EU policy and opportunities for promoting broadband investment

1. EU policy and opportunities for promoting broadband investment Anna Krzyzanowska Head of Unit Unit B5: Broadband Speeding up NGN ubiquity: a pillar for digital growth Athens, 13-14 February 2014

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

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

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

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

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

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

8. Financing and Funding • ESIF • CEF • Broadband State Aid

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

10. EU public funding • A significant share of the EU budget is spent on cohesion policy(ESIF) with ICT (incl. broadband) being one of multiple "thematic objectives" • 2007 – 2013 (previous budgetary period): • c. €2.3bn allocated to broadband, c. €14.5bn to ICT • Further resources from Rural Development Funds (c. €688m from EAFRD + EERP) • GREECE: 12.5 bn ERDF Community Contribution – 850 m ICT reduced to 605 m due to lack of timely absorption • 2014 - 2020: ICT one of four "concentration themes" in the European Regional Development Fund (ERDF) • ESIF can act as source of non-negligible ICT/broadband funding if MS: • select ICT/broadband as thematic objective • build an executable investment pipeline and ensure projects are carried out and funds are used • Member States are currently drafting their frameworks for ESIF spending (Partnership Agreements and Operational Programmes)

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

12. Project Bonds Initiative EU/EIB support Structure at project level (funded solution): SPV Project Costs Equity • Sufficient increase in credit quality of senior debt so as to attract bank/ bond financing • Sub-debt debt pricing includes fair risk margin, i. e. no subsidy • Sub-debt can be combined with different funding sources (senior loans, bonds) Bank/ Project Bonds Sub-debt EU partner (e. g. EIB) Investment grade debt Sub-investment grade debt

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

14. State Aid -Public financing State aid: new guidelines • Achievingthe right mix between public and private investment: public interventions targeted at market failures; faster decisions. • Principles: • Technological neutrality: Next Generation Access networks can be based on different technological platforms. • to protect private investors, publicly financed infrastructure can only be allowed if it provides a substantial improvement ("step change") over existing networks. • public funding of ultra-fast broadband networks (of more than 100 Mbps) will be possible also in urban areas subject to very strict conditions to ensure a pro-competitive outcome. • when a network is realised with taxpayers' money, competitors will benefit from a truly open network for the benefit of consumers. • Transparency has been reinforced: publication of documents, a centralised data base for existing infrastructure and ex post reporting obligations to the Commission.

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

16. THANK YOU! • anna.krzyzanowska@ec.europa.eu • http://ec.europa.eu/dgs/connect/en/content/broadband-inter-institutional-negotiations-connected-europe-facility

17. Market Framework • Non-discrimination and costing • Cost reduction measures