Funding the Gigabit society

Funding the Gigabit society Supporting the implementation of CEF2: SMART 2017/0018 Workshop 1 October 2019 Ilsa Godlovitch, Ecorys, Deputy project manager Thomas Plueckebaum, WIK, cost modelling & HPC Jean-Luc Lemmens, IDATE, 5G corridor & Wi-Fi Pierre Hausemer, VVA, mapping Christophe Bodin, CBO, financing

Introduction to the study and questions for stakeholders VHC networks including 5G to SEDs and households Delivering 5G along major transport paths Supporting WiFi and community 5G deployments Facilitating pan-EU HPC connectivity Efficient use of EU funds Agenda

Connecting Europe Facility: the context • In March 2019, the Council and Parliament provisionally agreed on a Regulation to extend the “Connecting Europe Facility” and adapt it to the needs of the gigabit society The main objective in the digital sector (article 3.2(c)) is “to contribute to the development of projects of common interest relating to the deployment of safe and secure very high capacity digital networks and 5G systems, to the increased resilience and capacity of digital backbone networks on EU territories by linking them to neighbouring territories, as well to the digitalization of transport and energy networks.”

Connecting Europe Facility: the context Funding for digital initiatives should contribute to the following actions: • Actions contributing to deployment of and access to very high capacity networks for Socio-economic drivers and households, including 5G and other state-of-the-art connectivity • Actions contributing to the provision of very high-quality local wireless connectivity in local communities • Actions contributing to the deployment of 5G corridors along major transport paths • Projects aiming at the deployment or significant upgrade of cross-border backbone networks and reinforving links between electronic communications networks within the Union

The study • The study aims to assist the EC in prioritising funding requirements and provide insights to aid the development of the CEF2 programme • Objectives are: • Identify and analyse the size of the market failures in deployment of VHC and 5G on highways • Develop a methodology to identify priority areas for funding and assess how CEF could contribute to reducing the investment gap • Identify the impact of CEF intervention in terms of the benefits that can be delivered for given funding levels • Identify options for the structuring of calls for funding (including synergies with other funding mechanisms) and potential categories of beneficiaries

Timetable • The study followed an iterative process starting with cost modelling and interviews, and identification of the market failures • In a second step we drew on interviews to understand funding demand and models and identify priorities. • This presentation is based on the second interim report, of July 2019 • Following inputs from the workshop, the study will be finalised in Q4 2019 • Results will feed into the preparation for the CEF2 programme, due in 2020

Aim of the workshop and online survey • The aim of this workshop is to validate preliminary findings of the study • To aid our assessment during the presentations, we invite you to participate in our online survey, which generates anonymous and live audience responses. • Wi-Fi details: • Login: ec_guest • Username: xicb510 • Password: Meeting • No need to install a separate application: when successfully logged in to the Wi-Fi, please open www.menti.com in the web browser of your smartphone/tablet/laptop and wait for the unique survey code.

Some questions to get the process going • What kind of organisation do you represent? • What is your interest in CEF2 e.g. as authority, bidder, provider of complementary or alternative public or private finance? 3. Which aspects of CEF2 are relevant for you (i) VHC to households and SEDs; (ii) 5G connectivity for cross- border automotive mobility; (iii) Wireless community networks; and (iv) backbones for HPC connectivity and other purposes

VHC to SEDs and households Provisions of the CEF2 regulation • The provisional CEF2 Regulation supports: “actions contributing to deployment of and access to very high capacity networks, including 5G and other state-of-the-art connectivity, in line with EU strategic connectivity targets. Areas where socioeconomic drivers are located shall be prioritized taking into account their connectivity needs and the additional area coverage generated, including households, in accordance with Part V of the Annex. Stand-alone deployments to socio-economic drivers can be supported except in economically disproportionate or physically impracticable cases.”

SEDs and household broadband What bandwidth do SEDs need? • Findings from the literature: • Clear trends pointing to the increasing need of very high bandwidth for SEDs • A key driver is technological development • In education, video conferencing and interactive lectures/webinars could require bandwidths in excess of 1Gbit/s, Fraunhofer estimates that for 1,000 students, one-way HD video transmission would require 500-1000Mbps uplink, with two-way even higher. WIK-Consult confirms that to use rich media in class, schools would need 1Gbit/s per 1,000 users, or more for UHD simultaneous transmission • In healthcare, connections need to support retrieval of patient data (including MRI or CT scans) in addition to enabling video communication between facilities and/or with patients • Robotics and AR/VR applications are likely to further increase bandwidth and QoS needs • Demand for eLearning and eHealth further supported by urbanisation (lack of specialists and service in rural and remote areas; the need to revive rural areas) • Requirements of advanced services call for point to point fibre connections

SEDs and household broadband What bandwidth do households need? • WIK 2018 study for Ofcom, based on analysis of future applications and household composition found that around 40% of households in the UK were likely to require 1GBit/s in downstream bandwidth (and at least 600Mbit/s upstream) by 2025. • Similar results found in Germany and the Netherlands • WIK concluded that these bandwidth needs were likely to require point to point FTTH connections, FTTH NG-PON2 or DOCSIS 3.1 full duplex (which requires extensive fibre deployment) Bandwidth, Quality of Service projected requirements: UK Source: WIK Consult

SEDs and household broadband What is the current status of SED connectivity? Highest link speeds in hospitals (average 1Gbps), secondary schools typically higher than primary schools Typical link speeds in hospitals Source: Géant compendium

Students of higher secondary schools have the highest share of access to very-high speed internet (>100Mbps) SEDs and household broadband What is the current status of SED connectivity? Higher secondary schools Lower secondary schools Primary schools Source: European Commission second school survey

SEDs and household broadband What is the current status of SED connectivity? Higher education institutions and research institutes reach very-high speed internet (1-10Gbps), libraries and governments about 1Gbps Source: Géant compendium

SEDs and household broadband Household coverage to NGA generally well distributed with the exception of regions in France, Poland, Greece and Bulgaria. Coverage of FTTP and DOCSIS3.0 less developed, with regions in France, East Germany, Poland, Italy, Greece and Croatia being among the least covered What is the current status of household connectivity? FTTP and DOCSIS 3.0 household coverage, 2017 NGA household coverage, 2017 Source: EC Broadband Coverage study 2017

SEDs and household broadband What is the current status of connectivity for schools and hospitals? General public hospitals and HH coverage Primary and secondary schools and HH coverage Regions of France and Germany have hospitals in low-served regions, a number of schools are also present in low-served areas in Poland and Greece. Source: EC Broadband Coverage study 2017

SEDs and household broadband Insights from regional case studies Overall results Well served areas Expected increase in internet speeds/connectivity requirement in the future Hospitals better connected than schools; hospitals are in need for constant access to the internet and quality and stability a crucial factor (example of PL214) • Salzburg und Umgebung (AT323); Tolna (HU233); Noordoost-Noord-Brabant (NL413) • Overall, currently sufficient connectivity, especially hospitals • Some rural areas and schools are in need of better connectivity and it might not suffice in the future • For example, currently the internet connection in schools breaks down under heavy use (e.g. streaming of education materials) (example of NL413 and AT323) Insufficient connectivity (especially in schools and in remote rural areas) across case studies (e.g. ES411, HR043, FRB03, PL214) Many governments already have programmes in place to support the coverage of HH and SEDs Lack of funding (especially in remote rural areas) remains a challenge, EU funds to support government actions would be useful

SEDs and household broadband How is SED and household connectivity likely to evolve? Private sector announcements • Commercial providers’ FTTP deployment plans may contribute to the closing of the gap • It is expected that these will focus on urban and densely populated areas as white areas are not economically viable Expected premises passed by 2025 Source: IDATE for the FTTH Council Europe Source: WIK-Consult, based on operator announcements Source: Analysys Mason, 2019

SEDs and household broadband How is SED and household connectivity likely to evolve? Government plans • All EU member states have a government plan to meet the Digital Agenda for Europe goals (with the exception of Slovakia which leaves out the goal to reach 50% with 100 Mbps by 2025) • A number of countries have programmes that focus specifically on improving connectivity in specific SEDs (see examples in table below)

SEDs and household broadband How is SED and household connectivity likely to evolve? Likely outcomes and effects • In the status-quo, ambitions for an EU-wide Gigabit society are unlikely to be realised • Failure to close the gap in rural and less-densely populated areas might contribute to further depopulation, closure of health centres, schools and businesses • It might also decrease the region’s attractiveness for business activities and undermine the ability to remain economically competitive due to technological differences • Rural businesses are likely to become more dependent on the tools accessible via broadband connectivity • A failure to meet increased connectivity needs will also hamper the possibility to exploit the benefits of better connectivity related to e-government, e-education and e-health -> Forecasts indicate that most countries will not be fully served with VHC by the market alone in the future, thus funding support will be needed alongside other policy instruments

SEDs and household broadband What is the cost of addressing SED/HH market failures? Methodology • Market failure zones:Areas without coverage where cost is higher than revenue, and therefore need subsidy • Enduring market failure zones which cannot be addressed through subsidy:Areas that cannot be operated profitably, even if full investment is subsidised • Detailed data for cost modelling was available only for Germany • Therefore a calculation was done for whole Germany on the level of MPoP areas and then projected to the NUTS3 regions of all 28 member states: • Performing of calculation for Germany • Identification of market failure areas (areas where cost is higher than revenue) • Development of estimation formulas to determine the investment and subsidy needed • Development of estimation formulas to determine the revenue and cost to identify profit or loss • Calculation of results for all NUTS3 areas • Using the estimation formulas • Taking into account varying labour cost throughout the member stated to represent different cost for civil works • Taking into account the expected Cable & FTTP coverage for 2022 of each NUTS3 areas Use of alternativetechnology likedirected radio link

SEDs and household broadband What is the cost of addressing SED/HH market failures? Results • 126 NUTS3 regionshavesomeorsignificantmarketfailureor fibre is not viable • More generally, gaps in VHC coverage are likely to persist in most countries in the coming years • For very low density regionsalternative technologies have to be chosen(like radio links instead of fibre)to reduce investment and subsidy needs • On average 11,1% of the investmentneeds to be subsidized • The subsidyneedfor all memberstatessums upto 24,3 bln€ Nomarketfailure: profitorcoverage > 90% Somemarketfailure: lossandrevenue/cost > 90% Significantmarketfailure: lossandrevenue/cost > 75% Fibre not viable: cost > revenueorrevenue/cost < 75%

SEDs and household broadband Which NUTS3 zones may exhibit generalised market failure? Supply-side failure Affordability challenges Type A Type B Type C Type D Challenges may also exist on the demand side e.g. relating to affordability, here represented by the average price for 100Mbit/s+ double play as proportion of regional GDP per cap Classification of zones into four “types” by degree of supply-side market failure Type A: No market failure: profit or coverage > 90% Type B: Some market failure: loss and revenue/cost > 90% Type C: Significant market failure: loss and revenue/cost > 75% Type D: Fibre not viable: cost > revenue or revenue/cost < 75% Very high = 0 – 1.6 High = 1.6 – 3.2 Low = 3.2 – 6.1 Very low = 6.1 - 11

SEDs and household broadband More granular analysis reveals variations:Zoom into B region “Altmarkkreis-Salzwedel” • The MPoP-access-areas do not exactly match with the NUTS3 outline • Although the NUTS3 region is classified as “some market failure”, the MPoP-areas within differ: • 3 X “no market failure” • 9 X “some market failure” • 21 X “fibre not viable” • The sum of subsidy need of the individual areas is €1,5m higher than for the whole NUTS3 region>> An aggregated view assumes cross-subsidy for a region

SEDs and household broadband Projected missing Gigabit lines by 2022 White spots also exist within A (no market failure) areas • An examination of missing lines suggests that there will be a significant number of coverage gaps in Gigabit connectivity by 2022. • In nearly every country, there are expected to be regions where more than 50,000 households will not have access in the coming years • Images below show variations within the “A area” German NUTS3 region Eifelkreis Bitburg Prüm Source: WIK/VVA

SEDs and household broadband In most cases, there are synergies between SED and HH fibre deployment • Cost estimates suggest that there are considerable synergies to be achieved through a mixed deployment of FTTH to SEDs and surrounding households • For a mixed deployment, the scenario which would maximise public funding while respecting co-funding rates would be to allocate 75% public funding for the SED-only FTTH cost and 30% public funding for the remaining cost of serving households in the area (cost of full HH+SED coverage minus SED-only cost) • Case studies confirm that standalone SED deployments are significantly more expensive • However, there are circumstances where a SED-only deployment is the only viable solution because mass-market fibre deployment is not viable (D areas). In these cases, SED deployment could be coupled with deployment to support 5G for widespread VHC coverage.

SEDs and household broadband Implications of 5G for investment costs and subsidies • In regions were a market failure is likely to occur, VHC coverage for households could alternatively be achieved by implementing 5G, while SEDs could still be served by FTTH. • Based on a NUTS3 level assessment, subsidies required in D areas. • The table analyses a sample of countries with extensive requirements. A more granular analysis is likely to uncover more areas with these characteristics in more member states • Compared to serving both SED and households with FTTH in those areas, the investment and subsidy requirements are substantially less

SEDs and household broadband Implications of 5G for investment costs and subsidies:Alternative zoom into B region “AltmarkkreisSalzwedel” • A zoom into a B area in Germany indeed shows that the region includes a number of D zones. • In this scenario the areas marked with “fibre not viable” are served by deploying FTTH to the SED, and added by an additional fibre link in order to install 5G at the SED. • Compared to the scenario with both, SED and households served by FTTH the investment is reduced by approx. 36% and the need for subsidy is approx. 71% lower. • Note: This solution might not necessarily cover all unconnected households with 5G in these “fibre not viable” areas, as 5G coverage will depend in practice on topology, frequency used and distribution of SED and households.

SEDs and household broadband What benefits could be realised from EU funding? • Recent academic studies have highlighted the benefits of state aid in supporting broadband deployment and competition e.g. Briglauer et al (2019), Duso, Nardotto et al (2017). WIK and VVA will be further evaluating these effects in an ongoing study for DG Competition (due 2020) • EU public funding provides the additional benefits of ensuring investments serve to meet EU goals, reducing risk and costs of capital through the impact of EU financial support, facilitating the transfer of best practice, supporting cross-border schemes, participation of investors cross-border and supporting efficiency and economies of scale • Past examples of schemes receiving EU funding: • Digital Poland Programme, supporting deployment of fast broadband to nearly 2m households and more than 12,000 schools, with the aid of €876m in grants • Lepida project (Italy) shows how deployment of a backbone (with the support of €42m in EU funds between 2009-2020) can be used for multiple purposes including connectivity for schools, industrial districts (Net4all) and Wifi (Emilia-Romagna) • RUNE, a cross-border project covering rural districts in Slovenia and Croatia with the support of €30m in EU equity funding, has shown the potential for cross-border synergies

Questions around SEDs and households • In which area types should funding for SEDs and households be targeted (A through D)? • What priority should be given to access networks as opposed to backbone networks? • To what extent should subsidies be available for backhaul vs active equipment for 5G in challenge areas? • Do you have projects in mind that might be relevant for future funding for VHC to SEDs and households under CEF2? • If so what level of funding do you consider would be required from the CEF programme?

Context VHC networks including 5G to SEDs and households Delivering 5G along major transport paths Supporting WiFi and community 5G deployments Facilitating pan-EU HPC connectivity Efficient use of EU funds Agenda

Delivering 5G along major transport paths Provisions of the CEF2 regulation • The provisional CEF2 Regulation provides that: “actions contributing to the deployment of 5G corridors along major transport paths, including on the trans-European transport networks, shall be prioritized to ensure coverage along major transport paths, enabling the uninterrupted provision of synergy digital services, taking into account its socio-economic relevance relative to any currently installed technological solutions in a forward looking approach.” • An indicative list of projects that could benefit from support is included in Part V of the Annex including Atlantic, Baltic-Adriatic, Mediterranean, North Sea-Baltic, North Sea-Mediterranean, Orient/East-Med, Rhine-Alpine, Rhine-Danube, Scandinavian-Mediterranean

Delivering 5G along major transport paths Who needs connectivity and what do they need it for? Three different types of communications: • V2V (Vehicle to Vehicle), • V2I (Vehicle to infrastructure), • V2N (Vehicle to Network) With different type of messages, more or less critical for the unmanned function 5G is necessary for the V2N communication Autonomous Car Level 4-5 messages types and requirements Direct Unmanned functions • The dimensioning exercise focus on the 5G/V2Nconnection: • Bit rate is highly dependent on the services that a software provider wants to implement, but not directly related to the safety data directly used for the unmanned function. • Some functions are needed to improve the safety and the efficiency of the driverless function like non-visible obstacle detection and traffic prediction. Associated bitrates of these specific services should not exceed several Mbps. Source: IDATE estimations and based on interviews

Delivering 5G along major transport paths What is the projected connectivity status? • 1 • General overview of the road operators in Europe • 15 countries analysed • 90% related to the Government • 66% financed through national funding • The road operators are the main actors for the 5G backhaul network: • The majority of motorways have a fibre network • For a large part, they will need to renovate their fibre and energy network. • Depending on the quality of the network, the renovation may not be possible and in this case a new network should be built • They have to decide which V2I strategy they want to implement, • They should make access to their infrastructure available to the network service providers through permits or dark fibreleasing • The road operators will most probably support network renovation and the network service providers will probably support the construction of radio sites. • The capacity to invest may also differ significantly from a country to another. • Private road operators are likely to invest in the autonomous vehicle network. Their network should be more modern and will require few additional investment/ • Public road operators may invest in the autonomous vehicle network according to their ability to monetize it though tolls (if existing) or depending on a national strategy. • General overview of the Fibre network based on interview • 5 countries analysed • Fibre is present on all the analysed countries • 3 road operators present a (nearly) compatible fibre network along roadways • 2 countries may have sections compatible with the future 5G services • 2 ITS distribution per country on Trans-European Road Network • 3

Delivering 5G along major transport paths What is the projected connectivity status? And the forecast needs Evolution of autonomous vehicles on European roads, over the 2021-2027 period, in million units Main differences between level 3 and level 4 vehicles Source: IDATE Digiworldestimations and based on interviews Autonomous vehicles may reach 4% of the European market in 2025. Source: IDATE Digiworld

Delivering 5G along major transport paths Who will be the main actors involved in 5G CAM? • A complex value chain where: • All the actors need to invest • Some actors claim to commercialize the service • Each actor needs others, some of them will receive indirect revenue (wholesale) Source: IDATE Note: the first revenue of the road operator will be the wholesale revenue from the fiber leasing

Delivering 5G along major transport paths What could the business model look like? The price of the service should cover all the costs Structure Cost per country General Cost Structure according to the actor who will commercialize the service 5G network costs mainly depend on the 5G corridor lenghtand the distance between two sites. The intersite distance depends on: • The frequency band • The frequency bandwidth • The Spectral Efficiency • The Guaranteed bitrate per vehicle • The demand on Busy Hour Source: IDATE Digiwold Several externalities must also be taken in account - Fewer accidents and saved life - Reduced CO2 emission - Saved time thanks to reduced traffic jam

Delivering 5G along major transport paths Is there a commercial business case, and what are the potential areas of market failure? > Necessity to study CROSS BORDER • Studying cross border perimeter permits to: • Identify any infrastructure failure that are hardly dependent to the national road management (private/public management) • Identify and correct latency issue that can interrupt the autonomous driving • Check and align standards implementation country per country (V2I and V2V implementation) • Check and implement solutions to avoid roaming for the security information (latency and local/national responsibility) • Identify best practices by multiplying actors for the autonomous driving implementation on each side of the border. FOCUS ON CROSS BORDER PERIMETER

Delivering 5G along major transport paths What could the business model look like? > Focus on the impact of network sharing Four different possible Business models for the 5G network service providers: Accumulated costs 2020-2027 on 5G corridors (m€) • The guaranteed bitrate per vehicle and the available frequency bandwidth are the main criteria that define the 5G V2N dimensioning. • The sharing business model can have a significant influence on the total costs. • ► Ongoing tests will help actors to discuss and evaluate economic synergies, costs and revenues on the 5G V2N network deployment

Delivering 5G along major transport paths What could the investment needed look like? > Scenarios modelling Several investment scenario can defined • A minimum scenario will just cover the need for basic services. This scenario would not be sufficient to cover current service defined by the car industry • A classic scenario would cover the need as defined by the industry today • A breaking scenario would allow an average 30 Mbps connection. Emerging forward looking service could be covered with this quality of service • A future-proof scenario will allow to deploy an infrastructure allowing to develop all kind of future service and be in line with the kind of acceleration met in the digital world over long period.

Questions around 5G cross-border automotive connectivity • What infrastructure elements should be the main focus of publicly funded 5G Corridor projects, e.g. fibre backhaul and passive elements of the radio access networks as compared with active equipment? • What should be the main features of 5G corridor for CAM deployment projects, e.g. in terms of market players involved and project size? • What project size would be optimal to establish a pan-European network of 5G Corridors and what part should be covered by public funding? • What are the challenges we need to overcome to enable service continuity of 5G-based CAM services across borders?

Wireless VHC connectivity Provisions of the CEF2 regulation • The provisional CEF2 Regulation supports funding for: “actions contributing to the provision of very high-quality local wireless connectivity in local communities.” • Local wireless connectivity must be provided under the following conditions to receive funding: • Implemented by a public sector body, which is capable of planning and supervising the installation as well as ensuring the financing of operating costs for a minimum 3 years • build on very high capacity digital networks enabling delivery of very high quality internet experience to users • Free of charge and without discriminatory conditions • Support widespread and non-discriminatory access to innovative digital services • Facilitate the deployment of 5G ready small-area wireless access points • Procurement should not unduly distort competition

Supporting WiFi and community 5G deployments What is Wi-Fi, who is using it and why do they need it? Wi-Fi connections account for half of the communications time spent by cellular users globally (in Europe: 60% in the UK, 47.5% in France, 62% in Germany…) Wi-Fi is used typically for: • Free Internet access (public hotspots) • Home Internet access (in-house traffic between modem/router and devices) • Enterprise in-building data traffic (including Internet access) • Cellular off-loading Significant benefits of Wi-Fi… • mobile access, setup cost, flexibility, scalability … and a few limits: • range, security, speed

Supporting WiFi and community 5G deployments What are the capabilities of Wi-Fi compared with 5G? • Ten years ago, Wi-Fi was generally faster than mobile, as well as being cheaper and offering significantly greater capacity. • This has changed with the advent of 4G. Now, the average mobile download speed experienced by smartphone users is regularly faster on mobile networks than on Wi-Fi and 5G is set to increase the gap. • However headline capabilities of 5G are still theoretical and actual speed will depend on many factors (location, density of users, device…). Furthermore, 5G coverage will expand only progressively. • Wi-Fi capabilities are also increasing (see Wi-Fi6). Wi-Fi and cellular/5G are likely to co-exist for a long time

Supporting WiFi and community 5G deployments Who is deploying Wi-Fi networks? The battle for « free » communication services Pure Wi-Fi players: • FON, Boingo… MNOs: • trafficoffloading Cablecos: • MVNO activity OTTs WiFi-first players: • mainly in the USA Source : IDATE DigiWorld

Supporting WiFi and community 5G deployments What is the current and projected public and private deployment of Wi-Fi? Public Wi-Fi hotspotsinstalled base in Europe, 2017-2022 (in millions) Source : Cisco VNI

Supporting WiFi and community 5G deployments What are the deployment costs and synergies with 5G? As for data traffic offloading, Wi-Fi may remain equally important, if not more significant, with 5G. Combining cellular and Wi-Fi technologies to build an efficient mobile network can save between 30% and 40% in CapEx spending (and save OpEx as well!) However, it is unclear to what extent Wi-Fi and 5G synergies are likely to be realised in the shorter term Costadvantage of Wi-Fi deployment in smallcellenvironment • Depends on hybrid/converged equipment • Would require combined 5G/Wi-Fi planning • … Source : Hetting Consulting

Supporting WiFi and community 5G deployments What is the scope for community 5G meeting funding conditions for CEF2? Neutral network infrastructure: • a single, shared network solution provided on an open access basis to all operators • used to solve low wireless coverage issue • usually deployed and operated by a third-party provider • designed to support the full range of available wireless technologies. Public policy to encourage network sharing: • to reduce the costs of mobile service provision in rural or other areas with potential 5G deployment challenges • non discriminatory access solution not distorting competition The model of Dense Air in Ireland (third-party operator designing and building a trial 5G small cell network in Dublin City) could be exported to rural communities facing limited or insufficient coverage deploying a neutral infrastructure including microcells with fibre backhaul.

Funding the Gigabit society