29 EUR France 2007 22.86 million EUR 0.36 EUR Italy 2003 41 million EUR 0.71 EUR Latvia 2008 0.54 million EUR 0.24 EUR Romania 2008 0.47 million EUR 0.02 EUR Spain 2007 71.09 million EUR 1.55 EUR

Table 3: Overview of USO net costs shared between operators

The fact that currently only a very limited number of Member States have actually activated USO funds, could be considered as a confirmation that the current USO system is in balance. At the same time however, the number of MS activating a US fund is increasing. This can be explained by the fact that more and more incumbents (which are the universal service providers in most Member States) are losing market share on the retail markets, which leads to a reduced capacity of bearing the burden of the net cost of USO and thus an incentive for asking the activation of a USO fund. 1.1.4 FURTHER EVOLUTIONS AT THE EU LEVEL SINCE THE 2002 DIRECTIVE

Since 2002, the scope of the universal services was reviewed twice. Furthermore, in 2009, the 2002 Universal Service Directive was amended by the Citizens’ Rights Directive. The impact of these on the elements of the 2002 USD presented in section 1.1.2, are presented in the following paragraphs.

1.1.4.a THE REVIEWS OF 2005/2006 AND OF 2008

Article 15 and Annex V of the Universal Service Directive51 request the Commission to review periodically the scope of the universal service and to appreciate the opportunity to propose to modify this scope. This assessment has to be made taking account of social, market and technological developments (e.g. mobility, data rates and prevailing technologies used by the majority of subscribers) and is based on two questions or ‘preliminary conditions/criteria’ which have to be completed if the Commission wishes to propose a change to the universal service’s scope:

1) are specific services available to and used by a majority of consumers and does the lack of availability or non-use by a minority of consumers result in social exclusion (“majority use test”)?

2) does the availability and use of specific services convey a general net benefit to all consumers such that public intervention is warranted in circumstances

50 Approximately half of this amount relates to the component ‘social tariffs’ for which the EC brought Belgium to the ECJ since it considers that there has been no assessment of the question whether the provision of social tariffs represents an unfair burden for the undertakings concerned. 51 See USD 2002/22/EC



24

where the specific services are not provided to the public under normal commercial circumstances (“market failure test”52)?

The first periodical review of the scope of universal service was presented in 200553, based on which it was concluded that there was no necessity to modify the scope of universal service. For mobile communications, evidence demonstrated that the competitive provision of mobile communications has resulted in consumers having widespread affordable access and that the conditions for including this service in universal service were therefore not fulfilled. For the broadband services, it was concluded that only a small, though growing minority of European consumers were making use of broadband services so that broadband in 2005 had not yet become necessary for normal participation in society, such that lack of access implies social exclusion. Nevertheless, a number of questions to be further investigated were raised such as the impact of the growth of IP-based services on the current USO model which is based on access as well as services and the compatibility of the current financing model of USO in the context of market liberalisation and the opening to competition. In 2008, a second periodical review was published by the Commission54. For the mobile communications, the same conclusion of the first review was reaffirmed. For the broadband service, it was concluded that the first criterion for including a service in the scope of universal service (service used by a majority of consumers) is being approached rather quickly compared to the first review and that consequently the situation needs to be kept under review.

1.1.4.b THE 2009 REFORM

In general, the most important changes for USO in the Citizens’ Rights Directive can be summarized as follows:

1. the flexibility given to Member States to up-grade the provision of universal service to a connection to the public communications network allowing broadband data rates (Recital 5 of the Citizens Rights Directive 2009/136);

2. the possible imposition on all undertakings of requirements aiming at facilitating access and choice of e-communications by the disabled (Art. 7 of the Universal Service Directive);

3. the separation of the provision of a connection/access from the provision of services (Article 4 of the amended Universal Service Directive and Recital 15 of the Citizen Rights Directive);

4. the inclusion of public voice telephony access points in the scope of universal service (New Art. 6(1) of the Universal Service Directive).

These changes do however not affect the provision on the financing of the cost or the provisions on the selection and designation of the universal service provider.

52 USD, Recital (25) refers to “a substantial majority of the population”. 53 See COM(2005) 203, 24.5.2005 54 See COM(2008) 572, 25.9.2008



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For the purpose of this study, the first and third modification is of particular importance. Regarding the first modification, Recital (5) of the 2009 Directive states that ‘Data connections to the public communications network at a fixed location should be capable of supporting data communications at rates sufficient for access to online services such as those provided via the public Internet. The speed of Internet access experienced by a given user may depend on a number of factors, including the provider(s) of Internet connectivity as well as the given application for which a connection is being used. The data rate that can be supported by a connection to the public communications network depends on the capabilities of the subscriber’s terminal equipment as well as the connection. For this reason, it is not appropriate to mandate a specific data or bit rate at Community level. Flexibility is required to allow Member States to take measures, where necessary, to ensure that a data connection is capable of supporting satisfactory data rates which are sufficient to permit functional Internet access, as defined by the Member States, taking due account of specific circumstances in national markets, for instance the prevailing bandwidth used by the majority of subscribers in that Member State, and technological feasibility, provided that these measures seek to minimise market distortion.’ Compared to the provisions in the 2002 USD55, reference is no longer made to a narrowband connection and the indication on an upper limit (56 kbps in the USD) has been removed, so larger discretion is provided to the Member States. No precise indications are provided as to how the specific national circumstances need to be taken into account. Recital (5) states the following: “Flexibility is required to allow Member States to take measures, where necessary, to ensure that a data connection is capable of supporting satisfactory data rates which are sufficient to permit functional Internet access, as defined by the Member States, taking due account of specific circumstances in national markets, for instance the prevailing bandwidth used by the majority of subscribers in that Member State, and technological feasibility, provided that these measures seek to minimise market distortion”. Depending on the definition of functional internet access by each individual Member State and taking into account the specific circumstances in national markets, broadband services with different speeds could thus be added to the scope of USO at national level. It should be noted that the introduction of the larger discretion for Member States to include broadband services of a specific speed, was not based on the assessment of the two criteria of Article 15 of the Universal Service Directive as defined for the review of the scope of the universal service (cf. section 1.1.4.a). As such, it cannot be excluded that the USD will be used by Member States as an industrial policy tool instead of the social safety net that was previously conceived by the EU (cf. section 1.1.1). Furthermore, this change upsets the balance between the flexibility regarding the scope of the universal services and the harmonization of the funding mechanisms, especially in view of the magnitude of funding required for implementing such an industrial policy tool.

1.2. THE SCOPE OF THIS STUDY

The scope of the policy options that will be considered in the context of this study on the review of USO can be defined in terms of the extent to which the

55 See Directive 2002/22, Recital (8)



26

(implementation of the) current EU concept of USO in the electronic communication sector can be modified, in terms of services considered; i.e. only basic broadband services are considered and in terms of its relationship with the periodic review of the scope of universal services. 1.2.1 CURRENT EU CONCEPT OF USO

More precisely, since the purpose of the current study is to assess ‘whether universal service at EU level is an appropriate tool to advance broadband development and if so, when and how it should be used, or whether this should be left to other EU policy instruments or national measures’, we have understood that a number of aspects related to the implementation of USO as currently foreseen in the Amended USD can indeed be questioned. Examples of such aspects are e.g. the requirement that the NRA first needs to assess if the net cost represents an unfair burden for the universal service provider before compensation can be agreed upon or the way in which the contributions to the universal service fund are collected. More precisely, it could be evaluated if some of these aspects require refinement or modification in order to make USO more appropriate for broadband services, given the assumption that broadband should indeed be added to the services within the scope of USO. Other aspects, which are part of the fundamental characteristics of the current EU concept of universal service, such as e.g. the possibility of sector funding for compensating the net cost of providing universal service, have not been however considered as candidates for changes in this study. 1.2.2 SERVICES CONSIDERED

In terms of services considered, the scope of the policy options under consideration for this study will clearly be limited to adding broadband services to the services which fall currently within the scope of USO. Broadband capacity has previously been defined by the European Commission56 as capacity with a speed equal to or higher than 144 kbps. However, the 15th Implementation Report recognizes that today only a fraction of all retail broadband lines provide speeds of 144 kbps, and that in future reports (and as of 1/1/2010) 1-2 Mbps will be estimated as being the minimum download speed. This evolution is amongst others linked to the growth of e.g. content-oriented services that require continuously higher speeds.

56 See 15th Implementation Report, Annex 2, § 4.1 Broadband Access Definitions (http://ec.europa.eu/information_society/policy/ecomm/doc/implementation_enforcement/annualreports/15threport/15report_part2.pdf)


http://ec.europa.eu/information_society/policy/ecomm/doc/implementation_enforcement/annualreports/15threport/15report_part2.pdf

http://ec.europa.eu/information_society/policy/ecomm/doc/implementation_enforcement/annualreports/15threport/15report_part2.pdf


27

Furthermore, since the appearance of Next Generation Access57 (NGA), a distinction is more and more often made between “basic broadband access” (or first-generation access) and “very high speed broadband services” (or second-generation access, based on NGA). This distinction can also explicitly be found in the “Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks”58. Also, besides "basic broadband”, the Digital Agenda for Europe59 sets targets concerning "fast" internet access at speeds of above 30 Mbps and "ultra-fast" internet access at speeds above 100 Mbps (see further section 2.2.5.a below). An overview of different possible services delivered through broadband and the level of broadband access they require is presented in the following graph:

Graph 2: Examples of services delivered through broadband and the required bandwidths (SOURCE: Digital highways – the role of government in 21st century infrastructure – Booz

& Company)

For the purpose of this study, only basic broadband access will be considered since this is the broadband service that is currently most widely spread amongst consumers in Europe (cf. section 2.1.1.b). 57 ‘Next generation access (NGA) networks’ (NGAs) mean wired access networks which consist wholly or in part of optical elements and which are capable of delivering broadband access services with enhanced characteristics (such as higher throughput) as compared to those provided over already existing copper networks. In most cases NGAs are the result of an upgrade of an already existing copper or co-axial access network (See Draft Commission Recommendation on regulated access to Next Generation Access Networks (NGA). http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/nga_2/090611_nga_recommendation_spc.pdf) 58 See 2009/C 235/04, 30.09.2009. 59 See COM(2010) 245 final/2: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0245:FIN:EN:PDF


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28

Although the definition or assessment of some policy options could indicate the need for a broader review of the current USO model (e.g. because of the growing importance of IP based services, the added value of including telephone services as a specific USO on top of access to broadband internet services could eventually be questioned), the assessment presented below will be limited to the broadband services. This means that, wherever appropriate, remarks will be made regarding the potential impacts of a specific policy option for broadband on other universal services; the policy options will however not include details on these impacts. In this respect, it is noteworthy that one stakeholder contribution to the public consultation60 suggested that a reform of the universal service regime should foresee that the obligation of the USP for providing access at a fixed location and telephony services is lifted once a publicly supported broadband network (under the “Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks”) or if some form of broadband universal service were introduced. 1.2.3 RELATION TO THE PERIODIC REVIEW OF THE SCOPE OF UNIVERSAL SERVICES

Finally, the objective of the present impact assessment study is clearly not to conduct a third periodical review of the scope of USO. More specifically, the impact assessment will take a global approach when addressing the question on the appropriateness of adding broadband services to the Universal Service Obligations. By consequence, the study will thus not necessarily be limited to those elements that can directly be linked to the evaluation of one of the two criteria presented above. Therefore, in order to avoid any possible misunderstanding, we explicitly take the assumption that - for the policy options for which inclusion of broadband services in USO is assumed - both criteria are met. This assumption is thus purely theoretical and does not provide any indications of the opinion of the consortium on whether the two above-mentioned criteria are actually fulfilled for broadband services. On the contrary, by making this assumption, the consortium solely wishes to indicate that – at least for the policy options that assume continuation of USO - it will directly focus on the larger debate on and assessment of the appropriateness of including broadband services in the Universal Service Obligations (USO) as they are defined today. Of course, in case the option of including broadband in USO would be implemented, it would need to be verified if both criteria are indeed met or if proposals for modifying these are necessary.

60 See contributions to the public consultation on universal service principles in e-communications.


2. IDENTIFICATION AND ASSESSMENT (DEFINITION) OF THE PROBLEM The purpose of this study is to assess the extent to which a number of policy options are effective and efficient for dealing with a problem. By consequence, it is of the utmost importance to first clearly identify and describe this problem, so that the policy options can be focused on the main bottlenecks identified. 2.1. IDENTIFICATION OF THE PROBLEM (‘WHAT IS THE PROBLEM’)

The key question addressed in this study is ‘whether universal service at EU level is an appropriate tool to advance broadband development and if so, when and how it should be used, or whether this should be left to other EU policy instruments or national measures’. Since answering this question requires a profound understanding of its broader context, the problem definition will include a large number of elements related to broadband development in Europe and how this has been stimulated so far, so that these elements can also be taken into account when defining and delimitating at a later stage the objectives and future policy options related to USO. For the sake of clarity, the problem definition will therefore whenever possible distinguish between elements related to:

1. the identification and assessment of the problem of insufficient broadband development (i.e. the underlying problem that needs to be dealt with by the policy options proposed in Chapter 4); and

2. the question if USO at the EU level could be an appropriate tool provided these elements (i.e. those aspects that will impact the extent to which USO could be an appropriate tool).

2.1.1 DEVELOPMENT OF THE BROADBAND MARKET

Since the appropriateness of USO for broadband services will depend on how these services have developed in recent years, the nature of the problem will first of all be described in terms of broadband market developments.

2.1.1.a TECHNOLOGICAL DEVELOPMENTS IN THE BROADBAND SECTOR

Broadband internet can be supplied by different technological solutions. The following paragraphs give a brief overview of the main technologies for internet data transmission currently used. ‘xDSL’ stands for Digital Subscriber Line and represents a family of technologies that provides digital data transmission over the wires of a local telephone network (e.g. ADSL, ADSL2+, SHDSL). xDSL technologies allow for a download speed of up to 24 Mbps (ADSL2+) and an upload speed of up to 1 Mbps for asymmetrical DSL, and


29



30

somewhat higher for symmetric offers (SHDSL). Actual speeds are however highly dependent on the distance to the DSLAM. Moreover, the more performing VDSL technology (with maximum download speeds of up to 52 Mbps), only works over very short distances of up to about 1,3 km, and therefore is only useful when rolled out at the level of the street cabinets (see further). ‘Cable Internet’ works by using TV channel space for data transmission, with certain channels used for downstream transmission, and other channels for upstream transmission. In the past speeds of up to 10 Mbps were possible with the well established DOCSIS 1.1 standard, but the recent development of new technologies has permitted cable internet to attain speeds comparable to FTTx, in particular thanks to the use of DOCSIS 3.0 decoders. Download speeds of up to 200 Mbps and upload speeds of up to 100 Mbps can in theory be obtained thanks to this new standard. However, as the network architecture is such that bandwidth is shared between users, actual speeds are highly dependent on the number of subscribers sharing the connection, and commercial offers mostly lie in the range of 10-50 Mbps download speed. ‘FTTx’, groups Fibre to the Home (FTTH), Fibre to the Building (FTTB), Fibre to the Cabinet (FTTC), … and is defined as a telecommunications architecture in which data transmission is provided over optical fibre cables extending from the telecommunications operator’s switching equipment to (at least) the boundary of the home living space or business office space, cabinet, etc. In the case of FTTC, VDSL or VDSL2 (see above) is often used for the remaining distance between the cabinet and the home. The architectures are based on either a Passive Optical Network (PON) or Point to Point (P2P) architecture, the first one sharing the signal from the local exchange between subscribers, the second one having a dedicated subscriber line. FTTx offers are characterised by much higher up and download speeds, and in a number of cases, symmetrical speeds. In the EU, few commercial offers above 100-200 Mbps exist, but the FTTx technology can in principle obtain speeds of over 1 Gbps. As for wireless solutions (for mobile and/or fixed internet), different technologies are possible, one of them being ‘Satellite Internet’, which uses a satellite in geostationary orbit to relay data from the ISP to its customers. Today, satellite operators have already made all required upfront investments to put the necessary infrastructure in place to develop and assure that broadband satellite services are available everywhere in Europe61. In recent studies prepared for the European Commission, it is estimated that there were approximately 5% of households in Europe that were not covered by a terrestrial broadband solution in 200862. Furthermore, prices of terminals and of bandwidth have dropped considerably since a few years63. Speeds provided are usually lower than offers based on the other technologies. Currently, 2 Mbps connection can be provided to all households not being covered by other technologies today and from 2010 onwards, significant 61 Cf. European Satellite Operators Association (ESOA), Response to Public Consultation on Universal Service Principles in E-Communications, dd. 7 May 2010. 62 See Broadband Coverage in Europe Final Report 2009 Survey Data as of 31 December 2008 63 See Broadband Coverage in Europe Final Report 2009 Survey Data as of 31 December 2008



31

increases in speeds are expected64. Satellite internet widely recognized by commercial operators as well as policy makers as an efficient solution for broadband access for people living in remote or sparsely populated regions, due to the high costs in providing these areas with wired broadband access. The recent wave of investments in new satellites operating in the Ka band is a good illustration of this interest. Other frequently used wireless technologies are e.g. 3G (incl. 3G+) and 4G (e.g. LTE and WiMAX). Common download speeds observed today for wireless offers are up to 8 Mbps. In the case of 3G services (UMTS) and 3G+ services (HSPDA), the effective bandwidth per user falls quickly with the number of simultaneous users making use of the same cell. After all, compared to other technologies (such as DSL or satellite) the cluster of clients that share a certain amount of bandwidth is relatively small for 3G and 3G+, so possibilities for mitigating the effect of reduced bandwidth with more simultaneous users are smaller. Moreover, since users are mobile, the number of users of a specific mobile network (access) part is highly variable. Finally, the fact that the same network provides services to users with dedicated data devices as well as users with smartphones and other 3G enabled handsets further contributes to the erosion and lack of consistency in regards to the quality of services. Compared to the 3G and 3G+ technologies, 4G technologies are characterized by improved spectral efficiency and peak data rates that can reach 100 Mbps. Within the range of existing 4G technologies, WiMAX has been chosen as a reference technology for the study because, at the time of the start of the study (end 2009), it was a more proven alternative and was commercially more widespread than LTE, even though LTE is now (en 2010) forecasted to be the technology of choice for the provision of mobile broadband services in the EU (cf. also section 5.2.1.a). 2.1.1.b INFRASTRUCTURE VERSUS SERVICE COMPETITION

The development of the broadband market is furthermore characterized by competition at the infrastructure level (i.e. between operators that have invested in networks based on different technologies – cf. supra) as well as at the level of services. In the latter case, internet service providers (ISP) that have not or only partially invested in a proper network are buying wholesale access services from network operators, allowing them to compete at the service level.

2.1.1.c MARKET DEVELOPMENT IN THE EU MEMBER STATES

To get an overall view on the state of affairs and evolution of broadband market development in the 27 EU Member States and the disparities between them, some statistics on broadband coverage and take-up (and their evolution) should be analysed. Coverage refers to the supply side (availability) of the broadband services. Most often, it is expressed as a percentage of population to which the broadband services are

64 Cf. ESOA, Response to Public Consultation on Universal Service Principles in E-Communications, dd. 7 May 2010.



32

available65. Take-up refers to the demand side (usage) of the broadband services. Most often, it is presented as a proportion between the volume of services (e.g. number of lines) and the total population.

In addition, the analysis of the broadband supply will further be detailed by including information on the speeds of broadband lines provided and their evolution. Finally, since the broadband market is more and more evolving towards offers of bundled services, some statistics on single versus bundled broadband offers will be presented66.

Preliminary remarks on the limitations of available statistics

Statistical data often distinguishes between different types of broadband access technology (or ‘platforms’) and aggregated data are sometimes very difficult to obtain. After all, regarding coverage, it is not possible to verify to what extent the percentage of population that is not served by one specific technology, is covered by another technology. And also for take-up, the demanded volumes of each individual technology cannot be simply added up for estimating the part of the population having broadband access since e.g. mobile broadband is not only used as a substitute for other broadband technologies but also as a complement to fixed technologies.

b.1. Coverage – Fixed broadband networks

According to a forthcoming study67, fixed DSL broadband networks were available for approximately 94%% of the EU population in December 2009. Already published data shows that in December 2008, these networks were available for approximately 92,7% of the EU population68. Since data for Romania and Bulgaria69 is however missing for previous years of data collection, the following aggregated DSL coverage statistics will only take into account figures for the EU-25, to allow for a comparison over time. Therefore, the EU-25 DSL coverage average of December 2008 which amounted to 94%, will be taken as a starting point. This figure is an increase of about 1,5% from the previous year (92,5% in December 2007) and of about 14,5% since December 200370. The average figure however hides a great disparity between countries, both in coverage as well as in growth of coverage. Illustrative of this is for

65 Please note that expressing coverage in terms of population implies that a high coverage rate does not necessarily mean that a high part of the territory of the country is covered, as e.g. large and sparsely populated regions without coverage might exist. It is thus important to keep this definition in mind when interpreting the results. 66 Unless indicated otherwise, the data used in this section are drawn from the “Broadband Coverage in Europe” Report of IDATE for DG INFSO (2009 Survey, data as of 31 December 2008) 67 Broadband Developments in Europe 2010, IDATE – according to Europe’s Digital Competitiveness Report 2010 (SEC (2010) 627) 68 This figure refers to the percentage of the population depending on a Local Exchange equipped with a DSLAM, which could include a slight overestimation as this percentage does not take into account that some customers are located too far away from the Local Exchange in order to have a well-functioning and good quality broadband service. 69 Coverage rates for Bulgaria and Romania amounted respectively to 78% and 68%. 70 Although figures are not directly comparable since data for one or more of the first years is missing for several countries



33

instance the fact that the EU 15 have a coverage rate that is about 17% higher than that of the new Member States71:

Graph 3: Evolution of DSL coverage in the EU, 2003-2008 (Based on: Broadband coverage

in Europe – IDATE for DG INFSO – 2009 Survey)

At the end of 2008, DSL coverage rates in the EU-27 vary between 68% (Romania72) and 100% (Belgium, Denmark, Luxembourg, France and the UK). As the following graph shows, the national disparities are even much greater for cable modem coverage73, where some countries have no network rolled out (Greece and Italy) and others have coverage rates of over 90% (Malta and the Netherlands). The EU-25 average coverage of cable networks was about 41,9% in 2008.

Graph 4: Evolution of cable modem coverage in the EU, 2003-2008 (Based on: Broadband

coverage in Europe – IDATE for DG INFSO – 2009 Survey)

71 Excluding Bulgaria and Romania for which no coverage statistics are available before 2008. 72 Not presented in graph as the information on the years before 2008 is missing. 73 Defined as the percentages of population living in households effectively passed for cable and provided services based on a cable modem.


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Unlike for D

SL coverage, the new M

ember States on average appear to have caught

up with the EU

15, with an average cable coverage rate of 43%

(compared to 41,7%

for the EU

15). As the above graph show

s, this is largely due to rather recent network

roll-outs and/or upgrades. C

ombining statistics on D

SL and cable coverage to obtain indications on total basic broadband coverage is currently not possible w

ith the available data. How

ever, since netw

ork roll-out will m

ost probably be concentrated in densely populated areas, it can be expected that the national D

SL and cable networks largely overlap, w

hich w

ould mean that in D

ecember 2009, approxim

ately 6% of EU

population did not have access to fixed broadband netw

orks because of coverage problems.

As the figures have show

n, there are large national differences in broadband availability or coverage. M

oreover, national coverage statistics sometim

es hide large differences betw

een regions. To illustrate this, the following graphs show

the difference betw

een average rural coverage and national coverage percentages, for D

SL as well as cable technology (since coverage is likely to be less in rural areas due

to economic reasons):

G

raph 5: Com

parison of average rural DSL coverage w

ith average national coverage, 2008 (Based on: Broadband coverage in Europe – ID

ATE for D

G IN

FSO – 2009 Survey)

Assessm

ent of appropriateness of universal service for advancing basic broadband development

Final report 34

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raph 6: Com

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coverage, 2008 (Based on: Broadband coverage in Europe – IDA

TE for DG

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orks, the coverage in rural areas is on average about 16% sm

aller than the national averages. The difference is even m

uch more im

portant for cable netw

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between the rural average and the

national average can be observed.

b.2. Coverage – Mobile broadband netw

ork

As for m

obile 3G population coverage, som

e parallel conclusions can be made, i.e.

the national averages can greatly differ between countries, w

ith Poland having the sm

allest coverage of 31% and M

alta and Denm

ark being 100% covered, and there is a

substantial difference in coverage rates between the EU

15 and the newer M

ember

States (86% com

pared to 51%).

G

raph 7: 3G coverage in the EU

in 2008 (Based on: Broadband coverage in Europe – IDA

TE for D

G IN

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Assessm


Final report 35

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36

No readily available information (i.e. aggregated statistics) could be found on the extent to which mobile broadband technology was used in 2008 for providing coverage to the population that is not served by DSL or cable technology.

b.3. Usage: number of subscribers

In December 2008) there were about 113,4 million fixed broadband subscribers in the EU-27. As the following chart displays, the most prominent broadband technology is DSL, which accounts for about 79,2% of subscribers. About 15,1% of subscribers is connected through a cable modem, and the remaining 5,7% covers FTTx as well as various fixed wireless access technologies (in a ratio of about 1/5 versus 4/5).

Graph 8: Distribution of EU fixed broadband subscribers by technology (Based on:

Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)

By January 2010, the number of broadband subscribers had climbed to 123,7 million according to the 15th Implementation Report74. From this figure, 79% are DSL lines, 19% are lines using technologies other than DSL (except FTTH) and 2% are FTTH lines. Since mobile broadband is not only used as a substitute for other broadband technologies but also as a complement to fixed technologies, the above figures do not take into account the mobile subscriber base, estimated at 62,2 million active users at the end of 2008.

b.4. Usage: take-up statistics

Coverage statistics, which indicate the degree of availability of broadband services as a percentage of population, are not sufficient to get an overall view on the general development of these services. Combining them with take-up statistics however

74 See COM (2010) 253


EU Broadband ,subscriber,s (in thousands)

• D5L

• Ci3Jble modem

• Fix'ed Wir,elessand FFTx

allows for an in-depth understanding of the evolution of the broadband market. Usage is often represented by penetration rates, which indicate the number of fixed access lines (or number of subscriptions) per 100 inhabitants. On average, a fixed broadband penetration rate of 22,9% can be found in the EU. This penetration rate is built up of 17,9% DSL penetration; 3,4% cable penetration and 1,5% FTTx and fixed wireless penetration.

Graph 9: EU fixed broadband penetration, in terms of number of access lines per 100

inhabitants, per technology in 2008 (Based on: Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)

Large national differences can be observed, as penetration rates in the newer Member States on average are about 45% smaller than the average penetration rate of the EU 15. Usage figures can also be expressed in terms of households, so that an accurate view of the percentage of households having access to the internet at home through a broadband connection can be given. Suchlike statistics are collected by both Eurostat and Eurobarometer:

Graph 10: Percentage of households having access to the internet at home using a

broadband connection in 2009 (Based on: Eurostat)


37


EU Broadband penetration per technology40,00%

35,00%

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38

Graph 11: Percentage of households having access to the internet at home using a

broadband connection in 2009 (Based on: Special Eurobarometer 335 – e-communications Household Survey 201075)

As the above graph shows, in terms of usage or take-up, 44% of EU households do not have access to broadband internet at home according to Eurostat. When isolating the results of the newer Member States, it can be observed that as much as 57% of households do not have broadband access at home. Eurobarometer results show that even 52% of households would not have a broadband subscription at home. Differences in results can be explained by factors such as the size of the sample and the difference in composition (i.e. whereas Eurostat uses a larger sample, it only included people in the age group 16-74 years old), but in general results seem to point in the same direction. Moreover, these national averages hide regional differences in broadband take-up that may exist in some countries. To illustrate this, in the following graph, the average national percentage of household take-up is complemented with the household take-up percentages of the regions in that country presenting the highest and lowest take-up percentages. These figures are derived from the Eurostat regional statistics76, in which regions corresponds to e.g. provinces. For each country, the top of the vertical line indicates the highest regional take-up percentage in that country and the bottom of the line indicates the lowest regional take-up percentage. The ball represents the national average take-up percentage and the size of this ball indicates the number of regions the statistics are divided into, and thus the degree of detail of the segmentation.

75 See http://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm 76 See http://epp.eurostat.ec.europa.eu/portal/page/portal/information_society/data/database: ‘Regional Information Society Statistics’


Households having access to the internet at home using abroadband connection - Eurobarometer

HÈ~ 3_40% •30%20%10%

0%

http://epp.eurostat.ec.europa.eu/portal/page/portal/information_society/data/database

G

raph 12: Percentage of households having access to the internet at home using a

broadband connection in 2009, per region (Based on: Eurostat)

The household take-up percentage can vary up to 26% betw

een regions within the

same country (this m

aximum

difference is observed in Greece), and in som

e regions household take-up is not higher than a m

ere 20%.

In 2.2.1 the reasons behind these take-up statistics will be analysed, as w

ell as their im

plications.

b.5. Speed of broadband lines

On average, in January 2010 61,2%

of fixed broadband lines in the EU had a speed in

the range between 2 and 10 M

bps. 15,4% of lines had a low

er speed, whereas 23,4%

of lines had a speed of over 10 M

bps. As for the above figures on coverage and

take-up, it can be concluded that aggregated data on speeds hide great differences betw

een Mem

ber States, as the following figure illustrates:

Assessm


Final report 39

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Graph 13: Distribution of fixed broadband lines by speeds, situation of January 2010

(Based on: 15th Implementation Report – COM (2010) 253)

Whereas averages for the EU15 show that the percentage of lines with speeds above 2 Mbps is slightly higher in these countries than for the EU27 average, the new Member States appear to lag behind with respect to speed, in a sense that over one-third of the lines is situated in the range between 144 kbps and 2 Mbps. The reason why the EU27 average is not brought down further by these poorer results for the EU12 can be found in the fact that the number of lines in the newer Member States is much smaller than in the EU15 when looking in absolute terms.


40


D'istribution -of fixed broadband lines by,speeds0% 20% 40% 60% gO% 100%

Austria

Belgium

Bulg,aria

Cyprus

Cz,ech RJepublic

Denmark

Estonia

Finland

Franeoe

Germany

Gr,eec,e

Hungary

Ireland

Italy

LaMa

Lithuania

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Malta

etherlands

Poland

Portugal

RJomania

Slovakia

Slovenia

Spain

Sweden

Unit,ed ...~----~---~---- ...----...----~EU15

EU12

EU27

• >= 144kbpsand<: 2 Mbps • >= 2Mbpsand <: 10 Mbps • >= 10Mbps


41

Since statistics on speeds have only been collected by DG INFSO since 2008, the evolution of the speeds can only be analysed over a short time frame. However, as the following graph shows, in comparison to 18 months ago there are almost 10% less lines in the 144 kbps – 2 Mbps range.

Graph 14: Evolution of the distribution of speeds of fixed broadband lines between July

2008 and January 2010 (Based on: Broadband access in the EU: situation at 1 July 2008 – DG INFSO, Broadband access in the EU: situation at 1 July 2009 – DG INFSO and 15th

Implementation Report COM (2010) 253)

b.6. Single versus bundled offers

Finally, broadband internet services are more and more being offered as a part of a package of different services for one single subscription. These packages are also referred to as “bundled offers”. Currently, more than one third of EU households subscribes to a package. 86% of households indicated that the bundle they are subscribed to includes Internet services. Furthermore, of those who access the Internet, 57% are doing so as part of a service package. Significant differences are observed, but analysis shows that in most countries with a high rate of broadband internet access (e.g. the Netherlands, Denmark, Sweden, France) a high rate of bundling is observed. Finally, the most popular bundles include a fixed line77.

77 See e-Communications Household Survey – Special Eurobarometer 335, October 2010)


Evolution of .speeds of fixed broadband line.s

100% -.------------------------.

BO%

,60%

4()%

20%

0%

July 200B July2009 January 2010

• >= 144kbps,and< 2 Mbps • >= 2Mbpsand< 10 Mbps • >= 10Mbps


42

Households having bundles

37%39%

18%

34%

19%

53%52%

13%

51%

41%34%36%

27%21%24%

25%

40%47%

60%

25%

34%36%31%

46%42%43%40%40%

28%

38%

0%

10%

20%

30%

40%

50%

60%

70%

Austria

Belgium

Bulgaria

Cyprus

Czech

Den

mark

Estonia

Finland

France

German

y

Greece

Hun

gary

Ireland

Italy

Latvia

Lithuania

Luxembo

urg

Malta

Netherlands

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

United

EU 15

EU 12

EU 27

Graph 15: Households having bundles end 2009 (Based on: e-Communications Household

Survey – Special Eurobarometer 335, October 2010)

Bundled offers are most often considered to be convenient because there is only one invoice. Another advantage perceived by the consumers consists of lower prices for the bundled offers compared to the sum of the separate services78. Frequently mentioned disadvantages consist of the fact that packages often include services the consumer does not really need and that they bound the consumer to the same provider for all services. 2.1.2 THE FUTURE BROADBAND DEVELOPMENT

The developments presented in section 2.1.1 will continue evolving in the future. Some of these further evolutions can already be clearly identified today. It is useful to examine these as they will also impact the appropriateness of USO for basic broadband services. Four important evolutions are presented in the following paragraphs.

2.1.2.a RELEASE OF “DIGITAL DIVIDEND” WILL INCREASE AVAILABILITY OF SPECTRUM FOR WIRELESS BROADBAND SERVICES IN THE COMING YEARS

The development of wireless platforms requires that sufficient high-quality79 (“premium”) spectrum is available. Such spectrum is currently still largely used in Europe for providing analogue terrestrial TV. The benefits of freeing up this spectrum, resulting in a ‘digital dividend’80, are widely recognized. Moreover, the spectrum currently used by analogue terrestrial TV is unique in terms of volume and

78 See e-Communications Household Survey – Special Eurobarometer 335, October 2010) 79 High-quality spectrum is characterised by an optimal balance between transmission capacity and distance coverage. It brings about less investment to provide wider coverage, leading to a reduction of costs and better service quality (e.g. inside buildings or to remote populations in rural areas). 80 The ‘Digital Dividend’ is referring to spectrum that is freed up by the switchover from analogue to digital terrestrial TV as a result of the superior transmission efficiency of digital technology. The spectrum of the digital dividend is high-quality (‘premium’) spectrum.



43

quality. Therefore, a number of steps have been taken to accelerate the switchover from analogue to digital terrestrial TV81 and to guarantee the optimal use of the digital dividend.

2.1.2.b CONVERGENCE OF FIXED AND MOBILE NETWORKS (FMC)

Fixed-mobile convergence (FMC) refers to the trend towards seamless connectivity between fixed and wireless telecommunications networks. The ultimate goal of FMC is to optimize transmission of all data, voice and video communications to and among end users, independent of their locations or devices. FMC implies that a single device can connect through and be switched between wired (fixed) and wireless (mobile) networks. This convergence thus somehow reverses an earlier trend of fixed-mobile substitution. The importance of fixed and mobile compatibility is evidenced by e.g. the strategy of most incumbent fixed operators: years after separating mobile telephony divisions from the core activities, they are now building up stronger relationships again with the mobile operators82. The ongoing trend towards FMC already resulted in the seamless integration of fixed and mobile telephony83 and furthermore has a direct impact on how broadband products are going to be (re-)defined in the future, with some first indications today including e.g. the combination of DSL broadband services and (mobile) USB-modem connectivity to the Internet (e.g. through 3G, UMTS or HSDPA) in one single broadband subscription84, increasing the mobility of broadband availability.

2.1.2.c EVOLUTION TOWARDS NEXT GENERATION NETWORKS (NGN)

As noted above, the majority of current fixed broadband access lines in the EU 27 can be situated in the range between 2 and 10 Mbps. During the limited time frame for which consistent figures on speeds employed in the EU exist, an increase in average speed has been noticed, and this evolution is expected to continue, and possibly even accelerate. After all, developments at the level of the applications, which require high quality and high speed networks, are happening in quick succession, examples being innovative music and video formats, online games or new modes of social interaction on the web85. Networks need to keep up with the ever more demanding requirements of these services. Next Generation Access (NGA) networks such as FTTx, VDSL and DOCSIS 3.0 are therefore already being rolled out in certain (mostly urban) areas in the EU.

81 Also often referred to as the ‘analogue switch off’. 82 See e.g. i2010 High Level Group – The challenges of convergence dd. 12/12/2006. 83 See e.g. http://www.telindus.nl/oplossingen/unifiedcommunications/fixedmobileconvergence.asp 84 Suchlike subscriptions are offered by e.g. : Telekom Austria in Austria, Belgacom in Belgium, Telefonica in Czech Republic, Orange in France, Vodafone in Ireland, Fastweb and Libero in Italy, KPN and Tele2 in Italy, Sapo and Clix in Portugal, Movistar and Orange in Spain, Telia in Sweden and BT in the UK. 85 Cf. ‘How to Reward the Risk of Investment into Fibre in a Competitive Environment’, Speech by Commissioner Reding at the ECTA 2009 Conference.


Very high speed internet is moreover also becoming more and more the norm in a number of other developed regions, as the following graph with average advertised broadband speeds (in red) and ranges of advertised broadband speeds (in blue) shows for a number of EU and other OECD countries (2008 figures). Especially in terms of average advertised broadband speed, Japan and Korea can be considered as forerunners, with average advertised speeds of respectively 91 Mbps and 79 Mbps.

Graph 16: Advertised broadband speed ranges for a selection of OECD countries and

average advertised broadband speed, in kbit/s, logarithmic scale (Based on: OECD Communications Outlook 2009)

It is expected that speeds will moreover increase further in the near future, as is for example the case in Korea, where broadband speeds would according to recent statements reach 1 Gbps by 2012.


44


Advertised broadbandspeed ranges and average advertised

broadband speed f·or aselection ·of OECD c,ount ries

Belgium 1000 20000

Hungary 512 20000

Italy 512 20000

Poland 25fi 20000

CzeJ:h RepubliJ: 2048 20480

Slovak RepubliJ: 153fi 20480

Ireland 1000 24000

United Kingdom 2000 24000

GreeJ:e 512 2457fi

Austria 2048 25600

Luxembourg 2000 30000

Portugal 2000 30720

Denmark 512 50000

Germany 2048 50000

Spain 1000 50000

Netherlands 3114 60000

FranJ:e 1000 100000

Sweden 250 100000

Finland 275 110000

MexiJ:o 25fi 4000

Turkey 512 10240

Canada 25fi 25000

NewZealand 256 25000

Swiuerland 300 25000

Australià 256 30000

NOr"<\IàY 1250 50000

United Stàtes 7fill 50000

I(eland 1000 100000

Korea llOOO 100000

Japan 256 1000000

2.1.2.d EVOLUTION TOWARDS BUNDLED OFFERS

As previously shown, bundled offers of electronic communications services such as fixed telephony, broadband internet, TV and mobile telephony are becoming more and more widespread. It cannot be excluded that in the future, some services might even no longer be offered as a single service by certain operators, or be offered at relatively high prices. This limit in choice for consumers could in that case possibly negatively impact the evolution towards a broadband for all-situation. 2.1.3 WHAT ELEMENTS OF MARKET EVOLUTION COULD IMPACT THE APPROPRIATENESS OF USO AS A TOOL TO ADVANCE BROADBAND DEVELOPMENT?

The previous sections extensively elaborated on the changes that are taking place in the broadband sector and provided a first indication of possible contributions of USO as a tool for stimulating broadband development. Referring to the origin and concept of USO as defined at the EU level (cf. section 1.1), a number of reasons can be identified why the appropriateness of USO to tackle broadband issues is not completely straightforward and should be analysed in more detail. Among them are the following: As explained in section 1.1.1, the universal service obligation for voice services

was introduced at the time of the opening of the market to competition, to warrant that the objectives of availability, affordability and accessibility would further be ensured after moving away from the monopolist situation. It thus entailed the continuation of an existing service already provided to all citizens. A universal service obligation for broadband services would however be introduced to develop a (partially) new network in order to deliver broadband services to people that are not served yet, since it would have to remedy the market failures that result in a lack of supply of broadband. The underlying market forces are thus completely different for voice and broadband services, and this calls for further analysis;

As will be shown in 2.2.1.b, the lack of broadband take-up is partially due to a lack of interest in broadband services by EU citizens, which was less the case for voice services under the monopolist regime. To remedy this problem, policy initiatives should focus on stimulating the demand for broadband services, through actions such as increasing awareness, creating content through eGovernment initiatives, providing education etc. Introducing universal service obligations for broadband will do little to tackle this problem of a lack of demand, since it will mainly focus on increasing supply of broadband. Although it can be useful in correcting part of the problem, USO as a remedy can thus in any case not suffice as a measure, and it should thus be investigated if USO has indeed specific added value compared to other possible measures;

The market for broadband services cannot be considered as a mature market, but is on the contrary characterized by strong technological innovations and under constant evolution. When analyzing the case for including broadband in the universal service obligations, these evolutions in the short and medium term should be thoroughly investigated, since some developments could lead to serving (some of the) under-served areas in the future without public


45



46

intervention. Known examples of possible evolutions include the opening of the digital dividend (see section 2.1.2.a) and the decreasing costs of new technologies. It should thus be analysed if an intervention could possibly create inefficiencies in the market;

There are several indications that including broadband in USO would entail very large costs (cf. section 2.2.3), which might seem disproportionate considering the number of potential beneficiaries. Also, the high costs that may be associated with universal broadband have a high risk of resulting in increasing prices, thus negatively impacting the objective of affordability of broadband services, as the service would be made less affordable for a large group of users, i.e. through the additional cost that would have to be supported by the mainstream users. This would be the case regardless of the financing policy chosen, but would be most concentrated in case of sector-specific funding;

Also linked to the cost aspect is the observation that under USO one of the most important policy choices to be made is the list of universal service obligations that is imposed. After all, the more comprehensive this list of services, the higher the net cost of USO will be and the bigger the risk of creating a negative impact on attaining the objectives of competitive market functioning. Based on the economic rationale behind USO, two elements thus seem of particular importance when drawing up this list of services:

1. Referring to the context of competition, the obligations imposed should ideally be directly linked with a market failure. In other words, market failure for specific services should first be analysed and determined before USO measures are taken;

2. The overall burden of imposing a specific obligation on the whole sector should be estimated in order to evaluate if adding this service does not bring an imbalance in the USO system (i.e. thus prior to the assessment of the burden for the universal service provider in case of adding the service to the list of obligations, which precedes the activation of the USO fund).

Although these elements are relevant for the services currently comprised under USO, no detailed and harmonized analysis of them is necessarily made at the national level. Because of the above-mentioned high costs associated with the broadband network roll-out, these two elements could however become even more important in case broadband is included in the list of USO services;

More generally speaking, the need for global economic recovery and the vital role that the electronic communications sector, and more specifically broadband, is expected to play in this86, could make it questionable if the burden of providing 100% coverage could and should indeed be borne by the electronic communications sector, which is a flexibility given under USO.

All of the above mentioned elements can also be found in the contributions to the public consultation on universal service principles in e-communications. Indeed, many respondents pointed out the important changes in the sector since its early

86 See A European Recovery Plan, COM(2008) 800, and Investing Today for Tomorrow’s Europe, COM(2009) 36. See also COM(2009) 103 final “Better access for rural areas to modern ICT”.


liberalization in general and the specific developments in the broadband sector in particular when assessing the appropriateness of universal service obligations for broadband development. The appropriateness of USO for broadband services will thus depend on the extent to which the choices made for implementing USO can be adequately adapted to a.o. the elements listed above. 2.2. ASSESSMENT AND DESCRIPTION OF THE PROBLEM

2.2.1 WHAT ARE THE REASONS BEHIND THE PROBLEM?

In the following paragraphs, we further analyse the statistical data presented in 2.1.1.b which point to insufficient and highly diverse broadband coverage and usage across the EU, to gain an understanding of the reasons behind these problems. For coverage as well as take-up, attention is afterwards given to how USO could possibly contribute to solve these problems.

2.2.1.a PROBLEM OF INSUFFICIENT BROADBAND COVERAGE

a.1. Positive relationship between coverage and take-up

Combining statistics on national coverage rates (in this case defined as the maximum of DSL and cable coverage per country) and take-up rates (in terms of number of households having broadband access at home) shows that a certain positive relationship exists between both factors.

Graph 17: Relation between maximum fixed national coverage rates and percentage of

households having access to the internet at home using a broadband connection (Based on: Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)

The correlation between both data series is about 0,443, which means that over 44% of take-up values can be explained by coverage percentages. This positive relationship thus implies that broadband availability is a prerequisite for (further) broadband development. However, with DSL coverage amounting to 92,7% for the EU 27 in December 2008 and usage being limited to about 56% of households, it is


47


90,00%

80,00%

.5 -70,00%

i~E til 60,00%

~ ~:; ~ 50,00%

.B ';'i ~ 40,00%

~ ~ 30,00%"'Cl ~~ ~

c!! ~ 20,00%... -=ogo 10,00%

jol! 0,00%

Relation between coverage and take-up

'f) SE ~N

~ @ MIl

@ ~7m. 4Pil ,0 Ylgo

Si/!

@'!JoI

60% 65% 70% 75% 80% 85% 90% 95% 100% 105%

Broadband coverage (as maKimum of DSL and cable coverage)


48

clear that availability of broadband, albeit an important factor, is not the only variable influencing broadband take-up.

a.2. Aspects related to market development of direct relevance for evaluating the appropriateness of USO as a tool to advance broadband development

Given that broadband take-up partially depends on coverage, it is clear that attention should be paid to enhancing coverage across the EU. Since universal service is a policy instrument amongst others with the objective of ensuring availability, it is clear that this is a measure that could be of use to tackle problems of broadband coverage. The important disparities between Member States and regions will in any case require an approach that allows for a good balance between harmonization at the EU level and flexibility at the Member State level. Results of the public consultation Most respondents to the public consultation on universal service principles in e-communications (March 2010)87 believed however that including broadband in the list of universal services could only have a limited impact on advancing broadband for all. More precisely, universal service is most often – with the exception of most consumer organisations –considered only as “a complementary tool of last resort” (cf. “social safety net”) once sufficient market development is obtained by competition or by using other instruments (cf. section 2.2.5). It was generally stressed that universal service obligations should not be used for achieving the industrial policy objectives of broadband for all.

2.2.1.b PROBLEM OF INSUFFICIENT BROADBAND TAKE-UP

b.1. Why are some people not taking up broadband

To get a further understanding of the problem of unsatisfactory broadband take-up, it is useful to look at it from the opposite perspective, i.e. looking at the reasons why 44% of the EU households do not have broadband access. Firstly, when subdividing the national average percentages of households having a broadband connection at home (cf. 2.1.1.b) according to income, the following results can be obtained, which show that income is one of the other factors greatly contributing to the take-up of broadband:

87 http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm



49

Table 4: Percentage of households having access to the internet at home using a broadband

connection in 2009, per income quartile (Based on: Eurostat)

According to the eCommunications Household Survey88, other important factors impacting people having internet are the following: age, household size and level of urbanization. The older the resident and the smaller the household, the more likely it is to not be equipped with a broadband connection. On the contrary, the level of urbanization positively influences the likelihood the household is to be equipped with a broadband connection. This observation can partially be explained by the fact that the degree of urbanization is linked to the coverage rate (which has a positive influence on take-up, see above), but also by correlations between the level of urbanization and other factors (such as income and age) positively influencing take-up. The e-Communications Household Survey probes for the reasons for not having broadband access (for narrowband users) and the reasons for not having internet access (for households who do not have internet access at home). Together these responses give a good idea of the reasons for not having broadband access at home. The most recent results for both questions are being displayed below:

88 See most recent report of October 2010 – Special Eurobarometer 335.


Households having

access to the

Internet at home

using a broadband

connection - TOTAl

Households in

lirst income

quartile having

access to the

Internet at

home usinga

broadband

connection

Households in

second income

quartile having

access to the

Internet at

home usinga

broadband

connection

Households in

third income

quartile having

access to the

Internet at

home usinga

broadband

connection

Households in

lourth income

quartile having

access to the

Internet at

home usinga

broadband

connection

Austria 58% 39% 51% 63% 77%

Belgium 63% 37% 55% 74% 89%

Bulgaria 26% 3% 10% 28% 63%

Cyprus 47% 15% 45% 64% 80%

Czech Republic 49% 15% 38% 64% 80%

Denmark 76% 74% 69% 75% 85%

Estonia 62% 32% 59% 79% 92%

Finland 74% 56% 76% 89% 92%

France 57%

Germany 65% 42% 55% 68% 84%

Greece 33% 10% 20% 34% 58%

Hungary 51% 23% 42% 62% 80%

Ireland 54%

Italy 39%

latvia 50% 22% 38% 52% 82%

lithuania 50% 14% 29% 61% 88%

luxembourg 71% 56% 58% 78% 81%

Malta 63% 35% 65% 76% 91%

Netherlands 77% 66% 75% 84% 83%

Poland 51% 20% 42% 62% 81%

Portugal 46% 14% 25% 52% 78%

Romania 24% 4% 8% 25% 44%

Slovakia 42% 12% 35% 54% 65%

Slovenia 56% 25% 43% 64% 80%

Spain 51% 20% 50% 71% 84%

Sweden 80% 60% 79% 84% 93%

United Kingdom 69%

UE27EU27 BE BG CZ DK D-W DE D-E EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK

TOTAL 11583 401 656 571 154 399 616 224 388 390 614 544 352 534 255 487 538 129 570 218 111 439 483 623 691 354 578 276 150 498You or someone in your household plan to subscribe\ connect in the next six months

8% 5% 3% 8% 10% 9% 9% 5% 4% 8% 10% 6% 12% 10% 7% 9% 8% 5% 5% 3% 12% 8% 8% 4% 5% 10% 9% 4% 10% 9%

You and the members of your household do not know exactly what the Internet is

7% 9% 11% 3% 20% 4% 4% 8% 7% 7% 6% 9% 3% 5% 19% 5% 8% 7% 12% 13% 8% 8% 6% 14% 20% 9% 15% 13% 3% 2%

No-one in your household is interested in the Internet

58% 65% 56% 54% 64% 72% 69% 56% 47% 57% 66% 57% 59% 52% 66% 42% 55% 58% 54% 74% 54% 73% 56% 61% 38% 64% 45% 68% 61% 55%

The local area of your household is not covered by a broadband access network infrastructure

2% 0% 2% - 1% 1% 1% 2% 3% 4% 1% 0% 3% 3% 1% 5% 2% - 1% 0% 1% 1% 3% 1% 7% 6% 3% 1% 2% 0%

The initial installation cost for the broadband network is too high

6% 10% 2% 10% 4% 2% 4% 8% 9% 8% 3% 6% 6% 6% 9% 8% 2% 3% 8% 2% 7% 6% 6% 5% 10% 2% 11% 2% 6% 5%

The monthly subscription cost of broadband Internet is too high

7% 10% 4% 13% 9% 3% 5% 10% 9% 8% 4% 11% 7% 7% 8% 8% 6% 1% 11% 3% 9% 7% 9% 5% 8% 3% 13% 3% 6% 5%

The cost of buying a personal computer and modem is too high

9% 10% 15% 20% 14% 6% 9% 18% 14% 10% 4% 7% 9% 4% 5% 15% 14% 1% 17% 6% 6% 15% 12% 7% 14% 6% 18% 1% 7% 7%

The monthly subscription cost is too high 9% 14% 10% 18% 10% 3% 5% 9% 12% 3% 5% 11% 10% 6% 8% 16% 14% - 22% 2% 10% 11% 12% 8% 12% 6% 18% 1% 7% 9%

The interested members of your household have access at work, school or elsewhere and this is sufficient

6% 4% 9% 11% 1% 4% 5% 10% 12% 5% 7% 4% 3% 13% 5% 9% 8% 1% 6% 2% 3% 7% 4% 7% 6% 10% 20% 9% 10% 4%

You or someone in your household are concerned about access to unsuitable content

2% 1% 1% 1% 2% 2% 3% 5% - 2% 3% 1% 0% 2% 2% 1% 1% 2% 1% - 2% 1% 1% 1% 2% 0% 2% 0% 1% 1%

Other (SPONTANEOUS – SPECIFY) 5% 6% 3% 3% 3% 2% 2% 4% 12% 3% 2% 6% 12% 3% 12% 5% 0% 8% 2% 1% 13% 2% 3% 2% 0% 5% 3% 7% 7% 9% Table 5: Households without internet access at home: reasons for not having access to the internet at home (Based on: e-Communications Household


•VAN DIJKMA AGEMENT CONSULTANTS

"JVISORS


51

UE27EU27 BE BG CZ DK D-W DE D-E EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK

TOTAL 1530 50 17 23 53 133 192 51 26 58 39 12 44 72 36 87 149 59 19 1 62 86 43 14 32 92 51 66 59 23You or someone in your household plan to subscribe\ connect to a broadband access in the next two months

7% 6% 13% 13% 14% 9% 8% 2% 21% 17% 4% - - 7% 13% 5% 2% 2% 10% - - 9% 13% 4% 2% 3% 19% 3% 10% 7%

You and the members of your household are satisfied with the speed of your current dial-up connection

26% 31% 35% 46% 43% 22% 23% 30% 28% 11% 40% 14% 11% 34% 33% 39% 35% 34% 41% 84% 30% 49% 16% 41% 16% 39% 41% 39% 25% 25%

The local area of your household is not covered by a broadband access network infrastructure

16% 2% - - 11% 10% 12% 29% 15% 35% 6% - 56% 17% - 10% 11% - 6% - 7% 6% 7% 27% 16% 26% 29% 7% 22% 4%

The initial installation cost for the broadband network is too high

4% 6% - 3% 14% 0% 2% 11% - 6% 9% - 5% 6% 7% 10% 1% 1% 6% - 3% 10% 9% 14% - 4% 4% 4% 6% 4%

The monthly subscription cost of broadband Internet is too high

5% 4% 4% - 16% 5% 5% 7% - 3% 1% 4% - 5% 8% 6% 3% 1% 11% - 11% 13% 2% 11% 4% 2% 8% 5% 14% 4%

There is not enough attractive online content or e-services justifying the extra-cost

3% 3% 3% 12% 5% 2% 2% 1% - 4% 6% - - 3% - 2% 2% 2% - - 1% 5% 9% - - - 1% 2% 7% -

The equipment of your household (e.g. PC) is not compatible with broadband

5% 7% 15% 11% 3% 5% 6% 11% - 3% 5% - 6% 2% - 0% 3% - - - 4% 6% 6% - 3% 1% 5% 3% - 12%

You and the members of your household do not use Internet enough

10% 23% - 11% 11% 11% 11% 15% - 3% 2% - 5% 18% 7% 8% 6% 18% 16% - 3% 21% 1% 13% 17% 10% 4% 12% 7% -

Other (SPONTANEOUS) 5% 10% - - 7% 4% 4% 2% - - - 12% 11% 2% - 1% 6% - 4% - 1% 3% - - - 13% 3% 20% 14% 29% Table 6 Households with narrowband internet access: reasons for not having broadband access at home (Based on: e-Communications Household



Furthermore, Eurostat has the following statistics on ‘reasons for not having broadband access at home’89:

Table 7: Reasons for not having broadband access at home (Based on: Eurostat)

Although for several reasons some differences between both data sets can be observed90, from the Eurobarometer as well as the Eurostat figures it can be concluded that two important reasons for not having internet (and also more specifically broadband) access, besides the lack of coverage (which was already dealt with above) are (directly or more indirectly) linked to:

- the lack of interest; - the costs which are perceived as too high.

Whereas the first reason is more important in the EU 15, the issue of costs seems to be relatively more important in the new Member States.

89 The table displays 2009 data, unless these figures are not available. In the latter case, if available, 2007 data are mentioned (with an *) to obtain a complete as dataset as possible. 90 Some possible reasons include: the Eurostat survey asks everyone why they do hot have broadband access, whereas the Eurobarometer survey asks this questions only to those with narrowband access. To those who do not have any access at all, it is asked why they do not have internet access in general. Furthermore, there are differences in the size of the sample taken into account in both surveys, and unlike Eurobarometer, Eurostat only takes into account the age group 16-74 years in the sample.


Households without Ibroadband connection

because same Households without Households without Households without Households without

members can access broadband connection broadband connection broadband connection broadband connection

broadband somewhere because it is toD because it is not because they do not because of other

else (e.g. at work) expensive available in the area need it reasonsgeoftime

Austria 6% 14% 18% 32% 34%

Belgium 6%' 17%' 1%' 21%' 15%'"

Bulgaria 5%' 26% 7% 43% 25%

Cyprus 12% 21% 7",1, 62% 17%

Czech Republic 13% 22% 5% 43% 19%

Denmark 1% 5% 2% 7% 5%

Estonia 33%' 18%' 55%* 67%'

Finland

France 10% 10% 47",1, 24% 9%

Germany 12% 20% 23% 41%

Greece 6% 24% 5% 53% 17%

Hungary 16% 39% 12% 35% 27%

Ireland 6% 11% 57% 14% 15%

Italy 2%* 11%' 23%' 28%* 5%*

latvia 26% 53% 32% 31% 2%

lithuanÎa 16% 38% 9%' 61% 16%'

luxembourg 3% 6% 4% 58% 30%

Malta 0% 5% 0% 21% 74%

Netherlands 1% 4% 4% 23% 69%

Poland 7% 21% 21% 47% 14%

Portugal 19% 48% 17% 61% 27%

Romania 6% 26% 22% 37% 28%

Slovakia 14% 11% 5% 41% 35%

Slovenia 25% 27% 60% 43% 12%

Spa in 16% 31% 21% 40% 20%

Sweden 21% 17% 28% 32% 22%

United Kingdom 20%' 10%' 40%* 31%'

EU 27 7% 15% 19% 30% 12%


53

b.2. Aspects related to why people do not take broadband access that are of direct relevance for evaluating the appropriateness of USO as a tool to advance broadband development

To increase broadband take-up, finding remedies for both problems is crucial. Remedying the lack of interest in the internet can be done through among others demand-side initiatives. Remedying the cost problem necessitates initiatives improving the affordability of broadband access for all. As for the previously discussed availability issue, one of the possible instruments for this appears to be universal service provision, which thus at least deserves to be further investigated. Results of the public consultation In response to the public consultation on universal service principles in e-communications (March 2010)91, many respondents drew attention to the importance of demand side initiatives. More precisely, it was often argued that demand side initiatives for basic broadband services are more important and more urgent than supply side measures as the obstacles preventing the increase of take-up are not expected to disappear easily, even after an important increase of availability. Incumbent operators, new entrants as well as (regulatory) authorities therefore believe that demand side measures should feature prominently in any EU Strategy for Broadband for all. A large majority of the respondents – with the exception of most consumer organisations92 – agreed that these initiatives should not fall within the universal service framework. Universal Service was not considered as an appropriate instrument to cover the gap between coverage and take-up that is observed today. First of all, it was generally argued that the size of this gap clearly indicates that the required solution does not correspond to “providing the social safety net”. Furthermore, dealing with non-price factors was considered to be the most efficient approach. Suggested measures included most often raising awareness and skills, improving digital literacy and increasing the development of relevant social electronic services. Finally, providing that increasing broadband take-up benefits the whole European society and economy (e.g. increase of EU competitiveness) public funding of demand side measures was again considered to be the most efficient and least distorting choice. Public funding of demand side initiative – outside the scope of USO – is today already part of many national broadband strategies.

91 See : http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm 92 Several consumer organisations suggested to include a very large number of demand side measures in the Universal Service Obligations (incl. the provision of hardware and software) in order to make the concept op USO more holistic.



54

2.2.2 WHO IS AFFECTED BY THE PROBLEM (SPECIFIC ACTORS, SECTORS …)?

Today, having access to broadband services is considered to be a key element to maintain social contacts, cultural and political participation, finding a job, accessing information and markets, saving costs, learning skills, etc. As such, everyone is affected by the issue of availability and affordability of qualitative broadband services. For the identification of the stakeholders for the impact assessment analysis, a distinction will again be made between the two elements of the problem definition, i.e. the main impacts on these stakeholders of (not?) having broadband as well as the impacts of a possible decision to include broadband services in the scope of USO. The first element, i.e. who is affected by not having broadband access, is analysed in a positive way, i.e. by focusing on the effects of having access to broadband. It is generally acknowledged that having access to broadband has a number of economic and social advantages. These can often not be attributed to a specific user group, but are positive effects for society as a whole. In contrast to the second element of the problem definition (which is the focus of our study), a distinction is thus not made between different types of actors. Without aiming to be exhaustive, the following positive effects of having broadband access, which are often linked and influenced by one another, can be mentioned93:

• Growth of the economy, thanks to e.g. broadband-related process improvements, specialization in knowledge-intensive activities and broadband-based innovation;

• Enhancement of the productivity of processes and businesses; • Job creation; • Better exploitation of the possibilities of the Single Market; • Improvement of the access to information, through services as online

education, eCommerce etc.; • Increase of the accessibility of public services (eGovernment, eHealth, etc.), as

well as their efficiency, e.g. through a decrease of the administrative burden; • Increase participation, social and territorial cohesion.

Furthermore, the effects of having broadband access can also be viewed at in comparison to having narrowband access, and for this Graph 2 in paragraph 1.2.2 is useful (cf. page 26). This graph indicates different types of services that can be delivered through narrow- and broadband-internet, and thereby gives a good indication of the services that are only available to consumers with broadband access and thus of the benefits that come with broadband access. From this graph it becomes apparent that some services which are considered to be part of ‘basic internet services’ today cannot be delivered through a narrowband connection. 93 See e.g. COM (2006) 129 “Bridging the broadband gap”; “The impact of broadband on growth and productivity”, a 2008 study by Micus on behalf of DG INFSO; “The economic impact of ICT: evidence and questions”, i2010 High Level Group Issue Paper of 2006; “The impact of ICT on employment”, a 2009 report by Humboldt Universität zu Berlin for DG INFSO; COM (2009) 649 “Consultation on the future EU 2020 strategy”



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This is consistent with observations such as the fact that future Commission Implementation Reports will take 1-2 Mbps as the minimum download speed (see paragraph 1.2.2) and the fact that the number of internet offers in the baskets 144-512 kbps and 512 – 1024 kbps are decreasing over time, in absolute terms as well as in comparison to the total number of internet offers available in the EU94. Regarding the second element of the problem definition, i.e. regarding the decision to add broadband service in the scope of USO, the following impacts for different groups of stakeholders can be identified: Impacts for providers of electronic communications networks and services include:

- Obtaining compensation for investing in un-served areas will be subject to the USO specific financing stepwise approach;

- Compensation of the cost of providing basic broadband service will be coming from funds that can be both sector specific or public. Today and for the current US obligations, most Member States have chosen to finance the compensation for the universal service provider by means of a sector specific fund;

- Timing required for the transposition of a possible new scope for USO, e.g. including basic broadband services at a minimum speed, could impact the transitional regime regarding current “Broadband for all” instruments;

- Mechanisms for designating universal service providers per Member State are not known yet, whereas currently the applicable rules for e.g. obtaining subsidies are clear;

- Providers with plans to develop innovative broadband networks could be impacted by the way in which USO designation and financing mechanisms are developed.

Impacts for governments include:

- The burden of funding the cost of providing coverage of basic broadband services in the whole territory, discounts for specific user groups, etc. could be imposed on the sector instead of being funded by general taxation.

Impacts for NRAs include:

- Overall responsibility for stimulating overall broadband development; - Responsibility for implementing universal service obligations in the

most efficient, i.e. less market distorting way; - Burden of developing methodology for determining the net cost of

USO for broadband - possibly based on different technologies in different regions – as well as administrative costs for managing a

94 See Broadband Internet Access Cost (BIAC) – second half of 2009, prices as at 1-15 October 2009, Report of Van Dijk Management Consultants for DG INFSO, January 2010


potentially complicated system for sharing the net cost between (specific) actors in the sector.

Impacts for citizens include:

- Clarity and transparency on the services that will be made available, as well as from which provider, possibly also at what conditions;

- Depending on the level of the burden of the obligations imposed on the sector, financing of USO for basic broadband services by the sector could impact the overall pricing strategies of operators;

- The extension of USO with broadband could impact the continuation of the other existing instruments for stimulating broadband for all;

- Some financing mechanisms such as vouchers are not possible under the current USD; for citizens in Member States where these are currently used, these could be abolished, leading to less flexibility for citizens in choosing e.g. their service provider.

Impacts for businesses include – on top of the impacts that are also applicable to citizens:

- For the businesses providing services and applications with added value, commercialised on the Internet, it could be envisaged that these also contribute to the financing of the net cost of USO (cf. section 1.1.2.d);

- For the businesses requiring higher speeds than the basic broadband speed in USO, there could be a risk that very high speed investment plans are slowed down in case priority needs to be given to overall basic coverage.

The detailed assessment of how and to what extent all of these stakeholders would indeed be impacted under each of the policy options will further be elaborated in the impact assessment in Chapter 5. 2.2.3 WHAT IS THE SCALE OF THE PROBLEM?

The scale of the problem can be expressed in many different terms, the most important being volume and costs. Section 2.1.1.b already provided a detailed overview of current market coverage and take-up; the scale of the problem in terms of volume can thus be defined as the gap between the current market development and full market coverage. In terms of costs, much less information is available on how much it would cost to come to full basic broadband coverage in all EU Member States. The following


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sources give some general indications of the order of magnitude of the funds that could be required95: For some countries, figures on national initiatives subject to state aid rules (cf.

paragraph 2.2.5.c) already being implemented or being under consideration are available, for instance:

- the Irish National Broadband Scheme (NBS), which allows any fixed residential or business customer located within the NBS coverage area to apply for broadband services under the scheme and which covers about 223.000 buildings, has a total investment cost of 223 million EUR96;

- under the Digital Britain scheme, the UK has a Universal Service Commitment to remedy the fact that 1 in 10 households cannot enjoy a 2Mbits connection by 2012, and although no unanimous figures on the global cost exist, it is expected that the 200 million pounds under spend from the Digital Switchover Help Scheme may not be sufficient97;

- a German federal measure to support investments in rural and remote areas where there is no minimal broadband coverage of 1 Mbps at affordable prices, is expected to cost about 141 million EUR between 2008 and 201098;

- Another German measure designed to support the development of broadband infrastructure in economically weak areas (where there is no 2 Mbps available at affordable prices), which primarily focuses on connectivity for undertakings and thus on local SMEs, will receive support of 60 million EUR in the period 2008-201399;

- The roll-out of broadband infrastructure in rural and peripheral areas of Greece, with a goal to give all residential users broadband access of at least 512 kbps and business users broadband access of at least 2 Mbps, is executed through a competitive tendering process. The maximum available budget however amounts to 160 million EUR100.

The broadband strategy included in the European Economic Recovery Plan, which aims to reach 100% coverage of high speed internet by 2010 and calls for promotion of competitive investments in fibre networks and endorsement of the Commission's proposals to free up spectrum for wireless broadband, has led to the allocation of 360 million EUR for the specific purpose of developing broadband infrastructure in rural areas101 across the EU. This amount should be considered together with the foreseen co-financing rates of 90% and 75% for respectively Convergence and non-Convergence regions;

95 The focus hereby is on “basic” broadband services, i.e. not taking into account available figures for NGA roll-outs 96 http://www.dcenr.gov.ie/Communications/Communications+Development/NBS+FAQs 97 http://www.culture.gov.uk/images/publications/digitalbritain-finalreport-jun09.pdf 98 See State Aid N 115/2008 99 See State Aid N 238/2008 100 See State Aid N 201/2006 101 See COM (2009) 36



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It is also worth noting that the Commission's Broadband Communication of September 2010102) refers to recent studies that indicate that between € 38bn and € 58bn would be needed to achieve the 30 Mbps coverage for all by 2020 (using a mix of VDSL and next generation wireless) and between € 181bn and € 268bn to provide sufficient coverage so that 50% of households are on 100 Mbps services.

Since one of the goals of the present impact assessment is precisely the quantification of the order of magnitude of costs of different options for future broadband development through USO, reference if furthermore made to Chapter 5 in which the results of the quantitative impact assessment for a.o. 100% 2Mbps coverage, obtained through our bottom-up cost model, are described and analysed. 2.2.4 WHY IS PUBLIC INTERVENTION NECESSARY, WHY AT THE EUROPEAN LEVEL?

2.2.4.a NEED FOR PUBLIC INTERVENTION

a.1. Broadband is key for economic (growth) and non-economic (social inclusion) development

The crucial impact of broadband development on markets and competition has been noticed in numerous studies and communications103. The importance of broadband development was indicated in the Communication on “Bridging the Broadband gap” of (March 2006)104: “The access to high speed internet through "broadband" connections is opening up huge possibilities and constitutes concrete evidence of the promises of the "information society". The benefits of broadband are such that the inability to have access to it is an issue which should be addressed urgently.” The role of broadband connections has since then been further confirmed, e.g. in the Community Guidelines of September 2009 for the application of State aid rules in relation to rapid deployment of broadband networks: “Broadband connectivity is a key component for the development, adoption and use of information and communication technologies (ICT) in the economy and in society. Broadband is of strategic importance because of its ability to accelerate the contribution of these technologies to growth and innovation in all sectors of the economy and to social and territorial cohesion”105.

102 See COM(2010) 472 103 See COM (2004) 369, 12.5.2004; COM(2005) 203; COM(2008) 572. L. Holt and M. Jamison (2009), “Broadband and contribution to economic growth: Lessons from the US experience”, Telecommunications Policy 33, 575-581. 104 See COM(2006)129 final 105 See Communication from the Commission, Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks, 2009/C 235/04. See also COM(2005) 229; COM(2002) 263 and COM(2009) 103.



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More recently, the Commission Communication on a Digital Agenda for Europe106 stated: “The future economy will be a network-based knowledge economy with the internet at its centre. Europe needs widely available and competitively-priced fast and ultra fast internet access. The Europe 2020 Strategy has underlined the importance of broadband deployment to promote social inclusion and competitiveness in the EU.” Finally, the September 2010 Broadband Communication of the Commission107 states the following on the broadband targets set in the Digital Agenda for Europe: “The target for fast and ultra-fast internet access was chosen because of the central role it will play in economic recovery and in providing a platform to support innovation throughout the economy, as electricity and transport did in the past.”

a.2. Market forces do not deliver an optimal level of broadband access: market failure

First market failure: the network effect

Beneficial externalities occur when there are benefits which accrue to individuals or organizations as a result of other individuals or organizations consuming or producing something, and the benefits concurred on others are not taken into account in the original decision. 108 In telecommunications, it is argued that large network benefits (positive externalities) existed during the period in which the telephone changed from being a service purchased by a minority to one subscribed to by the majority, i.e. its value depends on the connection with other telephones and this value increases with the number of connections. The policy needed for people to make their decision about whether to subscribe, as if they were also taking account of these externalities, is for the price of the service to be reduced by the amount needed to make up for the shortfall in private demand compared to the socially optimal level. It is not clear what the importance of network externalities is for broadband connection as some services are reciprocal and others are unilateral and as the broadband deployment is different across Member States.

Second market failure: the merit good

There are some goods and services the consumption of which people considers 'good' (e.g. culture goods) or 'bad' (e.g. smoking) depending on social perceptions or scientific evidence109. The existence of merit goods means that it is not possible to 106 See COM(2010) 245 107 See COM (2010) 472 108 See WIK (2000) and Katz M.L. and Shapiro C. (1994), “Systems Competition and Network Effects”, Jour. of Economic Perspectives 8(2), 93-115, Liebowitz S.J. and Margolis S.E. (2002), “Network Effects”, in Cave M., Majumdar S., Vogelsang I (eds), Handbook of Telecommunications Economics V.I, North-Holland, 75-96. 109 See WIK (2000)



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rely exclusively on the concept of consumer sovereignty as there are sometimes cases where society decides that it is prepared to pay in order to encourage the consumption of these goods over the level provided by a market outcome. Those who make merit good arguments are claiming that in some cases individuals do not know their own best interest, or that there is a more important social interest (not market failure) at stake. Whilst the electorate does not often support this level of paternalism by governments, there are exceptions, such as compulsory tax funded education, and in those countries which have it, universally available free or subsidized health care, or electronic communications service, such as broadband. Elements indicating market failure at the supply side

Although approximately 94%110 of the EU population is covered by at least one network capable of offering broadband services, large differences in broadband coverage persist between countries and even more between regions. More precisely, some less densely populated, rural areas subsist today where competitive market mechanisms are not sufficient to deliver basic broadband access and “where it is unlikely that the market will provide the service on a reasonable timescale”111.

Elements indicating market failure at the demand side

It has been found that, besides by a lack of availability, take-up of broadband Internet is being hindered by affordability issues112 and a lack of interest of consumers. A more detailed overview of the reasons why some people are not taking up broadband is presented in section 2.1.1.b.

a.3. Conclusion

Given the importance of broadband for economic and social development and the above-mentioned market failures, it is clear that, despite very positive statements on the significant overall broadband development113, public intervention is needed for allowing everyone to benefit of the positive effects of broadband development. The need for public policies and interventions for increasing broadband penetration and uptake has been largely recognized114 and strongly recommended115. This need

110 In December 2009 - This percentage does not take into account the households in the area covered by ADSL which are situated too remotely from the MDFs and thus connected by a copper line that is too long in order to allow for a sufficient broadband quality. It also does not take into account that areas covered by different technologies are not always overlapping, i.e. that wireless technologies could be available in areas not covered today by ADSL technology. 111 See COM(2008) 572. 112 See COM(2006) 129 “Bridging the broadband gap” 113 See COM(2008) 572 114 See for instance COM (2006) 129 reminding some results of a public discussion launched in the context of the Digital Divide Forum as to the desirability of public intervention “The public consultation confirms the importance attributed to this issue by local/regional and national authorities as well as by the industry and various associations” and concluding that “local/regional authorities



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can moreover be especially underlined as far as rural communities are concerned. Reasons that have been identified for the “rural-urban broadband divide” (i.e. amongst other the low density of population, remoteness, lack of competition, low income, lack of access to new technologies, low quality of service, high cost of provision116) indicate elements of market failure related to both the supply as well as demand side. The delivery of broadband services to regional, rural and remote areas remains thus challenging and “requires a strong strategic approach with complementarities and synergies between Community, national and regional funds and policies”117. More specifically related to market failure at the demand side and in the case where it would be concluded that competition mechanisms are also not sufficient to address the issue of affordability, then the public intervention in order to achieve the defined public objectives laying behind the concept of “broadband for all” would also be justified to tackle the specific issue of affordability. After all, the benefits of broadband access can only be fully reaped if there is also an uptake of the broadband services. Finally, regarding the lack of interest, public intervention could be justified to raise the awareness regarding the benefits related to having a broadband access.

2.2.4.b WHY INTERVENTION AT THE EU LEVEL?

A number of economic as well as social reasons why public intervention at EU level for broadband services is justified are presented in the following paragraphs.

b.1. Economic reasons

Necessity of coordination of various EU policies to alleviate the Internal market fragmentation

Widespread broadband access is a key condition for the development of modern economies and a major aspect of the Lisbon and EU2020 agenda. Today however, large gaps between broadband developments can be observed between EU countries (cf. section 2.1.1.b).

In this context, the European Economic Recovery Plan118 aims to ensure that broadband is available to all Europeans by 2010119. The European Union launched a

are best placed to plan a broadband project that takes into account local needs and technological requirements”. See also COM(2006) 163 final. 115 See COM (2005) 229 “i2010 – A European Information Society for growth and employment” referring to the fact that “making ICT products and services more accessible, including in regions lagging behind, is an economic, social, ethical and political imperative”. 116 See COM(2006) 129 “Bridging the broadband gap”; COM(2009) 36 “Investing today for tomorrow’s Europe”. 117 See COM(2009) 103 final “Better access for rural areas to modern ICT” 118 See A European Recovery Plan, COM(2008) 800, and Investing Today for Tomorrow’s Europe, COM(2009) 36. See also COM(2009) 103 final “Better access for rural areas to modern ICT”. 119 COM (2009) 103 final; COM (2008) 800, 26.11.2008



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large number of initiatives and adopted various policies120 (both on supply-side and demand-side) intended to encourage the take-up of broadband services and to stimulate further deployment (in particular in less developed areas)121. All Member States have been strongly and regularly invited to use EU available policy instruments and to consequently adjust their National Broadband Strategies in order to correct market failures or complement the action of market forces. The need to promote further extension of broadband networks, both at Member State and at European Union level, with the aim of providing access to poorly served and high cost areas were the market cannot deliver was also confirmed in the March 2009 Competitiveness Council at which Member States agreed on the target of a 100% broadband coverage between 2010 and 2013 and by the EU2020 strategy that provides for broadband access for all by 2013, access for all to much higher internet speeds (30 Mbps or above) by 2020, and 50% or more of European households subscribing to internet connections above 100 Mbps.

The Digital Agenda for Europe identified the following EU actions that should help meet these EU2020 targets: reinforce and rationalize the funding of high-speed broadband through EU instruments by 2014 and explore how to attract capital for broadband investments through credit enhancement, propose an ambitious European Spectrum Policy Programme in 2010 and issue a Recommendation in 2010 to encourage investment in competitive NGA networks122. Furthermore, the assessment of these various broadband strategies suggests that broadband deployment in the EU is led by a common approach and similar recognized principles123, e.g. primary role of the market in the expansion of broadband; complementary role of public policy to the effective functioning of the market; crucial role of public policy in extending coverage of under-served areas; role of security to stimulate broadband use; need for an assessment of broadband availability and take-up, etc. The rationale of the EU intervention is thus twofold. It aims to ensure consistency of approach and to alleviate fragmentation of the Internal market between the Member States. Fragmentation could after all lead to economic inefficiencies such as possible legal procedures invoked by opposing stakeholders on individual decisions (legal certainty), differences in the access models between and within Member States, duplicating costs for legal advice, differences in roll out schemes, uncertainty for market players about the timing of new initiatives that may be considered in different regions.

Stimulation of pan-European on-line services

Public intervention at the EU level also aims to ensure that pan-European services delivered over broadband infrastructures, may be offered on a sufficiently large 120 See below, section 2.2.5, e.g. Regulatory framework for electronic communications and EU Radio Spectrum policies, EU structural Funds and Rural development fund, state aid policy, etc. 121 See COM(2006) 129 final 122 See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32010H0572:EN:NOT 123 See COM(2004) 369



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customer base, in order to enjoy economies of scale on the supply-side (in the production costs) and on the demand-side (due to the network effects124). More precisely, the EU 2020 Strategy calls for a true single market for online content and services (i.e. borderless and safe EU web services and digital content markets, with high levels of trust and confidence, a balanced regulatory framework with clear rights regimes, the fostering of multi-territorial licences, adequate protection and remuneration for rights holders and active support for the digitisation of Europe's rich cultural heritage, and to shape the global governance of the internet.. The Digital Agenda for Europe therefore aims at opening up access to content, making online and cross border transactions straightforward, building digital confidence and reinforcing the single market for telecommunications services, with a range of key actions to be taken by the European Commission. Necessity to alleviate competitive distortions between Member States Universal service, and in particular the designation and the financing schemes, may create distortions between countries and between firms. For instance, USO could be a tool to promote a telecommunications national champion by favouring the national incumbent in the designation process. Therefore it is important that the EU guarantees a level playing field between firms and countries. Financial efficiency of approach Finally, a consistent EU approach is expected to implicate a more efficient allocation of financial resources, when compared to a system of different national, regional and/or local public policies.

b.2. Social reason

Social and territorial cohesion

An ambitious European broadband policy is also justified on social grounds to preserve and improve the European Social model. Given the importance of ICT as part of eSGEI125, and in particular broadband, in everyday life, it is necessary that every EU citizen has access to an affordable broadband connection. The protection of such right can be based on Article 14 TFEU126 and Article 36 of the Charter of

124 A network effect (or “network externality”) is the positive effect that one user of a good or service has on the value of that product to other people. Network effects typically apply to telephone networks: when more people own a telephone, the value of the telephone for reaching other people becomes larger. 125 SGEI are commercial services which are of general economic utility, and for which therefore public service obligations are imposed. The electronic communications sector and its subsectors are well-known examples of SGEI and are often referred to as “eSGEI”. 126 Article 14 TFEU provides that: “Without prejudice to Article 4 of the Treaty on European Union or to Articles 93, 106 and 107 of this Treaty, and given the place occupied by services of general economic interest in the shared values of the Union as well as their role in promoting social and territorial cohesion, the Union and the Member States, each within their respective powers and within the scope of application of the Treaties, shall take care that such services operate on the basis of principles and conditions, particularly economic and financial conditions, which enable them to fulfil their missions. The European Parliament and the Council, acting by means of regulations in


http://en.wikipedia.org/wiki/Good_(economics)

http://en.wikipedia.org/wiki/Service_(economics)

http://en.wikipedia.org/wiki/Value_(economics)


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Fundamental Rights127, which both refer explicitly to the promotion of social and territorial cohesion. This reference can also be found in the Communication from the Commission “Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks” which indicates the importance of State aid for broadband as ‘a tool to achieve equity objectives, i.e. as a way to improve access to an essential means of communication and participation in society as well as freedom of expression to all actors in society, thereby improving social and territorial cohesion’128. Since (e)SGEI and State aid measures include most often Member State initiatives, the justification of EU intervention based on social grounds is thus rather indirect and at the sanctioning level.

b.3. Conclusion

Thus, an intervention at the EU level may be justified, but it should carefully balance the requirement for harmonization (because of the above mentioned reasons) with the requirement of flexibility for the Member States (because of diversity of preferences regarding the scope of eSGEI and the differences in national market structures). Therefore, harmonization is more justified for the modalities to provide US (designation of the universal service provider and financing scheme) than for the definition of the scope of the universal service as there is less heterogeneity of preferences for the former than for the latter.

2.2.4.c CAN EU ACT, AND IF SO, HOW: THE PRINCIPLES OF SUBSIDIARITY AND PROPORTIONALITY

The EU action is limited by the principles of subsidiarity and proportionality.129 In the case of universal service, those principles are met; hence an EU action in that regard is justified. The subsidiary principles provides that in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level. For the economic and social reason described above, the principle of subsidiarity is fulfilled provided that the requirement for harmonization are carefully balanced with the requirement of flexibility for the Member States because of diversity of preferences regarding the level of eSGEI and the difference in market structures.. This is confirmed by the accordance with the ordinary legislative procedure, shall establish these principles and set these conditions without prejudice to the competence of Member States, in compliance with the Treaties, to provide, to commission and to fund such services”. 127 Article 36 on access to services of general economic interest provides that: "The Union recognises and respects access to services of general economic interest as provided for in national laws and practices, in accordance with the Treaties, in order to promote the social and territorial cohesion of the Union.”. 128 COM(2009) C 235/04 129 Art. 5 TEU.



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Universal Service Directive, whose provides that: “setting a common level of universal service for telecommunications for all European users and harmonising conditions for access to and use of public telephone networks at a fixed location and related publicly available telephone services and also achieving a harmonised framework for the regulation of electronic communications services, electronic communications networks and associated facilities, cannot be sufficiently achieved by the Member States and can therefore by reason of the scale or effects of the action be better achieved at Community level.”130

The proportionality principle provides that the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties. This principle is met when the minimization of market distortion is guaranteed (efficiency of the public intervention instrument as well as its cost-effectiveness, i.e. attaining the objectives at the least possible intervention and at the least possible cost). 2.2.5 HOW WAS THE PROBLEM AVOIDED OR REDUCED VIA OTHER INSTITUTIONAL CONTEXTS, REGULATIONS OR POLICIES?

Under the rules of the USD of 2002, universal service obligations could be activated as a policy tool at EU level to advance broadband development only if there would a risk of social exclusion of the minority. However, other supply- as well as demand-side initiatives are possible, and some of them have been introduced in the past at EU level to tackle problems linked to broadband development. Given the different and diverse nature of these, it cannot be expected that one of these measures is capable of exhaustively solving all problems. At best, they can be expected to help to reduce the problem in complement to other initiatives. Furthermore, there are several initiatives which have previously been taken at the national level, that are worthwhile mentioning for their possible merits in reducing the problem.

2.2.5.a AT THE EU LEVEL131

a.1. EU Regulatory framework for electronic communications

Promotion of competition and stimulation of market forces to enhance open access and facilitate competitive entry in the context of liberalized markets and based on the EU framework for electronic communications has been a major tool aiming (between other) at harmonizing and increasing broadband development and reducing disparities between Member States (in particular after 2004 enlargement). EU action mainly took place through (i) the control of Member States implementation of the regulatory framework and (ii) the mechanism of cooperation132 used for assessment of NRA’s market analysis and choice of regulatory measures intended to remedy market failures.

130 See Recital 51 of the 2002 Universal Service Directive. 131 See also Communication “Bridging the broadband Gap”, COM(2006) 129, 20.3.2006. 132 See Article 7 of Framework Directive



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a.2. i2010 and Digital Agenda for Europe

i2010 Strategy

The i2010-European Information Society 2010 strategic framework was introduced to pursue three goals133:

(1) To boost the single market for businesses and users by eliminating regulatory obstacles and enhancing regulatory consistency in the telecoms sector and for audiovisual media services (in particular TV and video-on-demand);

(2) To stimulate ICT research and innovation in Europe by pooling public and private research funding and focusing it on areas where Europe is or can become a global leader, such as on LTE (long-term evolution) mobile technology, which will revolutionise wireless broadband, or ESC (electronic stability control), which helps prevent car accidents in case of sudden manoeuvres or on slippery roads;

(3) To ensure that all citizens benefit from Europe’s lead in ICT, in particular through first-class online public services accessible to all; safer, smarter, cleaner and energy-efficient transport and by putting the cultural heritage of the EU at our fingertips by creating the European digital library.

It led to several tangible results:134

- More and more Europeans are online. The number of regular internet users has increased from 43% in 2005 to 56% in 2008; most of them use the internet almost daily and with high-speed internet access. Regular internet use is also becoming more inclusive, with the numbers of users in disadvantaged groups (the inactive, the less educated and those aged 55-64) rising the fastest;

- Europe has become the world leader in broadband internet. With 114 million subscribers, it is the largest world market and penetration rates are rising swiftly. Half of all European households and more than 80% of European businesses have a fixed broadband connection, three quarters of them with average download speeds above 2 Mbps. Broadband internet is available to 93% of the EU25 population, up from 87% in 2005;

- High rates of broadband connectivity have translated into higher usage of advanced services. Europeans are rapidly changing their habits, adopting new ways to communicate. 80% of regular internet users engage in increasingly interactive activities, e.g. communicating, using online financial services, sharing and creating new content and participating in innovative processes;

- Europe has made fast progress in the supply and use of the 20 benchmarked online public services. The supply of fully available services to citizens has increased to 50% in 2007 (27% in 2004) and for businesses to 70% (58% in 2004). One third of European citizens and almost 70% of businesses in the EU use eGovernment services;

- ICT policies have been increasingly mainstreamed. Member States have recognised the importance of ICT for productivity and growth and the potential

133 See COM (2005) 229, 01.06.2005. 134 See Europe’s Digital Competitiveness Report : main achievements of the i2010 strategy 2005-2009, COM(2009) 390, 04.08.2009.



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of ICT to achieve a range of socio-economic objectives. Many Member States now have integrated national ICT strategies with objectives similar to those of the i2010 initiative.

However, despite these positive results, as the statistical data in section 2.1.1.b shows, digital gaps between countries and between regions within countries, which often stem from issues of availability and affordability, still persist in the EU territory.

Digital Agenda for Europe (DAE)135

The i2010 strategy has now been updated with the Digital Agenda for Europe, which was presented on 19 May 2010 by Commission Vice-President Neelie Kroes who emphasized that:

"We must put the interests of Europe's citizens and businesses at the forefront of the digital revolution and so maximise the potential of Information and Communications Technologies (ICTs) to advance job creation, sustainability and social inclusion. […] The ambitious strategy set out today shows clearly where we need to focus our efforts in the years to come. To fully realise the potential of Europe's digital future we need the full commitment of Member States, the ICT sector and other vital economic players." The DAE has seven main goals:

− A new Single Market to deliver the benefits of the digital era; − Improve ICT standard-setting and interoperability; − Enhance trust and security; − Increase Europeans' access to fast and ultra fast internet; − Boost cutting-edge research and innovation in ICT; − Empower all Europeans with digital skills and accessible online services; − Unleash the potential of ICT to benefit society. As for 'basic' broadband, the specific DAE target is that the broadband networks would cover 100% of EU citizens by 2013. For 'fast' and 'ultra-fast' internet, the aim is to ensure that by 2020, all Europeans have access to internet at speeds of above 30 Mbps and 50% or more of European households subscribe to internet access above 100 Mbps. Thus, while the promotion and development of ubiquitous basic broadband services remains a challenge, new and more far-reaching objectives dealing with e.g. high-speed broadband are currently also being taken to the next level. Broadband Communication and NGA Recommendation under the DAE As identified as Key Action in the DAE Communication, on 20 September 2010, the Commission adopted three complementary measures to facilitate the roll out and take up of fast and ultra-fast broadband. These are the Broadband Communication, the Next Generation Access (NGA) Recommendation and the proposal for a multiannual Radio Spectrum Policy Programme (on the latter, see section a.5 below).

135 http://ec.europa.eu/information_society/digital-agenda/index_en.htm



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In the Broadband Communication entitled “European Broadband: investing in digitally driven growth”136, the Commission asks that to achieve the broadband goals:

• Member States develop operational national broadband plans, with concrete measures and guidance on funding;

• A number of regulatory and financing measures is adopted at national and local level to promote investment and reduce investment costs, including direct public investment or public financing in line with State Aid rules;

• Wireless broadband is further promoted (see also the proposal for a multiannual Radio Spectrum Policy Programme);

• Use of the Structural and Rural Development Funds is optimized; • Enhanced broadband finance instruments are developed.

The Recommendation on regulated access to NGA networks137 indicates to national telecoms regulators how they should regulate third-party competitive access to ultra-fast fibre networks (NGA networks) that bring high-speed broadband connections to homes and workplaces. It aims to give national regulators the tools to support new entrants to the NGA market, and to support infrastructure-based investment from established market players. The most important principles of this Recommendation are the following: price regulation for access to fibre networks will fully reflect investment risk, and will enable investing companies to make attractive profits, national regulators must have at their disposal a full range of access remedies from which they select the appropriate combination to drive market entry and infrastructure-based competition in the light of national market circumstances, ex ante regulation should reflect differences in the conditions of competition (between individual markets and areas within a given market), resulting in light-touch regulation where competitive forces are strong, arrangements for co-investment are supported and the setting of lower access prices to the unbundled fibre loop is allowed in return for up-front commitments on long-term or volume contracts.

a.3. EU Funds and the Economic Recovery Plan138

Structural Funds and the Rural Development Fund contribute to the development of regional and rural areas, in particular as far as broadband deployment and take up is concerned, aiming amongst others at ensuring availability of ICT infrastructure “where the market fails to provide it at an affordable cost and to an adequate level to support the required services” 139. The current Structural Funds programmes of 2007-2013 are to invest almost € 2.3 billion in communications infrastructures mainly broadband networks. The European Regional Development Fund (ERDF), the largest Structural Fund of Cohesion Policy aiming to strengthen economic and social cohesion by correcting 136 COM (2010) 472 137 C(2010) 6223 138 See A European Recovery Plan, COM(2008) 800, and Investing Today for Tomorrow’s Europe, COM(2009) 36. See also COM(2009) 103 final “Better access for rural areas to modern ICT”. 139 See COM(2006) 129 final, 20.03.2006, Bridging the broadband gap.



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imbalances between EU regions, provides also a large support140 for demand side actions. Furthermore, the European Economic Recovery Plan channelled additional €1.02bn into the European Agricultural Fund for Rural Development (EAFRD)141 for broadband and the 'Health Check' of the Common Agriculture Policy (CAP). A total of around €360 million of this funding was programmed for broadband-related projects. EAFRD can be used to support the development of ICT in rural areas amongst others through (i) the creation of new broadband infrastructure; (ii) the upgrade of existing broadband infrastructure; (iii) laying passive broadband infrastructure.

a.4. State Aid control142

The Commission provides that State aid measures can, under certain conditions, be effective tools for achieving objectives of common interest and states “State aid can correct market failures, thereby improving the efficient functioning of markets and enhancing competitiveness. Further, where markets provide efficient outcomes but these are deemed unsatisfactory from a cohesion policy point of view, State aid may be used to obtain a more desirable, equitable market outcome. In particular, a well targeted State intervention in the broadband field can contribute to reducing the ‘digital divide’ that sets apart areas or regions within a country where affordable and competitive broadband services are on offer and areas where such services are not.” Where a notified measure has been found by the Commission to constitute aid within the meaning of article 107(1) TFEU, the Commission will assess whether the aid measure can be deemed compatible with the common market143, based on article 107(3) TFEU. The Commission will perform this compatibility assessment through a balancing test. More precisely, the Commission evaluates the positive impact of the measure against its potential negative effects on competition by assessment of the:

objective of common interest of the aid measure (e.g. market economic and/or social failure);

design of the measure, in terms of policy appropriateness, effectiveness and proportionality;

possible distortions of competition and impact on trade144.

140 See the key findings in “Survey : European Economic Recovery Plan in Regions & Cities : One year on, January 2010, Final report”, stating that “broadband infrastructure projects and extraordinary investments in rural areas is where additional EERP measures have been used most”. 141 See Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD). 142 See Community Guidelines of 17 September 2009 for the application of State aid rules in relation to rapid deployment of broadband networks, O.J. [2009] C235/7. 143 See the latest list of Commission decisions on State aid to broadband: http://ec.europa.eu/competition/sectors/telecommunications/broadband_decisions.pdf 144 See also Non-Paper of the Commission of May 2009 on Common Principles for an Economic Assessment of the Compatibility of State Aids under Article 87.3.


http://ec.europa.eu/competition/sectors/telecommunications/broadband_decisions.pdf


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Objective of the measure

To assess the objective of the state aid, the Commission differentiates depending (i) on the level of broadband connectivity available in the targeted area; (ii) and whether the aid relates to traditional or NGA fixed broadband networks. The Commission defines NGA broadband networks as wired access networks which consist wholly or in part of optical elements and which are capable of delivering broadband access services with enhanced characteristics145.

Aid for traditional broadband networks

Description Staid aid allowed?

At least 2 traditional broadband networks are available Black area No

No traditional broadband network available and no plan by private investors to roll out such an infrastructure within 3 years

White area Yes

Only 1 network available Grey area

Need further assessment

Aid for NGA broadband networks

Description Staid aid allowed?

At least 2 NGA networks are available or should be available within 3 years. Black area No

No NGA network available, no plan by private investors to roll out such an infrastructure within 3 years and no other traditional broadband infrastructure exists or rolling-out a NGA network would be unprofitable.

Yes

No NGA network available but at least 2 traditional broadband networks exist, without any plan to invest in NGA.

White area


Only 1 NGA network available or planned to be rolled-out within three years and no plan by private investors to roll out an additional infrastructure within three years.

Grey area


Table 8: Overview of situations in which State Aid for broadband is allowed or not

In the situations where further assessment is needed, the Commission recognizes that either the monopoly situation or the absence of NGA network could affect the provision of specific services, their quality or the level of prices. In these cases state aid will only be allowed if it is demonstrated that (i) services currently offered do not satisfy the needs of citizens or business users; and (ii) there is no less distortive measure available to reach the same goal. To establish if these conditions are met, the Commission will assess: the inadequacy of the overall market conditions (level of prices, type of services offered and their conditions), the absence of effective wholesale network access proposed to third parties, the presence of entry barriers and whether regulation imposed by the NRA is not sufficient to overcome the identified problems.

145 Even though it is not clearly specified in the text, ADSL2+ networks would not be included in the scope of NGA broadband networks.


In addition for NGA networks, the Commission will assess whether the one NGA network already in place benefited from access to ducts not accessible to other network operators.

Design of the measure and the need to limit distortions to competition

The Commission has set a number of necessary conditions the state aid must comply with to be considered compatible with the common market. Not fulfilling anyone of these conditions would most likely mean that the aid is not compatible with the common market.

- Clear identification of the area targeted by the measure through a coverage analysis. This analysis should be accompanied by an analysis of the competitive conditions in this area;

- Organisation of an open tender process to award the subsidised project and favouring the most economically advantageous offer in this process;

- Technological neutrality, i. e. not favouring any technology or network platform unless there is an objective justification to this. For NGA, networks architecture should support effective and full unbundling and satisfy all types of access an operator may seek, such as access to ducts, unbundled fibre and bitstream;

- Encourage use of existing infrastructure, to avoid unnecessary duplication of resources;

- Provide third parties with effective wholesale access for at least seven years. In case of NGAs, it includes the right to use ducts or street cabinets. When setting the access conditions for NGA networks, Member States will also have to consult the relevant NRA to have a consistent approach with the obligations imposed on the Wholesale (physical) network infrastructure access and the wholesale broadband access market;

- Benchmarking of prices to avoid excessive wholesale prices, price squeeze or predatory pricing by the selected bidder;

- Claw-back mechanisms to avoid over-compensation of the selected bidder if broadband grows beyond anticipated level.

Conclusion Whereas the State Aid provisions can potentially have far-reaching impacts to ensure broadband development in areas where no broadband infrastructure is available, it is clear that this measure is merely a facilitator or enabler for national initiatives, and not a guarantee to ensure ubiquitous broadband development in the entire EU. After all, the initial initiative will lie with the Member States.


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a.5. Spectrum Policy

In 2005146, the Commission identified the release of the digital dividend as a spectrum policy priority147. More precisely, it was proposed that the beginning of 2012 be agreed for the switchover in all Member States. Furthermore, at the end of 2007, the Commission published a communication148 ‘on a common approach to the use of the spectrum released by the digital switchover’ in order to ensure from a social and economic perspective an optimal use of the dividend. In this communication, wireless broadband access is considered ‘to be probably the most promising means to bridge the “broadband gap” and overcome the “digital divide”, especially in rural areas’. In October 2009, the Commission published its Recommendation on ‘Facilitating the release of the digital dividend in the European Union’149. In this Recommendation, it is pointed out that ‘The current economic crisis has underlined the urgency of making sufficient radio spectrum available for the development of high-speed wireless infrastructure to provide broadband services, in order to create productivity gains and cost savings in the broader economy. This is in line with the goals of the Economic Recovery Plan, endorsed by the European Council meeting of 12 December 2008, which sets a target of 100% broadband coverage to be achieved between 2010 and 2013. As stressed in the Competitiveness Council Key Issues Paper of March 2009, this can only be completely achieved by using wireless technologies, for example in rural areas where wired infrastructure is impractical’. In this Recommendation, the Commission insisted again on the deadline for the analogue switch off of January 1st, 2012. Also, all Member States are requested to support regulatory efforts towards harmonized conditions of use in the EC of the 790-862 MHz sub-band for electronic communications services other than broadcasting services. The choice of this sub-based was based on a underlying study150 which pointed out that ‘opening up one part of the digital dividend – the 790-862 MHz sub-band – to wireless broadband services by 2015, in all Member States and under common conditions of use, would generate ad added value compared to individual national initiatives of at least EUR 17 billion and up to EUR 44 billion depending on the pace of the development of wireless broadband services in this sub-band’. As mentioned earlier, on 20 September 2010, the European Commission made a proposal to the European Parliament and Council for a multiannual Radio Spectrum Policy Programme, which aims to improve co-ordination and management of radio spectrum in the EU, in particular to facilitate the growth of wireless broadband151.

146 See COM(2005) 204 – Communication on “Accelerating the transition from analogue to digital broadcasting”. 147 See COM(2005) 465 – Communication on “EU spectrum policy priorities for the digital switchover in the context of the upcoming Regional Radiocommunications Conference 2006 (RRC-06)”. 148 See COM(2007) 700 final – Communication on reaping the full benefits of the digital dividend in Europe: A common approach to the use of the spectrum released by the digital switchover. 149 See Commission Recommendation of 28 October 2009 facilitating the release of the digital dividend in the European Union (2009/848/EC) 150 See http://www.analysysmason.com/EC_digital_dividend_study. 151 See COM(2010) 471: http://ec.europa.eu/information_society/policy/ecomm/radio_spectrum/documents/legislation/index_en.htm#rspp_proposal



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The top priority is to earmark sufficient spectrum for wireless services, including broadband. It is proposed that EU countries complete by 2012 the process of giving licences to operators to use spectrum bands which have already been technically harmonised at EU level for the use of wireless broadband (the 900/1800 MHz bands, the 2.5 GHz band and the 3.4 – 3.8 GHz band). In addition, EU countries are asked to open up the 800 MHz band to wireless broadband by the beginning of 2013 (with possible derogations until 2015 in exceptional cases). Other provisions are e.g. the fact that collective use of spectrum and spectrum trading would be promoted, that there would be more EU-wide coordination on certain aspects of spectrum policy, that there would be good coordination between spectrum harmonisation and standardisation to assure that services and wireless devices can be used seamlessly across borders, that spectrum is available for policy priorities, etc.

In summary, it can be concluded that at EU level all provisions are currently being taken to enable competitive broadband deployment based on wireless technologies in the coming years. This is especially relevant for rural areas where broadband coverage is not available yet and investment in wired infrastructure is not efficient. Taking into account the evolutions of in the spectrum policy domain, it could thus make sense to provide wireless technologies first the opportunity to develop in areas that are currently un-served. In case these developments do not prove to be sufficient, it could then be considered to take additional measures.

2.2.5.b AT THE MEMBER STATES LEVEL: THE NATIONAL BROADBAND PLANS

Widespread availability and use of broadband was already one of the main objectives of the eEurope 2005 Action Plan152. In this context, Member States have been drawing up National Broadband Strategies aiming to implement various initiatives to accelerate the deployment and take-up of broadband supporting both supply-side and demand-side tools153. The Broadband Communication of 20 September 2010 further calls on Member States to commit to the broadband targets and to set out an operational national broadband plan defining national targets, with the goal of having fully operational plans for (ultra)high speed networks with concrete implementing measures to realise their targets, notably as regards the necessary funding.

b.1. Supply-side measures154

Broadband supply-side strategies are directly impacting infrastructure deployment and are consequently characterised by two objectives: ensuring all areas have broadband coverage (in particular by increasing coverage in under-served areas) and achieving a rapid roll-out of NGA infrastructure. Most strategies focus on 100% coverage of basic (for example 2Mbps) broadband and set target dates that are typically in the range 2010 to 2012. To achieve this, nearly all strategies opt to use public funds to supplement private investment. 152 See COM(2002) 263. 153 See COM(2004) 369 “Connecting Europe at High speed : national broadband plan”; 154 See COM(2004) 369 “Connecting Europe at High speed : national broadband plan”; Annex to the Communication on Bridging the broadband gap, SEC(2006) 354, 20.3.2006, Chapter 3.



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Some strategies (e.g. Germany, Greece, Finland, France, Luxembourg & UK) go beyond full coverage with basic broadband and look towards NGA capable of speeds over 50Mbps with a target date of 5 to 8 years. However, the EU is currently behind the world leaders in NGA roll-out and a patchwork of efforts in only a limited number of Member States will not deliver the €200-300bn of investment needed to catch up155. A comprehensive overview of the national broadband plans, related to increasing broadband availability can be found in Annex 1.

b.2. Demand-side measures156

National Broadband Strategies also include demand-side measures aiming at encouraging broadband development through demand stimulation. For instance, some Member States (e.g. Italy, Austria, Sweden) implemented policies consisting of financial incentives (e.g. fiscal subsidies for broadband connections). Demand-side initiatives at national level have also been adopted with the aim of increasing usage in the public sector, connecting public institutions or SMEs, improving content to make the internet more attractive and ensuring all have the skills to exploit its benefits. More specifically, some Member States with full coverage, high rates of broadband usage and high levels of infrastructure competition (e.g. Sweden, Denmark and the Netherlands) focus their broadband strategy on content and other demand side actions: e.g. inclusion, skills and media literacy programmes and online public services such as eHealth and Education. One of the main focus areas of the Digital Agenda for Europe is to enhance demand-side actions concerning digital literacy, skills and inclusion. It does, among others, promote greater coordination of ICT skills initiatives at Member State level, especially by proposing digital literacy and competences as a priority for the European Social Fund regulation (2014-2020), and foresees proposals to make sure that public sector websites (and websites providing basic services to citizens) are fully accessible to people with disabilities by 2015.

155 See McKinsey for ETNO 2008. 156 See COM(2004) 369 “Connecting Europe at High speed : national broadband plan”; Annex to the Communication on Bridging the broadband gap, SEC(2006) 354, 20.3.2006, Chapter 3.



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3. DEFINITION OF THE POLICY OBJECTIVES

Referring to the Impact Assessment Guidelines157, when defining the objectives a distinction is made between general objectives, specific objectives and operational objectives (or ‘measures’). Firstly, the general objectives are defined by taking into account the different aspects of the problem definition presented above. Within this general framework, specific and operational objectives are then identified. These objectives are the result of internal brainstorming exercises and, in line with the IA Guidelines, they have been developed in an iterative process, i.e. by interactions between on the one hand the objectives and on the other hand the policy options that are defined in the following chapter and their implications, drawbacks, etc. Since the objective of this study is to assess possible EU policy options, the policy objectives will be formulated from a European perspective. The objectives presented below do thus not address the motivation of additional special measures that Member States can take at their own initiative in conformity with EU law. Based on this framework of objectives, different policy options can be analysed in order to evaluate whether universal service at EU level is an appropriate tool to advance broadband development and if so, when and how it should be used, or whether this should be left to other EU policy instruments or national measures. 3.1. GENERAL OBJECTIVES

For defining the general objectives of the policy initiative sought for, it is useful to take a broader view of the general long term EU policies and objectives in which the policy initiative would be situated. More specifically, the EU 2020 Strategy which was launched by the Commission on 3rd March 2010158, aims that Europe would ‘be turned into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion’. One of the building blocks of this new strategy is the new Digital Agenda for Europe as it has been recognized that the electronic communications sector in general, and broadband connectivity in particular, has the potential to play an important role in the realization of these general economic, social and environmental objectives. In the Communication from the Commission on the EU 2020 Strategy it is mentioned that one of the seven flagship initiatives to catalyse progress under the priority themes of smart, sustainable and inclusive growth is “a digital agenda for Europe, to speed up the roll-out of high-speed internet and reap the benefits of a digital single market for households and firms” and more specifically that “the aim is to deliver sustainable economic and social benefits from a Digital Single Market based on fast and ultra fast internet and interoperable

157 See European Commission Impact Assessment Guidelines of 15 January 2009, SEC (2009)92. 158 See Communication from the Commission: Europe 2020 – A strategy for smart, sustainable and inclusive growth, COM (2010) 2020 of 3rd March 2010.


applications, with broadband access for all by 2013, access for all to much higher internet speeds (30 Mbps or above) by 2020, and 50% or more of European households subscribing to internet connections above 100 Mbps”. The Digital Agenda for Europe furthermore stipulates that to reach these ambitious targets, one of the two main goals will be to “guarantee universal broadband coverage (combining fixed and wireless) with internet speeds gradually increasing up to 30 Mbps”. Given these aims of the EU 2020 and the Digital Agenda and referring to section 2.2.4 on why public and EU intervention are required, the issue that is dealt with in this study is to ensure that the legal tools relied upon to achieve such aims, and in particular the universal service provision, meet two general objectives.

The first general objective is that universal service provisions achieve an optimal balance between the harmonization at the European level (regarding the scope of the service as well as the means) and the flexibility left for the national level.

The second general objective is that universal service provisions ensure that the service is provided in the most efficient way, or in other words, that the social cost of providing universal service is minimized.

3.2. SPECIFIC OBJECTIVES

For each of the two general objectives above, a number of specific objectives can further be derived.

Specific objectives for achieving an optimal balance between harmonisation and flexibility:

Objective 1: Ensure a minimum level of broadband service at the EU level. Objective 2: Respect the heterogeneity of preferences among Member

States; Objective 3: Alleviate distortions between Member States;

Specific objectives for ensuring the efficiency and cost-effectiveness of public intervention:

Objective 5: Ensure that there is no distortion or restriction of competition; Objective 6: Ensure that market distortions are minimized; Objective 7: Ensure user choice; Objective 8: Ensure legal certainty and transparency.

The specific objectives listed above will now be further translated in a number of operational objectives or “measures”, allowing for a further evaluation of the objectives that can indeed be attained by imposing universal service obligations.


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3.3. OPERATIONAL OBJECTIVES

For each of the specific objectives presented above, a number of operational objectives or “measures” can be identified.

Specific objective Operational measures

OBJECTIVE 1: Ensure a minimum level of broadband service at the EU level

Ensure that all citizens have access to a minimum broadband service, regardless of their location in the EU;

Ensure affordability of a minimum broadband service for all citizens;

Provide targeted support to increase accessibility for disabled users.

OBJECTIVE 2: Respect the heterogeneity of preferences among Member States

Allow for national initiatives of broadband development beyond EU requirements;

Allow for flexibility for the MS to define affordability; Allow for flexibility for the MS in the financing of the

services beyond the EU minimum set of services.

OBJECTIVE 3: Alleviate distortions between Member States

Ensure a better level playing field for electronic communications operators across the EU;

Define guidelines for a harmonized implementation of EU initiatives;

Allow the EC to provide MS with comments on the implementation guidelines for harmonization.

OBJECTIVE 4: Ensure that there is no distortion or restriction of competition

Ensure that the US designation process is open to all undertakings providing electronic communications networks and services;

Ensure that the service is provided and that the operators are designated in a technology neutral way;

Promote competitive tendering for selecting the provider of basic broadband services in areas that are not served by the market;

Ensure that the US net cost will be reimbursed.

OBJECTIVE 5: Ensure that market distortions are minimized

Make analysis of current market situation before intervening in the market;

Define financing mechanisms for corrections to the functioning of competitive market mechanisms that are the least distorting for market development;

Provide operators the possibility to further develop services before intervening in the market (e.g. based on new and innovative technologies);

Minimize as much as possible the net cost.

OBJECTIVE 6: Ensure user choice

Ensure user choice between service providers; Ensure user choice for separation of provider of

connection and provider of services; Ensure user choice between services in terms of single

versus bundled services.


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Specific objective Operational measures

OBJECTIVE 7: Ensure legal certainty and transparency

Ensure maximum certainty with respect to reimbursement (e.g. amount known in advance);

Ensure a public consultation or public tendering for the choice of the USP;

Ensure a public consultation or publication of the calculation of the net cost;

Ensure maximum transparency regarding discounts, tax breaks or other support to certain categories of users.

All of the seven specific objectives for which operational objectives (or ‘measures’) have been defined, can be pursued to a greater or lesser extent by the different policy options for USO at the EU level, as presented in the next chapter.



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4. IDENTIFICATION AND DESCRIPTION OF POLICY OPTIONS

The previous chapter has listed a number of specific and operational objectives that, as far as the development of the broadband market is concerned, contribute to attaining the general objectives of the Framework Directive. For the purpose of this study, we will however be solely focussing on defining and comparing different possible approaches for dealing with basic broadband services as part of USO at the EU level, so that the policy options presented hereunder will only (to a smaller or bigger extent, depending on the option) respond to those operational objectives or measures that have at the end of Chapter 3 been identified as possibly relevant under USO. In addition to the two indispensable and obvious options of “No policy change” (OPTION 1) and “No USO regulation at the EU level” (OPTION 2); three additional options have been identified, each differently corresponding to the different specific and operational objectives identified in the previous chapter.

- The first (OPTION 3) relates to ‘Mandating broadband internet access for all citizens at a speed of 2Mbit/s’;

- The second (OPTION 4) presents a ‘Refinement of the 2009 regime’; - The third (OPTION 5) responds to a ‘Reformed and focused USO’.

The five policy options are described in more detail in the following paragraphs. At the end of the presentation of each option, a first indication is given of the way these options correspond to the different objectives. Whenever possible, relevant elements obtained during the public consultation on universal service principles in e-communications159 were used for further developing the policy options. A more detailed and complete assessment of this will however be made in the following chapter, in which the impacts are assessed in detail. 4.1. OPTION 1: ‘NO POLICY CHANGE’ (2009 REGIME)

The ‘NO POLICY CHANGE’ OPTION implies that the EU provisions on USO are maintained. These provisions can be found in the USD160, as amended by the Citizens’ Rights Directive161, which needs to be transposed by the Member States by 25 May 2011. Therefore at the date, the scope of European universal service will include several services: 159 See : http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm 160 See Directive 2002/22/EC, OJ 24.4.2002 L 108/51. 161 See Directive 2009/136/EC of the European Parliament and of the Council of 25 November 2009, OJ 18.12.2009 L 337/11.



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Provision of access at a fixed location and provision of telephone services.

The connection should be capable of supporting services of voice, facsimile as well as data communications at rates that are sufficient to permit functional Internet access. The satisfactory and sufficient data rates should be defined by each Member States taking due account of specific circumstances in national markets, for instance the prevailing bandwidth used by the majority of subscribers in that Member State162 (hence may include broadband connections in some countries);

Directories and directory enquiry services ;

Public pay telephones and other publics voice telephony access points;

Measures for disabled end-users.

The ‘NO POLICY CHANGE’ OPTION also implies that all other current instruments for advancing broadband development are maintained (cf. section 2.2.5). OPTION 1, which would not entail policy changes, would in any case make sure that SPECIFIC OBJECTIVE 2: Respect the heterogeneity of Member States, is maintained. Given the European provisions are complied with, OPTION 1 could also help in attaining SPECIFIC OBJECTIVE 1: Ensure a minimum level of broadband service at the EU level and SPECIFIC OBJECTIVE 4: Ensure that there is no distortion or restriction of competition. 4.2. OPTION 2: ‘NO EU REGULATION RELATED TO USO’

OPTION 2 assumes that the specific EU provision on universal services would be removed and that general EU law will apply to Services of General Economic Interest in electronic communications. Regarding the scope of the SGEI, such option implies that a minimum set of available, affordable and accessible services is not any more guaranteed at the European level, but that each Member State has the full flexibility to define the scope of eSGEI applicable to its territory (in particular the type of broadband access) under the marginal control of the Court of Justice. Regarding the financing of the eSGEI, this option implies that there is no longer a restriction on the use of sector financing to a minimum set of services defined at the European level, so that Member States have full flexibility on the financing means within the limits of internal market law and competition law (in particular the State aids control), and thus have more flexibility with respect to sector financing than under the current system. Under the ‘NO EU REGULATION RELATED TO USO’ OPTION it is also assumed that all other current instruments for advancing broadband development are maintained (cf. section 2.2.5). 162 See Recital (5) Directive 2009/136/EC.


Option 2 thus increases substantially the flexibility of the Member State, at the expense of the internal market and the European eSGEI. This implies that OPTION 2 would positively contribute to SPECIFIC OBJECTIVE 2: Respect the heterogeneity of preferences of Member States. 4.3. OPTION 3: ‘MANDATING BROADBAND INTERNET ACCESS FOR ALL CITIZENS AT A SPEED OF 2MBIT/S’

Under OPTION 3, the current first generation supply side measures for bridging the digital gap at the level of basic broadband services (cf. section 2.2.5) are being grouped by including these services in the scope of USO. More specifically, access to the internet at a speed of 2Mbit/s would be mandated at the EU level, independently of the penetration and take-up of broadband in each Member State. Since this requirement would in most countries entail a substantial network roll-out or upgrade, would be much more comprehensive than ‘procuring for the underprivileged’ and would not take into account and adapt to the specific national circumstances in the Member States (e.g. prevailing bandwidth used by the majority of subscribers and technological feasibility), this option would mean that the USO, which in the past was a social safety net, would become an industrial policy tool. The original overall concept of USO would thus be altered under this option. The funding mechanism for the universal broadband service would allow for public as well as sector-specific funding. Also, Member States would continue having the possibility of defining additional obligations which are then however funded by government. As it would procure a 2Mbit/s access across all Member States of the EU, OPTION 3 would, more than OPTION 1, contribute to attaining SPECIFIC OBJECTIVE 3: Alleviate distortions between Member States. However, imposing a 2Mbit/s universal access would be an obstruction to possible national initiatives which would go beyond EU minimum requirements, and as such OPTION 3 would have a negative effect on SPECIFIC OBJECTIVE 2: Respect the heterogeneity of preferences among Member States. 4.4. OPTION 4: ‘REFINEMENT OF THE 2009 REGIME’

This option provides for three amendments to improve the 2009 regime. The first relates to the scope of universal service: the definition of functional internet access and its possible extension to broadband access. The second relates to the financing of the universal service: the unfair burden condition. The third relates to the way the contributions to the universal service fund are collected. It should be stressed however, that these amendments would not replace or alter the current USO concept of being a social safety net, since, as will become clear in the following paragraphs, this option would let Member States maintain the flexibility to adapt the US to the specific national circumstances (e.g. prevailing bandwidth used by the majority of subscribers and technological feasibility).


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First amendment: Introduction of an ex ante impact analysis

As detailed in Chapter 1, the 2009 reform upset the balance between harmonization and national flexibility that was set in 2002. The reform removes the ceiling on the functional Internet access, hence gives more flexibility to the Member States to define the level of access according to their national circumstances (for instance taking into account the majority of use and technological feasibility as mentioned in recital 5 of the Citizens Rights Directive 2009/136). This increased flexibility could thus include more substantial network investments compared to the investments required for the minimum set of universal services previously defined in the 2002 USD. However, the reform does not increase the harmonization in parallel, for instance on financing. Furthermore, the inclusion of broadband in the scope of US has, because of the specific characteristics of the broadband sector (cf. section 2.1.3 – e.g. multiple market players offering broadband services over different technological platforms), a number of far-reaching consequences and implies a trade-off between a number of aspects, all of which may differ according to national circumstances. E.g. in case of an incorrect timing of introduction of USO as a measure for broadband development, there is a risk of hindering the market itself attaining (part of) the objectives without intervention. As for the 2002 USO, it is important to have a correct balance between the positive impacts of preventing exclusion and the negative impact of placing a burden on the sector and thus on the end-users. This option aims at reinforcing and framing the criteria of recital 5 of the Citizen Rights Directive (majority of use and technological feasibility) by requiring that Member States do a fully-fledged impact analysis of national circumstances before expanding the scope of universal access and service on their territory. The analysis will focus on availability as the existing level of national discretion under the 2009 Regime would be maintained for Member States for ensuring affordability and accessibility. Each impact analysis should furthermore be conducted according to new Commission Guidelines and then be notified to the Commission. Those guidelines will thus cover the definition of the scope and the establishment of the financing scheme of the universal service. They would be more comprehensive that the previous guidelines of the Commission that dealt only with the financing scheme.163 The Guidelines will require that any national impact analysis identifies and specifies the social and/or economic objectives and desired outcomes and is done in the following steps:

1. Consideration of whether broadband is an essential service of significant social importance.

163 See Communication from the Commission of 27 November 1996 on the Assessment Criteria for National Schemes for the Costing and Financing of Universal Service in Telecommunications and Guidelines for Member States on Operation of such Schemes, COM(96) 608.



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2. Estimation of the degree of expected market penetration of broadband service and assessment of the nature and extent to which broadband will not be made available by the market and why.

3. Consideration of the social and economic disadvantages incurred by those without access to broadband if there is no government intervention in this expected market situation.

4. Estimation of the costs of intervention to widen broadband deployment through the use of the USO mechanism; and comparison of this cost against the use of other approaches to establish that the USO mechanism is superior.

5. Establishment that the benefits of intervention through the USO exceed the costs of doing so, taking into account the incidence of such benefits and costs (especially those on unsubsidized telecommunications/Internet/broadband Internet customers); and of effects on other communications and broader policy objectives.164

Intervention should only occur where overall benefits persuasively outweigh overall costs and where a substantial increase in the level of USO expenditure would not result. As such, there would be no room for ‘bidding up’ services by policy makers, pushing the cost of universal service to unjustified heights. One of the aspects to be analysed in the impact analysis would be the appropriateness to impose an open access obligation to the universal service provider. While it would have large benefits in terms of empowering consumers (i.e. providing choice), the specific circumstances need to be investigated in order to avoid creating e.g. disincentives for operators. Other aspects that, according to different parties (see e.g. contributions to the public consultation), could possibly be included in the scope of the impact analysis, are:

An analysis of the appropriateness to limit public intervention to the wholesale market, allowing for competition between alternative operators at the retail level, versus designation of a retail operator that should provide access at competitive retail prices;

An analysis of the appropriate level of segmentation (e.g. geographically, groups of people);

An analysis of the enforcement principles (e.g. public procurement compared to designating a USP);

An analysis of complementary measures (e.g. demand measures); An analysis of the most suite technological solutions.

As already mentioned, it should be noted that the ex ante impact analysis proposed would only be applicable for broadband services, and not for the other services that are currently included in the minimum set of services at the European level. This is

164 This test is an adaptation of the test proposed by P. Xavier (2006), Rethinking Universal service for a Next Generation Network environment, OECD Working Party on Telecommunication and Information Services Policies, p. 40.



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because the rationale for the introduction of the impact analysis step can precisely be found in the fact that the context for broadband services is very different than the one for e.g. basic telephone services, as explained above. This way, harmonization is aimed for, while a certain degree of flexibility is given in order to assess the appropriateness of the measure in light of the specific national circumstances. Thus, the inclusion of broadband in the scope of USO services at the EU level would – as in the USD, amended by the Citizens’ Rights Directive - not be accompanied with the determination of a minimum or maximum speed. On the contrary, the choice of the speed relevant for inclusion in the set of services at the national level, would be made dependent on the national circumstances that prevail from the ex ante impact analysis, which implies that OPTION 4 can in fact be considered as a ‘Framed OPTION 1’. It is clear that the flexibility given with respect to broadband speed is an important point in creating a balance between EU intervention and national freedom, in light of the extra burden placed on the Member States due to the imposition of an impact analysis. It is clear that the first amendment of OPTION 4 was inspired by the need for optimally pursuing different objectives, most notably SPECIFIC OBJECTIVE 3: Alleviate distortions between Member States, SPECIFIC OBJECTIVE 4: Ensure that there is no distortion or restriction of competition, and SPECIFIC OBJECTIVE 5: Ensure that market distortions are minimized. Finally, as the ex ante impact analysis would include an analysis of the appropriateness of the establishment of an open access regime, OPTION 4 could possibly positively contribute to SPECIFIC OBJECTIVE 6: Ensure user choice. In the public consultation, the principle of introducing an ex ante impact assessment for identifying the appropriate intervention was generally supported by the stakeholders. It was also noted that consistent approaches could further be stimulated through existing cooperation mechanisms such as COCOM, the High Level Group165 or BEREC (the Body of European Regulators for Electronic Communications).

Second amendment: Abolishment of the principle of establishing an unfair burden

As discussed in section 2, designating an operator as universal service provider for broadband services would in many cases result in further network roll-out, thereby necessitating substantial investments, of another magnitude of what was the case for the current list of USO services established at the EU level, which focused more on maintaining a status quo. These most probably very large investments166 are threatened by the obligation imposed by the EU on the NRAs of needing to prove an unfair burden, as stipulated in Article 12 USD. After all, it would mean that a universal service provider would only know after his designation as universal service provider and potentially even after making investments whether or not he 165 See Europe’s Digital Agenda: http://ec.europa.eu/information_society/digital-agenda/index_en.htm 166 As assessment of these cost for each EU Member State will be presented in Chapter 5.



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would be eligible for compensation. This would thus entail a significant level of uncertainty, which in turn could negatively impact the broadband development and the costs associated with it (e.g. because some efficient operators might seek to avoid this risk by not tendering for the role of a universal service provider). Therefore, OPTION 4 would also encompass for the broadband services an adaptation of Article 12 USD, by omitting the evaluation of the US obligation being an unfair burden on the universal service provider. This would imply that the compensation should cover the difference between the incremental costs and incremental revenues. The second amendment would, by increasing the level of certainty for the universal service provider of being reimbursed, respond to SPECIFIC OBJECTIVE 4: Ensure that there is no distortion or restriction of competition and SPECIFIC OBJECTIVE 7: Ensure legal certainty and transparency. Third amendment: System of VAT-like tax for financing The third amendment will explicitly provide that the net cost of the universal service could be recovered by a VAT type tax on electronic communications services, and that such mechanism should be encouraged. Indeed, such mechanism is simple (as it is just an addition to an existing regime), immediately operational, transparent, neutral and avoids the danger of double imposition on inputs and outputs, and is similar across all the Member States. This amendment has already been suggested by several authors.167 By putting more emphasis on financing mechanisms that are less distorting for the market, the third amendment would positively influence SPECIFIC OBJECTIVE 5: Ensure that market distortions are minimized. 4.5. OPTION 5: ‘A REFORMED AND FOCUSED USO’

OPTION 5 entails a more radical reform of the USO in order to adapt it to the electronic communications market evolutions, to put emphasis on take-up and not only penetration, and to focus on those really in need. In this option, USO focuses on affordability and accessibility168 whereas availability should be ensured by other policies. The rationale behind this option is linked to the remarks made under OPTION 3, i.e. that ensuring access of all EU citizens, regardless of their location, to broadband services of a defined speed (2Mbit/s or other), would no longer fall under the original concept of universal service as a social safety net, but would constitute an industrial policy decision. This would be the case since a substantial part of the networks would still need to be rolled out under this requirement. Under OPTION 5, it is thus assumed that US would not be the appropriate tool to implement this industrial policy, but that other policy tools 167 See Cheffert (2000, p. 248). Reynold et al. (2008) 168 Accessibility in this context is defined as the ease with which all people, including and especially those with disabilities, can have access to and can use broadband services.



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would ensure availability. Universal service would solely focus on its role as a social safety net and concern issues of affordability and accessibility. The availability of new broadband infrastructures will thus be ensured by European and national, in particular cohesion policies and actions under the Digital Agenda for Europe, and the deployment of new or upgraded infrastructures could only be financed with public funds but not with sector funding. Such policies should ensure that those infrastructures remain open to service providers such that effective competition may take place to the benefit of consumers. This option is justified by the fact that ensuring availability of new infrastructures relates more to an industrial policy objective than to a social objective. Such industrial policy will be financed by State funds only. Thus, as a social safety net, USO will focus on affordability and accessibility of good quality access (and services) on the available (new) broadband infrastructures. Thus, the USO would cover mainly two aspects. First, USO would ensure that customers in need receive support in order for them to pay the market price of the new available infrastructures. A particular attention should be paid to people living in rural areas as the market price of the new infrastructures in those areas may be higher than in urban areas. Second, USO should also ensure that people with disability can use the service. USO would thus not be charged with assuring a global level of affordability, but would be focused on specific user groups for which affordability truly constitutes an issue. It should also ensure that people with disability can use the service. The cost of the USO is the amount of the support to the people in need in urban and rural areas, and the cost of adapting the services for the disabled. Finally, assuming that open access conditions are imposed as part of the measures ensuring availability of the broadband infrastructure, OPTION 5 would be compatible with empowering consumers, i.e. by providing choice at the broadband service level. Under this option, the USO should be financed by the State budget or by the sector. The three amendments made to the current regime with respect to scope and financing (ex ante impact analysis, removal of unfair burden and introduction of VAT-like tax system) under OPTION 4, would logically not be incorporated in the proposed OPTION 5, since under this option the USO tool would not include the necessary investment for network roll-out, which was precisely the motivation for the proposed amendments. OPTION 5 would focus very specifically on obtaining some aspects of SPECIFIC OBJECTIVE 1: Ensure a minimum level of broadband service at the EU level.


4.6. SUMMARY OF THE MAIN DIFFERING CHARACTERISTICS OF THE POLICY OPTIONS REGARDING BROADBAND AND USO AT THE EU LEVEL

OPTION 1

No policy change (2009 Regime)

OPTION 2

No EU USO Regulation

OPTION 3

Mandating 2Mbps access

for all EU citizens

OPTION 4

Refinement of the 2009 Regime

OPTION 5

A reformed and focused USO

SCOPE

Scope of broadband services included in USO at EU level

No indication of minimum or maximum speed of the broadband services that can be included in USO.

No USO definition at EU level.

Broadband services at the EU level are defined as a connection with a speed of 2 Mbps.

No indication of minimum or maximum speed of the broadband services that can be included in USO.

Affordability and accessibility to the available broadband infrastructures. The speed of the broadband services whose affordability and accessibility is ensured would depend on the available infrastructure in the Member State. Given the national broadband plans, this would at least correspond to 2 Mbps and would in time further evolve to very high speed internet services, based on Next Generation Technologies.



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OPTION 1


OPTION 2


OPTION 3


for all EU citizens

OPTION 4


OPTION 5


Definition of broadband services included in USO at MS level

The broadband services included at MS level need to “take due account of specific circumstances in national markets, for instance, the prevailing bandwidth used by the majority of subscribers in that Member State, and technological feasibility, provided that these measure seek to minimize market distortion”. (Recital (5), Directive 2009/139) No further indication in the Directive is provided on how this should be done; no approval by the Commission of the MS decision is foreseen.

The MS have full flexibility of including broadband of a certain speed in the national USO or not within the limits of general EU law.

The broadband services that can be included in USO at the MS level need to have a speed of 2 Mbps. The only flexibility of a MS consists in deciding that the market is delivering sufficiently, so that no USO obligations are required. No further indication in the Directive is provided on how this should be done; no approval by the Commission of the MS decision is foreseen.

The broadband services included at MS level are defined depending on the outcome of an ex-ante impact analysis following guidelines provided by the Commission and of which the outcome should be notified to the Commission.

The broadband services included at MS will depend on the services that are made available based on the national broadband strategy and following other measures taken. Availability (and its costs) would not be supported by USO scheme.



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OPTION 1


OPTION 2


OPTION 3


for all EU citizens

OPTION 4


OPTION 5


UNIVERSAL SERVICE PROVIDER

Designation of the USP

Member States can designate one or more undertakings to provide different elements of universal service (e.g. connection and service) and/or to cover different parts of national territory. The designation should be based on an “efficient, objective, transparent and non-discriminatory designation mechanism” which ensures that “universal service is provided in a cost-efficient manner”(USD 2002/22/EC; Article 8(2)) Some indications are provided on how the cost-efficient provision of US could be assessed (e.g. Case C-220/07 France v. Commission).

Member States (national, regional as well as local authorities) can designate one or more undertakings to provide different elements of universal service (e.g. connection and service) and/or to cover different parts of national territory. The designation is based on the own preferred criteria.

Idem Option 1.

Member States can designate one or more undertakings to provide different elements of universal service (e.g. connection and service) and/or to cover different parts of national territory. The ex-ante impact analysis will include the assessment of the most cost-efficient manner of providing universal service (e.g. based on the choice of technology, definition of the parts of the territory for which distinct undertakings can be designated, etc.). The Commission may comment on this impact analysis.

Regarding the affordability of available broadband services, the support will be given directly to the customers who may then choose its provider. In this case, there is no need of a designation of a USP.



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OPTION 1


OPTION 2


OPTION 3


for all EU citizens

OPTION 4


OPTION 5


FINANCING

Determination of the net cost of USO

The net cost is calculated where the NRA considers that the provision of US may represent an unfair burden. Depending on how the USP was designated:

- calculation ex-post in case of direct designation of USP

- usage of elements provided by USP as part of the designation mechanism (e.g. auction)

The MS decide on if and how the net cost of USO is determined according the general EU law.

Idem Option 1.

Depending on how the USP was designated:

- calculation ex-post in case of direct designation of USP usage of elements provided by USP as part of the designation mechanism (e.g. auction)

Cost of the support given to end-users.

Financing mechanism

The financing mechanisms consist of funds that can be activated for compensating the net cost of USO. Activation can only take place after the assessment by the NRA of the unfair burden of USO for the US provider. No indications are provided in the Directive on what

The MS decides on the kind of funding mechanisms it wishes to install (raising of a fund, vouchers for specific groups of low-income or disabled users). The MS decide on when a financing mechanism is activated within the limits of general EU law.

Idem Option 1.

The financing mechanisms consist of funds that can be activated for compensating the net cost of USO. Activation of the financing mechanism would no longer depend on the assessment by the NRA of the unfair burden of USO for the US provider.

The financing mechanisms consist of funds that can be activated for compensating the net cost of USO.



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OPTION 1


OPTION 2


OPTION 3


for all EU citizens

OPTION 4


OPTION 5


elements need to be taken into account when assessing the unfair burden condition.

Funding sources for the net cost of USO

Net cost of USO can be compensated by means of public or sector specific funding. Any national scheme serving to share the net cost of the provision of universal service obligations shall be communicated to the Commission (Directive 2002/77; article 6)

Net cost of USO can be compensated by means of public or sector specific funding. The funding can also be raised by other means, such as a taxation of end-users (e.g. fixed amount per month added to the invoice).

Idem Option 1.

Idem Option 1, but in addition, a VAT like system is encouraged.

Idem Option 1.


5. ASSESSMENT OF THE POLICY OPTIONS

In the following sections, the ability of the policy options to attain the objectives, identified for pursuing the problems as presented in Chapter 2, will be assessed and compared in more detail. For the assessment and comparison of the policy options, a number of complementary approaches have been developed, with the aim to provide as complete a picture as possible of all relevant qualitative and quantitative impacts. In summary, the following assessments will be presented in the following sections:

Qualitative assessment of the policy options

- Preliminary assessment of the elements with national flexibility; - Overall qualitative assessment of the economic, social and environ-

mental impacts of each policy option; Quantitative assessment of the policy options

- Assessment of the cost of full coverage (availability); - Assessment of the cost of affordability; - Assessment of the administrative costs.

Overall cost-benefit assessment of each policy option. The assessments are based both on desk research, internal analysis, brainstorming and discussions with experts, as well as on the contributions to the public consultation on universal service principles in e-communications169. 5.1. QUALITATIVE ASSESSMENT

One of the elements of a detailed comparative assessment of the policy options consists of a qualitative assessment of the way in which the options answer to the different objectives determined in Chapter 3. Therefore, a set of economic, social and environmental impacts, which relate to the seven specific objectives identified above, will be defined, and subsequently reviewed per policy option. However, as the detailed assessment will show, the analysis is hampered by the fact that the different policy options, which detail the possible policies at the EU level, leave a certain level of flexibility for the Member States on different aspects of implementation. Since it cannot be anticipated which choices the different Member States will make vis-à-vis these flexibilities and since assumptions on these choices

169 See : http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm



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would be relevant for all policy options, the following paragraphs will discuss these elements, and will assess the most optimal national choices that can be made. The conclusion presented in 5.1.1.c will then be taken into account separately in the general cost-benefit assessment of each policy option. 5.1.1 PRELIMINARY ASSESSMENT OF ELEMENTS WITH MAJOR NATIONAL FLEXIBILITY

The policy options presented in Chapter 4 leave room for flexibility for the Member States at a number of levels that are common to all options. Given the possible impact that the choices regarding some elements170 can have on attaining the global objectives, the following paragraphs will provide a preliminary assessment of the mechanisms available for providing financial support to specific user groups (i.e. those in low-income groups who cannot afford broadband services) and the mechanisms and sources available for raising the funding of the USO net cost.

5.1.1.a MECHANISMS AVAILABLE FOR PROVIDING FINANCIAL SUPPORT TO SPECIFIC USER GROUPS

A number of possibilities exist for Member States that wish specific user groups (i.e. those in low-income groups who cannot afford broadband services) to benefit from financial support when purchasing universal services. Targeted financial support is in general considered to be an efficient instrument for improving affordability. Different ways to provide a discount that are common to all options are presented and compared in the table below:

Economic efficiency User choice Transparency of the mechanism

Discount on one specific tariff plan

This mechanism includes the risk that the tariff plan is not adapted to the precise needs of the social groups targeted. This could have a negative impact on the economic efficiency of increasing the affordability of broadband services.

There is no user choice since based on this mechanism, only one tariff plan is provided by one provider.

The mechanism is very transparent for the end-user: the tariff plan that is eligible for a discount is easy to identify and the amount of the discount can be read directly from the invoice.

Discount on self-selected tariff plans i.e. the universal service provider proposes a suite of tariff plans that consumers can choose depending on their consumption

Gives an incentive to consumers to reveal their preferences and limit the subsidy to the ones really in need171.

Allowing specific user groups to choose their preferred tariff plan amongst a number of possibilities enables to better align the service to the specific needs of each user.

Could reduce transparency for the users: since the user would need to make a choice and thus evaluate the offer that is the most interesting for his/her situation; sufficient information

170 Without being exhaustive on all levels that allow for flexibility for the Member States. 171 M.H. Riordan, "Universal Residential Telephone Service", in M. Cave et al (ed), Handbook of Telecommunications Economics, 424-477.



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Economic efficiency User choice Transparency of the mechanism

pattern should be easily made available in a format that facilitates comparison between offers.

Table 9: Comparison of mechanisms for giving financial support to specific user groups, common to all policy options

An alternative approach for increasing the affordability consists of direct subsidies to end-users or ‘vouchers’172. Vouchers are issued by governments and distributed directly to those low-income user groups that are in need. They can however not be part of the calculation of the US cost under the current EU framework since no burden at all is laid on the undertakings. Vouchers have a manifest advantage compared to the discounts presented in Table 9 as they ensure that there is no discrimination between providers (i.e. all providers accept vouchers for the payment of the services they provide) and that users have full flexibility to choose their preferred service provider and tariff plan. The fact that vouchers always imply state funding as they are not compatible with the EU framework for universal service, and can thus not be financed via a sector fund, might discourage Member States to use this very efficient instrument. This is however not the case for OPTION 2: No EU Regulation for USO: under this option, a Member State could decide not to apply the burden criterion for determining the net cost of USO.

Conclusion

Financial support mechanisms based on a suite of tariff plans seem preferable over an approach in which there are only discounts on one tariff plan, assuming that sufficient transparency is provided on the possible options. A very efficient instrument, both in terms of reducing market distortion and of decreasing the general burden of the cost of USO (cf. section 5.1.1.b)173, consists of ‘vouchers’. These are however not possible under the current framework and can thus only be considered under OPTION 2.

172 Voucher systems have been successfully used in the USA for a long time to support low-income users (cf. Lifeline and Link-up programs). 173 In term of administrative costs, the approach based on vouchers would require the establishment of a database identifying all consumers eligible for obtaining financial support in order to increase the affordability of broadband services. This database is however also required for other approaches based on discount plans. Moreover, a system would need to be developed for reimbursing the different providers. Since this reimbursement would be based on the value of the vouchers received by each provider, this should not imply a particularly heavy financial burden. Finally, no administrative burden would be related to the collection of the funds for compensating the cost of the vouchers.



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5.1.1.b SOURCES FOR FUNDING OF USO NET COST

Currently, two methods are foreseen for compensating the net cost of universal service. These are public funding and sector specific funding. Regarding public funding, the assumption is taken that this cannot be raised by direct taxation174 on end-users (e.g. collected via an additional tax on the end-users bill)175. As mentioned previously in paragraph 1.1.2.d, of these two methods, public funding is considered to be the least distorting and most efficient. This is mainly because the taxable basis is broader, thus the distortive effect of the taxes is accordingly smaller. Another advantage is that the government, which decides about the scope universal service, would have to bear its costs. As it is the same authority which would decide and pay, it may be expected that the decision on universal service will reflect the social preferences of the government’s Member State. A more structured framework for comparing public and sector specific funding of US, as well as the way in which these funds can be collected is presented below176:

Economic efficiency Simplicity and transparency General taxation

Probably the least distortive approach since with this approach, taxes are raised from the broadest possible tax base (hence the distortive effect of the tax is minimized). It ensures that the government, which decides about the universal service, would bear its costs, hence the decision can be expected to correctly reflect social preferences.

This mechanism is simple as it relies upon the existing tax collecting system (reducing the administrative cost of collecting the compensation), and transparent as it relies upon the standard budgetary procedures.

Part of revenues of privatization

This approach does not require distortive taxes. However, the opportunity cost of using privatization revenues to finance universal service instead of other general interest services should be calculated.

This mechanism is very simple as it does not require any collecting mechanism (apart from the selling of the privatised companies), as well as transparent. However, if the part of the revenues put in a fund is too limited, there can be uncertainty regarding the longer term funding of the net cost of USO.

Part of revenues of spectrum licensing and pricing

This approach does not require distortive taxes. However, the opportunity cost of using spectrum revenues to finance universal service instead of other general interest services should be calculated.

This mechanism is very simple as it does not require any collecting mechanism (apart from the selling of the spectrum), as well as transparent. However, if the part of the revenues put

174 The possibility of direct taxation on end-users is considered to be a public funding approach as it is assumed that taxes can only be decided upon or imposed by government and not by companies. 175 See e.g. ‘Study on the re-examination of the scope of universal service in the telecommunications sector of the European Union, WIK 2000’ (http://ec.europa.eu/archives/ISPO/infosoc/telecompolicy/en/Study-en.htm) 176 Table inspired a.o. by the OECD Report ‘Rethinking Universal Service for a Next Generation Network environment’ (prepared by Dr. Patrick Xavier) – 18 April 2006.


http://ec.europa.eu/archives/ISPO/infosoc/telecompolicy/en/Study-en.htm


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Economic efficiency Simplicity and transparency in a fund is too limited, there can be uncertainty regarding the longer term funding of the net cost of USO.

Table 10: Comparison of mechanisms and sources for raising funding of the USO net cost: public funding

Economic efficiency Simplicity and transparency

Contributions proportional to the “contributory capacity” (most often revenue)

Could lead to competitive distortions between services and providers, depending on which providers need to contribute to the net cost of USO.

The less operators having to contribute to the fund, the higher each contribution will be, and the larger the market distortion risks will be.

If the contribution of the operator is too high, there is a risk that the development of the sector is slowed down and that a vicious circle appears: more intervention weakens the market mechanism, which leads to even more intervention.

In particular, if the contribution of the new entrant is too high, there is a risk that competition is hampered.

As the government, which decides about the universal service, does not bear its costs, there is a negative externality that may lead to a scope of universal service which is too extensive and too costly compared to the social preferences

This mechanism is not transparent as the size of the contributions is in most cases not known in advance. This can be a barrier for new providers that want to enter the market.

The required contributions per provider are rolled into the costs and prices of the services in a way that is not transparent for end-users.

VAT like tax approach at the provider level

Idem supra.

Announcing the tax rate ex ante makes the contribution requirement much more transparent, reducing economic uncertainty (e.g. compared to the system of proportional contributions that are determined ex post – cf. supra).

The required contributions per provider are rolled into the costs and prices of the services in a way that is not transparent for end-users.

Table 11: Comparison of mechanisms and sources for raising funding of the USO net cost: sector specific funding Results of the public consultation

In addition to the above mainly economic elements, contributions of service operators to the public consultation also pointed out more generally that sector specific funding for the prevention of social exclusion is unfair and inappropriate since these policies will benefit the entire society and all sectors of activity. If universal service is seen mainly as a social welfare benefit then the case for central



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government funding is even stronger. After all, social policies should be the burden of the state and should not be confused with sector-specific measures for the correction of market failure. Furthermore, incumbent operators pointed out that, since only few Member States actually activate a funding mechanism, in many countries where a universal service provider was designated, the USP is bearing all costs. This means that the USP has to cross-subsidize unprofitable universal services with margins out of services which are profitable. Also by new entrants, it was pointed out that the current sector financed compensation mechanism has failed to provide a faire, non discriminatory and transparent way to fund the universal service cost and that they should be ended. One NRA explicitly pointed out the difficulty to calculate the net cost and to find a balance between the universal service provider and the rest of the sector.

Conclusion

Even when both public funding and sector specific funding are allowed, it is probably unlikely that Member States will indeed finance universal service with own public budgets177. Indeed, when making the trade-off between increasing the overall economic efficiency and not using general public funds, most Member States seem in fine to prefer the latter. Possibly, extra-ordinary revenues (such as the revenues of privatisation or spectrum licensing) could be looked at differently by Member States as these are directly coming from the electronic communications sector. This could make it easier to motivate their employment for raising a fund at the direct benefit of end-users of the same sector. Regarding public funding it is worth questioning why governments which are subsidising e.g. education, housing, etc. to specific groups without imposing the cost of this on the suppliers of these services, are not applying the same arrangements to the electronic communications sector178. After all, since providers in the electronic communications sector are operating in competitive circumstances that are more and more similar to other industries (cf. e.g. convergence with broadcasting and information technology industries); the historical justification that public monopolies initially always financed their non-profitable activities with cross-subsidisation is becoming outdated. Also, the so-called ‘network effect’ (see 2.2.4.a) that is undeniably present in the telephony sector, is less clear in the market for broadband services. By consequence, a treatment of subsidies in the electronic communications sector similar as that of other competitive sectors could be recommendable. In case the optimal approach of public funding cannot be followed, sector specific funding based on a VAT like taxation of the providers is preferable above a proportional contribution approach. Any policy option stimulating the (harmonised) application of a VAT like taxation of providers should thus be favoured. 177 See also Cheffert 2000: Universal Service: some observations relating to future European debates. 178 See also OECD Report ‘Rethinking Universal Service for a Next Generation Network environment’ (prepared by Dr. Patrick Xavier) – 18 April 2006.


5.1.1.c CONCLUSION

Even if it cannot be predicted what choices for the implementation will be made by each Member State under the different policy options, it still remains useful to assess what options allow for or stimulate Member States for choosing the most optimal choices possible. Based on this assessment, a ranking of the policy options has been made in the table below, indicating mainly which option stands out for the two mechanisms discussed:

OPTION 1 No policy

change (2009

regime)

OPTION 2 No EU USO

Regulation

OPTION 3 Mandating

2Mbps access

for all EU citizens

OPTION 4 Refinement

of the 2009 Regime

OPTION 5 A reformed and focused

USO

Mechanisms available for providing financial support to specific user groups

2 1 2 2 2

Mechanisms and sources for raising the funding of the USO net cost

2 2 2 1 2

Table 12 Ranking of the policy options reflecting the possibility of making the most optimal choices for some flexibilities left to the MS

5.1.2 OVERALL QUALITATIVE ASSESSMENT OF THE ECONOMIC, SOCIAL AND ENVIRONMENTAL IMPACTS OF EACH POLICY OPTION

The following paragraphs present the qualitative assessment of the impact of each of the five policy options. Next to a more general description of the expected consequences of the implementation of each option, a detailed analysis is made of the type, magnitude and likelihood of impacts corresponding to each policy option. The table in which all impacts of all options are compared is presented at the end of this section.

5.1.2.a IDENTIFICATION OF THE RELEVANT IMPACTS

The impact of each policy option will be assessed in relation to each of the six specific objectives. These specific objectives have been derived from the general objectives. These in turn are drawn from the Framework Directive for electronic communications which is generally considered to be greatly contributing to the overall development of the EU economy; creating high levels of employment and social progress (cf. EU 2020 Strategy/DAE). More precisely regarding the broadband sector, the specific objectives point out – given the problem definition – the precise requirements in terms of “conditions to be met” in order to ensure that the general objectives are met. Since the specific objectives are directly linked to the general objectives from which they are derived, the assessment of the impacts at the specific objective level will provide for the most detailed possible approach. Moreover, given the relation between the specific and general objectives, it is redundant to assess impacts of policy options in relation to the general objectives.


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This can be illustrated by the following example: the assessment of the extent to which a policy option (directly) contributes to the SPECIFIC OBJECTIVE 6 of social inclusion also indicates how it will (indirectly) contribute to the promotion of the interests of the citizens in the European Union (cf. Framework Directive) and thus to social progress (cf. EU 2020 Strategy/DAE). Or also: the assessment of how a policy options help to ensure that there is no distortion or restriction of competition (SPECIFIC OBJECTIVE 2) indirectly indicates the extent to which competition in the provision of electronic communication networks and services is promoted (cf. Framework Directive) which positively impacts the development of the broadband sector, enhancing e.g. the overall development of EU economy and creating high levels of employment (cf. EU 2020 Strategy/DAE). By consequence, the impact assessment presented below will thus not assess the (indirect) impacts of the availability of broadband, but will however assess how the policy options contribute (directly) to making broadband available. Since the indirect impacts on the general objectives are for each policy option equally related to the direct impacts on the specific objectives, comparison between options at the indirect impact level does not add value in the context of this impact assessment study. The way the list of impacts is to relate to the specific and general objectives is further illustrated in Figure 2 :

GENERAL OBJECTIVES

The general objectives contribute to the overall Lisbon Strategy and upcoming EU2020 Strategy and relate to the overall development of the EU economy, creating high levels of employment and social progress. The subsidiarity and proportionality principle in the Lisbon Treaty furthermore imply that instruments for advancing broadband development should be chosen in order to:

- Achieve an optimal balance between harmonisation and flexibility;

- Ensure the efficiency and cost-effectiveness of public intervention.

SPECIFIC OBJECTIVES

Objective 1: Ensure a minimum level of broadband service at the EU level; Objective 2: Respect the heterogeneity of preferences among Member States; Objective 3: Alleviate distortions between Member States; Objective 4: Ensure that there is no distortion or restriction of competition; Objective 5: Ensure that market distortions are minimized; Objective 6: Ensure user choice; Objective 7: Ensure legal certainty and transparency.

IMPACTS

Per specific objective:

Identification of economic, social and environmental impacts. Per impact:

Assessment provides indications of the extent to which the policy options specific objectives, and thus indirectly the general objectives are attained.

IMPACTS

Figure 2: Illustration of how the impacts directly relate to the specific and indirectly relate

to the general objectives


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100

List of impacts

The following main qualitative impacts per specific objective have been identified:

Specific objectives Impacts

OBJECTIVE 1: Ensure a minimum level of broadband service at the EU level

ECONOMIC IMPACTS

Increased EU competitiveness; Increased development of a European single (online) market; SOCIAL IMPACTS

Social inclusion Increased affordability of a minimum level of broadband services for all social groups; Increased accessibility of a minimum level of broadband services for disabled users.

Territorial cohesion Increased availability of a minimum level of broadband services of a sufficient speed and quality across the EU territory (and especially in the underserved areas).

ENVIRONMENTAL IMPACTS

Reduced CO2 emissions because of less travel179 Diminution of exodus from rural areas because of higher attractiveness of these areas.


ECONOMIC IMPACTS

Increased flexibility for Member States to define additional universal service levels. Better reflection of national preferences in the decision on who will bear the cost of services of general interest.

SOCIAL IMPACTS

Better matching of national preferences regarding the level of social inclusion and territorial cohesion.


ECONOMIC IMPACTS

Better level playing field for electronic communications operators across the EU; Increased development of a European single (online) market.

OBJECTIVE 4: Ensure that there is no distortion or restriction of competition

ECONOMIC IMPACTS

Increased probability that all efficient providers will be considered during the designation process;

179 Please note that the availability of broadband is only one explaining factor in the take-up of telework. These factors include e.g. organisational considerations.



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Specific objectives Impacts Reduced uncertainty regarding the compensation of investment in non-profitable areas; Reduced uncertainty regarding the compensation of the costs related to ensuring affordability and accessibility.

OBJECTIVE 5: Ensure that market distortions are minimized

ECONOMIC IMPACTS

Decreased overall effect of the burden of financial compensation; Increased probability that the most efficient USP will be designated taking into account the national or local circumstances; Increased promotion of market driven investments Reduced disincentives for market driven investments.


ECONOMIC IMPACTS

Increased user choice between service providers, independent of location and of social group; Increased user choice for separation between the provider of the connection (infrastructure) and the provider of services; Increased user choice between services in terms of single versus bundled services.


ECONOMIC IMPACTS

Reduced uncertainty regarding the possibility of and amount of compensation for investment in non-profitable areas; Increased transparency of mechanisms for designation; Increased transparency of mechanisms for compensation; Increased transparency of minimum level of services that will be made available to all social groups; Reduced barriers for obtaining discounts, tax breaks and other (financial) support.

The determination of the expected impacts per policy option, as presented in the impact matrix at the end of this section, is executed through a data analysis exercise which consisted of desk research, discussions with experts as well as internal brainstorming. These impacts were furthermore cross-checked with the contributions to the public consultation of the Commission180 and elements related to the assessment by the different stakeholders were added. It should be noted that the ‘BASELINE SCENARIO’ against which the impacts of all options will be assessed, consists of a situation in which the current state of affairs is maintained, thus corresponding to “OPTION 1: No policy change”. This is done to improve the comprehensibility of the impact assessment. Also, as the objective of the

180 See : http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm


impact assessment is to make a comparison between options and not within one option, the scores should also mainly be compared between options. After all, even if the scores given to the different impacts identified provide a general indication of what impact could be more important than another, it remains very difficult to compare between impacts as the nature of the impacts as well as the stakeholders concerned can be very different and thus by definition not comparable. The assessment of all of the impacts under each of the options will be done by analysing the magnitude of the expected impact, as well as the likelihood that the impact will actually occur as a result of the proposed policy option. The notation used to express the magnitude (compared to the baseline scenario) is the following: - - - very negative impact - - negative impact - slightly negative impact 0 no impact + slightly positive impact + + positive impact + + + very positive impact The likelihood will be expressed as follows: 0 no likelihood 1 low likelihood 2 medium likelihood 3 high likelihood These scores give an additional weight to the score expressing the magnitude of the impact. As such and in contrast to the score for the magnitude, the value given for the likelihood is an absolute score, i.e. not relative to the score of the baseline scenario.

5.1.2.b QUALITATIVE ASSESSMENT OF OPTION 1: NO POLICY CHANGE (2009 REGIME)

The removal of the limitation in the USD of functional Internet access to 56 kbps provides the Member States since 2009 the flexibility to upgrade the provision of USO to broadband services. The provisions regarding the selection and designation as well as for the financing of the cost of USO however remained unchanged. In parallel, a number of other instruments also are available for advancing broadband development (see 2.2.5). When assessing the baseline scenario of ‘POLICY OPTION 1: NO POLICY CHANGE’, it can first of all be concluded that this option leaves some flexibility to the Member States, at the detriment of harmonization at the EU level (cf. GENERAL OBJECTIVE 1: Achieve an optimal balance between harmonization and flexibility). Indeed, it is left


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to the discretion of Member States to include broadband of a specific speed in USO or not (and thus introducing financing based on sector specific funding or not), taking due account of specific circumstances in national markets (for instance the prevailing bandwidth used by the majority of subscribers in that Member State), and technological feasibility, or to use other instruments to stimulate broadband development or not. Even though each Member State is requested to set up a National Broadband Plan under the Digital Agenda for Europe, no minimal requirements are imposed by the EU. In the public consultation, some stakeholders considered the national flexibility concerning the definition of functional internet access, as well as the possibility of determining broadband strategies at the national level, as an important strength of the current system. Since no minimal requirements are imposed, the ‘NO POLICY CHANGE’ OPTION, does however not ensure a minimum broadband speed at the EU level (cf. SPECIFIC OBJECTIVE 1). This in turn may prevent increasing overall EU competitiveness and the development of a European single (online) market, as well as stimulation of EU wide social inclusion and territorial cohesion. The efficiency and cost-effectiveness of the public intervention (cf. GENERAL OBJECTIVE 2) is also not certain and will vary significantly between Member States depending on the choices made by each individual country. Differences in the efficiency of the public intervention between Member States could become significant if they opt for strongly diverging implementations of the universal service tool. The degree to which competition is distorted by this intervention could also vary between Member States, but within limits of what is allowed based on the general EU law principles and the principle of minimization of market distortion provided in the Universal Service Directive (e.g. for choosing the most efficient universal service provider181). Finally, the flexibility for Member States may lead to legal uncertainty and lack of transparency for both service providers and end users. Especially consultation contributions from the professional users expressed concern that the current uncertainty could negatively impact investment in broadband networks. The detailed assessment of ‘POLICY OPTION 1: NO POLICY CHANGE’, based on the list of impacts per specific objective as identified in section 5.1.2.a is presented in Annex 2.

5.1.2.c QUALITATIVE ASSESSMENT OF OPTION 2: NO EU REGULATION RELATED TO USO

The removal of all EU Regulation related to USO would increase the flexibility of the Member States. Under Option 2, it would be more difficult to achieve an optimal balance between harmonization and flexibility (cf. GENERAL OBJECTIVE 1). Referring to the detailed qualitative impact assessment in Annex 2, it would become more difficult to ensure a minimum level of broadband services across the EU (cf. SPECIFIC OBJECTIVE 1) and to alleviate distortions between MS (cf. SPECIFIC OBJECTIVE 3). 181 To guarantee the principles of non-discrimination and the minimising of market distortions, national law may not require that the provider of the universal service should be able to cover the entire national territory: Case C-220/07 Commission v France [2008] ECR I-95, para.34


On the contrary, OPTION 2 would fully respect the heterogeneity of preferences among Member States (cf. SPECIFIC OBJECTIVE 2), since they would obtain flexibility to determine the scope and the means of provision of the USO (within the limits of course of EU law, in particular the internal market law and competition law). The extent to which efficiency and cost-effectiveness of public intervention would be ensured (cf. GENERAL OBJECTIVE 2) depends fully on the choices made by the individual Member States. As Member States would have flexibility for designating universal service providers and for assessing the need for compensation of the net cost of USO, fewer guarantees can be given that the public intervention does not distort or restrict competition (cf. Specific objective 4). Also, it is to be expected that, under OPTION 2, Member States would make use of their increased flexibility to transfer part or all of the costs for advancing broadband development to the electronic communications sector, with as a consequence a more important probability of negative impacts on SPECIFIC OBJECTIVE 5: Ensure that market distortions are minimized. As the Member States would also be defining the exact services to be provided under USO, it is less certain that sufficient user choice would be ensured between service providers, between the providers of the connection and the provider of services and between services in terms of single versus bundled services (cf. SPECIFIC OBJECTIVE 6). Finally, regarding SPECIFIC OBJECTIVE 7, the removal of all EU Regulation would have a negative impact on ensuring legal certainty and transparency for both service providers and end-users.

5.1.2.d QUALITATIVE ASSESSMENT OF OPTION 3: MANDATING 2 MBPS ACCESS FOR ALL EU CITIZENS

The main difference between OPTION 3 and the baseline scenario consists of the definition of the universal service level for broadband at the EU level. Under Option 3, access to the Internet at a speed of 2 Mbps would be mandated at the EU level, independently of the penetration and take-up of broadband in each individual Member State. As explained in section 4.3, this option could be considered as an industrial policy tool. The other provisions in the USD (e.g. related to designation and funding) would however not change. Compared to the baseline scenario, OPTION 3 would thus have a very different impact on ‘Achieving an optimal balance between harmonization and flexibility‘(GENERAL OBJECTIVE 1). First of all, regarding the SPECIFIC OBJECTIVE 1, a positive impact is to be expected on the EU competitiveness and the development of the European single (online) market. These impacts could however remain limited as currently much higher speeds are already being deployed to stimulate EU competitiveness and develop the European single (online) market. OPTION 3 would furthermore stimulate territorial cohesion as the obligation to provide 2 Mbps would also apply to e.g. rural areas. Finally, some positive environmental impacts could be obtained indirectly since the availability of overall 2 Mbps broadband would allow for more teleworking (reducing travelling) or increase the attractiveness of rural areas and reduce the exodus from rural areas.


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An important disadvantage of OPTION 3 is that is does not respect fully the heterogeneity of preferences among Member States (cf. SPECIFIC OBJECTIVES 2). For the definition of USOs, this implies that some Member States will have to bear a very high burden for providing the 2 Mbps whereas other countries might be refrained from going beyond the minimum EU requirement (since these additional service levels cannot be financed by the sector). In the public consultation, some operators pointed out that a commonly defined and mandatory universal regime to include broadband services could not only result in making void the scope of existing instruments, but could also result in a non efficient allocation of resources to the detriment of citizens’ welfare. Imposing a uniform obligation would of course – at least after a first transition period - reduce to a certain extent distortions between Member States (cf. SPECIFIC OBJECTIVE 3), create a better level playing field for electronic communications operators across the EU and stimulate the development of a European single (online) market. Regarding GENERAL OBJECTIVE 2: Ensure the efficiency and cost-effectiveness of public intervention; the impact of OPTION 3 would not be much different than for the baseline scenario. Indeed, since the USD provisions would be the same – with the exception of the definition of the universal broadband service – the possible impact of the choices made by the Member States and the likelihood that a specific choice would be made, remain unchanged under OPTION 3. Nevertheless, since 2Mbps would be mandated as part of USO in all Member States, a positive impact is to be expected on the user choice between services in terms of single versus bundled services. Also, since all Member States would have the same minimum level of service, OPTION 3 would have a positive impact on the transparency of the services that would be made available to all user groups.

5.1.2.e QUALITATIVE ASSESSMENT OF OPTION 4: REFINEMENT OF THE 2009 REGIME

OPTION 4 consists of a refinement of the 2009 Regime (i.e. the baseline scenario) and aims at adapting the current USO provisions to the specific characteristics of the broadband sector (cf. section 2.1.3). In paragraph 4.4, the three amendments consisting of the introduction of an ex ante impact analysis regarding the scope and financing of broadband services in USO, the abolishment of the principle of establishing that the burden is unfair and the encouragement of a system of a VAT like tax for raising the USO fund were presented in detail. Each of the three amendments were inspired by specific issues raised during the problem definition and would thus only apply to the broadband services. The combination of these amendments in the ‘Refinement of the 2009 Regime’ has now been assessed against the general and specific objectives that were identified in Chapter 3 for assessing the appropriateness of USO for advancing broadband developed in Europe. The individual scores for all of the impacts per specific objective are presented in Annex 2. First of all, regarding the GENERAL OBJECTIVE 1: ‘Achieve an optimal balance between harmonisation and flexibility’, it can be concluded that OPTION 4 stimulates a higher


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degree of harmonisation while leaving flexibility to MS to adapt US obligations to national circumstances. The elements made available through the ex ante analysis would first of all have a positive impact on ensuring a minimum level of broadband service at the EU level (i.e. SPECIFIC OBJECTIVE 1). Indeed, knowing the precise market failures as well as the reasons behind it is an important condition for taking the appropriate measures for effectively increasing broadband penetration. Moreover, providing EU Guidelines for the analysis per Member State and imposing the notification of the outcome to the European Commission would stimulate harmonised efforts across the EU. This positive impact compared to the baseline scenario is however limited to ensuring the availability of broadband services since the level of discretion for ensuring the affordability and accessibility of broadband services would not be changed in the refined 2009 Regime. The introduction of the ex ante analysis does however reduce the flexibility at national level as the final provisions for USO envisaged by each Member State will need to be motivated. SPECIFIC OBJECTIVE 2: ‘Respect the heterogeneity of preferences among Member States’ therefore has a slightly more negative impact than for the baseline scenario. This score mainly reflects that Member States will be requested to better reflect why a specific approach is indeed better provided specific national circumstances, or to demonstrate that a given (political) preference is indeed responding to real market failures. The notification of the ex ante analysis to the European Commission furthermore enables, at least to certain extent and mainly by creating a better level playing field for electronic communications operators across the EU, to alleviate distortions between MS (cf. SPECIFIC OBJECTIVE 3). The most important advantages of OPTION 4 lie however in the way it helps achieving GENERAL OBJECTIVE 2: ‘Ensure the efficiency and cost-effectiveness of public intervention’. Referring to the different steps in the ex ante impact analysis (cf. paragraph 4.4), OPTION 4 would first of all better ensure that there is no distortion or restriction of competition caused by the introduction of universal service obligations for broadband (cf. SPECIFIC OBJECTIVE 4). This element is of particular importance since the broadband sector is typically a multi-player sector with competition both at the infrastructure and service level (cf. section 2.1.1.b). Any measure for stimulating the market development in uneconomic areas should thus try to minimise as much as possible its impact on the ongoing market developments. In the case of USO, this can be done by ensuring that all efficient providers can participate to the designation process and by reducing uncertainty related to the compensation for investments in non-profitable areas. For obtaining this latter, OPTION 4 foresees omitting the evaluation of the USO burden being unfair for the universal service provider. Investments made in uneconomic areas would thus automatically give right to compensation. Any public intervention will in one way or another lead to market distortions. The refinement of the 2009 Regime however aims at further minimising this effect at different levels (cf. SPECIFIC OBJECTIVE 5). The detailed ex ante (market) analysis will


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allow for the identification of the most efficient universal service provider, i.e. leading to the least cost for the defined minimum level of service given the national circumstances. At the level of fund raising, the encouragement of a VAT like tax system for raising the USO fund, which is proven to be the second least distortive (i.e. after general taxation), would provide for a best possible option if general taxation is politically not acceptable. Finally, since the analysis would also be forward looking, the risk of taking a decision that discourages market driven investments is also reduced. In terms of user chose (cf. SPECIFIC OBJECTIVE 6), the refinement of the 2009 Regime would foresee the same separation between the provider of the connection and the provider of the service as well as the same right to have a choice between services in terms of single versus bundled services. Under option 4, the analysis of the appropriateness of imposing an open access network obligation to universal service providers would also be encouraged, so that choice between service providers can better be ensured for all users. A last important advantage of OPTION 4 compared to the baseline scenario relates to the extent to which legal certainty and transparency is provided regarding the public intervention (i.e. SPECIFIC OBJECTIVE 7). Indeed, the fully-fledged analysis would be made before making any intervention to the market and would define all essential elements of this intervention. This approach allows providers to obtain in advance a global view of what is going to be done in what way and why, allowing them to define their position, prepare for participation to designation mechanisms or manifest possible points of disagreement. 5.1.2.f QUALITATIVE ASSESSMENT OF OPTION 5: A REFORMED AND FOCUSED USO

The last option consists of a reform of the current USO regime in order to put emphasis on take-up by focusing on those really in need. The main difference with the 2009 Regime consists of the fact that ensuring availability would not be part of the universal service obligations. USO would thus mainly focus on affordability and accessibility, but without however imposing minimum requirements at the EU level. In terms of achieving an optimal balance between harmonisation and flexibility (cf. GENERAL OBJECTIVE 1), OPTION 5 has a slightly more positive impact than the baseline scenario. This is the result of the combined effect of an assumed higher fulfilment of SPECIFIC OBJECTIVE 1: Ensure a minimum level of broadband service at the EU level and a slightly more negative impact on alleviating distortions between Member States (cf. SPECIFIC OBJECTIVE 3). Regarding the first objective, it can be assumed that the USO instrument, defined as a focused social safety net for those with problems related to affordability and accessibility would more efficiently increase the take-up of available broadband services, while the availability of broadband service would still be ensured at a comparable level as under the baseline scenario. The efficiency and cost-effectiveness of the public intervention under OPTION 5 (cf. GENERAL OBJECTIVE 2) is assumed to be much higher than for the baseline scenario,


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but lower than compared to the refinement of the 2009 Regime (cf. OPTION 4). The increase in efficiency is first of all caused by better ensuring that there is no distortion or restriction of competition (cf. SPECIFIC OBJECTIVE 4). Indeed, instruments used for ensuring availability could only be state financed and thus need to respect the well-known and transparent State Aid rules. This positive effect is however to a certain extent neutralised by the fact that having a lower net cost for USO compared to the baseline scenario (i.e. only relating to the cost of ensuring affordability and accessibility) would make it less certain that this cost would be assessed as being an unfair burden by the NRAs, and thus reducing the certainty of receiving compensation of this cost. Also, OPTION 5 would better ensure that market distortions, following the public intervention, are minimised (cf. SPECIFIC OBJECTIVE 5). First of all, any instrument for increasing availability would be financed by general taxation, i.e. optimally decreasing the overall effect of the burden of financial compensation. Secondly, compliance with the State Aid rules also implies that the approved subsidies will not provide disincentives for market driven investment. OPTION 5 is also expected to have a very positive impact on ensuring user choice (cf. SPECIFIC OBJECTIVE 6) compared to the baseline scenario. This is mainly due to the fact that State Aid rules may require open access obligations to the providers obtaining subsidies based on public funding. Furthermore, when defining the minimum level of service for which affordability and accessibility will be ensured, it is to be expected that full consideration will be given to differentiating the provision of the infrastructure from the provision of services and differentiating between services in terms of single versus bundled services. Finally, implementing OPTION 5 would imply an important simplification in terms of designating universal service providers and of determining the net cost of USO, as all providers would be required to provide discounts and the net cost would be equal to the total cost of discounts. By consequence, legal certainty and transparency would be positively impacted (i.e. SPECIFIC OBJECTIVE 7). In addition, since the user in need would be the focal point of the universal service provisions under OPTION 5, it is also assumed that MS using USOs for increasing the take-up of broadband services would take measures for increasing the transparency of the minimum level of services that will be available to all social groups as well as for reducing barriers for obtaining support.


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5.1.2.g COMPARISON OF THE OPTIONS

Finally, the options can be compared based on the assessment of the economic, social and environmental impacts per specific objective, as presented in the following impact matrix. To facilitate comparison, per specific objective a total score is calculated. However, since the number of impacts identified per objective differs, these totals cannot simply be compared between different specific objectives. Taking the hypothesis that all seven specific objectives would be equally important, a rescaling of the total score per specific objective was also made in the following table (on a scale of 0 to 10).

OPTION 1 No policy

change (2009

regime)

OPTION 2 No EU USO

Regulation

OPTION 3 Mandating

2Mbps access

for all EU citizens

OPTION 4 Refinement

of the 2009 Regime


USO

IMPACTS

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ACHIEVE AN OPTIMAL BALANCE BETWEEN HARMONISATION AND FLEXIBILITY

OBJECTIVE 1: ENSURE A MINIMUM LEVEL OF BROADBAND SERVICE AT THE EU LEVEL ECONOMIC IMPACTS Increased EU competitiveness 0 2 0 - 1 - 1 ++ 2 +4 + 2 +2 - 1 - 1 Increased development of a European single (online) market 0 2 0 - - 1 -2 ++ 2 +4 + 1 +1 - - 1 -2

SOCIAL IMPACTS Increased affordability of a minimum level of broadband services for all social groups

0 2 0 - - 2 - 4 0 2 0 0 2 0 ++ 2 +4

Increased accessibility of a minimum level of broadband services for disabled users

0 2 0 - - 2 - 4 0 2 0 0 2 0 ++ 2 +4

Increased availability of a minimum level of broadband services of a sufficient speed and quality across the EU territory (and especially in the underserved areas)

0 2 0 - 1 - 1 +++ 3 +9 ++ 2 +4 0 2 0

ENVIRONMENTAL IMPACTS Reduced CO2 emissions because of less travel 0 1 0 0 1 0 ++ 2 +4 + 1 +1 0 1 0

Diminution of exodus from rural areas because of higher attractiveness of rural areas

0 1 0 0 1 0 ++ 2 +4 + 1 +1 0 1 0

TOTAL OBJECTIVE 1 0 -13 + 25 + 9 +5 TOTAL OBJECTIVE 1 RESCALED 0 -2,06 + 3,97 + 1,43 +0,79


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OPTION 1 No policy

change (2009

regime)

OPTION 2 No EU USO

Regulation

OPTION 3 Mandating

2Mbps access

for all EU citizens

OPTION 4 Refinement

of the 2009 Regime


USO

IMPACTS

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OBJECTIVE 2: RESPECT THE HETEROGENEITY OF PREFERENCES AMONG MEMBER STATES ECONOMIC IMPACTS Increased flexibility for Member States to define additional universal service levels

0 3 0 +++ 3 +9 - -

- 3 -9 - 3 -3 0 3 0

Better reflection of national preferences in the decision on who will bear the cost of services of general interest

0 3 0 +++ 3 +9 - - 3 -6 - 3 -3 0 3 0

SOCIAL IMPACTS Better matching of national preferences regarding the level of social inclusion and territorial cohesion

0 3 0 +++ 3 +9 - -

- 3 -9 0 2 0 0 3 0

TOTAL OBJECTIVE 2 0 + 27 - 27 - 6 0 TOTAL OBJECTIVE 2 RESCALED 0 + 10 - 10 - 2,22 0

OBJECTIVE 3: ALLEVIATE DISTORTIONS BETWEEN MEMBER STATES ECONOMIC IMPACTS Better level playing field for electronic communications operators across the EU

0 1 0 - 2 - 2 ++ 2 +4 + 1 +1 0 1 0

Increased development of a European single (online) market 0 2 0 - - 1 - 2 ++ 2 +4 + 1 +1 - 2 -2

TOTAL OBJECTIVE 3 0 - 4 +8 + 2 - 2 TOTAL OBJECTIVE 3 RESCALED 0 - 2,22 + 4,44 + 1,11 - 1,11

ENSURE THE EFFICIENCY AND COST-EFFECTIVENESS OF PUBLIC INTERVENTION

OBJECTIVE 4: ENSURE THAT THERE IS NO DISTORTION OR RESTRICTION OF COMPETITION ECONOMIC IMPACTS Increased probability that all efficient providers will be considered during the designation process

0 2 0 - - - 1 - 3 0 2 0 ++

+ 3 +9 0 0 0

Reduced uncertainty regarding the compensation of investment in non-profitable areas

0 1 0 - - 2 - 4 0 1 0 +++ 3 +9 +

+ 3 +6

Reduced uncertainty regarding the compensation of costs related to ensuring affordability and accessibility.

0 1 0 - - 2 - 4 0 1 0 0 1 0 - 2 -2

TOTAL OBJECTIVE 4 0 - 11 0 + 18 + 4 TOTAL OBJECTIVE 4 RESCALED 0 - 4,07 0 + 6,67 + 1,48

OBJECTIVE 5: ENSURE THAT MARKET DISTORTIONS ARE MINIMIZED ECONOMIC IMPACTS Decreased overall effect of the burden of financial 0 2 0 - - 2 - 4 0 2 0 + 2 +2 ++ 2 +4


OPTION 1 No policy

change (2009

regime)

OPTION 2 No EU USO

Regulation

OPTION 3 Mandating

2Mbps access

for all EU citizens

OPTION 4 Refinement

of the 2009 Regime


USO

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compensation

Increased probability that the most efficient USP will be designated taking into account the national or local circumstances

0 2 0 - - 2 - 4 0 2 0 +++ 2 +6 0 0 0

Increased promotion of market driven investments 0 3 0 1 0 0 3 0 ++

+ 2 + 3 0 +6 +3

0 - 8 0 + 14 + 7 TOTAL OBJECTIVE 5 TOTAL OBJECTIVE 5 RESCALED 0 - 2,96 0 + 5,19 + 2,59

OBJECTIVE 6: ENSURE USER CHOICE ECONOMIC IMPACTS Increased user choice between service providers, independent of location and of social group;

0 1 0 0 1 0 0 1 0 + + 2 +4 ++

+ 3 +9

Increased user choice for separation between the provider of the connection (infrastructure) and the provider of services

0 3 0 - 2 - 2 0 3 0 + 2 +2 + 2 +2

Increased user choice between services in terms of single versus bundled services

0 1 + 1 + 1 0 1 1 0 1 0 ++ 1 +2

TOTAL OBJECTIVE 6 0 - 1 + 1 + 6 + 13 TOTAL OBJECTIVE 6 RESCALED 0 - 0,37 + 0,37 + 2,22 + 4,81

OBJECTIVE 7: ENSURE LEGAL CERTAINTY AND TRANSPARENCY ECONOMIC IMPACTS Reduced uncertainty regarding the possibility of and amount of compensation for investment in non-profitable areas

0 1 0 - 2 - 2 0 1 0 +++ 1 +3 0 0 0

Increased transparency of mechanisms for designation 0 2 0 - - 2 - 4 0 2 0 ++ 2 +4 ++

+ 2 +6

Increased transparency of mechanisms for compensation 2 0 - - 2 - 4 0 2 0 ++ 2 +4 ++

+ 0 3 +9

Increased transparency of minimum level of services that will be made available to all social groups

0 1 0 0 1 0 ++ 1 +2 0 1 0 + 2 +2

Reduced barriers for obtaining discounts, tax breaks and other (financial) support

0 1 0 0 1 0 0 1 0 + 2 +2 + 2 +2

TOTAL OBJECTIVE 7 0 - 10 + 2 + 13 + 19 TOTAL OBJECTIVE 7 RESCALED 0 - 2,22 + 0,44 + 2,89 + 4,22


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When globally comparing the results across options, it becomes apparent that Options 4 and 5 appear to have the most positive impact, and this positive result can be found across all specific objectives in a rather balanced way. The only exceptions are that OPTION 4 would leave less room for respecting the heterogeneity of preferences of Member States (SPECIFIC OBJECTIVE 2), while OPTION 5 would poorly alleviate distortions between Member States (SPECIFIC OBJECTIVE 3). While OPTION 3 would have problems in respecting the heterogeneity of preferences of Member States (SPECIFIC OBJECTIVE 2), but would positively contribute to ensuring a minimum level of broadband service at the EU level (SPECIFIC OBJECTIVE 1), the exact opposite would be true for OPTION 2. OPTION 2 would moreover negatively impact all other objectives. To calculate a total score per option based on the assessment of the different impacts, it would also not be correct to simply sum up the basic total results of the options per objective, since the number of impacts identified per objective, and thus the maximal score per objective, differs per objective. A suchlike approach would thus give more relative weight to objectives for which more impacts were defined, whereas the number of impacts is in no way correlated with the relative importance of the objective. Therefore, the rescaled scores per objective (which take as a hypothesis that each objective would equally contribute to the total result) are taken into account. The results (on a scale of 0 to 10) are presented in the following table, which in the last row also presents an overall ranking of the different options (from 1 to 5), based on the rescaled results:

QUALITATIVE ASSESSMENT

OPTION 1 No policy

change (2009

Regime)

OPTION 2 No EU USO

Regulation

OPTION 3 Mandating

2Mbps access

for all EU citizens

OPTION 4 Refinement

of the 2009 Regime


USO

Overall score on the qualitative assessment of impacts (on a scale of 0 to 10)

5.00 4.72 4.94 6.23 5.91

Comparative ranking of options 3 5 4 1 2

Conclusions run rather parallel with the global comparison across objectives discussed above: OPTIONS 4 and 5 appear to most positively contribute to attaining the objectives, while OPTIONS 3 and, even more so, 2, appear the least promising, and are ranked even below the baseline scenario of ‘no policy change’. 5.2. QUANTITATIVE ASSESSMENT

For the quantitative assessment of the policy options, a distinction is made between the cost of providing full coverage or ensuring availability, the cost of affordability and the cost of managing the universal service system182”. Estimates for these costs are presented in detail in the following sections.

182 This cost component both refers to the cost of being compliant e.g. with the US Directive (i.e. ‘compliance costs’) as well as the administrative costs related to collecting and providing information in order to demonstrate that the regulations have indeed been respected.



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Costs related to ensuring accessibility are not considered as initiatives taken can very strongly across Member States and the cost per project is very difficult to estimate. Referring to section 2.2.3, it can be concluded that the costs related to advancing broadband development can have an important impact on the EU Budget. By consequence and referring to section 9.1 of the 2009 Impact Assessment Guidelines, it could be useful considering the EU budgetary cost-effectiveness of each policy option. However, since the EU funding of instruments for stimulating broadband development would not differ significantly under the different options, no comparison has been developed. After all, even if broadband services would be added to the scope of universal services in some or all Member States, public funding would remain possible and could continue to be partly financed by EU funding. 5.2.1 ASSESSMENT OF THE COST OF ENSURING FULL COVERAGE (AVAILABILITY)

For the assessment of the cost of ensuring full coverage, a detailed cost model has been developed (cf. description in Annex 3). The calculations in this model are considered to be ‘generic’ in the sense that they can relate to any possible policy option defining the precise instruments that will be chosen to obtain a full coverage. Indeed, referring to the Digital Agenda for Europe, which aims to reach 100% coverage of high speed Internet by 2013, it can be assumed that the cost of full coverage will be incurred in any case. Depending on the instrument chosen for stimulating the investments, the financing of these investments could however differ significantly. More precisely for the purpose of our study, it can be assumed that the higher the level of broadband services included in the US obligations, the higher the part of the funding by the sector will be. The paragraphs below first present the results of the cost model estimating the cost of ensuring full broadband coverage in the EU. Secondly, this cost is assessed against total sector turnover and gross operating surplus183. Finally, the estimated distribution of this cost under each of the five policy options defined in Chapter 4 will be discussed.

5.2.1.a COST OF ENSURING FULL COVERAGE IN THE EU 27

A bottom-up cost model has been developed for estimating the net cost of providing full coverage of broadband services for every citizen in the EU 27. This net cost can very briefly be described as the difference between the incremental cost related to the required investments in upgrade as well as additional roll-out of network and the incremental revenues obtained in areas previously not covered:

183 Cf. Code 12 170 of Commission Regulation (EC) N° 2007/98 of 17 December 1998 concerning the definitions of characteristics for structural business statistics.



114

Figure 3: Illustration of how the cost of ensuring full coverage has been determined

The basic scenario of the model assumes that broadband services with a speed of 2Mbps are made available to all EU citizens. Calculations are made for each country, with the exception of Bulgaria, Cyprus, the Czech Republic and Latvia184.

STEP 1: Identification of the number of households for which no broadband internet access is currently available

In a first step, the areas not providing 2Mbps to all households have been identified. A distinction was made between three type of zones:

- Type A refers to households that have access to a traditional telephony wireline network which is not capable of offering broadband service. This will typically refer to households connected to a local exchange which is not DSL enabled;

- Type B refers to households that have broadband access via a traditional wireline network, but this access is not technically capable of reaching bandwidth of 2Mbps or higher capacity. Grey Spots typically refer to households located to a local exchange that have a copper line of excessive length that does not allow the xDSL technology to synchronize at 2Mbps. It is assumed that a 2Mbps broadband connection can be provided on copper lengths up to 4,5km; for 1Mbps broadband connections, a maximum length of 5,25 km was assumed;

- Type C refers to households that do not have access to a traditional wireline network, neither for telephony nor for broadband service. These will typically correspond to households located in isolated rural areas.

For each individual Member State and for each type of zone, the number of households concerned has been estimated, leading to the following results:

184 For these countries, insufficient information was available for making the calculations.

NET COSTof ensuring

full coverage


EUR---,

:,I

:,,,:

-~--~-~--:'


115

Table 13: Overview of number of households not served with a 2Mbps connection (End of 2008 – Based on IDATE Study published by the European Commission185 and Rayleigh Distribution)

Based on this total number of households and depending on their location (i.e. in an urban, sub-urban or rural area186), assumptions have furthermore been made on the actual take-up of the broadband services that will be available. These assumptions are based on information on the current take-up of broadband service in the areas where broadband is already available.

STEP 2: Estimation of the cost related to the required network upgrade and additional network roll-out

In a second step, the network costs for each zone (type A, B and C) are estimated, based on a further roll-out of DSL technology in the type A spots and the selection of the most efficient technology for the type B and C areas (FTTC, WiMAX or satellite technology). The incremental cost of the investments has been depreciated and cost of capital was added so that a fixed annual capital expenditure (CAPEX) over a five year period was obtained. Annual operating costs (OPEX) have also been added related to network repair and maintenance, energy costs, etc., to internet connectivity, and to retail activities including customer care, billing and invoicing, etc.

185 http://ec.europa.eu/information_society/eeurope/i2010/docs/future_internet/method_2008_survey_idate.pdf 186 The breakdown in urban, sub-urban and rural areas is consistent with the EUROSTAT, ICT Survey. Urban areas have at least 500 inhabitants per km²; sub-urban areas have between 100 and 499 inhabitants per km² and rural areas have less than 100 inhabitants.


, . , . : , . .• ~ Hauseha/ds in % af ~ Hauseha/ds in % af ~ Hauseha/ds in % af ~ Hauseha/ds in %af

(HH) tata/ HH (HH) tata/ HH (HH) tata/ HH (HH) tata/ HHAustria 248.905 7,5 % 299.928 9

10% 31.538 0,9% 580.371 17,4%

Belgium 0 0,0 % 187.528 4 1 6 % 14.743 0,4% 202.272 5,0%Denmark 0 0,0 0/0 27.594 1,1 0/ 0 140 0,0% 27.733 1,10/ 0

Estonia 35.624 6,1 0/0 9.394 1,6% 71 0,00

/0 45.089 7,7%

Finland 99.551 4,3% 247.379 10,8% 29.659 1,30/0 376.589 16,4%France 0 0,0% 1.091.505 4,6% 100.980 0,4% 1.192.485 5,0%Germany 1.296.727 3,4% 2.760.614 7 1 3 % 253.065 0,70/0 4.310.406 11,4%Greece 437.528 11,90/0 358.805 9

18% 40.035 1,1 0/ 0 836.369 22,8%

Hungary 255.276 6,6% 383.030 9,9% 35.000 0,90/0 673.305 17,4%

Ire/and 119.316 9,3% 108.931 8,5% 12.271 1,0% 240.518 18,7%ltaly 1.077.420 4,9% 521.895 2,4% 7.994 0,0% 1.607.308 7,4%

Lithuania 154.298 11,4% 0 0,0% 0 0,0% 154.298 11,4%luxembourg 0 0,0 % 13.747 8,0% 831 0,5% 14.578 8,5%Halta 1.654 1,0% 2.237 1

14% 146 0,1% 4.037 2,4 %

Netherlands 68.663 1,0% 348.916 5,1 0/ 0 44.968 0,70/0 462.547 6,7%

Po/and 4.044.457 30,3% 66.827 0,50/0 96 0,0% 4.111.381 30,8%Portugal 175.601 4,8% 228.516 6,3% 25.839 0,70/0 429.956 11,8%Romania 2.370.940 32,4% 1.077.221 14,7% 231.328 3,2% 3.679.489 50,3%Slovakia 364.332 22,1% 0 0,0% 0 0,00/0 364.332 22,1%Slovenia 51.514 7,5 % 20.696 3

10% 246 0,0% 72.456 10,6%

Spain 951.250 6,7% 1.032.804 7,3 % 211.869 1,5% 2.195.924 15,5%Sweden 79.060 2,1 0/0 352.431 9,4% 31.410 0,8% 462.900 12,4%

United Kinodom 25.214 0,1 0/0 949.025 3,9% 61.846 0,30/0 1.036.086 4,2 %

TOTAl 11.857.330 65% 10.089.023 5 5 % 1.134.077 06% 23.080.430 12 6 %

This leads to the following total annual cost per MS and per zone:

Table 14: Overview of total network cost for ensuring overall 2 Mbps broadband service availability (in million EUR) – Based on calculations in bottom-up cost model

The total cost over a period of 5 years has also been presented in the last column since 5 years is the reference period taken for examining the net cost of ensuring overall broadband availability. Comparing these total costs to the number of additional households that will take-up broadband services, provides and indication of what this total cost represents per additional household that will take up broadband services:


116


.. . .. ~ , . . •• Annual Annual Annual Annual Annual Annual Annual Annual

CAPEX OPEX Total CAPEX OPEX Total CAPEX OPEX Total CAPEX OPEX Total 5year

Austria 11 9 20 30 20 50 3 2 6 44 31 76 378Belgium 0 0 0 13 8 21 1 1 2 14 9 23 113Denmark 0 0 0 2 2 4 0 0 0 2 2 4 19Estonia 6 6 12 1 1 1 0 0 0 7 6 13 67Finland 19 17 36 21 17 38 1 35 36 41 69 110 550France 0 0 0 88 73 160 2 119 121 90 192 282 1.408Germany 37 31 68 215 115 329 20 11 31 272 157 429 2.144Greece 20 17 36 38 29 67 4 3 8 62 49 110 552Hungary 10 8 18 34 24 58 3 2 5 47 34 82 408lre/and 9 8 17 9 7 16 0 14 15 18 30 48 239ltaly 45 38 83 29 24 53 0 10 10 74 72 146 729Lithuania 1 1 2 0 0 0 0 0 0 1 1 2 10Luxembourg 0 0 0 1 1 2 0 0 0 1 1 2 9Halta 0 0 0 0 0 0 0 0 0 0 0 0 2Netheriands 1 1 3 26 14 40 3 1 4 30 16 46 232Po/and 136 116 251 5 4 9 0 0 0 141 120 261 1.304Portugal 9 8 17 26 19 45 3 2 5 38 30 68 340Iloman;a 47 40 87 87 57 144 18 12 30 152 109 261 1.306S10vakia 2 2 4 0 0 0 0 0 0 2 2 4 18Slovenia 3 3 6 1 1 3 0 0 0 5 4 9 43Spain 43 36 79 148 110 258 27 22 49 218 169 386 1.932Sweden 13 11 24 30 25 55 1 37 38 44 73 117 585United ICinqdom 2 1 3 85 60 145 6 4 10 92 66 158 791TOTAL 419 357 776 888 610 1.499 93 278 371 1.400 1.246 2.646 13.231

Table 15: Overview of total network cost for ensuring overall 2 Mbps broadband service

availability (in million EUR) – expressed in a 5 year and a monthly cost per additional household taking up the service

As stated above, the basic scenario assumes that broadband services with a speed of 2Mbps would be made available to all citizens. Given the importance of the cost related to the type B spots (i.e. households connected with a copper line that is too long for enabling 2Mbps quality), a simulation was made of how the cost of ensuring availability would be reduced if there would only be an obligation to provide 1Mbps connectivity.


117


TOTAl 5 year cost

•per additional Cost I month per

COUNTRY household add itionalcovered or household servedupgraded

Austria 378 689 11Belgium 113 601 10Denmark 19 705 12Estonia 67 1.494 25Finland 550 1_584 26France 1.408 1290 22Germany 2.144 528 9Greece 552 693 12Hungary 408 640 11Ireland 239 1_046 17Haly 729 456 8Lithuania 10 68 1Luxembourg 9 659 11Halta 2 473 8Netherlands 232 555 9Po/and 1.304 317 5Portugal 340 840 14Romania 1.306 379 6Slovakia 18 50 1Slovenia 43 596 10Spain 1.932 974 16Sweden 585 1_356 23United Kingdom 791 812 14


118

Table 16: Overview of total network cost for ensuring overall 1 Mbps broadband service availability187 (in million EUR)188

Note regarding the choice of technologies

We observe that, in order to produce an estimate of the costs incurred for the provision of broadband service at 2 Mbps, it is needed to make some assumptions about the technologies employed. In the context of this study, the range of technologies considered for the evaluation of the costs of network availability explicitly includes ADSL, Fixed Wireless (WiMAX189) and Satellite190. This implies that, by practical necessity, a range of other technologies that may also be capable of providing broadband connectivity at 2 Mbps or higher bandwidths

187 These costs take into account that 2,7% of the households in type B spots are not having a 1 Mbps connectivity (instead of 5,5% in case of 2 Mbps). 188 For some countries, the cost associated to type C households rises when the 1Mbps scenario is considered. Indeed, when WiMAX technology is considered, the fixed costs of coverage are distributed among Type B and Type C households on proportional basis to their number (this split is just made for presentation purposes). Given that the type B households get reduced when ensuring 1 Mbps connectivity, the share of costs going to type C spots goes up. 189 Within the range of existing 4G technologies, WiMAX has been chosen as a reference technology for the study because, at the time of the start of the study (end 2009), it was a more proven alternative and was commercially more widespread than LTE, even though LTE is now (end 2010) forecasted to be the technology of choice for the provision of mobile broadband services in the EU. 190 For satellite, it has been considered that the fact that the transmission of the signal to the geostationary route and back to Earth introduces an additional delay typically in the range of 0,5 to 0,6 seconds, does not exclude this technology as a candidate for the provision of universal broadband access. Since we are especially considering basic broadband services, abstraction was made of possible reduced attractiveness of satellite for more advanced services such as real-time interactive applications.


.. . .. ~ , . . •• Annual Annual Annual Annual Annual Annual Annual Annual

CAPEX OPEXTotal

CAPEX OPEXTotal

CAPEX OPEXTotal CAPEX OPEX

Total 5year

Austria 11 9 20 11 9 20 1 22 22 22 40 62 312Belgium 0 0 0 8 6 14 2 1 3 9 7 17 84Denmark 0 0 0 1 0 1 0 0 0 1 1 1 5Estonia 6 6 12 0 0 0 0 0 0 7 6 12 62Finland 19 17 36 11 9 20 1 20 21 31 46 77 383France 0 0 0 43 36 79 2 69 71 45 104 149 747Germany 37 31 68 130 82 212 25 17 42 192 130 322 1.610Greece 20 17 36 14 12 26 1 27 28 34 56 90 449Hungary 10 8 18 13 11 24 1 24 25 23 43 67 334Ire/and 9 8 17 4 4 8 0 8 9 14 20 34 169Italy 45 38 83 10 8 18 0 6 6 55 52 107 534Lithuania 1 1 2 0 0 0 0 0 0 1 1 2 10Luxembourg 0 0 0 0 0 1 0 1 1 0 1 1 6Halta 0 0 0 0 0 0 0 0 0 0 0 0 1Netherlands 1 1 3 16 10 26 2 1 4 20 12 32 162Po/and 136 116 251 1 1 2 0 0 0 137 117 253 1.266Portugal 9 8 17 8 7 15 1 18 18 18 32 50 252Romania 47 40 87 67 48 114 25 18 43 139 105 244 1.221Slovakia 2 2 4 0 0 0 0 0 0 2 2 4 18Slovenia 3 3 6 0 0 1 0 0 0 4 3 7 34Spain 43 36 79 44 37 80 4 144 149 91 217 308 1.540Sweden 13 11 24 15 12 27 1 21 22 28 45 73 365United Kinqdom 2 1 3 29 24 53 1 43 44 32 68 100 502TOTAL 419 357 776 425 315 740 66 441 507 910 1.113 2.024 10.118


119

have been left out of the modeling exercise. The list of technologies that have not been considered in the model include coaxial cable, optical fiber, Wi-Fi and mobile broadband, among others. Regarding cable and optical fiber, these technologies are not particularly well suited for the provision of broadband services of 2 Mbps in a cost-effective way in sparsely populated areas. It is highly likely that in these areas, one of the alternatives considered would represent a more cost-effective alternative. Therefore, we consider that their exclusion should not have any relevant impact in the validity of the model results. Regarding Wi-Fi, in our view this technology is not well suited for a mass roll-out of broadband services in rural areas. Even though this technology may have its particular applications in rural broadband deployments (for example, by facilitating the sharing of some capacity among small clusters of households), overall we consider that its relevance is not sufficient to justify its inclusion in the modeling exercise. In our view, the non-consideration of Wi-Fi in the model should not result in a material effect in the model results. Finally, the use of HSDPA and other existing mobile broadband technologies have not been considered in the model, given that they have not been considered an adequate solution to provide 2Mbps broadband service at quality levels sufficiently similar to that of ADSL at mass scale: - Firstly, the technical features of broadband services provided using HSDPA and

similar technologies can be quite dissimilar to those of services offered using xDSL, WiMAX or Satellite. In this sense, even though mobile broadband technologies are capable of reaching nominal transmission bandwidths of 2 Mbps or higher, the transmission rate is highly sensible to the number of simultaneous users, with the result that high transmission rates may not be sustainable in practice for a long period of time191;

- As a consequence, broadband connections employing mobile technologies may not be valid alternatives for certain real-time broadband services such as video streaming;

- In the case of mobile broadband, these technical issues are further complicated by the fact that users themselves change location, so that mobile operator cannot guarantee an acceptable quality of service through proper dimensioning. The fact that much of the mobile broadband demand may come from smart handsets and other similar devices, complicates further the problem.

191 For the quality criterion in terms of effective bandwidth, the typical effective bandwidth provided to each individual user when the DSL technology is used as a benchmark since this is currently the most widely employed broadband technology in Europe (over 79% of broadband lines were provided using this technology in the EU in July 2009 according to the 15th Implementation report). In the techno-economic model, we have assumed a contention ratio (ration between the average bandwidth provided per user and the nominal peak bandwidth of 40, as this has been considered a typical industry benchmark for the provision of residential ADSL services).



120

We observe however that the possibility of reusing existing mobile masts (2G and 3G towers) to lower the costs of rolling-out a WiMAX network has been considered in the model192.

STEP 3: Estimation of the incremental revenues related to additional take-up in newly covered areas

For the estimation of the incremental revenues, it is assumed that only the new clients (in the type A and type C spots) will indeed generate additional revenues. For the clients in the type B areas, the conservative assumption is taken that they will obtain an upgraded service at the same price of their current service. In general, the possible impact on revenues for other services (e.g. a decrease of revenues because of the replacement of traditional voice telephony by voice over IP) is however not taken into account. More precisely, the number of additional households taking up broadband193 in the type A and type C spots are first of all multiplied by the median values as well as least expensive offers per MS for the basket 1 to 2Mbps included, which are consistent with the values obtained in the Broadband Internet Access Cost Study (BIAC) of October 2009194. From these revenues, a retail costs is deducted for customer acquisition and retention and billing. The following incremental revenues are obtained:

192 The same approach would have been taken in case LTE technology was chosen initially; as such the incremental cost estimates for WiMAX should represent a reasonable proxy for the costs that would be incurred using LTE equipment, even though some variations may be reasonably expected to exist. 193 For estimating the take-up of broadband services in the new areas covered with broadband services, the same percentages have been used as for the areas that are currently already served. 194 See http://ec.europa.eu/information_society/newsroom/cf/document.cfm?actions=display&doc_id=675


http://ec.europa.eu/information_society/newsroom/cf/document.cfm?actions=display&doc_id=675

http://ec.europa.eu/information_society/newsroom/cf/document.cfm?actions=display&doc_id=675


121

Table 17: Overview of incremental revenues less retail costs based on least expensive and

median offers per MS (in 1000 EUR) (Based on Broadband Internet Access Cost Study (BIAC) of October 2009)

STEP 4: Estimation of the net cost of ensuring full coverage

In a final step, the incremental revenues are subtracted from the cost of ensuring overall availability. This can first of all be done at the national level; i.e. for each MS the total incremental revenues for all types of areas are subtracted for the total costs for all types of areas. An alternative approach consists of calculating a net cost per area (urban, suburban or rural). Under this scenario, there is less room for compensation between areas, which logically leads to a higher net cost195.

195 Methodologies currently applied by MS for e.g. calculating the cost of the overall availability of PSTN networks often take a lower level of aggregation than the national territory for determining if a specific part of the network is profitable or not. Examples are e.g. aggregations of costs and revenues at the local exchange level.


AU5triaBelgiumDenmar/cE5toniaFinlandFranceGermanyGreeceHungarylre/andIta/yLithuaniaLuxembourgHaltaNetherland5Po/andPortugalRomaniaSlovakiaSloveniaSpainSwedenUnited Kin domTOTAL

in 1000 EUR53.788

5.43015

3.01724.00016.545

309.17926.885

7.24315.591

178.7628.101

123151

12.421340.810

50.97022.52419.284

4.990236.548

13.6096.576

1.426.505

in 1000 EUR268.942

27.14974

15.083120.00182.726

1.545.896134.42336.21377.956

893.81040.503

614755

62.1071. 704.048

254.852112.61996.42224.949

1.182.74068.04532.881

7.132.526

in 1000 EUR60.209

5.55116

3.01735.37718.192

341. 79029.89816.93927.755

178.76217.150

123151

15.6761.231.475

50.97037.11944.297

5.389298.166

21.2896.576

2.530.143

in 1000 EUR301.046

27.75382

15.083176.88490.962

1.708.948149.49284.696

138.776893.810

85.749615755

78.3806.157.376

254.852185.595221.483

26.9431.490.830

106.44532.881

12.650.716


122

Table 18: Net cost of ensuring 2Mbps broadband availability with incremental revenues based on the least expensive and median offers per MS (in 1000 EUR)196

A breakdown of the net cost calculated for each type of area (urban, suburban or rural) is further presented in Annex 4. Sensitivity analysis – Net cost for ensuring 1 Mbps availability197

As stated above, the basic scenario assumes that broadband services with a speed of 2Mbps would be made available to all citizens. Given the importance of the cost related to the type B spots (i.e. households connected with a copper line that is too long for enabling 2Mbps quality), a simulation was made of how the net cost of ensuring availability would be reduced if there would only be an obligation to provide 1Mbps connectivity.

Net cost at EU level calculated per type of area (assuming revenues based on

least expensive offers)


median value offers) Ensuring 2Mbps coverage for all EU Citizens 7.616 million EUR 7.001 million EUR

Ensuring 1Mbps coverage for all EU Citizens 4.927 million EUR 4.391 million EUR

Table 19: Sensitivity analysis for providing 1 Mbps coverage for all EU Citizens

196 Please note that a net cost equal to 0 indicates that there is still room for competitive development of the broadband markets. After all, if incremental revenues exceed the cost of providing availability of broadband services, it is attractive to develop these under competitive market circumstances. 197 This assumption implies that 2,7% of the households in type B spots are not having a 1 Mbps connectivity (instead of 5,5% in case of 2 Mbps).


Scenario with revenues based on least expensive offers Scenario with revenues based on median value offer

Net cost calculated Net cost calculated Net cost calculated Net cost calculatedCOUNTRY

at national level per type of area at national level per type of area

cost per year 5 years cost per year 5 years cost per year 5 years cost per year 5 years

in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR

Austria 21.821 109.104 21.927 109.633 15.400 77.000 15.537 77.685Be/gium 17.107 85.535 17.107 85.535 16.986 84.931 16.986 84.931Denmark 3.878 19.391 3.878 19.391 3.877 19.383 3.877 19.383Estonia 10.432 52.161 10.432 52.161 10.432 52.161 10.432 52.161Finland 85.923 429.615 87.456 437.278 74.546 372.732 77.161 385.806France 265.140 1.325.700 265.140 1.325.700 263.493 1.317.464 263.493 1.317.464Germany 119.665 598.323 147.536 737.679 87.054 435.271 119.765 598.824Greece 83.477 417.387 83.477 417.387 80.464 402.318 80.464 402.318Hungary 74.403 372.016 74.403 372.016 64.707 323.533 64.707 323.533lreland 32.170 160.849 32.170 160.849 20.006 100.028 20.006 100.028ltaly 0 0 11.341 56.705 0 0 11.341 56.705Lithuania 0 0 0 0 0 0 0 0Luxembourg 1.688 8.441 1.688 8.441 1.688 8.440 1.688 8.440Malta 217 1.085 302 1.509 217 1.085 302 1.509Netherlands 33.941 169.705 33.941 169.705 30.686 153.432 31.688 158.439Po/and 0 0 0 0 0 0 0 0Portugal 16.955 84.775 21.209 106.044 16.955 84.775 21.209 106.044Romania 238.688 1.193.439 238.688 1.193.439 224.093 1.120.463 224.093 1.120.463S/ovakia 0 0 0 0 0 0 0 0S/ovenia 3.623 18.116 3.725 18.624 3.224 16.121 3.337 16.684Spain 149.772 748.858 212.748 1.063.738 88.154 440.768 184.319 921.594Sweden 103.386 516.930 104.513 522.563 95.706 478.531 98.010 490.049United Kinadom 151.709 758.546 151. 709 758.546 151. 709 758.546 151.709 758.546

TOTAL 1.413.995 7.069.976 1.523.388 7.616.941 1.249.397 6.246.983 1.400.121 7.000.607


123

Sensitivity analysis – WiMAX based on 800 MHz

A second sensitivity analysis assumes general availability of 800 MHz spectrum, following the release of the digital dividend (cf. 790-862 MHz sub-band referred to in section 2.2.5.a). This would allow for the usage of more efficient WiMAX equipment, significantly reducing the net cost of ensuring overall 2Mbps connectivity.


least expensive offers)


median value offers)

Ensuring 2Mbps coverage for all EU Citizens 7.616 million EUR 7.001 million EUR

Ensuring 2Mbps coverage for all EU Citizens, assuming general availability of the 790-862 MHz sub-band

4.729 million EUR 4.114 million EUR

Table 20: Sensitivity analysis for providing 2 Mbps coverage, assuming general availability of the 790-862 MHz sub-band

5.2.1.b ASSESSMENT OF THE COST OF ENSURING FULL COVERAGE WITH 2MBPS CONNECTIVITY

The net cost for ensuring availability of 2Mbps connectivity can be put in perspective by comparing the value per MS with the total turnover of the electronic communications sector or with the gross operating surplus198 (as a measure for profit). For this assessment, the net cost calculations per type of zone have been taken into account since this scenario can be considered more realistic given e.g. the possibility that different universal service providers will be serving different areas.

198 See Code 12 170 of Commission Regulation (EC) N° 2007/98 of 17 December 1998 concerning the definitions of characteristics for structural business statistics.


Table 21: Estimated cost of ensuring availability as a percentage of the total turnover and gross operating surplus of the electronic communications sector

The cost of ensuring full availability of the 2Mbps broadband connectivity be situated around 0,35%-0,38% on average of the total turnover of the electronic communications sector in Europe. Important differences exist however between countries: Poland and Lithuania are not having a net cost (given the high volume of estimated incremental revenues), Romania has a net cost that represents over 4% of total turnover, while other countries like Estonia, Finland, Greece, Hungary and Sweden have a cost exceeding 1% of national turnover. Furthermore, the cost of availability for 2Mbps represents on average approximately 1,2% of gross operating surplus. Variations between countries are very important again: for Romania, the net cost would represent approximately 13% of the gross operating surplus. For Estonia, Finland, Greece, Hungary and Sweden, the weight is situated between 3% and 7%. In terms of cost of affordability per capita, the following values would be obtained for all EU countries:


124


Net cost of providing 2Mbps Net cost compared to annual Net cost compared to grossAnnual

Grossto every EU eitizen telecom turn over operating surplus

telecommu-operating Wlth revenues With revenues Wlth revenues

nications Wlth revenues Wlth revenues With revenuessurplus based on least based on least based on least

turnover based on least based on medlan basedonexpenslve offers offer

expenslvemedlanoffer

expenslve expenslveoffers offers offers

in 1000EUR in 1000EUR inEUR inEUR

:Austria 6.729.200 1.855.500 21.926.511 15.536.996 0,33% 0,23% 1,18% 0,84%Belgium 12.193.100 4.097.700 17.107.025 16.986.243 0,14% 0,14% 0,42% 0,41%Denmark 6.579.500 1.755.000 3.878.112 3.876.551 0,06% 0,06% 0,22% 0,22%Estonia 757.000 235.600 10.432.257 10.432.257 1,38% 1,38% 4,43% 4,43%Finland 5.013.900 1.278.300 87.455.530 77.161.234 1,74% 1,54% 6,84% 6,04%France 63.797.900 16.985.700 265.139.904 263.492.837 0,42% 0,41% 1,56% 1,55%Germany 71.232.100 21.087.300 147.535.760 119.764.801 0,21% 0,17% 0,70% 0,57%Greece 8.154.300 2.636.000 83.477.453 80.463.669 1,02% 0,99% 3,17% 3,05%Hungary 4.852.300 1.541.300 74.403.202 64.706.638 1,53% 1,33% 4,83% 4,20%Ireland 8.163.200 1.451.500 32.169.857 20.005.699 0,39% 0,25% 2,22% 1,38%Italy 42.606.000 16.594.000 11.340.933 11.340.933 0,03% 0,03% 0,07% 0,07%Lithuania 1.026.500 314.800 0 0 0,00% 0,00% 0,00% 0,00%Luxembourg 2.446.900 764.900 1.688.105 1.687.904 0,07% 0,07% 0,22% 0,22%Poland 13.257.600 0 0 0,00% 0,00%Portugal 7.783.600 2.484.800 21.208.759 21.208.759 0,27% 0,27% 0,85% 0,85%Romania 5.519.100 1.732.400 238.687.729 224.092.561 4,32% 4,06% 13,78% 12,94%Slovakia 2.241.800 718.500 0 0 0,00% 0,00% 0,00% 0,00%Slovenia 1.513.100 403.300 3.724.894 3.336.764 0,25% 0,22% 0,92% 0,83%Spain 39.521.100 15.081.800 212.747.507 184.318.764 0,54% 0,47% 1,41% 1,22%Sweden 10.379.300 2.376.700 104.512.520 98.009.708 1,01% 0,94% 4,40% 4,12%United Kinqdom 80.674.100 23.364.900 151.709.297 151.709.297 0,19% 0,19% 0,65% 0,65%llirn '. : 11 .. 11 .. '11 ~ ~ ~ Rw.>


125

Table 22: Estimated cost of ensuring availability per capita (per year)199

Expressed in a net cost per capita, the highest values per capita would be obtained for Finland, Sweden, Romania, Ireland, Estonia and Hungary with costs per capita of approximately 7 to 17 EUR per capita. On average and in general, costs per capita would be much higher than is currently the case in countries where a universal service fund has been activated (cf. Table 3 on page 23). It is also worth noting that the relative burden of ensuring availability could for some providers further increase, because of a more restrictive definition of the contributory base, e.g. by eliminating revenues of voice and other services and only taking into account the revenues associated with broadband services.

5.2.1.c ESTIMATION OF THE PART OF THE COST OF FULL COVERAGE TO BE FUNDED BY THE SECTOR UNDER EACH OPTION

The output of the model of which the results were presented in section 5.2.1.a, provides an estimate of the cost of ensuring full availability of 2Mbps broadband connectivity, independent of the policy option chosen for attaining this result. The

199 The fact that for some countries, the net cost is estimated at 0 EUR, indicates that in these countries, there is still room for market driven broadband development. The implicit assumption of the model that areas not covered today are unprofitable areas is thus not valid for these countries.


per capita per capita

Austria 21-926.511 15.536.996 2,76 1,96Belgium 17.107.025 16.986.243 1,69 1,67Denmark 3.878.112 3.876.551 0,73 0,73Estonia 10.432.257 10.432257 7,70 7,70Finland 87.455.530 77.161234 17,21 15,19France 265.139.904 263.492.837 4,63 4,60Germany 147.535.760 119.164.801 1,81 1,47Greece 83.477.453 80.463.669 8,13 7,84Hungary 74.403.202 64.706.638 7,48 6,51Ireland 32.169.857 20.005.699 8,49 5,28Italy 11.340.933 11.340.933 0,20 0,20Lithuania 0 0 0,00 0,00Luxembourg 1.688.105 1.687.904 3,36 3,36Malta 301.889 301.889 0,73 0,73Netherlands 33.940.910 31.687.816 2,15 2,01Poland 0 0 0,00 0,00Portugal 21.208.759 21208.759 2,07 2,07Romania 238.687.729 224.092.561 11,18 10,49Slovakia 0 0 0,00 0,00Sloven ia 3.724.894 3.336.764 1,91 1,71Spain 212.747.507 184.318.764 5,24 4,54Sweden 104.512.520 98.009.708 11,19 10,49United Kin dom 151.709.297 151.709.297 2,63 2,63

part of the cost that is financed by the sector could however differ significantly, depending on :

- the extent to which USOs are used to advance broadband developments;

- the precise definition of the broadband services that are included in USOs in a specific Member State;

- the extent to which sector funding is used under USOs.

Since general taxation or state funding has the least distortive impact on the economic and society as a whole, options including a bigger contribution from State Funding are considered to be preferable when comparing between options. Hence, they are given a more positive assessment. The first place in the ranking is therefore given to the option that is the less distortive:

OPTION 1 OPTION 2 OPTION 3 OPTION 4 OPTION 5 Estimated net cost of ensuring 2 Mbps connectivity

1.523 Million EUR

1.523 Million EUR

1.523 Million EUR

1.523 Million EUR

1.523 Million EUR

State Funding Moderate % Minimal % Minimal % Moderate % 100%

Sector Financing

Part of these costs, no ex ante analysis of impact on sector.

MS can impose on sector to pay all of these costs.

All of these costs could be imposed on the sector.

Part of these costs, after assessing per MS the impact on the sector.

None of these costs could be imposed on the sector

Ranking 3 4 5 2 1

Table 23: Comparison between options of the distribution of the cost of ensuring 2 Mbps availability

5.2.2 ASSESSMENT OF THE COST OF ENSURING AFFORDABILITY

It is left to the discretion of Member States to define affordability in the light of specific national conditions in particular in relation to national consumer prices and income (cf. section 1.1.2.b). As part of the description of the broadband market, it was indicated that an important market failure at the demand side is indeed related to affordability issues. It can thus be expected that Member States will (continue to) make efforts for increasing the affordability of broadband services. For the purpose of this study, only the initiatives related to the provision of the broadband connection and broadband services will be considered. All possible demand side instruments related to the provision of e.g. PCs at reduced prices will not be considered here.

5.2.2.a ESTIMATION OF THE COST OF AFFORDABILITY OF BROADBAND SERVICES


126



127

The table below provides some indications per Member State of the order of magnitude of the costs of ensuring affordability. The starting point hereby is the number of households per country who do not have a broadband subscription at home and who have stated that the reason for this is that broadband is too expensive200. After all, public initiatives are developed with a goal to increase the broadband penetration, and thus the focus is only on households currently not having a broadband subscription at home. In practice however, depending on the way eligibility rules for broadband access support will be defined in the different Member States, it can not be excluded that a number of current broadband subscribers would also be able to benefit from the support measures. Since this should to a maximum extent be avoided by optimally defining eligibility criteria, the assumption of only taking into account households currently not having a broadband subscription at home can be taken. Since Member States have a large amount of discretion in choosing the degree of support (in terms of number of households supported and magnitude of the support), different scenarios are developed, so that a general range of total costs can be derived. The scenarios considered differ as follows:

• Number of households supported: it could be considered to give support to all households stating they do not take up broadband because it is too expensive (Scenario 1); however, since it can be expected that not all of these are incapable of paying the market price for broadband (but rather are unwilling), and since for some of these households the affordability issue may coincide with other reasons for non-take-up or the discount provided would not be enough to solve the affordability issue, an alternative assumption of giving financial support to half of the households201 stating they do not have broadband access because it is too expensive, is also considered (Scenario 2)202;

• Magnitude of the support/discount: it is assumed that the discounts would

amount to 50% (Scenario A), resp. 30% (Scenario B) of the commercial price of a 2Mbps connection203.

200 This is calculated by combining statistics on total number of households per country, percentage of households having broadband access at home and percentage of households not having broadband access at home because it is too expensive. Sources are Eurostat and Eurobarometer (cf. Chapter 2). Since some data is missing for Finland in the Eurostat statistics, no further calculations can be made for Finland. 201 Please note that this is a rather general and simplified assumption. A more detailed approach would consist of assessing the elasticity of demand for low-income consumers, but no suchlike statistics are readily available. The results should therefore be regarded as general estimates of the order of magnitude of the impact. 202 It should be noted that in both scenarios the resulting numbers of households eligible for financial support appear to be rather conservative, since Eurostat figures show that about 17% of EU citizens is at risk of poverty (defined as 60% of median equivalided income after social transfers). 203 Member States could of course also decide to grant a discount consisting of a fixed amount per month. Provided the important variation of the cost of broadband per month between MS, it was concluded that making assumptions on possible fixed discounts per MS would add little value to the scenarios already envisaged based on a percentage discount.


All four scenarios are moreover simulated with revenues per user that are equal to the median value of the broadband offers in the basket 1-2 Mbps and the least expensive offer in the basket 1-2 Mbps (see assumptions in cost model on availability). Finally, the results for all scenarios are calculated with the aid of Eurostat as well as Eurobarometer statistics with respect to broadband take-up and reasons for not taking up broadband. The results at the EU 27 level can be summarized as follows:

Table 24: Estimation of the order of magnitude of the cost of ensuring affordability of a 2 Mbps broadband connection for four different scenarios (in EUR) – overview at the EU 27 level

For each of the scenarios presented above, the tables below present the underlying results at the Member State level:


128


Scenario 1:100% of households currently nothaving broadband because it is

too expensive which wouldreceive a social discount

Scenario 2:50% of households currently nothaving broadband because it is

too expensive which wouldreceive a social discount

Scenario A:50% discount

Scenario B:30% discount

Scenario A:50% discount

Scenario B:30% discount

Number of households without BB access who do not haveBB access because it is too expensive

Total amount of discounts peryear (EU 27)

Total amount of discounts peryear (EU 27)

Total number of households% oltotal #

in EUR in EURhouseholds

Based on EUROSTAT figures

16.372.737 8,59%

Discounts based on median value ol offers ~er Member State 2.785.475.979 1.671.285.587 1.392.737.989 835.642.794Discounts based on least ex ensive offers per Member State 2.272.891.101 1.363.734.661 1.136.445.551 681.867.330

Based on EUROBAROMETER figures

9.520.851 4,99%

er Member State 1.694.459.588 1.016.675.753 847.229.794 508.337.876er Member State 1.389.700.822 833.820.493 694.850.411 416.910.246

Table 25: Estimation of the cost of ensuring affordability of a 2 Mbps broadband using median value of the broadband offers in the basket 1-2 Mbps as revenue per user (Eurostat)

Table 26: Estimation of the cost of ensuring affordability of a 2 Mbps broadband connection (in EUR), using the least expensive offer as revenue per user (Eurostat)


129


Compared to tol alMedian offer Median offer

# householdsin basket 1- in basket 1-

100% 2Mbps 50% 30% 50% 2Mbps 50% 30%Auslria 197.294 5,91% 197.294 32,20 38.123.018 22.873.811 98.647 32,20 19.061.509 11.436.905Belgium 253.774 6,22% 253.774 61,23 93.235.865 55.941.519 126.887 61,23 46.617.933 27.970.760Bulgaria 561.283 19,21% 561.283 10,11 34.043.445 20.426.067 280.641 10,11 17.021.722 10.213.033Cyprus 24.674 11,03% 24.674 39,79 5.891.245 3.534,747 12.337 39,79 2.945,622 1.767,373Czech Republic 474.052 11,24% 474.052 25,52 72.576.724 43.546.034 237.026 25,52 36.288.362 21.773.017Denmark 29.088 1,20% 29.088 21,73 3.792.368 2.275.421 14.544 21,73 1.896.184 1.137.710Estonia 39.835 6,84% 39.835 13,05 3.118,714 1.871.229 19.917 13,05 1.559.351 935.614Finland 33,66 33,66France 1.012.107 4,25% 1.012.107 31,79 193.070.430 115.842.258 506.054 31,79 96.535.215 57.921.129Germany 2.670.760 7,08% 2.670.760 31,60 506.411.990 303.847.194 1.335.380 31,60 253.205.995 151.923.597Greece 587.988 16,05% 587.988 15,09 53.240.085 31.944.051 293.994 15,09 26.620.042 15.972.025Hungary 739.029 19,13% 739.029 11,33 50.236.017 30.141.610 369.515 11,33 25.118.009 15.070.805Ireland 65.568 5,09% 65.568 30,08 11.833.189 7.099.913 32.784 30,08 5.916.594 3.549.957Italy 1.463.396 6,71% 1.463.396 32,96 289.386.466 173.631.880 731.698 32,96 144.693.233 86.815.940Latvia 211.760 26,38% 211.760 17,47 22.201.981 13.321.189 105.880 17,47 11.100.991 6.660.594Lithuania 258.591 19,06% 258.591 17,51 27.164.654 16.298.792 129.296 17,51 13.582.327 8.149.396Luxembourg 2.984 1,74% 2.984 25,18 450.786 270.472 1.492 25,18 225.393 135.236Malta 3.066 1,85% 3.066 13,86 254.961 152.977 1.533 13,86 127.481 76.488Netherlands 63.241 0,92% 63.241 19,20 7.285.317 4.371.190 31.620 19,20 3.642.659 2,185.595Poland 1368.381 10,26% 1.368381 45,57 374.110.950 224.466.570 684.191 45,57 187.055.475 112.233.285Portugal 943.505 25,84% 943.505 43,04 243.627.046 146.176.227 471.753 43,04 121.813.523 73.088.114Romania 1.452.824 19,85% 1.452.824 6,57 57.271.147 34.362.688 726.412 6,57 28.635.574 17.181.344Slovakia 105.469 6,41% 105.469 23,95 15.157.373 9.094.424 52.734 23,95 7.578.687 4.547.212Slovenia 81.084 11,84% 81.084 16,67 8.108.423 4.865.054 40.542 16,67 4.054.212 2.432.527Spain 2140.052 15,08% 2.140052 41,40 531595.637 318.957.382 1070.026 41,40 265.797.819 159.478.691Sweden 130.043 3,48% 130.043 24,45 19.078.818 11.447.291 65.021 24,45 9.539.409 5.723.645Uniled Kin dom 1.492.887 6,10% 1.492.887 13,87 124.209.328 74.525.597 746.444 13,87 62.104.664 37.262.798

Total amount of discounts peryear

Revenuesper month

per user{tuil priceexcl VAT

Scenario 1 Scenario_____=S~Scenario_B:JI_____=S~Scenati.o_B

Number of Number ofhouseholds households

currently not Revenues currently not

br::~~:nd per month Total amOUR! of discounts per br~:~~;ndbecause it is toD per user year because it is

expensive (tuil price toD expensivewhich would excl VAT) which would

receive a social receive a socialdiscount discount

Number of households without BBaccess who do not have BB access

because it is too expensive

Compared 10 lotalexpensrve expensive

offer in offer in# households baskel1- basket 1-

100% 2Mbps 50% 30% 50% 2Mbps 50% 30%Auslria 197.294 5,91% 197.294 29,08 34.427.859 20.656.716 98.647 29,08 17.213.930 10.328.358Belgium 253.774 6,22% 253.774 59,96 91.304.244 54.782.546 126.887 59,96 45.652.122 27.391.273Bulgaria 561.283 19,21% 561.283 7,86 26.474.249 15.884.549 280.641 7,86 13.237.124 7.942.275Cyprus 24.674 11,03% 24.674 33,04 4.891.982 2.935.189 12.337 33,04 2.445.991 1.467.595Czech Republic 474.052 11,24% 474.052 25,52 72.576.724 43.546.034 237.026 25,52 36.288.362 21.773.017Denmark 29.088 1.20% 29.088 19,95 3.481.159 2.088.696 14.544 19,95 1.740.580 1.044.348Estonia 39.835 6,84% 39.835 13,05 3.118.714 1.871.229 19.917 13,05 1.559.357 935.614Finland 23,78 23,78France 1.012.107 4.25% 1.012.107 29,18 177.203.366 106.322.020 506.054 29,18 88.601.683 53.161.010Germany 2.670.760 7,08% 2.670.760 28,87 462.580.106 277.548.064 1.335.380 28,87 231.290.053 138.774.032Greece 587.988 16,05% 587.988 13,87 48.916.644 29.349.986 293.994 13,87 24,458,322 14,674,993Hungary 739.029 19,13% 739.029 6,52 28.925.119 17.355.071 369.515 6,52 14.462.559 8.677.536Ireland 65.568 5,09% 65.568 18,18 7.152.910 4.291.746 32.784 18,18 3.576.455 2.145.873Italy 1.463.396 6,71% 1.463.396 32,96 289.386.466 173.631.880 731.698 32,96 144.693.233 86.815.940LaMa 211.760 26,38% 211.760 7,17 9.108.246 5.464.947 105.880 7,17 4.554.123 2.732.474lithuania 258.591 19,06% 258.591 9,82 15.232.516 9.139.510 129.296 9,82 7.616.258 4.569.755Luxembourg 2.984 1,74% 2.984 25,14 450.138 270.083 1.492 25,14 225.069 135.041Malta 3.066 1,85% 3.066 13,86 254.961 152.977 1.533 13,86 127.481 76.488Netherlands 63.241 0,92% 63.241 15,82 6.003.893 3.602.336 31.620 15,82 3.001.947 1.801.168Poland 1368.381 10.26% 1.368381 14,73 120.954.246 72572.548 684.191 14,73 60.477.123 36.286.274Portugal 943.505 25,84% 943.505 43,04 243.627.046 146.176.227 471.753 43,04 121.813.523 73.088.114Romania 1.452.824 19.85% 1.452.824 5,14 44.806.730 26.884.038 726.412 5,14 22.403.365 13.442.019Slovakia 105.469 6,41% 105.469 12,08 7.646.931 4.588.159 52.734 12,08 3,823,466 2,294,079Slovenia 81.084 11,84% 81.084 15,65 7.613.810 4.568.286 40.542 15,65 3,806,905 2,284,143Spain 2.140.052 15,08% 2.140.052 33,45 429.521.783 257.713.070 1.070.026 33,45 214.760.892 128.856.535Sweden 130.043 3,48% 130.043 16,69 13.021.930 7.813.158 65.021 16,69 6.510.965 3.906.579United Kin dom 1.492.887 6,10% 1.492.887 13,87 124.209.328 74.525.597 746.444 13,87 62.104.664 37.262.798

• I ; " " " I

Table 27: Estimation of the cost of ensuring affordability of a 2 Mbps broadband connection (in EUR), using median value of the broadband offers as revenue per user (Eurobarometer)


130


Scenario 1Scenario A Scenario B



because it is toD expensive

Number ofhouseholds

currently nothaving

broadbandbecause it is toD

expensivewhich would

receive a socialdiscount

Revenuesper monthper user

(Iull priceexcl VAT)


Number ofhouseholds

currently nothaving

broadbandbecause it is

toD expensivewhich would


Revenuesper month

per user(Iull priceexd VAT


Total number Median offer Size of the discount Median offer Size of the discountCompared to total in basket 1· in basket 1·

# households100\\ 2Mbps 50\\ 30\\ 50\\ 2Mbps 50\\ 30\\

206.423 6,18% 206.423 32,20 39.886.940 23.932.164 103.211 32,20 19,943,470 11,966,082257.911 6,32% 257.911 61,23 94.755.521 56.853.313 128.955 61,23 47,377.760 28,426,656

95.081 3,25% 95.081 10,11 5.766.924 3.460.155 47.540 10,11 2.883.462 1.730.07713.604 6,08% 13.604 39,79 3.248.140 1.948.884 6.802 39,79 1.624.070 974.442

385.339 9,14% 385.339 25,52 58.994.808 35.396.885 192.669 25,52 29,497,404 17,698,44287.293 3,59% 87.293 21,73 11.380.930 6.828.558 43.646 21,73 5,690,465 3,414,27934.166 5,87% 34.166 13,05 2.674.924 1.604.954 17.083 13,05 1.337.462 802.47748.324 2,11% 48.324 14,05 4.073.308 2.443.985 24.162 14,05 2.036.654 1.221.993

813.442 3,42% 813.442 31,79 155.172.991 93.103.795 406.721 31,79 77.586,496 46,551,8971.308.994 3,47% 1.308.994 31,60 248.202.903 148.921.742 654.497 31,60 124,101,451 74,460,871

139.393 3,80% 139.393 15,09 12.621.491 7.572.894 69.696 15,09 6.310.745 3.786.447350.201 9,07% 350.201 11,33 23.805.138 14.283.083 175.100 11,33 11.902.569 7.141.541

66.123 5,13% 66.123 30,08 11.933.261 7.159.956 33.061 30,08 5,966,630 3,579,9781.539.704 7,06% 1.539.704 32,96 304.476.497 182.685.898 769.852 32,96 152,238,249 91,342,949

65.039 8,10% 65.039 17,47 6.819.019 4.091.412 32.520 17,47 3.409.510 2.045.70661.699 4,55% 61.699 17,51 6.481.399 3.888.840 30.850 17,51 3.240.700 1.944.4202.250 1,31% 2.250 25,18 339.949 203.970 1.125 25,18 169,975 101,9853.475 2,10% 3.475 13,86 288.987 173.392 1.738 13,86 144.493 86.696

175.031 2,55% 175.031 19,20 20.163.517 12.098.110 87.516 19,20 10.081.758 6.049.055882.375 6,62% 882.375 45,57 241.238.257 144.742.954 441.187 45,57 120,619,128 ]2,371,477222.713 6,10% 222.713 43,04 57.507.905 34.504.743 111.357 43,04 28,753,953 17,252,372736.576 10,06% 736.576 6,57 29.036.252 17.421.751 368.288 6,57 14.518.126 8.710.876170.764 10,38% 170.764 23,95 24.541.222 14.724.733 85.382 23,95 12.270.611 7.362.36712.714 1,86% 12.714 16,67 1.271.420 762.852 6.357 16,67 635,710 381,426

1.028.825 7,25% 1.028.825 41,40 255.563.302 153.337.981 514.412 41,40 127,781,651 76,668,991102.971 2,76% 102.971 24,45 15.107.069 9.064.241 51.485 24,45 7.553.534 4.532.121710.421 2,90% 710.421 13,87 59.107.512 35.464.507 355.210 13,87 29.553.756 17.732.254.; I; ,'J' .. I. , .. ' ;, 0: , .


131

Table 28: Estimation of the cost of ensuring affordability of a 2 Mbps broadband connection (in EUR), using the least expensive value of the broadband offers as revenue per user (Eurobarometer)

On average, the calculations with Eurobarometer statistics show lower costs, and this is due to the much lower percentage of households claiming they do not have broadband access because it is too expensive. This effect plays an important role, and more than neutralizes the effect of Eurobarometer household take-up percentages being lower than for Eurostat. This cost of ensuring affordability is fully additional to the cost of ensuring availability of broadband services (cf. section 5.2.1) as this latter takes into account the full price of the (median/least expensive) cost of providing 2Mbps when determining the net cost of availability.

5.2.2.b ASSESSMENT OF THE ESTIMATED COST OF AFFORDABILITY

To put the figures presented above into perspective, the estimated total annual discounts granted under the different scenarios (for both the median and least expensive revenues per user) are compared to the total turnover of the electronic communications sector204, as was done for the ‘costs of ensuring availability.’ This analysis is done on a country-based level in the following table205:

204 Total turnover of the electronic communications sector is obtained from Eurostat Structural Business Statistics: when available, the most recent figures, i.e. 2008 turnover for ‘telecommunications’ (NACE code Rev 2: 61) are taken into account. In other cases, the most





because it is toD expensive

Number ofhouseholds

currently nothaving

broadbandbecause it is toD

expensivewhich would

receive asodaldiscount

Revenuesper monthper user

(Iull priceexcl VAT)


Number ofhouseholds

currently nothaving

broadbandbecause it is

toD expensivewhich would


Revenuesper month

per user(Iull priceexd VAT


Total number Least Size of the discount Least Size of the discount

Compared to tatalexpensive expensive

offer in offer in# households

basket 1- basket 1-

100% 2Mbps 50% 30% 50% 2Mbps 50% 30%206.423 6,18% 206.423 29,08 36.020.810 21.612.486 103.211 29,08 18.010.405 10.806.243257.911 6,32% 257.911 59,96 92.792.416 55.675.449 128.955 59,96 46.396.208 27.837.725

95.081 3,25% 95.081 7,86 4.484.710 2.690.826 47.540 7,86 2,242,355 1,345,41313.604 6,08% 13.604 33,04 2.697.196 1.618.318 6.802 33,04 1,348,598 809,159

385.339 9,14% 385.339 25,52 58.994.808 35.396.885 192.669 25,52 29.497.404 17.698.44287.293 3,59% 87.293 19,95 10.446.990 6.268.194 43.646 19,95 5.223.495 3.134.09734.166 5,87% 34.166 13,05 2.674.924 1.604.954 17.083 13,05 1,337,462 802,47748.324 2,11% 48.324 14,05 4.073.308 2.443.985 24.162 14,05 2,036,654 1,221,993

813.442 3,42% 813.442 29,18 142.420.444 85.452.266 406.721 29,18 71.210.222 42.726.1331.308.994 3,47% 1.308.994 28,87 226.719.998 136.031.999 654.497 28,87 113.359.999 68.015.999

139.393 3,80% 139.393 13,87 11.596.544 6.957.926 69.696 13,87 5,798,272 3,478,963350.201 9,07% 350.201 6,52 13.706.629 8.223.977 175.100 6,52 6,853,314 4,111,989

66.123 5,13% 66.123 18,18 7.213.401 4.328.041 33.061 18,18 3.606.701 2.164.0201.539.704 7,06% 1.539.704 32,96 304.476.497 182.685.898 769.852 32,96 152.238.249 91.342.949

65.039 8,10% 65.039 7,17 2.797.467 1.678.480 32.520 7,17 1,398,733 839,24061.699 4,55% 61.699 9,82 3.634.430 2.180.658 30.850 9,82 1.817.215 1.090.3292.250 1,31% 2.250 25,14 339.460 203.676 1.125 25,14 169.730 101.8383.475 2,10% 3.475 13,86 288.987 173.392 1.738 13,86 144,493 86,696

175.031 2,55% 175.031 15,82 16.616.929 9.970.158 87.516 15,82 8,308,465 4,985,079882.375 6,62% 882.375 14,73 77.995.021 46.797.013 441.187 14,73 38.997.511 23.398.506222.713 6,10% 222.713 43,04 57.507.905 34.504.743 111.357 43,04 28.753.953 17.252.372736.576 10,06% 736.576 5,14 22.716.840 13.630.104 368.288 5,14 11,358,420 6,815,052170.764 10,38% 170.764 12,08 12.381.105 7.428.663 85.382 12,08 6,190,553 3,714,332

12.714 1,86% 12.714 15,65 1.193.863 716.318 6.357 15,65 596.932 358.1591.028.825 7,25% 1.028.825 33,45 206.491.547 123.894.928 514.412 33,45 103.245.773 61.947.464

102.971 2,76% 102.971 16,69 10.311.079 6.186.647 51.485 16,69 5,155,539 3,093,324710.421 2,90% 710.421 13,87 59.107.512 35.464.507 355.210 13,87 29,553,756 17,732,254

I' I: ,." : : 1'+ .1' .": Ij .' I '.


132

Table 29: Estimated cost of ensuring affordability as a percentage of the total turnover of the electronic communications sector (SOURCE for broadband take-up percentages and reasons for not taking up broadband: Eurostat)

recent available turnover for ‘telecommunications’ (which before 2008 was subject to NACE code Rev 1.1: 642) is taken into account. In the telecommunications turnover figures no account is made of the extra revenues generated by the new broadband customers, since this surplus is marginal compared to total turnover figures. 205 Telecommunications sector turnover for the Netherlands and Malta is not publicly available (data are considered to be confidential), so no calculation could be made for these countries (as for Finland, see above).


Austria 6.729.200 0,57% 0,34% 0,28% 0,17% 0,51% 0,31% 0,26% 0,15%Belgium 12.193.100 0,76% 0,46% 0,38% 0,23% 0,75% 0,45% 0,37% 0,22%Bulgaria 2.009.200 1,69% 1,02% 0,85% 0,51% 1,32% 0,79% 0,66% 0,40%Cyprus 592.000 1,00% 0,60% 0,50% 0,30% 0,83% 0,50% 0,41% 0,25%Czeeh Republie 3.924.200 1,85% 1,11% 0,92% 0,55% 1,85% 1,11% 0,92% 0,55%Denmark 6.579.500 0,06% 0,03% 0,03% 0,02% 0,05% 0,03% 0,03% 0,02%Estonia 757.000 0,41% 0,25% 0,21% 0,12% 0,41% 0,25% 0,21% 0,12%Finland 5.013.900France 63.797.900 0,30% 0,18% 0,15% 0,09% 0,28% 0,17% 0,14% 0,08%Germany 71.232.100 0,71% 0,43% 0,36% 0,21% 0,65% 0,39% 0,32% 0,19%Greece 8.154.300 0,65% 0,39% 0,33% 0,20% 0,60% 0,36% 0,30% 0,18%Hungary 4.852.300 1,04% 0,62% 0,52% 0,31% 0,60% 0,36% 0,30% 0,18%Ireland 8.163.200 0,14% 0,09% 0,07% 0,04% 0,09% 0,05% 0,04% 0,03%Italy 42.606.000 0,68% 0,41% 0,34% 0,20% 0,68% 0,41% 0,34% 0,20%Latvia 879.700 2,52% 1,51% 1,26% 0,76% 1,04% 0,62% 0,52% 0,31%Lithuania 1.026.500 2,65% 1,59% 1,32% 0,79% 1,48% 0,89% 0,74% 0,45%Luxembourg 2.446.900 0,02% 0,01% 0,01% 0,01% 0,02% 0,01% 0,01% 0,01%MaltaNetherlandsPoland 13.257.600 2,82% 1,69% 1,41% 0,85% 0,91% 0,55% 0,46% 0,27%Portugal 7.783.600 3,13% 1,88% 1,57% 0,94% 3,13% 1,88% 1,57% 0,94%Romania 5.519.100 1,04% 0,62% 0,52% 0,31% 0,81% 0,49% 0,41% 0,24%Slovakia 2.241.800 0,68% 0,41% 0,34% 0,20% 0,34% 0,20% 0,17% 0,10%SlovenÎa 1.513.100 0,54% 0,32% 0,27% 0,16% 0,50% 0,30% 0,25% 0,15%Spain 39.521.100 1,35% 0,81% 0,67% 0,40% 1,09% 0,65% 0,54% 0,33%Sweden 10.379.300 0,18% 0,11% 0,09% 0,06% 0,13% 0,08% 0,06% 0,04%United Kin dom 80.674.100 0,15% 0,09% 0,08% 0,05% 0,15% 0,09% 0,08% 0,05%

• .. :" 11 , .' , ' , , , , , , ,

IJ ' b k 12MbLIJ ' b k 12MbMd' ,.Annual

Total discounts compared to annual telecom turnover Total discounts compared to annual telecom turn overtelecommu-

nkationsScenario lA Scenario 1B Scenario 2A Scenario 2B Scenario lA Scenario 1B Scenario 2A Scenario 2B

turnoverin 1000EUR

Austria 6.729.200 0,59% 0,36% 0,30% 0,18% 0,54% 0,32% 0,27% 0,16%Belgium 12.193.100 0,78% 0,47% 0,39% 0,23% 0,76% 0,46% 0,38% 0,23%Bulgaria 2.009.200 0,29% 0,17% 0,14% 0,09% 0,22% 0,13% 0,11% 0,07%Cyprus 592.000 0,55% 0,33% 0,27% 0,16% 0,46% 0,27% 0,23% 0,14%Czeeh Republie 3.924.200 1,50% 0,90% 0,75% 0,45% 1,50% 0,90% 0,75% 0,45%Denmark 6.579.500 0,17% 0,10% 0,09% 0,05% 0,16% 0,10% 0,08% 0,05%Estonia 757.000 0,35% 0,21% 0,18% 0,11% 0,35% 0,21% 0,18% 0,11%Finland 5.013.900France 63.797.900 0,24% 0,15% 0,12% 0,07% 0,22% 0,13% 0,11% 0,07%Germany 71.232.100 0,35% 0,21% 0,17% 0,10% 0,32% 0,19% 0,16% 0,10%Greece 8.154.300 0,15% 0,09% 0,08% 0,05% 0,14% 0,09% 0,07% 0,04%Hungary 4.852.300 0,49% 0,29% 0,25% 0,15% 0,28% 0,17% 0,14% 0,08%Ireland 8.163.200 0,15% 0,09% 0,07% 0,04% 0,09% 0,05% 0,04% 0,03%Italy 42.606.000 0,71% 0,43% 0,36% 0,21% 0,71% 0,43% 0,36% 0,21%Latvia 879.700 0,78% 0,47% 0,39% 0,23% 0,32% 0,19% 0,16% 0,10%Lîthuania 1.026.500 0,63% 0,38% 0,32% 0,19% 0,35% 0,21% 0,18% 0,11%Luxembourg 2.446.900 0,01% 0,01% 0,01% 0,00% 0,01% 0,01% 0,01% 0,00%MaltaNetherlandsPoland 13.257.600 1,82% 1,09% 0,91% 0,55% 0,59% 0,35% 0,29% 0,18%Portugal 7.783.600 0,74% 0,44% 0,37% 0,22% 0,74% 0,44% 0,37% 0,22%Romania 5.519.100 0,53% 0,32% 0,26% 0,16% 0,41% 0,25% 0,21% 0,12%Slovakia 2.241.800 1,09% 0,66% 0,55% 0,33% 0,55% 0,33% 0,28% 0,17%Slovenia 1.513.100 0,08% 0,05% 0,04% 0,03% 0,08% 0,05% 0,04% 0,02%Spain 39.521.100 0,65% 0,39% 0,32% 0,19% 0,52% 0,31% 0,26% 0,16%Sweden 10.379.300 0,15% 0,09% 0,07% 0,04% 0,10% 0,06% 0,05% 0,03%United KinQdom 80.674.100 0,07% 0,04% 0,04% 0,02% 0,07% 0,04% 0,04% 0,02%IlIJ'.!1L -, :'. 11 ['IIl,.lI.'Io ['W.Io",1I ['WU:" 'JIi.I.I' ,,,~y.~ :'W.ul,~ I'Jlir~1I ['Jlillloi~


133

Table 30: Estimated cost of ensuring affordability as a percentage of the total turnover of the electronic communications sector (SOURCE for broadband take-up percentages and reasons for not taking up broadband: Eurobarometer)

Under the different scenarios, the costs of ensuring affordability of broadband across the EU would lie somewhere between 0,1%-0,7% of total turnover of the telecommunications sector. This represents between 0,4% and 2,3% of telecom sector gross operating surplus206 (as a measure of profit). The impacts would however strongly differ between countries, with Portugal, Poland, Latvia and Lithuania in a worst case scenario (and taking into account Eurostat data) having a cost of affordability of more than 2,5% of the total sector turnover, or between 6,7% and 9,8% of sector profit. With Eurobarometer data, Poland and the Czech Republic would be the countries with the highest relative cost of affordability. For both data sets, this is due to a combination of on the one hand many households finding broadband access too expensive and on the other hand either a low turnover of the telecom sector per capita or high revenues and thus discounts per user. In terms of cost of affordability per capita, the following values would be obtained for all EU countries:

Table 31: Estimated cost of ensuring affordability per capita (SOURCE for broadband take-up percentages and reasons for not taking up broadband: Eurostat)

206 See Code 12 170 of Commission Regulation (EC) N° 2007/98 of 17 December 1998 concerning the definitions of characteristics for structural business statistics.


Median offer in basket 1-2Mb s Least ex ensive offer in basket 1-2Mb 5

AustrÎa 7.943.705 4,80 2,88 2,40 1,44 4,33 2,60 2,17 1,30Belgium 10.152.016 9,18 5,51 4,59 2,76 8,99 5,40 4,50 2,70Bulgaria 7.848.395 4,34 2,60 2,17 1,30 3,37 2,02 1,69 1,01Cyprus 685.280 8,60 5,16 4,30 2,58 7,14 4,28 3,57 2,14Czeeh Republie 10.158.879 7,14 4,29 3,57 2,14 7,14 4,29 3,57 2,14Denmark 5.278.044 0,72 0,43 0,36 0,22 0,66 0,40 0,33 0,20Estonia 1.354.193 2,30 1,38 1,15 0,69 2,30 1,38 1,15 0,69Finland 5.081.354France 57.220.124 3,37 2,02 1,69 1,01 3,10 1,86 1,55 0,93Germany 81.465.300 6,22 3,73 3,11 1,86 5,68 3,41 2,84 1,70Greece 10.266.004 5,19 3,11 2,59 1,56 4,76 2,86 2,38 1,43Hungary 9.944.832 5,05 3,03 2,53 1,52 2,91 1,75 1,45 0,87Ireland 3.791.316 3,12 1,87 1,56 0,94 1,89 1,13 0,94 0,57Italy 56.594.021 5,11 3,07 2,56 1,53 5,11 3,07 2,56 1,53Lalvia 2.354.620 9,43 5,66 4,71 2,83 3,87 2,32 1,93 1,16Lithuania 3.459.655 7,85 4,71 3,93 2,36 4,40 2,64 2,20 1,32Luxembourg 502.202 0,90 0,54 0,45 0,27 0,90 0,54 0,45 0,27Malta 413.609 0,62 0,37 0,31 0,18 0,62 0,37 0,31 0,18Netherlands 15.766.606 0,46 0,28 0,23 0,14 0,38 0,23 0,19 0,11Poland 37.812.741 9,89 5,94 4,95 2,97 3,20 1,92 1,60 0,96Portugal 10.255.526 23,76 14,25 11,88 7,13 23,76 14,25 11,88 7,13Romania 21.358.796 2,68 1,61 1,34 0,80 2,10 1,26 1,05 0,63Slovakia 5.294.746 2,86 1,72 1,43 0,86 1,44 0,87 0,72 0,43Slovenia 1.949.614 4,16 2,50 2,08 1,25 3,91 2,34 1,95 1,17Spain 40.595.861 13,09 7,86 6,55 3,93 10,58 6,35 5,29 3,17Sweden 9.340.682 2,04 1,23 1,02 0,61 1,39 0,84 0,70 0,42Uniled Kin dom 57.742.455 2,15 1,29 1,08 0,65 2,15 1,29 1,08 0,65

• ' . I

Table 32: Estimated cost of ensuring affordability per capita (SOURCE for broadband take-up percentages and reasons for not taking up broadband: Eurobarometer)

With Eurostat data, the highest values per capita would be obtained for Portugal, Spain, Poland, Latvia and Lithuania. With Eurobarometer data, high values are also obtained in Portugal, Spain and Poland, and other countries with a high cost per capita would be Belgium, Cyprus, Czech Republic and Slovakia. This is again often the result of high proportions of households not having broadband access because they find it too expensive and/or of the high revenues per user and thus high discounts in these countries. In general, costs per capita would be much higher than is actually the case in countries where a universal service fund has been activated (cf. Table 3 on page 23). It is also worth noting that the relative burden of ensuring affordability could for some providers further increase, because of a more restrictive definition of the contributory base, e.g. by eliminating revenues of voice and other services and only taking into account the revenues associated with broadband services.


134


ft ' b k t 12MbL stft ' b k t 12MbMd' , ,. 0

Discount per capita Discount per capitaPopulation

Scenario lA Scenario 18 Scenario 2A Scenario 28 Scenario lA Scenario 18 Scenario 2A Scenario 28

AustrÎa 7.943.705 5,02 3,01 2,51 1,51 4,53 2,72 2,27 1,36Belgium 10.152.016 9,33 5,60 4,67 2,80 9,14 5,48 4,57 2,74Bulgaria 7.848.395 0,73 0,44 0,37 0,22 0,57 0,34 0,29 0,17Cyprus 685.280 4,74 2,84 2,37 1,42 3,94 2,36 1,97 1,18Czeeh Republie 10.158.879 5,81 3,48 2,90 1,74 5,81 3,48 2,90 1,74Denmark 5.278.044 2,16 1,29 1,08 0,65 1,98 1,19 0,99 0,59Estonia 1.354.193 1,98 1,19 0,99 0,59 1,98 1,19 0,99 0,59Finland 5.081.354France 57.220.124 2,71 1,63 1,36 0,81 2,49 1,49 1,24 0,75Germany 81.465.300 3,05 1,83 1,52 0,91 2,78 1,67 1,39 0,83Greece 10.266.004 1,23 0,74 0,61 0,37 1,13 0,68 0,56 0,34Hungary 9.944.832 2,39 1,44 1,20 0,72 1,38 0,83 0,69 0,41Ireland 3.791.316 3,15 1,89 1,57 0,94 1,90 1,14 0,95 0,57Italy 56.594.021 5,38 3,23 2,69 1,61 5,38 3,23 2,69 1,61Latvia 2.354.620 2,90 1,74 1,45 0,87 1,19 0,71 0,59 0,36Lithuania 3.459.655 1,87 1,12 0,94 0,56 1,05 0,63 0,53 0,32Luxembourg 502.202 0,68 0,41 0,34 0,20 0,68 0,41 0,34 0,20Malta 413.609 0,70 0,42 0,35 0,21 0,70 0,42 0,35 0,21Netherlands 15.766.606 1,28 0,77 0,64 0,38 1,05 0,63 0,53 0,32Poland 37.812.741 6,38 3,83 3,19 1,91 2,06 1,24 1,03 0,62Portugal 10.255.526 5,61 3,36 2,80 1,68 5,61 3,36 2,80 1,68Romania 21.358.796 1,36 0,82 0,68 0,41 1,06 0,64 0,53 0,32Slovakia 5.294.746 4,64 2,78 2,32 1,39 2,34 1,40 1,17 0,70Slovenia 1.949.614 0,65 0,39 0,33 0,20 0,61 0,37 0,31 0,18Spain 40.595.861 6,30 3,78 3,15 1,89 5,09 3,05 2,54 1,53Sweden 9.340.682 1,62 0,97 0,81 0,49 1,10 0,66 0,55 0,33United Kinadom 57.742.455 1,02 0,61 0,51 0,31 1,02 0,61 0,51 0,31Wlfill, , , I MI!JA MfJ QJj(I 'iA! UOO UWl ~ !M!I

5.2.2.c COMPARISON OF THE COST OF AFFORDABILITY BETWEEN OPTIONS

Compared to the net cost of availability, it is even more difficult to make assumptions on how the cost of affordability will differ between options. After all, under each policy option, it is left to the discretion of Member States to decide if measures for specific social groups are taken or not and what these measures include (number of households concerned, amount of discount, etc.). A priori, there is no reason to assume that Member States would be of a different (political) opinion regarding the choice of stimulating broadband affordability under the different policy options. Moreover, each of the five policy options allow Member States to include more or less the same USOs for increasing the affordability of broadband costs, which would allow them to impose this cost of affordability on the sector. Also, the cost of increasing the affordability of broadband services is much less speed dependent than the cost of ensuring availability. In other words, even if e.g. under OPTION 1 or OPTION 4, Member States would impose USOs for broadband speeds lower than 2Mbps (i.e. what is mandated under OPTION 3), these obligations could still lead to a rather comparable burden for the sector. Finally however, since under OPTION 5, it is assumed that availability is ensured by other instruments than universal service obligations (and thus leading to no costs in the USO fund), it could be argued that OPTION 5 leaves more room for including costs related to affordability in the USO fund, leading to a higher probability that these costs will be imposed on the sector. In conclusion, there are little objective elements based on which it could be argued that the distribution of costs of increasing affordability would be different between Options; the main difference is to be expected between OPTIONS 1 to 4 and OPTION 5. The cost of affordability itself (in terms of discounts on the cost of the broadband connection of services) is not a differentiating factor when comparing between the policy options for universal service considered in this study. Regarding the distribution of these costs, it will depend on the decision of the Member States of what affordability stimuli are defined under universal service or what other (public funded) incentives are given for increasing the level of broadband take-up in specific social groups. For OPTION 5, it is considered that some more costs related to affordability could be imposed on the sector since no sector funding would be used for ensuring the availability of broadband services.

Since general taxation or state funding has the least distortive impact on the economic and society as a whole, options including a bigger contribution from State Funding are considered to be preferable when comparing between options. Hence, they are given a more positive assessment. The first place in the ranking is therefore given to the options that are the less distortive. For the cost of affordability, only OPTION 5 is thus given a less favorable ranking.


135



136

OPTION 1 OPTION 2 OPTION 3 OPTION 4 OPTION 5

Estimated cost of affordability

417 – 2.785 Million EUR

417– 2.785 Million EUR



417 – 2.785 Million EUR

State Funding Average % Average % Average % Average % Lower %

Sector Financing

High degree of discretion for MS to decide what costs of affordability are imposed on the sector

Idem Option 1

Idem Option 1

Idem Option 1

More sector funding could be assumed since there is no sector funding for ensuring availability

Ranking 1 1 1 1 2

Table 33: Comparison between options of the distribution of the cost of ensuring broadband affordability

5.2.3 ASSESSMENT OF THE COSTS OF MANAGING THE UNIVERSAL SERVICE SYSTEM

Including broadband access in the list of universal services, be it at the national or EU level, would bring about a number of actions or activities for the different involved actors for administering the universal service provisions and obligations and complying with these207. The costs associated with these activities should also be taken into account and compared between options when making an informed decision on the different policy options.

5.2.3.a IDENTIFICATION OF COST CATEGORIES

The main costs of managing the system identified and relevant for at least one of the policy options are: For the national regulatory authority:

• Set up a universal service system for broadband services, which includes e.g. defining mechanisms for designation and compensation (i.e. method for net cost calculation);

• Organization and management of the universal service system (recurring), including designation of universal service provider(s), calculation of net cost, management of the universal service fund, etc.

For the universal service provider(s):

207 These “costs of managing the system” comprise both administrative costs (i.e. related to costs incurred by enterprises, the voluntary sector, public authorities and citizens in meeting legal obligations to provide information on their action or production, either to public authorities or to private parties (http://ec.europa.eu/governance/impact/docs/key_docs/sec_2005_0791_anx_en.pdf)) as well as some substantive compliance costs, e.g. for the implementation of the organization and management of the universal service system.


http://ec.europa.eu/governance/impact/docs/key_docs/sec_2005_0791_anx_en.pdf)

• Put the necessary information at the disposal of the public authorities for calculating net costs;

For all electronic service providers, being part of the contributive basis:

• Put the necessary information at the disposal of the public authorities for calculating the distribution of the compensation between providers ;

For the European Commission:

• Overall assessment of the national implementation of European universal service provisions;

• Analysis of the impact analyses made by the NRAs with respect to the inclusion of broadband in the list of universal services at the national level;

For the national regulatory authority, the universal service provider, public social services, etc. depending on the exact implementation in the Member State:

• Set up of a system for verification of eligibility for universal broadband affordability measures;

• Organization and management of the system for verification of eligibility for universal broadband affordability measures.

It is clear that a number of cost categories will be present and that the associated costs will be more or less equal no matter which option will in fine be chosen. This is the case for the costs of the universal service provider for complying with the information requirements of the NRAs. Some other categories are on the contrary not relevant for all options, but limited to one or a few of them, e.g. the costs for the EC of analyzing the impact analyses made by the NRAs. Finally, there are a number of categories for which the costs will greatly depend on the actual choice made by Member States under the option, i.e. whether or not broadband will be included as universal service at the national level. This choice can, as already mentioned, not be foreseen at this stage for Options 1, 2 and 4. However, since it is possible that all Member States would choose to include broadband under universal service, it is assumed that costs for these cost categories can possibly amount to the same maximal values under all options. In view of the fact that a substantial part of administrative costs is common to all options, there would obviously not be much value added in analyzing and estimating these costs in great detail. Moreover, it should be stressed that, given the low amounts of these administrative costs when compared with the overall costs of availability and affordability and given the fact that the administrative costs are often added to these costs when calculating compensations, it would be disproportionate to meticulously determine the cost values, even for the types of administrative costs that do differ per option. To illustrate this negligibility, the following paragraphs give some rough estimates of the different cost categories. Where possible, the most important differences between options in terms of administrative costs will be estimated in more detail.


137



138

Costs for set up & organization and management of a universal broadband service system

Much like for the current universal service provisions for telephony services, the inclusion of broadband under universal service would bring about an extra workload for public authorities charged with implementation and follow-up of the US system (most often National Regulatory Authorities). It can be assumed that a number of FTEs will need to be foreseen for defining the exact mechanics of the national system, such as the designation mechanism and the methodology for calculating the net cost. Annually assessing the unfair burden and possible net cost would then be one of the recurring tasks of the NRA, as would be the management of the actual transfers to and from the US fund. All of the options would possibly entail including broadband in universal service for dealing with availability and/or affordability issues, so it can be assumed that costs would not greatly differ between options. However, Option 4 would be more burdensome for NRAs in a sense that the set up and organization of the US system would need to be preceded by an impact analysis of the need for and consequences of the inclusion of broadband in US. To roughly estimate the associated additional costs, it is assumed that the workload for an NRA for a suchlike impact assessment would more or less be comparable to its workload for an analysis of relevant markets (Art. 7 procedure). This cost can be estimated at 2,3 million EUR208 per year for the entire EU, or about 85.000 EUR per country (although figures may substantially differ according to the size of the country).

Costs of US operators and of all electronic service providers to put the necessary information at the disposal of the public authorities

As for the previous cost category, it can be concluded that all of the options would possibly entail including broadband in universal service for dealing with availability and/or affordability issues, so that US (and, to a limited extent, all other) operators would under any option incur costs for handling information requests of the national authorities. The main difference would lie with Option 4, under which supplementary information requests would be made during the impact analyses. A rough estimate can also be drawn from the costs estimated for operators for an analysis of relevant markets (for treating information requests and providing comments on draft measures), which amount to 6,7 million EUR per year209. This amount however represents a substantial overestimation, as it is calculated from the example of the market of mobile termination, one of the most resource-intensive markets, and comprises costs for detailed information requests at over 350 network operators and service providers across the EU. The information requests associated with the impact analyses foreseen under Option 4 are not considered to be so extensive.

208 See SEC(2007) 1472/3: Commission Staff Working Document – Impact Assessment – Accompanying document to the: Commission Proposal for a Directive of the European Parliament and the Council amending European Parliament and Council Directives 2002/19/EC, 2002/20/EC and 202/21/EC, Commission Proposal for a Directive of the European Parliament and the Council amending European Parliament and Council Directives 2002/22/EC and 2002/58/EC and Commission Proposal for a Regulation of the European Parliament and the Council establishing the EECMA: amount is deducted from a survey of NRAs and is based on the example of Market 16. 209 Also see SEC(2007) 1472/3.



139

Costs for overall assessment of the national implementation of European universal service provisions

A follow-up and verification of the way the EU provisions on universal service are implemented and executed in the different Member States, will be a relevant task under all options except Option 2. To estimate the order of magnitude of this cost, it is assumed that about 2 to 3 FTEs of the Commission would be allocated to this task. This would result in an overall yearly cost of 143.317 to 214.976 EUR210, which again represents a marginal amount.

Costs of EC for analysis of the impact analyses made by the NRAs with respect to the inclusion of broadband in the list of universal services at the national level

These costs will only be relevant under Option 4, but are considered to be negligible, since the costs for analyzing the impact analyses would logically even be more limited than the actual drawing up of the impact analyses by the NRAs (cf. supra).

Costs for set up & organization and management of a system for verification of eligibility for universal broadband affordability measures

As was the case for telephony social tariffs, measures to ensure affordability of broadband under the universal service provisions will necessitate the development of a system for managing eligibility for the measures. This includes e.g. the control of fulfillment of eligibility criteria, checking that the discounts are granted only one time per customer or per household, etc. Member States can implement such systems as they prefer, and possibilities range from manual eligibility controls to fully automated databases directly accessible by all relevant parties, much like for telephony social tariffs. For instance, in France beneficiaries of social tariffs for telephony services receive a paper attestation from the social services, which they should then send to the administering body for manual verification of the eligibility. In Belgium, a so-called social database was implemented, which should be consulted by universal service operators at each customer application, to automatically verify whether the customer is eligible, whether he or a family member does not yet enjoy a social discount from another universal service operator, etc. Recurring controls are afterwards done to check if customers are still eligible. In case Member States would decide to use universal service provisions as a means of ensuring affordability of users (e.g. by granting discounts), a similar system will thus need to be set up by the Member State. This decision will need to be taken regardless of the option chosen, so this type of administrative costs would not substantially differ between options. However, the likelihood of implementation in Member States would be higher under Option 5. As a rough estimate of the costs associated in setting up and managing such a system, the costs associated with the above-mentioned manual and automated

210 Assuming the FTEs are on average Grade 5 (step 3) staff (see Council Regulation No 1323/2008), and adding 5% to cover the different allowances that officials (or other servant of the EC) also receive and 25% to cover overhead costs.



140

systems in France and Belgium for telephony social tariffs are shown in the following table: Country Type of cost Year Amount

France Management costs for social services and administering body 2007 2.602.000 EUR

Investment costs for setting up the automated social database Total 999.844 EUR

2006 270.495 EUR Belgium Maintenance costs of automated social database 2007 563.511 EUR

Table 34 Set up and maintenance costs of national systems for verification of eligibility for telephony social tariffs

Yearly costs in the examples thus differ between 750.284 EUR211 and 2.602.000 EUR, so that a cost of 1 to 3 million EUR per country or 27 to 81 million EUR for the EU would be a yearly maximum. 5.2.3.b CONCLUSION

Based on the above paragraphs, it can be concluded that the costs for managing the US system are not significant compared to the cost of ensuring availability and affordability of broadband services. Moreover, differences in costs between options are very difficult to estimate. By consequence, it was concluded that the comparison of the costs for managing the US system between Options adds very little value, which justifies that these costs will not be included in the quantitative assessment of the options. 5.2.4 OVERALL QUANTITATIVE ASSESSMENT

To get an overall view of the possible quantitative impact of the policy options, the different elements of assessment in the previous paragraphs have been brought together in the following table, in which they are again assessed against the global turnover of the telecom sector and the gross operating surplus of the sector (as a measure of profit), and are also expressed as a cost per capita. As the costs for administering the US system are excluded (see 5.2.3), account is only taken of the estimated costs for ensuring availability and affordability. The scenarios represented are the following:

• For availability: net cost of providing availability of 2 Mbps to every EU citizen, calculated per type of zone;

• For affordability: cost of providing a 50% discount to 50% of the households currently not having broadband access because they find it too expensive.

For both types of costs, account is taken of broadband prices equal to the median offer and the least expensive offer in the basket 1-2 Mbps.

211 If investments are depreciated over 3 years, which is the period utilised by the BIPT for IT investments.


Table 35: Estimated cost of ensuring availability and affordability as a percentage of the total turnover of the electronic communications sector, the gross operating surplus of the electronic communications sector and the total population

Under the chosen scenarios, the cost of ensuring availability and affordability by including 2 Mbps broadband in universal service at the EU level would amount to about 0,66-0,69% of total turnover of the sector in the EU and to 2,23-2,33% of gross operating surplus of the sector. The national differences can be illustrated by the extreme case of Romania, where respective percentages of over 4,5% and near 15% can be observed. Together with Finland, Portugal, Sweden, Spain and Greece, Romania also has a cost per capita of over 10 EUR per year. The EU average lies around 5,5-5,7 EUR per year.


141


Annualtelecommu

nicationsturnover

Grossoperating Population

surplus

Tota I cost ofTota I cost of

ensuringensuring Cost of ensuring

Total cost of ensuring availability andavailability and availability and

availability and affordabilityaffordability affordability per

affordability compared tocompared 10 gross capita

annual telecomoperating surplus

turnover

WithWith

WithWrth

WithWrth

With revenues With revenues revenu es revenues revenues

based on based on ~ea5trevenues

based onrevenues

based onrevenues

based onbased on based on based on

median offerexpenslve

medianleast

medianleast

medianleast

offeroffer

expensiveoffer

expensiveoffer

expensÎveoffer offer offer

Austria 6.729.200 1.855.500 7.943.705 34.598.505 39.140.440 0,51% 0,58% 1,86% 2,11% 4,36 4,93Belgium 12.193.100 4.097.700 10.152.016 63.604.175 62.759.147 0,52% 0,51% 1,55% 1,53% 6,27 6,18Denmark 6.579.500 1.755.000 5.278.044 5.772.735 5.618.692 0,09% 0,09% 0,33% 0,32% 1,09 1,06Estonia 757.000 235.600 1.354.193 11.991.614 11.991.614 1,58% 1,58% 5,09% 5,09% 8,86 8,86Finland 5.013.900 1.278.300 5.081.354 77.161.234 87.455.530 1,54% 1,74% 6,04% 6,84% 15,19 17,21France 63.797.900 16.985.700 57.220.124 360.028.051 353.741.587 0,56% 0,55% 2,12% 2,08% 6,29 6,18Germany 71.232.100 21.087.300 81.465.300 372.970.796 378.825.813 0,52% 0,53% 1,77% 1,80% 4,58 4,65Greece 8.154.300 2.636.000 10.266.004 107.083.711 107.935.775 1,31% 1,32% 4,06% 4,09% 10,43 10,51Hungary 4.852.300 1.541.300 9.944.832 89.824.646 88.865.762 1,85% 1,83% 5,83% 5,77% 9,03 8,94Ireland 8.163.200 1.451.500 3.791.316 25.922.293 35.746.312 0,32% 0,44% 1,79% 2,46% 6,84 9,43Italy 42.606.000 16.594.000 56.594.021 156.034.166 156.034.166 0,37% 0,37% 0,94% 0,94% 2,76 2,76Lithuania 1.026.500 314.800 3.459.655 13.582.327 7.616.258 1,32% 0,74% 4,31% 2,42% 3,93 2,20Luxembourg 2.446.900 764.900 502.202 1.913.297 1.913.174 0,08% 0,08% 0,25% 0,25% 3,81 3,81Malta 413.609 429.370 429.370 no info no info no info no info 1,04 1,04Netherlands 15.766.606 35.330.475 36.942.856 no info no info no info no info 2,24 2,34Poland 13.257.600 37.812.741 187.055.475 60.477.123 1,41% 0,46% no;nfo no info 4,95 1,60Portugal 7.783.600 2.484.800 10.255.526 143.022.281 143.022.281 1,84% 1,84% 5,76% 5,76% 13,95 13,95Romania 5.519.100 1.732.400 21.358.796 252.728.134 261.091.094 4,58% 4,73% 14,59% 15,07% 11,83 12,22Slovakia 2.241.800 718.500 5.294.746 7.578.687 3.823.466 0,34% 0,17% 1,05% 0,53% 1,43 0,72Slovenia 1.513.100 403.300 1.949.614 7.390.975 7.531.799 0,49% 0,50% 1,83% 1,87% 3,79 3,86Spain 39.521.100 15.081.800 40.595.861 450.116.583 427.508.399 1,14% 1,08% 2,98% 2,83% 11,09 10,53Sweden 10.379.300 2.376.700 9.340.682 107.549.117 111.023.485 1,04% 1,07% 4,53% 4,67% 11,51 11,89United Kin om 80.674.100 23.364.900 57.742.455 213.813.961 213.813.961 0,27% 0,27% 0,92% 0,92% 3,70 3,70

• . ., " ,11 ..... , I .. 0: I I,' I ..

5.3. OVERALL COST-BENEFIT ASSESSMENT OF EACH POLICY OPTION

As already indicated in the introduction of Chapter 5, the overall assessment of the different policy options that were identified to solve the problem of ‘whether universal service at EU level is an appropriate tool to advance broadband development and if so, when and how it should be used, or whether this should be left to other EU policy instruments or national measures’, can be done by combining all results of the qualitative and quantitative impact assessments. This can be done most consistently by bringing together the relative rankings of the different options for all of the assessment steps:

OVERALL COST-BENEFIT ASSESSMENT

OPTION 1 No policy

change (2009

regime)

OPTION 2 No EU USO

Regulation

OPTION 3 Mandating

2Mbps access

for all EU citizens

OPTION 4 Refinement

of the 2009 Regime


USO

PRELIMINARY QUALITATIVE ASSESSMENT Mechanisms available for providing financial support to specific user groups

2 1 2 2 2

Mechanisms and sources for raising the funding of the USO net cost

2 2 2 1 2

QUALITATIVE ASSESSMENT OF IMPACTS Overall score on the qualitative assessment of impacts (on a scale of 0 to 10)

5.00 4.73 4.93 6.15 5.74


QUANTITATIVE ASSESSMENT OF THE COST OF ENSURING AVAILABILITY


QUANTITATIVE ASSESSMENT OF THE COST OF ENSURING AFFORDABILITY


It should be noted that a suchlike comparison of rankings should be looked at with caution, first and foremost since it does not give information on the degree of distinction between the options. To try to remedy this problem, the figures are completed with the overall score (on 10) of all options on the list of qualitative impacts. This is however only a partial solution, and a choice between options should always be made by combining the information in the table above with the detailed assessments made in the previous paragraphs of this chapter. For instance, to take into account possible differences in relevance of the different specific objectives, the detailed scores of the options on the different qualitative impacts should be taken into account. In conclusion however, it can be stated that OPTIONS 4 and 5 overall appear to be best ranked to solve the current problem. OPTION 5 however has the disadvantage that it makes the important assumption that overall availability of 2Mbps connectivity will be fully ensured by other policy instruments than US obligations, which cannot be


142



143

guarantee, so that the positives impact of OPTION 5 could possibly be overestimated. Furthermore, the continuation of the current “2009 Regime” appears to be a more adequate solution than the introduction of a 2Mbps US obligation at the EU level and the abolishment of all EU US Regulation. Besides their negative effects on cost distribution (i.e. it is very likely that high costs will need to be borne by the electronic communications sector), these OPTIONS 2 and 3 also negatively come out of the qualitative assessment.


ANNEX 1 : OVERVIEW OF NATIONAL BROADBAND PLANS (SITUATION AS OF DECEMBER 2009)

Source: Cullen International

Universal broadband availability requirement Country Broadband availability in

rural areas (%

population on Dec. 31,

2007)

Status As policy goal

As extension to USO Minimum transmission speed

National / local funding “Open access”

requirements for publicly

funded schemes?

AT 80.6% Under consideration Programme of the federal government 2008–2013, p. 67

25 Mbps by 2013 Details not yet decided

Details not yet decided Not applicable

BE 100.0% - - - - - -

DK 100.0% Under consideration Expert committee established in April 2009 on initiative from the ministry is expected to present draft proposals at the end of 2009.

- - - -

FI 91.0% Adopted by Decree 732/2009 of the Ministry of Transport and Communications of Oct. 7, 2009. (in English) Obligation applies from July 1, 2010.

‘Functional internet access’ (art. 4 of the Universal Service Directive) set at 1 Mbps (download). Technology neutral. The average download speed must be: ≥ 750 kbps during 24h ≥ 500 kbps during any

National funding The reimbursement of the USO net cost, if an unfair burden, would be from the state funds (i.e. no net cost sharing between the operators).

No


http://www.cullen-international.com/link/1941410






145


rural areas (%


2007)





funded schemes?

consecutive 4 hours during the day.

Adopted government broadband strategy of Dec. 4, 2008. See ministry website (in Finnish only).

100 Mbps by end 2015 for 99% of residencies and businesses. Technology neutral.

State and municipality funding Max. state aid in 2010-15 expected to be €11m per year, covering also possible USO funding for 1 Mbps access. An area eligible for state aid should fulfil the criterion that max. 5.4% of population in mainland Finland lives in as or less sparsely populated area. In short, aid would be available as follows:

• at least 34% to be financed by the applicant

• at least 33% by the relevant municipality (but 8% allowed for financially weak municipalities)

• max. 33% by the state (or max. 58% if state needs to cover financially weak municipalities). A bill (HE 176/2009) for a law that will govern state aid aspects was submitted to Parliament on Oct. 2, 2009.

Yes, during at least 10 years

FR 96.7% Proposed See Big Five Update January 2009.

512 kbps (download) 96 kbps (upload) Technology neutral Max. €35 per month (19.6% VAT incl.), equipment included

No Not applicable





http://www.cullen-international.com/documents/cullen/telecom/europe/states/b5/0901/repb501.htm



146


rural areas (%


2007)





funded schemes?

DE 87.5% Adopted See Big Five Update February 2009.

• 1 Mbps for all households by end of 2010, i.e. the current minimum speed of“efficient” broadband.

• 50 Mbps for 75% of households by 2014 and for all households “as soon as possible”. Technology neutral

National and local funding Several state aid schemes support broadband availability in rural areas, usually funded from national, regional and local budgets and sometimes also from EU structural funds. All schemes foresee that municipalities may apply for state aid, but must cover parts of the costs from their own budget.

• €141m national scheme, 2008–2010,N115/2008

• regional schemes in three federal states (€45m total), 2009–2015, N150/2008(Saxony), N237/2008 (Lower Saxony),N266/2008 (Bavaria)

• €60m national scheme, 2008–2013,N238/2008

• extension of the Bavarian scheme by about €22m, N153/2009

• additional €80m scheme in Lower Saxony, 2009–2011, N243/2009. Federal states and municipalities may also use money from the second recovery package, which was adopted in Feb. 2009 on national level.

Yes

GR 50.0% Under consideration EETT Action Plan for 2009 includes the project of the incorporation of broadband access as

- - -
















147


rural areas (%


2007)





funded schemes?

part of universal service.

IE 73.3% Adopted 1.2 Mbps (download) 200 kbps (upload) By Sep. 2010, using mobile 3G. €19.99 per month (21.5% VAT incl.) with connection fee of €49 (VAT incl.) including equipment

National funding Public money is earmarked for the National Broadband Scheme (NBS) with broadband coverage delivered by the mobile operator ‘3 Ireland’. The NBS will deliver broadband to certain target areas in Ireland in which broadband services are not available (approx. 223K buildings). The value of the investment required to implement the NBS is €223m. The government is contributing €79.8m over the 68-month period. The project is eligible for EU co-funding in 2007-2013.

Yes As a condition of the contract, 3 Ireland has to provide wholesale access in the NBS areas. ‘Wholesale data MVNO overview’ and ‘Wholesale end-user terms’ are provided as examples for potential access-seekers.

IT 81.7% Plans published See Big Five Update June 2009.

Universal 2–20 Mbps broadband access by end-2012 95.6% of population: fixed 20 Mbps access 3.9% of population: wireless broadband access technologies.

Yes Total cost estimated at €1.471bn. Public funds already earmarked for broadband projects, in addition to c.a. €264m already spent to upgrade backhaul networks in underserved areas: 800m for the period 2007-2013 under art. 1 of law n. 69 of June 18, 2009 €188m from the 1bn EU recovery plan (share of

Yes












http://www.cullen-international.com/report/2600/c26199#_Government_outlines_short-term

http://www.cullen-international.com/report/2600/c26199#_Government_outlines_short-term



148


rural areas (%


2007)





funded schemes?

national quota 50% i.e. €94m).

LU 100.0% - - - - - -

NL 99.0% - - - - - -

PT 86.0% Adopted Planned by the new government in its 2009-2013 programme(page 28).

Unspecified Using fixed lines

National funding Resolution of the Council Ministers of July 30, 2008 foresees the development of measures aiming at the investment in remote or scarcely populated areas, in the context of the approval of the budget for 2009 by Parliament. Under the QREN (national strategic reference framework for 2007-2013) public investments in broadband infrastructure are possible in cases of market failure. Local funding ‘Redes Comunitárias’ projects are approved after a public tender. Applicants are public entities and must ensure 55% of the overall costs of the project. In 2007 four such projects for a total of €34m were approved, for the deployment of more than 1000km of optical fibre, bringing core network connectivity to underserved areas.

Yes

ES 88.0% Adopted (from Jan. 2011)

The Ministry of Industry has announced that a 1 Mbps (download) broadband connection

1 Mbps (download) connection from Jan. 1, 2011 Other details (e.g. whether it will be technology neutral) are unspecified so far but will be set in a

National funding Funds from the Plan Avanza of the Ministry of Industry are partly being devoted to the extension of broadband services - mainly in rural areas - on a technology neutral basis. From 2005 to 2008 this plan devoted €116m to the extension of broadband infrastructure.

No










149


rural areas (%


2007)





funded schemes?

will be included in the scope of USO from Jan. 1, 2011. The ministry consulted until Oct. 26, 2009 on the inclusion of broadband in the scope of universal service (see Big Five Update October 2009)

future ministerial regulation (timing for adoption unspecified).

From 2008 to 2012, Avanza will devote €39m to the extension of broadband and other telecommunications services to rural areas. Another tool of the ministry of industry to reach universal broadband availability is the plan for the extension of broadband (PEBA): from 2005 to 2008 this plan devoted €8.4m subsidies and €18m under the form of refundable loans to the extension of broadband infrastructure. Local and regional funding In some instances, the funds are transferred by the government to the Autonomous Communities, which then make use of them by way of incentives, etc. Autonomous Communities may also devote their own funds to broadband extension programmes.

SE 90.0% Adopted On Nov. 3, 2009 the government presented the new national broadband strategy

The new strategy envisages an upgrade of the current 20 kbps functional access definition under USO

100 Mbps 40% of households and businesses – by end-2015 90% - by end-2020 Technology neutral

National funding SEK 445m (€43m) government funding is foreseen for the following measures: Duct infrastructure support – SEK 95m (€9m) in 2010 Rural broadband extension programme for underserved and commercially unattractive areas – SEK 250m (€24m) Specific measures for robust and secure communications – SEK 100m (€9.7m) in 2010 Local and regional funding The new strategy encourages investments in broadband by local authorities, in particular in

Yes – for new infrastructure developments “Open access” scheme was not always followed in the past. Today there are over 150 municipal broadband networks applying different models, ranging from


http://www.cullen-international.com/report/3049/c35521








http://www.cullen-international.com/link/1924858#item134516


150


rural areas (%


2007)





funded schemes?

passive infrastructure, such as duct and dark fibre, and subject to requirements of open access, competition neutrality and non-discrimination

“open access” to full vertical integration.

In the past, Sweden already implemented an ambitious plan to increase broadband availability which resulted in a high broadband availability – also in rural areas – end of 2007. Under the government broadband support programme (2001-2007), public funds were granted to the municipal authorities for establishing broadband infrastructure. The funding was aimed at improving connections to the national backbone and building interurban networks, local area networks and access networks in municipalities where broadband infrastructure coverage would not be improved on a commercial basis. To be eligible for public funding, broadband projects had to meet a set of pre-defined criteria, including: The public funding must be primarily used for the rollout of broadband infrastructure in urban areas and communities with less than 3,000 inhabitants.

• Municipalities are required to use an open tender procedure in order to avoid causing undue distortion of competition.

• The selected provider must offer open access to the infrastructure to competitors on transparent and non-discriminatory terms and to ensure that the network has sufficient capacity. In April 2008 the government published a detailed assessment of the programme results and a proposal for a new programme ‘Broadband 2013’. The total investment in the broadband infrastructure under the 2001-2007 support programme amounted to SEK 7,600m financed from the following sources:

• SEK 4,000m (51%) – Swedish state

• SEK 840m (11%) – local municipalities

• SEK 2,300m (30%) – operators

• SEK 530m (7%) – EU structural funds

• SEK 60m (1%) – regional development funds. The following operators were involved in the project: TeliaSonera (88 municipalities), Teracom (49 municipalities), local operators owned or controlled by municipalities (86 municipalities), Tele2/SkåNet (31 municipalities), other privately owned operators (23 municipalities).

UK 96.1% Network design experts were expected develop a tender specification by autumn 2009. The government

(USC)

At least 2 Mbps by 2012 and 50 Mbps by 2017. Technology neutral.

To be funded from public money – under spent £200m (€230m) from BBC’s Digital Switchover Help Scheme after 2012 – and enhanced by other sources such as commercial contracts, private partner contributions and regional public sector beneficiaries.

To be determined Government says that “service




151


rural areas (%


2007)





funded schemes?

published final Digital Britain report on June 16, 2009 (see Big Five Update June 2009) and decided to:

• introduce the Universal Service Commitment(USC)

• establish the Network Design and Procurement Agency to define and deliver the USC. The Digital Britain white paper update of June 30, 2009says this does not require legislation to be given effect.

competition should, as far as possible, be available across the country”.

Universal broadband availability requirement Country Broadband coverage in rural areas Status As

policy goal




funded schemes?

BG 10% (2007) No requirements Under discussion

No No Above 144 k/bits Not decided No

HR 80% (2007) No requirements - - - - -



http://www.cullen-international.com/report/2600/c26201#_Digital_Britain_final

http://www.cullen-international.com/report/2600/c26201#_Digital_Britain_final





152


policy goal




funded schemes?

CY No data available

CZ 75% (2007) None No No No CTU considers 256 kbps (downstream) as threshold for the definition of “broadband”

National funding does not exist. Municipal authorities, mostly in large cities, are supporting some local activities. A national funding mechanism is expected to be developed as part of agriculture and rural development plan.

No Industry is debating this issue without NRA involvement.

EE 73.3% (2007)

Elion and Levira have countrywide WiMAX coverage (Levira 80% of rural population. Elion data not available). In addition, Estonian Energy has CDMA450 (Kõu) countrywide coverage (c.a. 85% coverage)

None - - - - -

HU 94% (2008) No requirements Not yet discussed

- - - - -



153


policy goal




funded schemes?

LV 65% (2007) Coverage by a mobile CDMA network around 95% (minimum download speed 256 Kbit/s) following a project co-funded by the Latvian state. Actual take-up of CDMA network is around 30%

No requirements Yes No 512 Kbit/s (defined as broadband

threshold by the ministry of transport)

In 2000-2008 the ministry of transport held a project for the provision of internet in the rural areas. The project was co-funded by ERAF (European regional development fund) and the Latvian state. The total amount of investment was LVL 15m (€10.7m). Telekom Baltija won the tender and built a mobile CDMA network, the minimum download speed is 256 kbps. In May 2009, there were more than 25,000 users of this network. In Dec. 2006 the Cabinet of Ministers adopted a Broadband strategy for 2006-2012 (decision No.839 of the cabinet).The ministry of transport supported the option for broadband coverage around 70% in 2012. In the near future, the ministry is planning to launch another tender, in which also the last mile might be included. However, there is still a long way to go (defining the criteria, preparing a draft Cabinet regulation etc). In March 2009 the ministry promoted a research on broadband availability.

Yes

LT 22.6% (July 2009)

No requirements No No 512 kbps (defined as broadband threshold in national broadband strategy for 2005-2010). National strategy for 2010-2015 is still under preparation.

The rollout of the publicly funded rural fibre backbone network (called RAIN - rural area information technology broadband network) was completed in 2008. RAIN is a broadband infrastructure development to bring broadband to Lithuanian municipal offices, citizens, and enterprises in under-served rural areas.RAIN2 focuses on rural areas.

Yes

MK No data available

No requirement - - - - -













154


policy goal




funded schemes?

MT No specific data on rural areas

No requirements No No None No No

PL 42.5% (2007)

No requirements - - - Not yet. On May 5, 2009 the Ministry of Infrastructure published a draft law to stimulate the development of broadband networks in rural areas: 1. allowing local governments to invest public money in broadband networks 2. creating a national broadband forum to help local governments to benefit from the funds available under the EU Recovery Plan (see CEE Update June 2009).

Yes

RO No specific data on rural areas

The draft policy document on broadband strategy2009-2015 provides for the creation of a working group formed by several ministries, that will discuss if broadband should be included in the US concept.

No No - No No

SK 38.5% (2007)

Operational Programme Informatisation of Society

No requirements Yes No - No Funds will come from ERAF (European regional development fund)

Not specified







155


policy goal




funded schemes?

(OPIS) According to OPIS evaluation plan the baseline value (2007) for internet penetration is 5 % and target value for 2013 is 30%.

SI 85.5% (2007)

Roll-out in progress. National broadband strategy envisaged 90% population coverage with minimum speed of 2 Mbit/s by end of 2010.

Yes No 2Mbit/s Yes Yes

TR Not available

Currently “basic internet services” is included in the scope of universal service Art. 5/e of Universal Service Law of June 2005. Art. 67 of theElectronic Communications Law of Nov. 2008 dropped the term “basic” in order to provide scope for universal broadband

No official statement

No official statement. Not specified The universal service law provides for national funding for the provision of universal services, however, implementation has made no progress.

Not specified











156


policy goal




funded schemes?

access. However, there has been no further progress. The ordinance on principles and procedures for the collection of universal service revenues and execution of expenditures has not been changed accordingly either.


ANNEX 2 : DETAILED QUALITATIVE ASSESSMENT OF EACH POLICY OPTION

POLICY OPTION 1: ‘NO POLICY CHANGE’ (2009 REGIME)

OPTION 1: No Policy Change (2009 Regime)

ACHIEVE AN OPTIMAL BALANCE BETWEEN HARMONISATION AND FLEXIBILITY OBJECTIVE 1: Ensure a minimum level of broadband service at the EU level

Impacts Magnitude Likelihood Increased EU competitiveness

Since no minimum requirements are defined at the EU level, the current USO regime provides limited incentives for increasing overall EU competitiveness following increased broadband availability and take-up. Furthermore, the individual national broadband plans can only partly guarantee an overall increase in EU competitiveness, as they depend on the initiatives of the Member States, which are not necessarily the same across the EU.

0

Medium

2

Increased development of a European single (online) market

The current regime allows for MS to include broadband in USO, but there are no minimum requirements, stimulating the development of a European single (online) market. National broadband plans (incl. financing of initiatives with State Aid) could possibly increase the development of a European single (online) market, but this could be different across European regions as they depend on the initiatives of the Member States, which are not necessarily the same across the EU.

0

Medium

2

Social inclusion: Increased affordability of a minimum level of broadband services for all social groups;

Increased accessibility of a minimum level of broadband services for disabled users.

Since ensuring affordability is left to the discretion of MS, under the limits of taking due account of national circumstances such as the prevailing bandwidth used by the majority of subscribers in the Member State, the current USO regime does not guarantee an important increase of affordability of broadband services for all user groups in all of the EU Member States Since ensuring accessibility issues is left to the discretion of MS, the current USO regime does not guarantee an important increase of accessibility of broadband services for disabled in all of the EU Member States.

0

0

Medium

Medium

2 2

Territorial cohesion: Increased availability of a minimum level of broadband services of a sufficient speed and quality across the EU

Availability of broadband services is not particularly stimulated by the current USO regime as it depends on the minimum service levels defined by each MS.

0

Medium

2



158

OPTION 1: No Policy Change (2009 Regime) territory (and especially in the underserved areas).

National broadband plans are often focusing on serving underserved areas, but there are no common minimum levels of speed and quality across the EU.

Reduced CO2 emissions because of less travel

The current USO regime does not particularly focus on providing the required broadband services or incentives for e.g. stimulating teleworking

0

Low

1


This impact is directly related to the availability of a minimum level of broadband services in rural areas, for which no common levels are currently defined at EU level.

0

Low

1

Total score OBJECTIVE 1 0


Impacts Magnitude Likelihood Increased flexibility for Member States to define additional universal service levels

The flexibility if currently important: there are neither minimum levels nor maximum speeds imposed on Member States

0

High

3

Better reflection of national preferences in the decision on who will bear the cost of services of general economic interest.

The current USO regime allows Member States to choose between sector funding (via including broadband in USO) or funding of broadband development by means of general taxation.

0

High

3

Better matching of national preferences regarding the level of social inclusion and territorial cohesion

Member States have the flexibility to decide to what extent they want to stimulate social inclusion and territorial cohesion by means of making broadband services more available, affordable and accessible.

0

High

3



Impacts Magnitude Likelihood Better level playing field for electronic communications operators across the EU

The current regime allows for important differences in broadband stimulation across EU Member States.

0

Low

1


The current regime allows for MS to include broadband in USO, but there are no minimum requirements, stimulating the development of a European single (online) market. National broadband plans (incl. financing of initiatives with State Aid) could possibly increase the development of a European single (online) market, but this could remain limited to certain European regions.

0

Medium

2


ENSURE THE EFFICIENCY AND COST-EFFECTIVENESS OF PUBLIC INTERVENTION OBJECTIVE 4: Ensure that there is no distortion or restriction of competition



159


Impacts Magnitude Likelihood Increased probability that all efficient providers will be considered during the designation process

The principle that all efficient providers need to be considered was confirmed by the ECJ for the current US framework. There are today however no ex-ante guidelines stimulating a consistent approach across Member States.

0

Medium

2


The possibility for Member States to include broadband in the scope of USO under the current framework results in an uncertainty regarding obtaining compensation for investing in non-profitable areas (cf. unfair burden principle). If broadband is not included in USO or a MS is opting for public financing, then the guidelines for State Aid for broadband are providing clear indications of the conditions that need to be met, which reduces uncertainty if public financing is chosen.

0

Low

1

Reduced uncertainty regarding the compensation costs related to ensuring affordability and accessibility

The assessment of the unfair burden of costs related to ensuring affordability and accessibility are left to the discretion of MS, respecting some reasonable criteria.

0

Low

1


OBJECTIVE 5: Ensure that market distortions are minimised

Impacts Magnitude Likelihood Decreased overall effect of the burden of financial compensation

The overall effect of the burden is minimized in case public funding is applied (cf. supra). Since the current framework leaves flexibility for the MS not to include broadband in USO or to finance USO by public funding, this optimal approach can be maintained. Depending on the MS preferences however, the current USO framework allows for reducing the contributory basis e.g. to the providers; leading to a larger overall effect of the burden of financial compensation.

0

Medium

2


The current regime provides MS the flexibility for choosing a designation mechanism, with respect however of overall principle of e.g. cost-efficiency.

0

Medium

2

Increased promotion of market driven investments

No specific measures are foreseen for promoting market driven investments in new and innovative services.

0

High

3



Impacts Magnitude Likelihood Increased user choice between service providers independent

Under the current USO regime, very little guarantee is given that user choice between service providers will be stimulated.

0

Low

1



160

OPTION 1: No Policy Change (2009 Regime) of location and of social group

In case of State Aid, open access obligations could however stimulate service based competition and create user choice between service providers.


The separation between the provider of the connection and the provider of services is foreseen in the current USO regime and should thus be respected by MS when including broadband in the scope of USO. The open access obligation when receiving State Aid also stimulates the separation between the provision of the infrastructure and the services.

0

High

3


Currently, no explicit obligation for providing non-bundled services exists in case e.g. State Aid is received. Under the USO framework however, the user would have the right to request for only the minimum broadband services (which is thus not part of a package of services).

0

Low

1



Impacts Magnitude Likelihood Reduced uncertainty regarding the possibility of and amount of compensation for investments in non-profitable areas

There is a certain level of uncertainty under the current USO framework as the unfair burden for the USP needs to be assessed. Even if the NRA considers that the burden is unfair, uncertainty remains regarding the exact compensation that will be obtained (will depend e.g. on costing methodology applied by the NRA and is most often determined ex-post). In case broadband is not included in USO and State Aid rules apply, than the uncertainty is significantly decreased.

0

Low

1

Increased transparency of mechanisms for designation

The level of transparency of the mechanisms for designating US providers, depends on the willingness of Member States to provide this transparency (within limits of requirements of Art 8(2) of US Dir).

0

Medium

2

Increased transparency of mechanisms for compensation

The level of transparency of the mechanisms for compensating US providers, depends on the willingness of Member States to provide this transparency (within limits of requirements of Art 8(2) of US Dir).

0

Medium

2


The minimum level will vary from Member State to Member State. By consequence, no initiatives can be taken by the EU level for increasing transparency / visibility. Again, the level of transparency will thus depend on the Member State (within limits of requirements of Art 8(2) of US Dir).

0

Low

1


Since the measures for increasing the affordability are left to the discretion of Member States, the extent to which these barriers are reduced will depend on the efforts made by the individual

0

Low

1



161


Member States. Total score OBJECTIVE 7 0

POLICY OPTION 2: ‘NO EU REGULATION RELATED TO USO’

OPTION 2: No EU Regulation related to USO



The individual national broadband plans can only partly guarantee an overall increase in EU competitiveness.

-

Low

1


National broadband plans (incl. financing of initiatives with State Aid) could possibly increase the development of a European single (online) market, but this could be different across European regions as they depend on the initiatives of the Member States, which are not necessarily the same across the EU.

- -

Low

1



The lack of an EU Regulation related to USO leaves MS full flexibility to increase the affordability and/or accessibility of broadband services or not. As such, no minima at the EU level are ensured.

- -

- -

Medium

Medium

2

2

Territorial cohesion: Increased availability of a minimum level of broadband services of a sufficient speed and quality across the EU territory (and especially in the underserved areas).

Availability of a minimum level of broadband services of a sufficient speed and quality will vary per MS and depend on the preferences of the individual states. National broadband plans are often focusing on serving underserved areas, but there are no common minimum levels of speed and quality across the EU.

-

Low

1


Other instruments than USO could be equally effective for e.g. stimulating teleworking, so not having an EU regulation related to USO does not seem to limit the possibilities for obtaining this impact

0

Low

1

Diminution of exodus from rural areas because of higher attractiveness of rural

This impact is directly related to the availability of a minimum level of broadband services in rural areas. The importance given to rural areas will fully depend on the preferences of MS under

0

Low

1



162

OPTION 2: No EU Regulation related to USO areas Option 2. This does however not represent a

substantial difference with the baseline scenario. Total score OBJECTIVE 1 - 12 OBJECTIVE 2: Respect the heterogeneity of preferences among Member States


Member States have full flexibility in defining the national universal service levels

+ + +

High

3

Better reflection of national preferences in the decision on who will bear the cost of services of general economic interest

Member States have full flexibility in choosing who will bear the cost of providing broadband as a SGEI.

+ + +

High

3


Member States can perfectly reflect their preferences regarding the level of social inclusion and territorial cohesion.

+ + +

High

3

Total score OBJECTIVE 2 +27 OBJECTIVE 3: Alleviate distortions between Member States


Electronic communications operators are confronted with broadband regimes in each MS that can be more divergent than under the baseline scenario.

-

Medium

2


National broadband plans (incl. financing of initiatives with State Aid) could possibly increase the development of a European single (online) market, but this could remain limited to certain European regions.

- -

Low

1

Total score OBJECTIVE 3 - 4 ENSURE THE EFFICIENCY AND COST-EFFECTIVENESS OF PUBLIC INTERVENTION OBJECTIVE 4: Ensure that there is no distortion or restriction of competition


MS would have more flexibility regarding the way in which they organize the designation process (e.g. including the definition of which providers are eligible). However they should respect general EU law (internal market and Directives on public tendering)

- - -

Low

1


Given the flexibility of MS to assess the unfair burden for the USO provider of the cost related to investing in non-profitable areas, uncertainty may be increased under Option 2.

- -

Medium

2

Reduced uncertainty regarding the compensation costs related to ensuring affordability and

Given the flexibility of MS to assess the unfair burden for the USO provider of the cost for ensuring affordability and accessibility, uncertainty may be increased under Option 2.

- -

Medium

2



163

OPTION 2: No EU Regulation related to USO accessibility Total score OBJECTIVE 4 - 11 OBJECTIVE 5: Ensure that market distortions are minimised


Given the flexibility for MS regarding the definition of the universal service under the marginal control of the Court of Justice and the financing of the cost of ensuring broadband availability, affordability and accessibility within the limits of general EU law, the overall effect of the burden of financial compensation could possibly become more important. After all, it can be assumed that many MS would opt for sector funding and would possibly more largely define USO obligations.

- -

Medium

2


The flexibility related to designating the USP would increase compared to the basic scenario since the current overall EU USO principles such as e.g. cost-efficiency could no longer be called upon for contesting a designation. However, general EU law principles remain valid.

- -

Medium

2


The same specific measures are possible as under option 1 for promoting market driven investments in new and innovative services.

0

Low

1

Total score OBJECTIVE 5 - 8 OBJECTIVE 6: Ensure user choice

Impacts Magnitude Likelihood Increased user choice between service providers independent of location and of social group

Under option 2, equal guarantee compared to the baseline scenario is given that user choice between service providers will be stimulated. In case of State Aid, open access obligations could however stimulate service based competition and create user choice between service providers.

0

Low

1


There is no guarantee at all that MS will put a high value on increasing the user choice for separation between the provider of the connection and the provider of services. In case public funding via State Aid would be foreseen, the open access obligation when receiving State Aid stimulates the separation between the provision of the infrastructure and the services. General taxation is however not the most probable funding source under option 2 as MS are free to impose sector specific funding.

-

Medium

2


If USO could be more flexibly defined by MS, it is assumed that more MS will include broadband in USO, allowing end users to be entitled requesting unbundled services from the US provider.

+

Low

1

Total score OBJECTIVE 6 - 1 OBJECTIVE 7: Ensure legal certainty and transparency



164

OPTION 2: No EU Regulation related to USO


Uncertainty is higher under option 2 compared to the baseline scenario as MS will have more flexibility on how to deal with the concept of the unfair burden for the US provider and how to determine what compensation can be obtained. Only in case of public funding, the same State Aid rules will apply.

-

Medium

2


The level of transparency of the mechanisms for designating US providers, depends on the willingness of Member States to provide this transparency within the limits of general EU law. There is moreover no stimulus from the EU level to identify ‘Best Practices’ for the implementation of EU regulation and to stimulate MS to evolve to those practices.

- -

Medium

2


The level of transparency of the mechanisms for compensating US providers, depends on the willingness of Member States to provide this transparency within the limits of general EU law. There is moreover no stimulus from the EU level to identify ‘Best Practices’ for the implementation of EU regulation and to stimulate MS to evolve to those practices.

- -

Medium

2


As under the baseline scenario, the level of transparency will depend on the Member State within the limits of general EU law.

0

Low

1


As under the baseline scenario, the level of transparency will depend on the Member State within the limits of general EU law.

0

Low

1

Total score OBJECTIVE 7 - 10

POLICY OPTION 3: ‘NO POLICY CHANGE’ (2009 REGIME)

OPTION 3: Mandating 2 Mbps access for all EU Citizens



Mandating 2 Mbps access for all EU Citizens would positively contribute to the competitiveness of the EU, provided that this is done efficiently. However, in order to fully cope with global competition, the roll-out of networks with higher bandwidth will remain indispensable.

++

Medium

2


The harmonized level of broadband service across EU would provide a sound starting point for stimulating the development of the European single (online) market. Again however, many on-

++

Medium

2



165

OPTION 3: Mandating 2 Mbps access for all EU Citizens

line applications will require higher bandwidths.



Option 3 does not differ from the current USO regime (Option 1) in terms of guaranteeing an important increase of affordability of broadband services for all user groups and of accessibility of broadband services for disabled in all of the EU Member States.

0

0

Medium

Medium

2

2


Broadband services at a harmonized minimum level of speed and quality would be imposed at the EU level for all citizens, leading to an important increase in the availability.

+ + +

High

3


Ensuring 2 Mbps access for all EU citizens could lower the barrier for teleworking and thus possibly reduce travelling for professional purposes.

++

Medium

1


Option 3 would explicitly mandate the same broadband service for all EU citizens, independent of their location. This could clearly increase the attractiveness of rural areas have a reducing impact on the rural exodus

+ +

Medium

1

Total score OBJECTIVE 1 +25 OBJECTIVE 2: Respect the heterogeneity of preferences among Member States


No flexibility would be given to MS to define additional universal service levels.

- - -

High

3

Better reflection of national preferences in the decision on who will bear the cost of services of general economic interest.

MS would have a choice between sector specific and public funding for the funding of the net cost related to the 2 Mbps broadband service. No choice would however be left regarding who would bear the cost of higher speeds.

- -

High

3


No possibility would be given to MS to differentiate according to national preferences.

- - -

High

3

Total score OBJECTIVE 2 - 24 OBJECTIVE 3: Alleviate distortions between Member States

Impacts Magnitude Likelihood Better level playing field for electronic

Imposing a harmonized 2 Mbps would create a better level playing field across the EU. In a

+ +

Medium

2



166

OPTION 3: Mandating 2 Mbps access for all EU Citizens communications operators across the EU

transitional period however, impacts on operators could differ significantly since the gaps to be filled vary significantly across Member States.


The harmonized level of broadband service across EU would provide a sound starting point for stimulating the development of the European single (online) market. Again however, many on-line applications will require higher bandwidths.

+

Medium

2

Total score OBJECTIVE 3 +8



Idem as under Option 1 – Baseline scenario.

0

Medium

2



0

Low

1



0

Low

1

Total score OBJECTIVE 4 0 OBJECTIVE 5: Ensure that market distortions are minimised


Idem as under Option 1 – Baseline scenario. 0

Medium

2



Medium

2



High

3

Total score OBJECTIVE 5 0 OBJECTIVE 6: Ensure user choice



Low

1



167

OPTION 3: Mandating 2 Mbps access for all EU Citizens Increased user choice for separation between the provider of the connection (infrastructure) and the provider of services


High

3


Since broadband will be included in the USO in every MS, this will allow more end users to be entitled requesting unbundled services from the US provider.

+

Low

1

Total score OBJECTIVE 6 1 OBJECTIVE 7: Ensure legal certainty and transparency



Low

1



Medium

2



Medium

2


Since all MS will provide the same mandated minimum level of services to all social groups, this is expected to have a positive impact on the transparency.

++

Low

1



Low

1


POLICY OPTION 4: ‘REFINEMENT OF THE 2009 REGIME’

OPTION 4: Refinement of the 2009 Regime



This option would have a more positive effect than the baseline scenario since the ex-ante impact analysis will analyse market failure in each MS, enabling understanding of market failure and thus enabling better choice of measures to increase availability and take-up.

+

Medium

2



168


The guidelines for the ex-ante evaluation would thus provide incentives at the EU level that have a positive impact on EU competitiveness.


The incentives given at the EU level for analyzing market failure and identifying appropriate measures would increase broadband availability, but not necessarily at the required speeds for more advanced on-line applications.

+

Low

1




0

0

Medium

Medium

2 2


Availability of broadband services would be more stimulated than under the current USO regime. Indeed, the ex-ante impact analysis would explicitly map the underserved areas and analyse reasons why the market is not making broadband available in that area. Territorial cohesion would thus fully be taken into consideration by NRAs in the cost/benefit analysis. The EU guidelines for the ex-ante analysis would moreover ensure that these underserved areas are analysed across all MS.

++

Medium

2


Ensuring higher availability after identifying market failure areas could lower the barrier for teleworking and thus possibly reduce travelling for professional purposes.

+

Low

1


Option 4 would give explicit attention to (underserved) rural areas, but compared to Option 3, there would be no mandate to have e.g. a same 2 Mbps broadband service in the whole territory. Minimum services per MS will depend on the outcome of the cost-benefit analysis.

+

Low

1

Total score OBJECTIVE 1 + 9



As in the baseline scenario, neither minimum levels nor maximum speeds are imposed on Member States. The ex ante impact analyses would however require each MS to justify why a certain universal broadband service is appropriate in specific national or local circumstances.

-

High

3



169

OPTION 4: Refinement of the 2009 Regime Better reflection of national preferences in the decision on who will bear the cost of services of general economic interest.

Option 4 would further allow Member States to choose between sector funding (via including broadband in USO) or funding of broadband development by means of general taxation. Compared to the baseline scenario, inclusion of broadband services in USO will however require analysis and justification by the MS (cf. based on EU guidelines for the ex-ante impact analysis).

-

High

3


Member States would maintain an important degree of flexibility to decide to what extent they want to stimulate social inclusion and territorial cohesion by means of making broadband services more available, affordable and accessible. Regarding availability, the ex ante impact analyses would however require each MS to justify why a certain universal broadband service is appropriate in specific national or local circumstances.

-

Medium

2




Compared to the baseline scenario, option 4 would to a certain level reduce the differences in broadband stimulation as each MS would be requested to follow the EU guidelines for the ex ante impact analysis. These guidelines would not be mandatory, but provide a framework for creating a better level playing field.

+

Low

1


The incentives given at the EU level for analyzing market failure and identifying appropriate measures would increase broadband availability, but not necessarily at the required speeds for more advanced on-line applications.

+

Low

1




Following the EU ex ante impact analysis guidelines, all efficient providers of broadband services will explicitly need to be considered by MS. Excluding one or another provider will need to be justified in detail.

+ + +

High

3


Option 4 foresees, for the broadband services, omitting the evaluation of the USO being an unfair burden to the US Provider. This implies that investing in an area that based on the ex ante analysis has been identified as an un-economic area, would automatically give right to compensation.

+ + +

High

3



170

OPTION 4: Refinement of the 2009 Regime Reduced uncertainty regarding the compensation costs related to ensuring affordability and accessibility


0

Low

1


OBJECTIVE 5: Ensure that market distortions are minimised


The overall effect of the burden of financial compensation would be part of the ex ante impact analysis. As such, the chances of an indefensibly high effect will be reduced. Furthermore, encouraging the introduction of a VAT like tax for raising the funds for USO would provide NRAs with a second-best approach if general taxation is politically not acceptable.

++

Medium

2


The introduction of a fully-fledged ex ante analysis before expanding the scope of USO provides the best possible guarantee that the most efficient USP will be designated.

+ + +

Medium

2


The introduction of a fully-fledged ex ante analysis before expanding the scope of USO provides the best possible guarantee that market driven investments are promoted.

+ + +

Medium

2

Total score OBJECTIVE 5 + 14 OBJECTIVE 6: Ensure user choice


Compared to the baseline scenario, the analysis of the appropriateness of imposing an open access network obligation to US providers would provide a better guarantee that user choice between service providers will be stimulated.

+ +

Medium

2

Increased user choice for separation between the provider of the connection (infrastructure) and the provider of services, independent of location and of social group

The separation between the provider of the connection and the provider of services is foreseen in the current USO regime and should thus be respected by MS when including broadband in the scope of USO. The analysis of the appropriateness of imposing an open access network obligation to US providers would also stimulate the separation between the provision of the infrastructure and the services.

+

Medium

2


Under the USO framework, the user would have the right to request for only the minimum broadband services (which is thus not part of a package of services). This is not different than under the baseline scenario.

0

Low

1



171


Total score OBJECTIVE 6 + 6 OBJECTIVE 7: Ensure legal certainty and transparency


Option 4 foresees, for the broadband services, omitting the evaluation of the USO being an unfair burden to the US Provider. This implies that investing in an area that based on the ex ante analysis has been identified as an un-economic area, would automatically give right to compensation, eliminating all uncertainty on the possibility of compensation. Regarding the amount, the cost of providing USO will also be less uncertain as the NRA will explain its costing methodology in advance.

+ + +

Medium

1


The definition of the mechanisms for designating the USP form an integral part of the ex ante impact analysis, ensuring optimal transparency on the choice and motivation for the mechanism. For the implementation of the mechanism, it would still depend on the NRA if all possible measures are taken to fully optimize transparency.

+ +

Medium

2


The definition of the mechanisms for designating the USP form an integral part of the ex ante impact analysis, ensuring optimal transparency on the choice and motivation for the mechanism. For the implementation of the mechanism, it would still depend on the NRA if all possible measures are taken to fully optimize transparency.

+ +

Medium

2


As this was the case under the baseline scenario, the minimum level will vary from Member State to Member State. By consequence, no initiatives can be taken by the EU level for increasing transparency / visibility. The level of transparency will thus depend on the Member State

0

Low

1


Since the measures for increasing the affordability are left to the discretion of Member States, the extent to which these barriers are reduced will depend on the efforts made by the individual Member States. Since social considerations are included in the ex ante impact analysis, it can be expected that the importance of reducing these barriers will become more apparent, leading more probably to appropriate measures

+

Medium

2


POLICY OPTION 5: ‘A REFORMED AND FOCUSED USO’

OPTION 5: A reformed and focused USO



172




The individual national broadband plans can only partly guarantee an overall increase in EU competitiveness.

-

Low 1


1

National broadband plans (incl. financing of initiatives with State Aid) could possibly increase the development of a European single (online) market, but this could be different across European regions as they depend on the initiatives of the Member States, which are not necessarily the same across the EU.

- - Low



The focus of Option 5 would be on increasing the affordability and accessibility of the broadband services that are made available based on other instruments. Member States would however still have discretion on the exact measure that are taken in the individual MS.

+ +

+ +

Medium

Medium

2

2


Availability of broadband services is not stimulated by the USO regime envisaged under Option 5, but it is assumed that other instruments would be ensuring availability. National broadband plans are often focusing on serving underserved areas, but there are no common minimum levels of speed and quality across the EU.

0

Medium

2


The USO regime under Option 5 does not focus on providing the required broadband services or incentives for e.g. stimulating teleworking.

0

Low

1


This impact is directly related to the availability of a minimum level of broadband services in rural areas, for which no provisions are foreseen in the USO regime under Option 5.

0

Low

1

Total score OBJECTIVE 1 + 5 OBJECTIVE 2: Respect the heterogeneity of preferences among Member States


As for the baseline scenario, the flexibility will remain important. It will however be situated at the level of the other instruments available for ensuring availability.

0

High

3

Better reflection of national preferences in the decision on who will bear the cost of

Idem as under Option 1- Baseline scenario. 0

High

3



173

OPTION 5: A reformed and focused USO services of general economic interest. Better matching of national preferences regarding the level of social inclusion and territorial cohesion

Member States have the same flexibility as in the baseline scenario to decide to what extent they want to stimulate social inclusion, which plays a central role in Option 5. Territorial cohesion by means of making broadband services more available will be realized by other instruments largely allowing reflecting national preferences (cf. impact supra).

0

High

0

Total score OBJECTIVE 2 0 OBJECTIVE 3: Alleviate distortions between Member States


As this was the case for the baseline scenario, Option 5 allows for important differences in broadband stimulation across EU Member States.

0

Low

1


National broadband plans (incl. financing of initiatives with State Aid) could possibly increase the development of a European single (online) market, but this could remain limited to certain European regions.

- -

Low

1




This impact is considered not to be relevant for Option 5 since all providers would be providing universal services and thus (implicitly) be designated.

0

0

0


Since any compensation should be financed by state funds, these should respect State Aid rules, for which clear guidelines are available regarding the investments for which State Aid can indeed be provided.

++

High

3


Under Option 5, the total net cost of USO would be lower compared to the baseline scenario as no costs related to ensuring availability would be included. This reduces the possibility that the NRA would assess this cost as an unfair burden and thus allow for compensation via a fund.

-

Medium

2

Total score OBJECTIVE 4 + 4 OBJECTIVE 5: Ensure that market distortions are minimised


Since any instrument required for ensuring availability of the broadband services would be financed by public funding (i.e. having the least distortive effect), excluding availability of the USO would in any case positively impact the

+ +

Medium

2



174


overall effect of the burden. For the burden related to the affordability and accessibility, the same flexibility is left to the MS for choosing the sources of funding and the contributory basis.


This impact is considered not to be relevant for Option 5 since all providers would be providing universal services and thus (implicitly) be designated.

0

0

0


Any possible subsidy for investments would need to comply with State Aid rules, this reduces the risk that these hinder market driven investments.

+

High

3

Total score OBJECTIVE 5 + 7 OBJECTIVE 6: Ensure user choice


The USO regime under Option 5 would empower end users and provide optimal choice between service providers. As availability would be financed by public funding, State Aid rules would need to be respected, so open access obligations could for the areas benefiting from State Aid further stimulate service based competition and create user choice between service providers.

+ + +

High

3


As availability would be financed by public funding, State Aid rule would need to be respected, so open access obligations could for the areas benefiting from State Aid further stimulate service based competition and create user choice between service providers.

+

Medium

2


Empowering end-users would be essential under Option 5, so it can be expected that a lot of attention will be given to enabling end-users to choose the services of their preference. This also includes the choice in terms of single versus bundled services.

+ +

Low

1

Total score OBJECTIVE 6 + 13 OBJECTIVE 7: Ensure legal certainty and transparency


This impact is considered not to be relevant for Option 5. No such investments would be part of the USO cost.

0

0

0

Increased transparency of mechanisms for

Under Option 5, no USP needs to be designated. The approach is fully transparent as all providers

+ +

Medium

2



175

OPTION 5: A reformed and focused USO designation can be chosen by the end users for providing

services in a more affordable or accessible way. +


The mechanism for compensation would be very simple as the cost of USO for each provider corresponds to the total cost of discounts given. By consequence, in case of state funded financing, compensation would consist of simply reimbursing the incurred costs. In case of sector funding, each provider that gave discounts to a percentage of eligible clients that is higher than its respective market share, would receive compensation and vice versa so that all operators contribute to the USO net cost in a proportion equal to their market share.

+ + +

High

3


The minimum level will vary from Member State to Member State. By consequence, no initiatives can be taken by the EU level for increasing transparency / visibility. The level of transparency will thus depend on the Member State within the limits of general EU law. Since affordability is essential under Option 5, it is however to be expected that MS will make bigger efforts to increase transparency at this level compared to the baseline scenario.

+

Medium

2


Since the measures for increasing the affordability are left to the discretion of Member States, the extent to which these barriers are reduced will depend on the efforts made by the individual Member States. Again, since reducing these barriers is essential under Option 5, it is however to be expected that MS will make bigger efforts to reduce barriers at this level compared to the baseline scenario.

+

Medium

2

Total score OBJECTIVE 7 +19


ANNEX 3 : DESCRIPTION OF THE TECHNO-ECONOMIC MODEL FOR THE CALCULATION OF THE NET COST OF MANDATING BROADBAND INTERNET ACCESS FOR ALL EU CITIZENS AT A SPEED OF 2MBIT/S

This section provides a general description of the architecture and main assumptions employed in the techno-economic model that calculates the net cost of mandating broadband internet access for all citizens at speed of 2Mbit/s. The results of the techno-economic model have been presented in section 5 of this interim report. GENERAL ARCHITECTURE OF THE TECHNO-ECONOMIC MODEL

The techno-economic model distinguishes three types of zones that are affected by lack of availability of broadband at 2Mbps. We refer to them as Type A, Type B and Type C spots. We describe below what each of these terms refer to in the context of this study:

- Type A refers to households that have access to a traditional telephony wireline network which is not capable of offering broadband service. This will typically refer to households connected to a local exchange which is not DSL enabled.

- Type B refers to households that have broadband access via a traditional

wireline network, but this access is not technically capable of reaching bandwidth of 2Mbps or higher capacity. Type B spots typically refer to households located to a local exchange that have a copper line of excessive length that does not allow the xDSL technology to synchronize at 2Mbps

- Type C refers to households that do not have access to a traditional wireline

network, neither for telephony nor for broadband service. These will typically correspond to households located in isolated rural areas.

The exhibit below shows the overall architecture of the techno-economic model.


176


DSL Coverage DATA per Country

HOUSEHOLDS per Country and Urbanization Degree

Area per Country

Broadband Penetration Data per Country per

Urbanization Degree

HOUSEHOLDS TYPE A

HOUSEHOLDS TYPE B

HOUSEHOLDS TYPE C

Network Dimensioning

Rules

Additional Broadband Households

Number of Local Exchanges per Country

Additional Broadband Households

Households with Bandwidth

Upgrade

Incremental REVENUE

Incremental REVENUE

Incremental DSL Coverage

Costs

Incremental Network Coverage Costs (Wireline / Wireless)

NET COST CALCULATION

Network Cost Assumptions

DSL bandwidth vsdistance

STAGE 1Households with coverage issues

STAGE 2Incremental Broadband Households in case of Universal Coverage

STAGE 3-AIncremental Network Costs incurred

STAGE 3-BIncremental Retail Costs incurredIncremental Retail Costs

Retail Cost Assumptions

REVENUE Assumptions STAGE 4

Incremental Revenue Generated

STAGE 5Calculation of NET COST

Inputs and Assumptions

Model Calculations

Graph 18: General Architecture of the Techno-Economic Model

It can be observed that the techno-economic model is structured in five stages:

Stage 1. Calculation of the number of households that currently do not have access to broadband access at bandwidth of 2Mbps or superior. A distinction is made between type A, B and C spots as described above. Stage 2. Calculation of the number of additional households that would subscribe to a broadband service in case that internet broadband access at 2Mbps was universally available, as well as the number of broadband households that would require a technical upgrade to achieve this bandwidth Stage 3. Calculation of the incremental network costs that would be incurred in order to provide universal internet broadband access at 2Mbps. The model distinguishes between network and retail costs. Stage 4. Calculation of the incremental revenue that would be generated due to the higher number of households subscribing to a broadband service Stage 5. Calculation of the net cost associated to the obligation to provide universal internet broadband access at 2Mbps. This net cost is calculated as the difference between the costs incurred and the extra revenues generated for those areas for which the provision of the service would be unprofitable


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DESCRIPTION OF THE TECHNO-ECONOMIC MODEL MAIN ASSUMPTIONS

We describe in this section the main assumptions of the model, related to broadband service definition, time period, demand and take-up, technology, cost standard and revenue. Broadband Service Definition An internet broadband service with download bandwidth of 2048 kbps and upload bandwidth of 256 Kbps is considered. A contention ratio of 1:40 is assumed for network dimensioning. Time Period A period of five years is considered in the model as a reference time period for the examination of the total net cost. Demand and Take-up Demand for broadband is based on the number of households and broadband penetration at household level. Demand from business customers is not considered in the model. This assumption is based on the fact that we anticipate that business demand is typically lower than residential demand in areas affected by lack of broadband, and the fact that the policy objective is universal service for citizens. Technology Assumptions Note: The techno-economic model incorporates a range of technological choices which is only intended to offer a reasonable estimate of the cost of providing an internet broadband access with the characteristics described above by an efficient provider. The technologies considered have been selected on the basis of their current or expected relevance for the provision of fixed broadband services, and taking into account the limitations in terms of scope of this study. These choices are not intended to imply, or suggest, by any means, that alternative technologies different to those considered in the model may be employed successfully for the same purpose. We present the assumptions made about the technology employed for the different types of households with lack of access to 2Mbps internet broadband access. Type A spots - The techno-economic model assumes that to achieve universal coverage all local exchanges should be broadband enabled (i.e. should have DSLAM equipment and sufficient backhaul capacity using either microwave links or optical fibre). No alternative technological options are considered for these households as we interpret that international experience suggests that xDSL is a cost-effective technology to provide internet broadband access at 2Mbps bandwidth to households connected to traditional wireline networks and that are equipped with a local loop that permits offering this bandwidth.


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Type B and C Spots : The techno-economic model calculates the cost of providing 2Mbps internet broadband access service using different technological options, and then assumes that the one offering the lowest cost is used. In particular, the following three options are considered:

- Fibre to the Cabinet (FTTC): Upgrade of traditional copper-wire network so that broadband service at 2Mbps is feasible;

- Use of satellite technology;

- Use of fixed-broadband wireless technologies (WiMAX): The base case assumes that the technology operates in the 2.5 GHz band, but the model incorporates also the possibility of assuming that it operates in the 800 MHz band or the 3.5 GHz band.

3G has not been considered an adequate solution to provide 2Mbps broadband service at quality levels similar to that of ADSL at mass scale. Cost standard and consideration of cost of capital The techno-economic model takes into consideration only the incremental costs that would be incurred to provide broadband services to customers in type A, B and C spots. In other words, no business overheads are considered to the extent that these costs should not be affected by the extension of broadband coverage to areas currently unserved. It is also important to note that no costs are associated to the use of spectrum in the case of wireless technologies. Costs considered are split into capital expenditures (CAPEX) and operational expenditures (OPEX). For calculating the costs associated to CAPEX over the five years period considered the Annuity Method is employed, which takes into account both the cost of depreciation as well as the cost of capital. A cost of capital of 10% is assumed, representing a typical industry benchmark for the setting of regulated tariffs in fixed-networks. For every asset, an average asset useful life is considered, depending on the nature of each asset. Representative average useful lives considered are 7 years for most telecommunications equipment such as DSLAMs or base stations, 20 for optical fibre employed in the backhaul and 5 years for user equipment and other customer-related CAPEX items. In addition of the Annuity method, the model allows for the consideration of two alternative methods for sensitivity analysis:

- Cash-Flow methodology: takes into consideration the costs incurred over the 5 years period in nominal terms, including both CAPEX and OPEX

- Cash-Flow plus Cost of Capital methodology: includes the nominal expenditures plus the cost of capital associated to the capital expenditures over the five years


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Revenue Assumptions The techno-economic model takes into consideration only the incremental revenue associated to the obligation to provide universal broadband internet access at 2 Mbit/s. The incremental revenue is calculated as the number of incremental broadband customers coming from type A and type C spots - i.e. from those areas that currently have no access to broadband service – multiplied by a representative ARPU. It is relevant to observe that no incremental revenue is associated to broadband customers connected to type B areas. This is so because it is assumed that these clients are likely to have currently a broadband connection of less capacity, and therefore they would not represent new broadband customers. Under these circumstances, it is highly uncertain what the incremental revenue associated to these clients would be and therefore a conservative assumption is made that no incremental revenue arises from grey spots. Control Panel The techno-economic model allows for the modification of some of the methodological assumptions described in this section through a Control Panel (pictured below).

Graph 19: Control Panel of the Techno-Economic Model


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I-RE-s-u-L-r-s------------------------------------aPEX OVER 5 YEARS 6.264CAPEX 4.795REVENUE OVER 5 YEARS -7.985- -TOTAL NET CaST OVER 5 YEARS (MM EUR) 4.084

- -

- - -

• • • Optimum at countJv level

-

• • WiMAX at 2.5 GHz

- + -

• .~ • . I Yes

- -, . , • Least Expensive Offer Accordinll to Studv

II

I'· . . , • • • I ·1 "I • 16

- t -

• 'l.1,

~••'lIL'III;mll 100%I

;. :.il'1I..'iilil']••,

~ '. 0%

- -.1 •• .' • I '. • • I;';. '. , Calculation at National Level

- + -

'.I~II:r. l'l.'Ift'''!I' ' . . • • ., • Annuity Costs over 5 Years (Cost of Capital and Depreciation)

- -

• • .. . . 10%

Next we describe the options that can be configured in the control panel (default option is marked with a D letter) Technology chosen: only fixed technologies and satellite, only wireless (WiMAX), or Optimum at national level (D) Wireless Technology (only relevant if wireless technologies considered): WiMAX at 800 MHz, WiMAX at 2.5 GHz (D), or WiMAX at 3.5 GHz Reuse of mobile towers assumed: Yes (D), No Revenue Assumption: Median Revenue per country according to benchmark study (D), Lowest Advertised Retail Offer per country according to benchmark study, a Fixed ARPU for all countries (in this case a value for ARPU must be introduced in the control panel) Consideration of households in grey areas: a percentage of households in grey areas is considered in terms of costs and potential demand (the default value is 100%), as well as for incremental revenue (the default value is 0%) Methodology for Calculation of Urban-Rural Split: calculation at National Level (D) or Calculation for unprofitable Areas only (no compensation) – this removes the effect of areas where incremental revenues are higher than incremental costs Methodology for Calculation of CAPEX costs: Total CAPEX to be recovered over 5 years (consideration of investments in nominal terms), Total CAPEX and Cost of Capital to be recovered over 5 years (includes nominal cash flow associated to investments plus an additional cost of capital) and Annuity Costs over 5 years (Cost of Capital and Depreciation costs incurred over 5 years). INPUTS OF THE TECHNO-ECONOMIC MODEL

General Demand and Statistical Inputs: The main statistical and international benchmarking data sources employed in the techno-economic model are the following:

o Broadband penetration at household level, taken from Eurostat ICT

Survey, data corresponding to March 2009

o DSL Coverage by country, taken from the IDATE report commissioned by the European Commission with data corresponding to end of 2008

o Mobile 3G Coverage by country, taken from the IDATE report

commissioned by the European Commission with data corresponding to end of 2008


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o Number of MDFs by country (local exchanges), taken from the ECTA Broadband Scoreboard, data corresponding to March 2009

o (Median) Broadband Prices by country, taken from the Van Dijk report

commissioned by the European Commission, data corresponding to October 2009

o Household distribution by urbanization degree, taken from Eurostat,

data corresponding to 2009

o Households, Area, Population per country, taken from Eurostat

Technical Inputs:

We present in the exhibits below the model main technical inputs for network dimensioning and costing for wireline and wireless access technologies, satellite and backhaul.


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UNIT COSTS AND NW DIMENSIONING FOR ADSL Technology

DSLAM incremental costs CAPEX Annual OPEX Average life (years)

Chassis 5.000 850 7Additional cost per port 50 9 7O&M team 1.000 170 5Max. Lines per Chassis 384 input.lines.dslamSpare capacity 10% input.spare.dslam

Area to Copper Loop Length Conversion Parameter 0,65 input.area.to.lengthFill in-factor Urban 100% input.fillin.factor.urbanFill in-factor Sub-urban 70% input.fillin.factor.suburbanFill in-factorRural 35% input.fillin.factor.ruralMax. Length for required BW 4,50 input.max.length.adsl

UNIT COST AND NW DIMENSIONING FOR FTTC UPGRADE

Fibre Optic Technology (for upgrade) CAPEX OPEX (annual)

Useful life (years)

Optical Fibre Cable (aereal) per Km 5.500 550 20

DSLAM FTTC Cabinet incremental costs CAPEX Annual OPEXAverage life

(years)

Chassis 5.000 850 7Additional cost per port 50 9 7O&M team 1.000 170 5Max. Lines per Chassis 384 input.lines.fttcSpare capacity 10% input.spare.fttc

Avg. Distance Fibre to Cabinet (km) 4 input.of.distance.fttc

Average Cluster Size of Households per Cabinet for Grey AreasUrban 250 input.cluster.size.urban.fttcSuburban 150 input.cluster.size.suburban.ftRural 50 input.cluster.size.rural.fttc

Copper Length for Black Area (outside out of coverage) 7,00 input.max.length.black

Average Cluster Size of Households per Cabinet for Black AreasUrban 15 input.cluster.size.black.urbanSuburban 10 input.cluster.size.black.suburRural 10 input.cluster.size.black.rural

Copper "Last Mile" CAPEX per householdCAPEX per HH 300 input.capex.copper.blackOPEX per HH 60 input.opex.copper.black

Graph 20: Technical Inputs for Wireline access technologies (all costs in EUROS)


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UNIT COST AND NW DIMENSIONING FOR WIMAXCAPEX

Base station unit cost 800 MHz 2,5 GHz 3,5 GHz Average life (years)

Wimax or similarTower / Civil Work 30.000 30.000 30.000 15Power equipment and air conditioning 10.000 10.000 10.000 7Base station (Wimax or similar) 30.000 30.000 30.000 7Antennas 10.000 7.500 7.500 7O&M team 20.000 20.000 20.000 5CPE 60 100 150 5

OPEX800 MHz 2,5 GHz 3,5 GHz

Tower / Civil Work 750 750 750Power equipment and air conditioning 1.000 1.000 1.000Base station (Wimax or similar) 6.000 6.000 6.000Antennas (2,5 or 3,5 GHz) 375 375 375O&M team 50.000 50.000 50.000CPE 5 8 12

Base station dimensioning rules 800 MHz 2,5 GHz 3,5 GHz

Typical base station radius in open space (Km) (with ext 15,00 8,00 5,00Average spectral efficiency (bps/Hz) 3,40 3,40 3,40Signalling loss 6,7% 6,7% 6,7%Error coding loss 80% 80% 80%Sectorisation gain 1,00 1,00 1,00Reuse factor / Interference loss 1,00 1,00 1,00Uplink / Downlink factor 1,00 0,89 0,89Assumed Spectrum width 10,00 10,00 10,00Max. Capacity per base station (per MHz of available spe 2,54 2,26 2,26Typical max. Capacity per base station 25,4 20,1 20,1Max. Users per base station (no traffic considered) 50000,00 50000,00 50000,00Reduction of area covered because of terrain 60% 60% 60%Effective Average Area covered by Base Station 424,12 120,64 47,12Average Backhaul link length (for coverage) 30,00 16,00 10,00Average Backhaul link length (capacity sites) 7,50 4,00 2,50

Graph 21: Technical Inputs for Wireless technologies (all costs in EUROS)

UNIT COSTS AND NW DIMENSIONING FOR Satellite Technology

Satellite incremental costs CAPEX (EUR) Annual OPEX (EUR)

Average life (years)

Bandwidth Rental (per MHz) 0 60.000

Spectral Efficiency (DVB-S2) (Conversion bps to hz, includes conversion los 0 1,60

Upstream as % of Downstream 0 13%Bandwidth Rental (per Mbps) 0 42.188 1User Antenna and CPE including Installation 150 10 5Other O&M OPEX 0 100 5

Graph 22: Technical Inputs for Satellite technologies (all costs in EUROS)


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185

UNIT COST AND NW DIMENSIONING FOR BACKHAUL

Microwave technology CAPEX OPEX (annual)

Useful life (years)

Microwave radiolinks fixed (antenna + transmitter) 20.000 3.000 7Microwave radiolink per Mbps 5.000 2.500 7Microwave tower and power equipment (for repeater) 30.000 3.000 15MW average hop 5 input.mx.hop

Fibre Optic Technology CAPEX OPEX (annual)

Useful life (years)

Optical Fibre Cable (aereal) per Km 10.500 1.050 20Optical Fibre Tx Equipment (per Link) 3.000 450 20OF max hop 50 input.fo.hop

Graph 23: Technical Inputs for Backhaul technologies (all costs in EUROS)


ANNEX 4: BREAKDOWN OF NET COST OVER THE DIFFERENT TYPE OF AREAS (PER COUNTRY)

CALCULATIONS BASED ON THE LEAST EXPENSIVE OFFERS


Scenario with revenues based on least expensive offers

Nel cost calculated Nel cost calculatedCOUNTRY

at national level per type of area

urban area suburban area rural area

tatal cast pertotal

tatal cast pertotal

tata! cast pertotal

tatal cast pertotal

net cast per net casts net cast net cast net cast cast per year 5 yearsrevenues per revenues per revenues per revenues peryear

yearyear over 5 years year

yearyear

yearyear

year

in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EURAustria 81.643 59.822 21.821 109.104 185 291 0 9.248 6.064 3.184 72.210 53.467 18.743 21.927 109.633Belgium 22.816 5.709 17.107 85.535 128 0 128 14.478 2.046 12.432 8.210 3.663 4.548 17.107 85.535Denmark 3.896 17 3.878 19.391 0 0 0 380 1 379 3.516 17 3.499 3.878 19.391Estonia 14.324 3.891 10.432 52.161 0 0 0 0 0 0 14.324 3.891 10.432 10.432 52.161Finland 113.301 27.378 85.923 429.615 396 1.460 0 677 1.145 0 112.228 24.773 87.456 87.456 437.278France 283.534 18.394 265.140 1.325.700 0 0 0 3.310 27 3.283 280.224 18.367 261.857 265.140 1.325.700Germany 463.817 344.152 119.665 598.323 23.200 51.071 0 211.727 147.111 64.616 228.889 145.970 82.919 147.536 737.679Greece 117.576 34.099 83.477 417.387 101 0 101 2.122 70 2.052 115.353 34.029 81.325 83.477 417.387Hungary 87.564 13.161 74.403 372.016 2.664 1.364 1.300 13.622 2.275 11.347 71.278 9.523 61.756 74.403 372.016lreland 50.760 18.591 32.170 160.849 0 0 0 513 262 251 50.248 18.328 31.919 32.170 160.849ltaly 163.347 196.227 0 0 3.285 17.313 0 46.264 76.458 0 113.798 102.457 11.341 11.341 56.705Lithuan;a 5.542 11.552 0 0 276 444 0 0 0 0 5.266 11.108 0 0 0Luxembourg 1.827 139 1.688 8.441 5 0 5 914 92 822 909 47 862 1.688 8.441Malta 408 191 217 1.085 62 143 0 333 31 302 13 18 0 302 1.509Netherlands 49.189 15.248 33.941 169.705 5.358 5.241 117 27.493 6.779 20.715 16.339 3.229 13.109 33.941 169.705Po/and 345.444 425.546 0 0 24.442 64.448 0 35.502 54.694 0 285.501 306.404 0 0 0Portugal 71.654 54.699 16.955 84.775 1.507 4.673 0 11.686 12.775 0 58.460 37.252 21.209 21.209 106.044Romania 291.154 52.466 238.688 1.193.439 8.889 3.493 5.396 1.351 169 1.182 280.915 48.805 232.110 238.688 1.193.439Slovakia 9.808 25.467 0 0 0 0 0 0 0 0 9.808 25.467 0 0 0Slovenia 9.764 6.141 3.623 18.116 64 166 0 790 552 238 8.909 5.423 3.487 3.725 18.624Spain 409.058 259.286 149.772 748.858 31.926 86.877 0 44.757 52.782 0 332.374 119.627 212.748 212.748 1.063.738Sweden 119.897 16.511 103.386 516.930 559 1.490 0 845 1.040 0 118.493 13.981 104.513 104.513 522.563United Kinqdom 160.050 8.341 151.709 758.546 874 0 874 34.346 1.061 33.285 124.831 7.280 117.551 151.709 758.546

TOTAL 2.904.013 1.684.394 1.413.995 7.069.976 108.544 251.114 7.921 462.775 376.989 154.087 2.332.694 1.056.292 1.361.381 1.523.388 7.616.941


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CALCULATIONS BASED ON THE MEDIAN VALUE OFFERS


Scenario with revenues based on median value offers

Net cost calculated Net cost calculatedCOUNTRY

at national level per type of area

urban area suburban area rural area

tata! cast pertota!

net cast per net casts tata! cast pertota!

tata! cast pertota!

tatal cast pertota!

revenues per revenues per net cast revenues per net cast revenues per net cast cast per year 5 yearsyear

yearyear over 5 years year

yearyear

yearyear

year

in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR

Austria 81.643 66.243 15.400 77.000 185 322 0 9.248 6.715 2.533 72.210 59.206 13.004 15.537 77.685Belgium 22.816 5.830 16.986 84.931 128 0 128 14.478 2.090 12.388 8.210 3.740 4.470 16.986 84.931Denmarlc 3.896 19 3.877 19.383 0 0 0 380 1 379 3.516 18 3.497 3.877 19.383Estonia 14.324 3.891 10.432 52.161 0 0 0 0 0 0 14.324 3.891 10.432 10.432 52.161Finland 113.301 38.754 74.546 372.732 396 2.066 0 677 1.621 0 112.228 35.067 77.161 77.161 385.806France 283.534 20.042 263.493 1.317.464 0 0 0 3.310 30 3.280 280.224 20.012 260.212 263.493 1.317.464Germany 463.817 376.763 87.054 435.271 23.200 55.911 0 211.727 161.051 50.677 228.889 159.801 69.088 119.765 598.824Greece 117.576 37.113 80.464 402.318 101 0 101 2.122 76 2.046 115.353 37.036 78.317 80.464 402.318Hungary 87.564 22.858 64.707 323.533 2.664 2.368 296 13.622 3.951 9.671 71.278 16.538 54.740 64.707 323.533Ireland 50.760 30.755 20.006 100.028 0 0 0 513 434 79 50.248 30.321 19.927 20.006 100.028Italy 163.347 196.227 0 0 3.285 17.313 0 46.264 76.458 0 113.798 102.457 11.341 11.341 56.705Lithuania 5.542 20.602 0 0 276 792 0 0 0 0 5.266 19.810 0 0 0Luxembourg 1.827 139 1.688 8.440 5 0 5 914 92 821 909 47 862 1.688 8.440Halta 408 191 217 1.085 62 143 0 333 31 302 13 18 0 302 1.509Netherlands 49.189 18.503 30.686 153.432 5.358 6.359 0 27.493 8.225 19.268 16.339 3.919 12.420 31.688 158.439Po/and 345.444 1.316.211 0 0 24.442 199.337 0 35.502 169.167 0 285.501 947.707 0 0 0Portugal 71.654 54.699 16.955 84.775 1.507 4.673 0 11.686 12.775 0 58.460 37.252 21.209 21.209 106.044ROfflania 291.154 67.061 224.093 1.120.463 8.889 4.464 4.424 1.351 216 1.135 280.915 62.381 218.533 224.093 1.120.463Slovakia 9.808 50.479 0 0 0 0 0 0 0 0 9.808 50.479 0 0 0Slovenia 9.764 6.540 3.224 16.121 64 177 0 790 588 202 8.909 5.775 3.134 3.337 16.684Spain 409.058 320.904 88.154 440.768 31.926 107.523 0 44.757 65.325 0 332.374 148.055 184.319 184.319 921.594Sweden 119.897 24.191 95.706 478.531 559 2.184 0 845 1.524 0 118.493 20.483 98.010 98.010 490.049United Kinadom 160.050 8.341 151.709 758.546 874 0 874 34.346 1.061 33.285 124.831 7.280 117.551 151.709 758.546TOTAL 2.904.013 2.788.033 1.249.397 6.246.983 108.544 418.322 5.827 462.775 523.231 136.067 2.332.694 1.846.480 1.258.227 1.400.121 7.000.607

Impact of EU Policy options for revision of the Universal Service provision

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