Special Report No 9/2000 concerning trans-European-networks (TEN) - telecommunications, accompanied by the Commission's replies
Date: 2000-03-23
Institutions: European Court of Auditors
Subjects: EU initiative, development policy, information policy, telecommunications, trans-European network

15.6.2000

EN

Official Journal of the European Communities

C 166/1

I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 9/2000

concerning trans-European-networks (TEN) (cid:151) telecommunications, accompanied by the
Commission(cid:146)s replies

(pursuant to Article 248(4), second subparagraph, EC)

(2000/C 166/01)

CONTENTS

Paragraph

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY OF PRINCIPAL OBSERVATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE COURT(cid:146)S AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

BUDGET SIGNIFICANCE FOR TEN-TELECOM AND RELATED MEASURES . . . . . . . . . . . . . . .

TRANS-EUROPEAN TELECOMMUNICATIONS NETWORKS (TEN-TELECOM) . . . . . . . . . . . . .

The TEN policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The TEN general rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Use of resources and summary of results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Euro-ISDN guidelines of 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Euro-ISDN preparatory measures 1993 to 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Euro-ISDN projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

New guidelines of 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preparatory actions for the new guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Projects under the new guidelines of 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Joint measures with other programmes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Evaluation of performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

COORDINATION WITH RELATED MEASURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Telecommunication in the research policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The importance of the Structural Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The significance of the EIB and the EIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Coordinating instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The schematic plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

2-11

12

13

14-45

14-15

16-17

18-20

21-31

23-25

26-31

32-37

34-36

37

38-39

40-45

46-67

47-48

49-51

52-53

54-67

55-56

3

3

3

4

4

4

4

5

7

7

7

8

8

9

10

10

11

11

11

13

14

14

C 166/2

EN

Official Journal of the European Communities

15.6.2000

Paragraph

Page

Committees and coordination by the Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57-61

The consultation procedure for projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62-66

Special interdepartmental working party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

67

CONCLUSION AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

68-71

GLOSSARY OF TECHNICAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission(cid:146)s replies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

15

16

16

18

19

15.6.2000

EN

Official Journal of the European Communities

C 166/3

INTRODUCTION

1. Telecommunication is a fast-developing and fast-changing
sector, with the Internet and the World Wide Web creating an
information and communication highway for industry and the
citizen. This report examines the development and implementa-
tion of EU policy concerning the trans-European-network-
telecommunications programme (hereafter referred to as TEN-
telecom) and the related measures.

SUMMARY OF PRINCIPAL OBSERVATIONS

2. The TEN general rules which are directed towards larger-scale
infrastructure measures are less appropriate to TEN-telecom which
promotes near-market projects for telematic applications and ser-
vices (paragraphs 16 and 17).

3. The assessment and reporting of results of the TEN-telecom
programme by the Commission were not comprehensive (para-
graphs 18, 36, 38 and 56).

4. The Commission(cid:146)s description of the TEN-telecom support
measures in its various reports as co-financing feasibility studies
is misleading as it contracted projects which included multiannual
activities rather than pure studies (paragraphs 20 and 25).

5. There are similarities with the research programme on telemat-
ics applications of common interest, which may also finance near-
market feasibility studies, validation tests and pilot projects but at
lower rates of aid (paragraphs 20 and 48).

6. The EU(cid:146)s consultative and decision-making procedure for set-
ting out the guidelines, on two occasions took two years. This did
not suit the requirements of an innovative and highly-dynamic
sector. The first guidelines were out of date almost before they
came into force, because they concentrated on a particular tech-
nology; projects under the new guidelines started late (para-
graphs 21, 28(b) and 32).

7. The Commission made only one check of a contract on the
spot. This revealed substantial irregularities. The Court(cid:146)s audit of
a large contractor found that not all of the contract obligations
were fulfilled (paragraphs 29 to 31).

8. Evaluation of TEN-telecom revealed weaknesses; an external
mid-term evaluation was too late to have an impact for the selec-
tion of the projects which started in 1999 under the new guide-
lines; the Commission has not carried out a full examination of
the continuing need for support for near-market projects under
TEN-telecom (paragraphs 40 to 45).

9. The improvements made to national telecommunications
infrastructures using Structural Funds had little emphasis on the
trans-European dimension, e.g. by promoting the investments
necessary for the interconnection and interoperability of national
networks (paragraphs 49 to 51).

10. The Commission(cid:146)s coordination of TEN-telecom with other
related EU activities was not sufficiently developed to facilitate
synergy and avoid the possibility of duplication. In each case
where aid is granted for near-market feasibility studies and pilot
projects, it needs to be clearly shown that the specific objectives
of these types of action are well-justified and that they are unlikely
to be achieved without EU subsidy. The Court notes that the tele-
communications sector is currently very competitive and expand-
ing rapidly without substantial public subsidies from any source,
in response to the liberalisation of the sector and the development
of mobile communications (paragraphs 55 and 56 and 62 to 68).

11. The Commission has not developed a clear strategy in the
Structural Funds vis-(cid:224)-vis market liberalisation and privatisation
of telecommunications. It made Structural Fund payments for
telecommunications despite ongoing infringement procedures
against the Member State concerned, for failing to transpose
market-liberalisation directives (paragraphs 57 to 61).

THE COURT(cid:146)S AUDIT

12. The EU TEN-telecom policy, inter alia, aims at establishing
and developing trans-European networks and promoting access
to them (see paragraph 14). The audit examined how far the Com-
mission has succeeded in implementing this policy and its co-
ordination with related measures in the research programme and
in the Structural Funds. Information on support granted to tele-
communications projects was also provided by the European
Investment Bank (EIB) and the European Investment Fund (EIF).
An audit was undertaken of the payments to the largest benefi-
ciary of TEN-telecom to examine management on-the-spot.

C 166/4

EN

Official Journal of the European Communities

15.6.2000

BUDGET SIGNIFICANCE FOR TEN-TELECOM AND RELATED
MEASURES

which are identified in the framework of the guidelines, (cid:145)...
particularly through feasibility studies, loan guarantees or
interest-rate subsidies ...(cid:146).

13.
In this report the term (cid:145)TEN-telecom(cid:146) refers to budget article
B5-7 2 0 (cid:145)Trans-European telecommunications networks(cid:146) (ECU
115 million in financial commitments from 1993 to 1998). The
term (cid:145)TEN-telecom-related expenditure(cid:146) refers to all telecommu-
nications expenditure, other than that
financed via Article
B5-7 2 0 of the budget. This comprises the research measures
(ECU 3 668 million, including ECU 2 084 million for informa-
tion technologies), the interventions by the Structural Funds
(planned spending for the period 1994 to 1999 is approximately
ECU 2 000 million), the loans from the EIB (ECU 10 860 million
for 1993 to 1998) and the amounts supported by loan guarantees
from the EIF (ECU 697 million for 1993 to 1998).

TRANS-EUROPEAN TELECOMMUNICATIONS NETWORKS
(TEN-TELECOM)

The TEN policy

14. With the entry into force in 1993 of the Treaty on European
Union ((cid:145)the Maastricht Treaty(cid:146)) a new Title XII, comprising
Articles 129b, c and d, was added to the EC Treaty under the
heading (cid:145)Trans-European networks(cid:146) (1). As a result the EU is
required to:

The TEN general rules

16. Council Regulation (EC) No 2236/95 lays down general rules
for the granting of Community financial aid in the field of trans-
European networks for transport, telecommunications and energy
infrastructures (2). Article 4 sets out the types of aid:

(a) co-financing of studies related to projects, including prepara-
tory, feasibility and evaluation studies, and other technical
support measures for these studies; EU funding should not
exceed 50 % of the total cost of a study;

(b) interest subsidies for loans granted by the EIB or other finan-

cial bodies;

(c) contributions towards fees for guarantees for loans from the

EIF or other financial bodies;

(d) direct grants to investments in duly justified cases;

(a) contribute to the establishment and development of trans-
European networks in the areas of transport, telecommunica-
tions and energy infrastructures (Article 129b(1));

(e) a combination of the possibilities available under (a) to (d) up
to a maximum of 10 % of the total investment cost of a project.

(b) promote the interconnection and interoperability of national

networks (Article 129b(2));

(c) promote access to such networks (Article 129b(2));

(d) take into account the need to link island, landlocked and
peripheral regions with the central regions of the Community
(Article 129b(2)).

15. Article 129c stipulates how the EU is to proceed when car-
rying out these responsibilities. It:

(a) shall establish a series of guidelines covering the objectives,
priorities and broad lines of the measures envisaged in the
sphere of trans-European networks; these guidelines are to
identify projects of common interest;

(b) shall implement any measures that may prove necessary to
ensure the interoperability of the networks, in particular in
the field of technical standardisation;

(c) may support the financial efforts made by the Member States
for projects of common interest financed by Member States,

(1) Now set out in Title XV Articles 154 to 156 of the Treaty on Euro-

pean Union.

According to the Commission only instrument (a) has been used
for TEN-telecom.

17. These TEN general rules are directed towards larger-scale
infrastructure measures, for which the Community seeks to pro-
vide incentives, chiefly by co-financing feasibility studies and pro-
viding assistance with the search for suitable sources of finance.
However, the TEN general rules are less appropriate to TEN-
telecom (3) as TEN-telecom does not provide aid for infrastructure
projects. The TEN-telecom projects financed by the Commission
under the relevant guidelines (see paragraphs 21 and 32) mainly
concern the development of applications and services in areas
such as education, health, transport, culture, tourism and elec-
tronic commerce.

(2) Council Regulation (EC) No 2236/95 of 18 September 1995 laying
down general rules for the granting of Community financial aid in the
field of trans-European networks (OJ L 228, 23.9.1995, p.1).

(3) The recent amendments of the TEN general rules do not change this.
Council Regulation (EC) No 2236/95 was amended by Parliament and
Council Regulation No 1655/1999 of 19 July 1999 (OJ L 197,
29.7.1999, p. 1). The amendments aim at improving the application
of the existing regulation mainly for large infrastructure projects, for
example by the introduction of a multiannual indicative programme
indicating the overall level of TEN support for these large infrastruc-
ture projects or by the use of a modest share of the TEN budget for
participation in risk-capital funding of TEN infrastructure.

15.6.2000

EN

Official Journal of the European Communities

C 166/5

Use of resources and summary of results

18. The commitments and payments for TEN-telecom over the
period 1993 to 1998 are shown in Table 1. The Court has analy-
sed the measures financed. The Commission itself has not pro-
duced a detailed survey of all the studies and projects financed for
TEN-telecom.

Table 1

Commitments and payments under Article B5-7 2 0
(cid:145)Trans-European telecommunications networks(cid:146)
1993 to 1998

Commitments

Payments

(in million ecus)

1993

1994

1995

1996

1997

1998

4,1

17,8

22,6

16,1

26,6

27,4

Total

114,6

Source: Commission, Sincom.

0,9

8,6

11,1

14,2

17,6

13,5

65,9

19. Table 2 shows that in the period 1993 to 1998 a total of 143
studies and projects were assisted for a total amount of ECU 103,2
million. This amounts to an average contribution of ECU 722 000
per project. The 143 projects were selected in response to the
publication of 16 calls for proposals or tenders. The three catego-
ries of support (Euro-ISDN guidelines 1995, new guidelines 1997
and joint measures) are shown in Table 2 and are examined in
more detail in the following paragraphs. ECU 11,4 million (10 %
of the overall resources) was used for administrative and associ-
ated measures (meetings of experts, conferences and congresses,
information measures and publications, and studies), an average
of ECU 1,9 million per year. In 1997, for the first time, a limit of
ECU 1 million was laid down in the budget for such support mea-
sures. In 1998 it was increased to ECU 1,2 million.

20. Although the Commission only carried out (cid:145)feasibility stud-
ies(cid:146) for TEN-telecom it interpreted the term in a wide sense as
many of the feasibility studies include multiannual activities such
as pilot deployment and field trials. Such projects are classed as
project financing in the research area. The research programme
on telematics applications of common interest (1) may also finance
feasibility studies, validation tests and pilot projects, but such
projects are not as close to the market as those of TEN-telecom
(see paragraph 48). For both research projects and for TEN-
telecom (cid:145)studies(cid:146) the Commission uses a standard research con-
tract. The allowable costs may include all or any of the following
categories of costs: personnel, equipment, third-party assistance,
travel and subsistence, consumables, computing and overheads.

(1) Council Decision 94/801/EC of 23 November 1994 adopting a spe-
cific programme for research and technological development, includ-
ing demonstration in the field of telematics applications of common
interest (1994 to 1998) (OJ L 334, 22.12.1994). The measures are
continuing under the fifth research framework programme for the
period 1998 to 2002 as part of a new overall structure.

Systematic overview of TEN-telecom studies and projects 1993 to 1998

Table 2

Date and Official
Journal of call

Subject of the call or tender

Number of selected studies/projects

Closed

Open

Total

EU contribu-
tion
(ECU)

Average costs
of study/
projects
(ECU)

I. (cid:151) Euro-ISDN guidelines

A. Euro-ISDN preparatory
measures 1993 to 1995

27.3.1993, C 205
26.3.1994, C 89
27.7.1994, C 207
6.5.1995, C 114
2.8.1995, C 198
1.9.1995, C 227

Feasibility studies Euro-ISDN
Feasibility studies Euro-ISDN
Feasibility studies Euro-ISDN
Feasibility studies Euro-ISDN
Feasibility studies Euro-ISDN (TEN)
Preparatory actions Euro-ISDN

Subtotal I(A)

B. Euro-ISDN projects

13.4.1996, C 107
3.8.1996, C 226
15.3.1997, C 84
7.8.1997, C 152

Euro-ISDN projects as TEN-telecom
Studies concerning telecommunications infrastructures
Euro-ISDN projects as TEN-telecom
Study: Status of Euro-ISDN

II. (cid:151) New guidelines of 1997
A. Preparatory actions

24.7.1993, C 200

Preparatory actions TEN-IBC

Subtotal I(B)

B. Projects under the new

guidelines

15.1.1998, C 10
14.3.1998, C 79
14.3.1998, C 79

Projects of common interest: networks
Projects for support and coordination
Projects of common interest: generic services and applications

Subtotal II(B)

III. (cid:151) Joint measures with other

programmes

6.6.1996, C 162
17.12.1996, C 381

Promotion via Internet of SME tourism publicity and commerce
Projects for educational multimedia

Subtotal III

Total

11
5
10
1
4
11

42

3

1

4

14

60

11
5
10 (1)
1 (2)
4
14

45 (3)

10
2 (4)
12
1

25

14

9
2
20

31

15
13

28

1 689 600
2 487 100
4 886 400
97 800
1 759 900
9 486 300

153 600
497 420
488 640
97 800
439 975
677 593

20 407 100

453 491

16 384 300
753 900
9 165 300
147 000

1 638 430
376 950
763 775
147 000

26 450 500

1 058 020

18 012 500

1 286 607

8 320 800
1 123 300
17 027 800

924 533
561 650
851 390

26 471 900

853 932

2 865 000
9 021 600

191 000
693 969

11 886 600

424 521

143

103 228 600

721 878

3

3

7
2
12

21

9
2
20

31

15
13

28

83

(1) In addition three studies were financed using budget article B5-4 0 1 (definition and implementation of Community policy in the field of telecommunications and postal services).
(2) In addition two studies were financed using budget article B5-4 0 1.
(3) Two projects were abandoned.
(4) In addition three studies were financed using budget article B5-4 0 1.
Source: European Court of Auditors on the basis of TEN-telecom legislation and project listings by the Commission.

C
1
6
6
/
6

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
m
u
n
i
t
i
e
s

.

.

1
5
6
2
0
0
0

15.6.2000

EN

Official Journal of the European Communities

C 166/7

Euro-ISDN guidelines of 1995

21.
ISDN has been a central theme of Community telecommu-
nications policy since 1984. In December 1986 the Council pub-
lished a recommendation on the coordinated introduction of
ISDN in the European Community (1). Despite this longstanding
commitment the guidelines (2) envisaged by Article 129c of the
EC Treaty were not adopted until 9 November 1995, more than
two years after the Commission(cid:146)s proposal (1 September 1993).
The time taken for the decision-making process did not suit a
highly dynamic field like telecommunications, as a consequence
the Commission commenced the programme on an ad hoc basis.

22. The projects of common interest detailed in Annex II to the
guidelines are not actual projects, but general areas of interest (e.g.
Euro-ISDN for education, training and research or health care).

Euro-ISDN preparatory measures 1993 to 1995

23.
In the first three years of TEN-telecom (1993 to 1995) EU
subsidies were granted for 45 projects (31 feasibility studies and
14 preparatory actions, see Table 2) for a total amount of ECU
20,4 million, before the objectives and priorities for identifying
projects of common interest had been put on a legal basis. Thus,
45 projects were selected and subsidised before the necessary
guidelines were laid down in compliance with Article 129c of the
Treaty.

24. Under the first five calls for tender the Commission placed
contracts for feasibility studies on a large number of topics,
including a series of Euro-ISDN market surveys (3). The Commis-
sion could not document the use that it had made of these stud-
ies. In addition, under two of the calls for tender (those of July
1994 and May 1995), a total of five studies were financed under
budget Article B5-4 0 1 (4). This indicates that although the pro-
moters of the projects concerned had responded with tenders
under Euro-ISDN, the Commission had adopted a (cid:145)flexible(cid:146)
approach and decided to fund some projects from another budget
heading.

25. The Commission(cid:146)s last call for proposals before the guide-
lines came into operation was no longer designated (cid:145)feasibility

(1) Council Recommendation of 22 December 1986 on the coordinated
introduction of the integrated services digital network (ISDN) in the
European Community, (OJ L 382, 31.12.1986, p. 36).

(2) Decision No 2717/95/EC of the European Parliament and of the
Council of 9 November 1995 on a set of guidelines for the develop-
ment of the Euro-ISDN as a trans-European network (OJ L 282,
24.11.1995, p. 16).
Including file transfer, electronic mail, terminals, network manage-
ment, telesurveillance and remote protection. Studies of potential
applications and investigations of the impact of Euro-ISDN were also
carried out for the Commission.

(4) Budget Article B5-4 0 1 (cid:145)Definition and implementation of Commu-

(3)

nity policy in the field of telecommunications(cid:146).

studies(cid:146) but was, for the first time, entitled (cid:145)preparatory actions(cid:146) (5)
and provided for up to 50 % funding of the cost of pilot deploy-
ment and field trials. The projects in question concerned the use
of Euro-ISDN for a wide range of applications (6). Thus, TEN-
telecom was no longer only financing pure studies, but also the
execution of pilot projects.

Euro-ISDN projects

26. Under Article 3 of the Euro-ISDN guidelines laid down in
November 1995, the ISDN was to be developed as a first trans-
European network and an element of the (cid:145)universal service(cid:146). Devel-
opment was to be carried out in the form of (cid:145)projects of common
interest(cid:146) (i.e. covering areas of common interest).

27. Between 13 April 1996 and 7 August 1997 two calls for pro-
posals and two calls for tender for Euro-ISDN as a trans-European
telecommunications network were published. A total of 25 projects
were selected for assistance under TEN-telecom (total amount
ECU 26,5 million) (see Table 2). Two studies (ECU 753 900)
received 100 % funding, contrary to the TEN general rules. A fur-
ther three studies were also funded 100 % under Article B5-4 0 1
of the 1996 budget, rather than under TEN-telecom (B5-7 2 0)
although presented by the Commission in its project lists as TEN-
telecom projects.

28. The projects are subject to annual review by the Commis-
sion. As a rule the study phase of projects usually runs for a
period of two years, so that by 31 December 1998 the financial
and technical aspects of one study (Euro-ISDN status study) and
only three Euro-ISDN projects (GTS, No problems and Medsalus)
had been completed. A review of their final reports gives rise to a
number of comments:

(a) The two-year (cid:145)Global telecommunications services(cid:146) (GTS)
project involved a total Community expenditure on the project
of ECU 0,4 million, for the promotion of new IT telecommu-
nications applications for undertakings in Greece; the project
included extensive market surveys in the enterprise sector, a
feasibility study and the subsequent installation and pilot
operation of eight telecommunications nodes. The project
contractors included a Greek private telecommunications
company which regarded the project as a very successful
investment because the rate of return was high and the project
helped to (cid:145)retain a leading position amongst Greek companies
becoming active in the liberalised market of value-added net-
work services(cid:146). In such circumstances, it is questionable if
Community aid was necessary.

(b) The (cid:145)No problems(cid:146) project (non-proprietary reliable electronic
mail system), which received a Community contribution of

(5) Call for proposals for preparatory actions in the domain of Euro-

ISDN (OJ C 227, 1.9.1995, p. 14).

(6) Use of Euro-ISDN within the health sector, interconnection of traffic
information centres, tertiary distance learning, as a platform for tele-
working or electronic trading for small and medium-sized enterprises
(SMEs).

C 166/8

EN

Official Journal of the European Communities

15.6.2000

ECU 1,5 million was carried out in Austria, with the object of
developing new electronic services for electronic commerce
and the e-mail sector. One of the initial aims of the project
was to contribute to the promotion of ISDN as a trans-
European telecommunications network; once the project
started, however, it became apparent that the Internet was the
dominant technology and, in order to keep up-to-date, the
technical Annex to the contract was amended and an Internet-
oriented strategy developed. While ISDN proved to be a worth-
while vehicle for Internet access the project is evidence that
the Euro-ISDN guidelines had led to an over-concentration on
a particular technology; in addition, the project leader found
that other companies had reached the commercial exploita-
tion of one of the applications aimed at before the Euro-ISDN
feasibility study had been completed.

(c) The aim of the (cid:145)Medsalus(cid:146) project in Spain was to establish an
Euro-ISDN-based health-care network in the Mediterranean
basin. There is provision for three kinds of long-distance
cooperation between health specialists and centres: remote
diagnosis, distance learning and teleinformation. It was not
clear whether this service has become operational.

29. The only checks that the Commission carried out on-the-
spot were at two of the four contractors for the project (cid:145)Digital
content for culture(cid:146) (amount disbursed: ECU 0,5 million) which
was part of Europe(cid:146)s cultural heritage (a museum inventory on
the Internet). It found that the work had not progressed satisfac-
torily. Almost all of the project had been subcontracted by the
main contractor without the Commission(cid:146)s knowledge and in
breach of the contract terms. In any case, standard software
appeared on the market so that parts of the project became
redundant. The main subcontractor, a firm in the Republic of
South Africa, was unable to provide evidence of work on the
project (apart from producing invoices). In August 1998, the
Commission issued a recovery order for most of the amounts dis-
bursed (1). In October 1998 the main contractor paid the amount
to be recovered, including the amounts due in respect of the asso-
ciated contractors (total ECU 301 292); The second contractor
has not paid (ECU 148 382), and legal action by the Commission
is under way to enforce the payment.

30.
In order to obtain additional information about the perfor-
mance of contracts, the Court carried out an on-the-spot audit of
the most important contractor in the field of TEN-telecom (2).
The contractor did not execute the work with its own staff, but
used staff from associated companies. As all salaries were paid by
the related companies and were unknown to the contractor, the
budgeted rates were declared to the Commission instead of the
amounts incurred. This should not have been accepted by the
Commission. In addition, the contractor frequently subcontracted
part of its work to external consultants without the Commission(cid:146)s
prior written approval. This was not in line with the contractor(cid:146)s
obligations.

(1) The claim also covers another project within the Info 2000 pro-
gramme with the same contractors, where false cost claims were
established.

(2) France Telecom Expertel participating in 11 contracts with a total

Community contribution of ECU 7,9 million.

31. The errors found by the Court(cid:146)s audit and that of the Com-
mission in projects in Member States indicate that significant
errors and irregularities may occur which will remain undetected
without on-the-spot checks.

New guidelines of 1997

32. On 17 June 1997, new TEN-telecom guidelines entered into
force in parallel with the Euro-ISDN guidelines. The adoption of
the new guidelines again took two years, the Commission having
made a first proposal on 7 June 1995 (3). The new guidelines (4)
state that (cid:145)ISDN is only a first step(cid:146). In addition to supporting
Euro-ISDN, they provide for assistance for integrated broadband
communication (IBC) networks, mobile and satellite services.
They continue to specify general areas or themes for the projects
of common interest.

33. The guidelines also define a new plan for trans-European
telecommunications networks. This is a three-layer model com-
prising basic networks, generic services and applications (5). A
further innovation was an annual work programme produced by
the Commission which specifies in more detail the projects of
common interest and which also aims at ensuring that the priori-
ties of the projects of common interest keep pace with techno-
logical developments.

Preparatory actions for the new guidelines

34.
In its communication of 22 July 1993 to the Council and the
European Parliament (6) the Commission identified the need for
preparatory measures in the field of IBC. Following a call for ten-
ders in July 1993 contracts were signed for 14 projects. The basic
conditions and specifications for ATM pilot networks were exam-
ined in particular. In mid-1994 11 of these projects were extended
and broadband trials were carried out in close conjunction with
the JAMES research project (7). In September 1995 a second
extension was granted to nine projects and these trials were even-
tually concluded between December 1996 and April 1997 (8).

35. The preparatory actions for TEN-telecom IBC thus extended
over three years. The total Community contribution for the 14
projects as shown in Table 2 amounted to ECU 18,0 million, of
which ECU 1,9 million was for Phase I, ECU 7,8 million for Phase

(3) Proposal for a decision of the European Parliament and of the Council
on a series of guidelines for trans-European telecommunications net-
works (OJ C 302, 14.11.1995, p. 23).

(4) Decision No 1336/97/EC of the European Parliament and of the
Council of 17 June 1997 on a series of guidelines for trans-European
telecommunications networks (OJ L 183, 11.7.1997, p. 12).
(5) The three-layer model is explained in Annex I to the guidelines.
(6) COM(93) 372 final.
(7) Within the framework of the specific research programmes ACTS,
Telematik and Esprit 18 European network operators participated in
this project and developed and implemented ATM interconnections.
(8) Final report concerning preparatory actions in the field of trans-
European networks: integrated broadband communications, COM(98)
45 final.

15.6.2000

EN

Official Journal of the European Communities

C 166/9

II and ECU 8,3 million for Phase III. These actions were EU
financed for 100 % of the costs of studies and 50 % of the costs
for trials. However, the TEN general rules which entered into force
in September 1995 and which set a limit of 50 % of the total costs
of a study and a maximum of 10 % of the total investment cost of
a project should have been applied to the Phase III projects, indi-
cating an estimated overpayment of over ECU 3 million.

36. Although the IBC preparatory actions were funded by TEN-
telecom, they were not included in the annual reports on the
trans-European networks (1) whereas all other preparatory actions
were. Thus, the information provided by the Commission in the
TEN-telecom report was incomplete.

Projects under the new guidelines of 1997

37. A call for proposals under the new guidelines was published
on 15 January 1998 and two further calls on 14 March 1998 (2).
Table 3 shows the results of the selection procedure. A total of
160 proposals were received, from which 31 projects were selected
with an EU contribution of ECU 26,4 million. The relatively large
number of proposals received is partly attributable to the fact that
no more funds were available for 1998 for the specific telematics
research programme, so that alternative sources of finance were
being sought. The first actions started at the beginning of 1999
and will not be completed until 2000 or 2001.

Result of the project selection in 1998 using the new TEN-telecom guidelines

Table 3

No of
proposals

No of
selected
projects

Commitments

Million ECU

%

Generic services:

(E.g. Internet-telephony, mobile satellite services, trust
services)

Applications:

Education and training

Cultural heritage

Applications and services for SMEs

Transport and mobility

Environment and emergency management

Health

City and regional information

Networks:

Satellite networks (e.g. in the fields of health and cin-
ematic archives)

Mobile networks (in the fields of transport and multime-
dia)

Global network development and interoperation

31

16

11

26

14

7

16

11

10

4

4

Support and coordination

Source: Commission.

10

160

Total

5

1

2

6

3

1

2

(cid:151)

7

2

(cid:151)

2

31

5,2

19,7

1,0

0,7

4,5

1,6

0,5

3,5

(cid:151)

6,6

1,7

(cid:151)

1,1

3,8

2,6

17,0

6,1

1,9

13,3

(cid:151)

25,0

6,4

(cid:151)

4,2

26,4

100

(1) Under Article 16 of the TEN general rules, the Commission must
make an annual activity report to the European Parliament, the Coun-
cil, the Economic and Social Committee and the Committee of the
Regions.

(2) OJ C 10, 15.1.1998, p. 16 (basic networks); OJ C 79, 14.3.1998, p. 15
(generic services and applications); idem, p. 14 (support and coordi-
nation actions).

C 166/10

EN

Official Journal of the European Communities

15.6.2000

Joint measures with other programmes

38. Article 5 of the TEN general rules state:
(cid:145)The financial
resources provided for under this Regulation shall not in prin-
ciple, be assigned to projects or stages of projects which benefit
from other sources of Community funding(cid:146). Notwithstanding this,
the TEN-telecom programme contributes to 28 projects, for a
total amount of ECU 11,9 million, under two measures, which are
carried out jointly with other programmes. None of the projects
had been completed by 31 December 1998. The first joint mea-
sure concerned the promotion via the Internet of small and
medium-sized enterprises (SMEs), tourism publicity and com-
merce. The call for proposals (1) did not make it clear that TEN-
telecom was participating in the measures for SMEs in the tour-
ism sector. It only stated that the measures were being funded by
the information society initiatives and the SME Community initia-
tive reserve of technical assistance .

39. The second measure concerns educational multimedia activi-
ties. In 1995 the Commission had set up a multimedia educa-
tional programmes task force, which proposed more dovetailing
of the various Community programmes (2). Four directorates-
general and six programmes (including TEN-telecom) are
involved (3). The Commission improved procedures by introduc-
ing a standard contract for these projects which removed the dif-
ference in the contract conditions that had previously existed (4).
Having made this consolidation, the Commission has not exam-
ined whether there is a need for so many different sources of EU
finance for similar purposes, with a view to simplifying manage-
ment and improving efficiency.

Evaluation of performance

40. The Commission had planned to evaluate all of the TEN-
telecom preparatory activities for the period 1993 to 1995 in
order to be able to draw final conclusions for follow-up activities,
under a study entitled (cid:145)Lessons to be learnt from the preparatory
actions(cid:146). However, the evaluation, for which an invitation to ten-
der was issued in 1996, was not carried out because of a negative
opinion from the Advisory Committee on Procurements and

(1) OJ C 162, 6.6.1996, p. 21.
(2) Report of the (cid:145)Educational software and multimedia(cid:146) Task Force, Euro-

pean Commission Working Paper, SEC(96) 1426.

(3) DG III with the information-technology research programme

(OJ L 334, 22.12.1994, p. 24);
DG XII with the targeted socioeconomic research programme
(OJ L 361, 31.12.1994, p. 77);
DG XIII with the telematics applications of common interest research
programme (OJ L 334, 22.12.1994, p. 1);
DG XXII with the Socrates (OJ L 87, 20.4.1995, p. 10) and Leonardo
da Vinci (OJ L 340, 29.12.1994, p. 8) education programmes.
(4) DG XVI, for example, drew attention to the problem of differing con-
tractual provisions in connection with the implementation of innova-
tive measures (Article 10 of the ERDF Regulation): it was, for example,
unacceptable for a subsidy recipient to be required by DG XVI to sub-
mit a bank guarantee when it was not required to do so by another
directorate-general. Another example is provided by the daily rates for
travel expenses: sometimes maximum rates are specified, sometimes
not.

Contracts (ACPC) that it was too expensive (5). The Commission
did not seek further satisfactory tenders. The Court considers that
this has had the result that successful and worthwhile studies
were not identified and used as the basis for future measures.

41. Although the original objective of developing Euro-ISDN as
part of the universal service was not achieved, a Commission
study (6) found that Euro-ISDN is an example of successful Euro-
pean cooperation on the grounds that:

(a) the market penetration in eight Member States was more than
5 % (at the end of 1997) and further growth could be expected;

(b) Euro-ISDN played an important part as an Internet-access

technology;

(c) prices of ISDN services and equipment had fallen consider-

ably and were continuing to fall;

(d) the European industry had become a leader in ISDN equip-

ment.

42. The study also pointed out that new technical developments
such as ADSL would play an increasing role but that (cid:145)Euro-ISDN
would remain the only stable digital communication interface for
the next few years(cid:146). It did, however, qualify this overall positive
assessment. There was still a shortage of simple applications con-
nections ((cid:145)plug-in and play(cid:146)) and there were continuing problems
with the interoperability of equipment and networks. Some Mem-
ber States did not have full geographical access to ISDN and both
SMEs and private individuals were not fully aware of the advan-
tages of ISDN.

In May 1997 the Commission charged external experts to
43.
carry out an intermediate evaluation of the TEN-telecom action
(1993 to 1997). The final results were only available in February
1999. According to this intermediate evaluation (cid:145)all the projects
undertaken contributed materially to the achievement of the
guidelines objectives and met the requirements of the TEN Finan-
cial Regulations, and the choice of activities for support was con-
ducted in a fair and transparent way(cid:146) (7). However, (cid:145)the evaluators
found that the TEN-ISDN action does not yet have any systematic
monitoring indicators or success criteria for the direct assessment
of the achievement of the strategic and operational objectives(cid:146). It
was also stated that (cid:145)one of the main real risks to the programme

(5) Meeting No 872 of 25 November 1996. ((cid:145)The stated reason for the
negative opinion was that the expenditure would be disproportion-
ate in comparison to the aim and contrary to sound financial man-
agement(cid:146)) (page 24 of the Vademecum of the ACPC).

(6) According to Article 10 of the Euro-ISDN guidelines the Commission
was to undertake a general evaluation of the guidelines in 1997. The
Commission put the evaluation out to tender in August 1997, placed
the contract at the end of 1997 and the evaluation was completed in
mid-1998 (cost: ECU 147 000).

(7) TEN-telecommunications, TEN-ISDN, Intermediate evaluation 1993

to 1997, p. 4.

15.6.2000

EN

Official Journal of the European Communities

C 166/11

is that of failing completely to see the importance of some new
as yet unimplemented technological chance which might then
render much existing work irrelevant, as happened to some extent
to research programmes for the Internet and World Wide Web(cid:146).

(cid:145)Information technologies(cid:146) programme (Esprit) with a budget of
ECU 2 084 million (4).

44. Although most Euro-ISDN projects had not been completed
by 31 December 1998, initial conclusions may be drawn. The
EU(cid:146)s lengthy consultative and decision-making procedure for set-
ting out the guidelines did not suit the requirements of an innova-
tive and highly dynamic sector where market forces gained accep-
tance for the Internet as a World Wide Web. There is a risk that
assisted projects will not reflect current market trends.

45.
In addition, the delay in producing the intermediate evalua-
tion meant that it could not be used for the orientation of the
actions under the new guidelines. It recommended strengthening
the impact on peripheral areas, where access was less well met.
This was not one of the selection criteria used for the 1998
projects. Equally importantly it concluded that projects with sub-
stantial technology and commercial elements should not exceed
18 months, in order to keep pace with rapid change. However,
about half of the projects selected under the new guidelines will
last two years even without any extensions, which have occurred
in the past. It is still necessary to carry out a full evaluation of the
continuing need of support for near-market projects under TEN-
telecom.

COORDINATION WITH RELATED MEASURES

46. The TEN general rules stipulate that the Commission must
ensure coordination of all Community activities that affect trans-
European networks. They specifically mention coordination
between financing under TEN and financing from the Structural
Funds, Cohesion Fund (1), EIF and EIB. The TEN measures must
also be compatible with other Community policies.

Telecommunication in the research policy

48. The Commission stated in its 1998 annual report on research
and technological development activities (5) that the Union(cid:146)s major
weakness lies not in its research potential but rather in translat-
ing the results of this research in economic and commercial terms
and that therefore one of the objectives of the framework pro-
gramme is to improve this state of affairs. The Telematics applica-
tions programme in particular is a user-driven research pro-
gramme, having the objective of bridging the gap between results
and their economic use in common with TEN-telecom. Both pro-
grammes may finance feasibility studies, validation tests and pilot
projects in areas of common interest. The difference is that, by
comparison with the research measures, the projects assisted
under TEN-telecom are more mature and closer to the market (as
shown by the examples detailed in paragraph 28). Near-market
projects funded under the research programme would have a
lower rate of subsidy as, in the research sector, the community
financing is usually not more than 50 % of the project cost, and
the contribution diminishes gradually with the project(cid:146)s proxim-
ity to the market. It is therefore necessary to define clear rules to
avoid overlap between the two actions.

The importance of the Structural Funds

49.
In the communication on cohesion and the information
society (6) the Commission provided an overview of the impor-
tance of the Structural Funds for the telecommunications sector.
According to this, the Structural Fund(cid:146)s programmes envisage
total expenditure of around ECU 1 769 million for Objectives 1,
2, 3, 4, 5(b) and 6 in the telecommunications sector, plus ECU
207 million from Community initiatives (CI) for the 1994 to 1999
programming period. In that communication the Commission
states that (cid:145)only a surprisingly small part (about 2 %)(cid:146) of total
Structural Funds(cid:146) expenditure has been earmarked for the tele-
communications sector.

47. The fourth framework programme of the European Com-
munity for research, technological development and demonstra-
tion activities (1994 to 1998) includes three specific research pro-
grammes in support of the information and communication
technologies: the (cid:145)Telematics applications(cid:146) programme (2) with a
budget of ECU 913 million, the (cid:145)Communications technologies(cid:146)
programme (ACTS) (3) with a budget of ECU 671 million and the

50. Although the Commission communication does not analyse
this total by Member State, an internal study by DG XIII produced
a country-by-country breakdown and examined the priorities,
measures and actions of all of the operational programmes (OPs)
and CIs concerning telecommunications. The results are

(1) The Cohesion Fund supports TEN-transport but not TEN-telecom.
However, telematics applications also receive funding in the TEN-
transport area, so that there can be some overlap (e.g. satellite naviga-
tion systems).

(2) See footnote 1, page 5.
(3) Advanced communications technologies and services, Council Deci-
sion 94/572/EC of 27 July 1994 adopting a specific programme for
research and technological development, including demonstration, in
the field of advanced communication technologies and services (1994
to 1998) (OJ L 222, 26.8.1997, p. 35).

(4) European strategic programme for research and development in infor-
mation technologies. Council Decision 94/802/EC of 23 November
1994 adopting a specific programme for research and technological
development, including demonstration, in the field of information
technologies (1994 to 1998) (OJ L 334, 22.12.1994, p. 24).

(5) COM(1998) 439 final, 15.7.1998, p. 14.
(6) Communication from the Commission to the Council, the European
Parliament, the Economic and Social Committee and the Committee
of the Regions (cid:151) Cohesion and the information society, COM(97) 7
final.

C 166/12

EN

Official Journal of the European Communities

15.6.2000

summarised in Table 4. Italy (ECU 542 million), Spain (ECU 516
million), Greece (ECU 380 million) and Portugal (ECU 282 mil-
lion) were identified by the Commission as the largest recipients

of Structural Funds(cid:146) support for the telecommunications sector in
the period 1994 to 1999 (1).

Telecommunication expenditure as part of structural intervention plans for 1994 to 1999 (all objectives)

Table 4

(in million ecus)

Structural Funds

ERDF

ESF

Other

Belgium
Community support framework (CSF)
Community initiatives (CI)

Denmark
CSF
CI (not collected)

France
CSF
CI

Germany
CSF
CI (not collected)

Greece
CSF
CI

Ireland
CSF
CI

Italy
CSF
CI

Netherlands
CSF
CI

Portugal
CSF
CI

Spain
CSF
CI

United Kingdom
CSF
CI

Total (1)
CSF
CI

12,0
1,5

(cid:151)

30,7
27,0

1,0
2,1

(cid:151)

40,2
26,9

0,4

(cid:151)

311,7
10,7

32,0
10,7

488,1
24,2

4,1
1,6

259,0
15,2

443,0
44,9

54,5
4,6

57,5
(cid:151)

(cid:151)
2,0

12,2
11,7

(cid:151)
1,9

(cid:151)
5,5

14,5
9,8

1,5
0,3

1 635,5
140,4

126,9
60,2

(cid:151)
(cid:151)

(cid:151)

(cid:151)
0,3

(cid:151)

(cid:151)
(cid:151)

(cid:151)
0,2

2,5
3,0

(cid:151)
(cid:151)

(cid:151)
2,5

3,8
(cid:151)

(cid:151)
0,3

6,3
6,3

1 768,7
206,9

(1) No data were collected for Austria, Sweden, Finland and Luxembourg.
Source: Commission.

(1) The Commission(cid:146)s calculations are partly based on estimates as the
telecommunications expenditure was not always differentiated clearly.
Only Italy and Greece have their own OPs for telecommunications.

15.6.2000

EN

Official Journal of the European Communities

C 166/13

51. Although the Interreg CI has a trans-European aspect, for
example by providing aid for a fibre-optic link between Portugal
and Spain, Structural Funds finance is primarily directed towards
measures for extending, modernising or improving national tele-
communications infrastructures. The corresponding OP(cid:146)s or sub-
programmes were, in general, the subject of a mid-term review
under the Commission(cid:146)s evaluation policy, although the evalua-
tion for Italy was delayed due to national management problems.
While the evaluations for the different countries identified progress
concerning extending, modernising or improving the national
infrastructure, the question of interconnection and interoperabil-
ity of the national networks was not analysed and the benefit to
the trans-European aspects was not established. However, inter-
connection and cross-border links have a particularly important
role to play under the TEN policy, especially with regard to the
future, where new links with central and east European candidate
countries will have to be created (1).

The significance of the EIB and the EIF

52. The TEN general rules provide that the Community may
grant interest subsidies for EIB loans and contributions towards

the cost of guarantees for loans from the EIF. The Commission
has not made any use of this possibility for TEN-telecom choos-
ing instead to concentrate funding on near-market projects. EIB
loans and EIF guarantees for projects are not covered by the TEN-
telecom guidelines (2). The EIB loan agreements concluded for
telecommunications networks 1993 to 1998 which have a total
value of ECU 12 022 million comprise ECU 10 860 million for
projects in the EU and ECU 1 162 million for projects with neigh-
bouring countries (see Table 5). The EIB is thus a most significant
provider of finance in the area of TEN policy. It primarily responds
to proposals from the Member States under its own policy direc-
tives.

53. The EIF loan guarantees for telecommunications are less
financially significant (ECU 697 million for 1993 to 1998, see
Table 6). Decisions relating to guarantee operations must be
adopted unanimously by the Financial Committee consisting of a
representative of the EIB, a representative of the Commission and
a representative of the national financial institutions being mem-
bers of the EIF. The EIF guarantees may cover large infrastructure
projects (including optical-fibre networks, GSM, satellites) and
thereby provide funding for projects not covered by TEN-telecom.

Table 5

EIB lending telecommunications 1993 to 1998

Loans
approved

Finance contracts signed

1993

1994

1995

1996

1997

1998

1. Projects in the European Union

12 472

1 005

1.1. Networks and trunk exchanges

1.2. Mobile telephony

1.3. Satellites and stations

7 987

3 812

673

2. Projects with neighbouring countries

1 762

2.1. Networks and trunk exchanges

2.2. Mobile telephony

2.3. Satellites and stations

1 180

582

954

51

110

110

2 100

2 006

72

22

300

300

839

786

53

130

130

1 602

1 880

881

421

300

115

100

15

486

1 394

357

240

117

3 434

1 689

1 427

318

150

150

(in million ecus)

Total

10 860

6 802

3 418

640

1 162

880

282

Source: The European Investment Bank.

Total

14 234

1 115

2 400

969

1 717

2 237

3 584

12 022

(1) See Agenda 2000, For a stronger and wider Union, Part 1, Section I,

(2) See trans-European networks 1997 annual report, COM(98) 391 final,

subsection 1, p. 18.

2.10.1998, Sections 4.5 and 4.6.

C 166/14

EN

Official Journal of the European Communities

15.6.2000

EIF loan guarantees for telecommunications 1993 to 1998

Table 6

1993 to
1994

1995

1996

Guarantees issued

156

19

9

Source: The European Investment Fund.

1997

278

1998

235

(in million ecus)

Total 1993 to
1998

697

Coordinating instruments

Committees and coordination by the Commission

54. The eighth annual report on the Structural Funds (1996) (1)
stated that TEN financing, the Structural Funds, EIB loans and EIF
guarantees are coordinated using three instruments: schematic
plans for monitoring funding, advisory committees of Member
State representatives and internal consultations. Furthermore, in
1997 a special interdepartmental working party was formed by
the Commission as a fourth instrument of coordination.

The schematic plans

In 1994 the Commission instructed its Secretariat-General to
55.
set up and maintain a schematic plan of TEN finance. The pur-
pose of this internal working document was to provide a general
overview of TEN financial support for all the services of the Com-
mission, the EIB and the EIF, in order to facilitate synergy and
avoid duplication. The schematic plan also aimed at enabling the
Commission to provide the Member States with comprehensive,
up-to-date information on all TEN financing.

56. The schematic plans include a table which shows the EIB
loans, EIF guarantees, ERDF subsidies and the assistance supplied
through the TEN budget headings. Analysis of the (cid:145)TEN-telecom-
related expenditure(cid:146) reveals, however, that the commitments men-
tioned against ERDF (ECU 467,7 million for the period 1993 to
1997) only concern telecommunications expenditure in Ireland
and Greece. The telecommunications expenditure for other coun-
tries is not recorded. This incomplete picture was also published
in the TEN 1997 and 1998 annual reports (2) and in a 1999 report
from the Commission to the Council (3). The Commission had
envisaged developing a database with query possibilities but this
was not done. The last version of the schematic plan was pro-
duced on 10 October 1997. The data was not revised nor updated
and no supplementary planning measures made. In its present
form the schematic plan is not a suitable coordination tool for the
telecommunications sector as it is not only out of date and
incomplete but is also not in a user-friendly format.

(1) COM(97) 526 final, Chapter II (D)(9).
(2) See trans-European networks 1998 annual report COM(1999) 410

final, 15.9.1999.

(3) Report on (cid:145)Investment in infrastructure in the European Union(cid:146) by the

European Commission to the Council, Brussels, 18.5.1999.

57. The consultation that takes place in the various committees
should also bring about coordination of telecommunications
measures including finance. The monitoring committees, com-
prising national and Commission representatives, which monitor
the Structural Funds play an important role (4). During the period
under review, the Commission department responsible for the
telecommunications sector was represented on several of them.
Two examples of the positive work undertaken by the Commis-
sion illustrate the importance of coordinating EU measures:

(a) The Commission examined the implementation of the 1994
to 1999 telecommunications OP in Greece. Greece had made
relatively little progress in transposing the various market lib-
eralisation regulations, and the Commission introduced
infringement procedures (5) under Article 169 of the EC Treaty.
The State monopoly, OTE, benefits from the transposition
delays because it is still able to make profits from its monopoly
in non-liberalised areas. It is also the main recipient of Struc-
tural Funds(cid:146) finance from the telecommunications OP, which
is at odds with the Commission(cid:146)s policy towards the treaty-
infringement proceedings. Following an on-the-spot enquiry
in 1997 the responsible department of the Commission rec-
ommended that further funding should cease until the Mem-
ber State had complied with EU obligations on liberalisation
and harmonisation. The Commission eventually froze pay-
ments in August 1998, but by then Greece had received 75,8 %
(ECU 131,4 million) of the EU funds provided for in the OP;

(b) The directorate-general responsible for the regional policy ini-
tially proposed co-financing the setting up of mobile radio
networks in Objective 1 areas in Italy. Following objections
from two other directorates-general, the co-financing was
finally dropped. There were three grounds for the objections:

(4) The special TEN-telecom committees (finance and guidelines commit-
tees) are less important for coordination questions, because they are
primarily concerned with the definition of projects of common inter-
est and with project selection.

(5) Communication from the Commission to the Council, the European
Parliament, the Economic and Social Committee and the Committee
of the Regions (cid:151) Fourth report on the implementation of the tele-
communications regulatory package, COM(98) 594 final and XXVIIth
report on competition policy 1997.

15.6.2000

EN

Official Journal of the European Communities

C 166/15

(i) distortions of competition as a result of the strengthening

of what were already market-dominant positions;

(ii) failure to transpose the relevant Directives and the conse-

quent treaty-infringement procedure;

(iii) EU financing was unnecessary on the grounds that the

profitability forecasts were favourable.

designed, they could be used to orient this examination. For
example, they permit direct subsidies only in duly justified cases
and instead concentrate on loans with interest subsidies and guar-
antees. Such means of funding merit further examination given
the usually profitable nature of investments in the telecommuni-
cations sector and the possible distortion of competition that may
be caused by subsidies.

58. These examples show how contradictions in the Community
measures were uncovered by means of coordinated approach.
However, it is clear that the Commission(cid:146)s strategy for, and moni-
toring of, market liberalisation and privatisation following Struc-
tural Fund aid needs to be strengthened.

59.
In 1993, when the 1994 to 1999 programming period was
being planned, the fact that the main beneficiaries of the assis-
tance would be State monopolies did not appear to pose a major
problem. However, the market liberalisation and privatisations
which subsequently took place call into question whether capital
investment that had been co-financed by the Structural Funds
may be transferred to the private sector without some form of
recovery. A general approach was not laid down and the Com-
mission has decided, on a case-by-case basis, the extent to which
the post-privatisation companies continue to pursue the regional-
policy objectives agreed earlier.

60. Two examples illustrate the solutions found by the Commis-
sion:

(a) As regards the privatisation of the company Telef(cid:243)nica, in
Spain, the Commission decided at the end of 1998 that it
would not seek to recover any funds; an external assessment
carried out by a Spanish consultant concluded that the regional
policy objectives had been met (1); the Commission neverthe-
less attached a number of recommendations to its decision
that no reimbursement of ERDF funding was necessary, includ-
ing one which stated that Telef(cid:243)nica should concentrate the
implementation of projects co-financed by the ERDF outside
highly profitable zones and facilitate access to the market for
new operators;

(b) In the case of Telecom-Italia an assessment stated that the
company had not invested sufficiently in disadvantaged Objec-
tive 1 areas; the 1994 to 1999 telecommunications OP was
amended to the effect that the ERDF assistance would remain
the same, but Telecom-Italia must invest an additional ECU
78,5 million in Objective 1 areas.

61. Even if solutions were found in these cases and implementa-
tion of the recommendations is confirmed by evaluation of the
relevant OPs, the Structural Funds(cid:146) aid policy for telecommunica-
tion infrastructure should be re-examined in the light of liberalisa-
tion and privatisation. Although the TEN general rules do not
apply to the Structural Funds and thus are not applied to the
larger-scale telecommunications measures for which they were

(1) However, the methodical approach followed in the assessment was

not undisputed.

The consultation procedure for projects

62. The financing decisions on TEN-telecom projects are pre-
ceded by a internal written consultation procedure which aims at
ensuring that there is coordination within the Commission. The
Court analysed the results of this internal consultation procedure
for the 1998 TEN-telecom project selection using the new TEN-
telecom guidelines.

63. The TEN-telecom project proposals concerning the calls of
1998 were evaluated by the services of the Commission with the
help of external experts. After the project selection was done, the
directorate-general responsible sent letters to 13 other DGs with
a request for an opinion on the selected proposals within 10
working days. Most DGs sent brief notes saying that they had no
comments and agreed with the projects selected. In one case there
was a criticism that the deadline was very short and thus it was
very difficult to provide a reasoned reply. Four DGs pointed out
that similar projects were in progress in their own areas of respon-
sibility. One DG stated that, for one project, there was a high risk
of duplication with a research project of the Esprit programme
being carried out by the same consortium and that there were
possible overlaps with two other research projects. Another DG
stated that one project had a possible conflict with a study
launched by its own services. Two further DGs warned of pos-
sible duplication of work.

64. The overall picture this provides is that during the selection
procedure and project evaluation stage there was a lack of coor-
dinated information between Commission departments. Coordi-
nation should take place much earlier. While the internal consul-
tation procedure facilitates cooperation at particular points, it
does not at present provide coordination of ideas and strategies
between DGs. Internal procedures and equipment have not been
developed to meet this need; for example, a DG is unable to call
up on-screen details of contracts planned and undertaken by
another DG. The written internal consultation procedure appears
to be a routine in which approval may be given or no reply made
at all, under pressure of time, without detailed consideration.

65. As regards EIB and EIF funding, there was very little evidence
that the Commission is systematically taking into account EIB
loans and EIF guarantees at both the planning and implementa-
tion stages. For example, the financial summaries of the two

C 166/16

EN

Official Journal of the European Communities

15.6.2000

specific OPs in the telecommunications sector (Greece and Italy)
do not contain any planning data for EIB and EIF intervention. A
comment made by the Court in respect of financial year 1995 (1)
is also applicable to the telecommunications sector:

subsidies and loans and to facilitate public/private partner-
ships.

(cid:145)At the programming stage, there is still very little complemen-
tarity between the two types of instrument, loans and grants,
because of the difficulty of reconciling the project-based
approach peculiar to the EIB with the programme-based one
used by the Structural Funds(cid:146).

66. The Commission does however have a written consultation
procedure with the EIB concerning projects which are, in prin-
ciple, to be financed by the bank (a similar system does not exist
for EIF guarantees). The EIB submits the selected Member States(cid:146)
financing applications to the Commission which must deliver its
opinion within two months in accordance with Article 21(2) of
the Protocol on the Statute of the EIB. Since 1975 there has been
an inter-departmental group of representatives from various DGs
which is responsible for delivering opinions to the EIB. The group
allows the individual departments of the Commission 10 work-
ing days in which to give their opinions. If no answer is received
this is construed as tacit approval. The Commission(cid:146)s opinion is
almost always affirmative. In 1998, for example, the decisions on
all the 334 EIB requests (including 12 for the telecommunications
sector) were positive. While this procedure may provide a two-
way flow of information it does not ensure strategic coordination,
for example, between EU aid managed by the Commission and
the EIB loans.

Special interdepartmental working party

67.
In April 1997 the Commission decided to improve coordina-
tion of the use of the TEN Instruments. A special interdepartmen-
tal working party was set up to prepare recommendations. The
working party delivered three main recommendations in Septem-
ber 1997:

(a) a group of directors was to meet regularly with the EIB and
the EIF to ensure consistency in the setting of priorities;

(b) seminars should be organised with EU, national and regional
representatives to ensure that TEN policies are taken into
account during the ERDF planning process;

(c) special project teams for large-scale multifund projects should
be set up to ensure that the financing has the right mix of

No progress towards implementing these recommendations was
made in the telecommunications sector.

CONCLUSION AND RECOMMENDATIONS

68. The Commission should provide the Council and the Parlia-
ment with details of the TEN-telecom actions and its assessment
of the extent to which their objectives have been achieved. In each
case where aid is granted for near-market feasibility studies and
pilot projects, it needs to be clearly shown that the specific objec-
tives of these types of action are well justified, and that they are
unlikely to be achieved without EU subsidy. At the same time
consideration should be given to a closer linking between the
telematic research, development and demonstration activities
(RTD) co-financed through the research programme and the near-
market projects supported through TEN-telecom, including an
assessment of the scope for further improvements in efficiencies
if the RTD-telematic projects and the related market-validation
activities were managed together. The Court notes that the tele-
communications sector is currently very competitive and expand-
ing rapidly without substantial public subsidies from any source,
in response to the liberalisation of the sector and the development
of mobile communications. Furthermore, in commercial terms,
telecommunications companies are amongst the largest compa-
nies in Europe, with ready access through the markets to invest-
ment funds of all types. The Commission should ensure that it
closely monitors the technical developments in this fast-moving
field to better focus its expenditure in order to maximise its impact.

69. The Commission should develop new guidance for the Struc-
tural Fund interventions in the field of telecommunication, where
liberalisation, privatisation and increased competition are key
developments. The TEN general rules, which were conceived to
promote infrastructure projects, though not applicable to the
Structural Funds, can provide a basis for this reorientation, by
allowing direct grants to investment only in duly justified cases
and by favouring Community aid in the form of interest subsidies
and loan guarantees. In addition, the coordination between financ-
ing under TEN-telecom and financing from the Structural Funds,
EIB and EIF should be intensified, so that the necessary comple-
mentarity and synergy between the different types of instrument
may be achieved. In its 1999 report to the Council the Commis-
sion itself stressed this necessity (2) (paragraphs 54 to 67).

(1) European Court of Auditors, Annual Report concerning the financial
year 1995 together with the institutions(cid:146) replies (OJ C 340, 12.11.1996,
paragraph 5.61).

(2) See footnote 3, page 14.

15.6.2000

EN

Official Journal of the European Communities

C 166/17

70. The issue of interconnection and interoperability will have
an increasingly important role to play especially with regard to
the development of new links with the central and east European
candidate countries (paragraphs 49 to 51). The trans-European
aspect of the TEN policy will need to be evaluated in this light .

71. The Commission should carry out more on-the-spot checks
to ensure that the execution of TEN-telecom projects and the
results achieved are in accordance with the rules and objectives
identified in the contracts (paragraphs 29 to 31).

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 22 and 23 March 2000.

For the Court of Auditors

Jan O. KARLSSON

President

C 166/18

EN

Official Journal of the European Communities

15.6.2000

GLOSSARY OF TECHNICAL TERMS

ISDN:

Integrated Services Digital Network

Universal Service:

A defined minimum set of services of specified quality which is available to all users independent of their
geographical location and, in the light of specific national conditions, at an affordable price, See first monitor-
ing report on universal service in telecommunications in the European Union, COM(1998) 101 final, p. 8.

Integrated broadband communications (IBC)

(cid:145)Integrated(cid:146) points to integrity of the whole network, and therefore to the proper interworking of all its essential
constituent parts, including the existing and emerging ones, voice telephony, packer, ISDN, broadband, satel-
lite and mobile. It also signifies the integration of services (at the user and the appropriate network levels).

(cid:145)Broadband(cid:146) designates the total mix of services, to be considered, starting from ISDN, up to what will be
required by a realistic introduction of video (interactive and distributive services) (i.e. 140 Mbit/second and
more at the user interface).

(cid:145)Communication(cid:146) includes the conventional switching/transmission, consumer private network functions, but
also advanced features to make service provision user-friendly, performing and economically sound (COM(93)
372 final p. 6).

ATM:

Asynchronous transfer mode, whereby the transfer rate can be increased to a theoretical 155 Mbit/second.

ADSL:

Asynchronous digital subscriber line. ADSL does not require an ISDN connection. This technical improve-
ment uses an analogue connection to provide benefits that were previously available only with ISDN (e.g.
diverting calls, recording caller numbers). Satellite and cable TV network operators are also experimenting with
their own mass-market rapid Internet access techniques.

15.6.2000

EN

Official Journal of the European Communities

C 166/19

THE COMMISSION(cid:146)S REPLIES

SUMMARY OF PRINCIPAL OBSERVATIONS

3. All TEN-ISDN preparatory studies (1993 to 1995) have been
filed by the Commission, and were well identified on the occa-
sion of the TEN-ISDN intermediate evaluation report, which was
communicated to the Court in February 1999 (1). Further TEN-
telecom projects from 1996 onwards were included in a database
which is accessible online by every project officer and provides
updated information on the status and deliverables of a project
from its initial appraisal, up to monitoring and evaluation.

The difficulties encountered in achieving a comprehensive descrip-
tion of the TEN-telecom activity lay in the complex structure of
the projects:

(cid:151) on the one hand, the TEN-telecom (cid:145)projects of common inter-
est(cid:146) appeared in the guidelines adopted in June 1997, three
years after the adoption of the Structural Funds programmes,

(cid:151) on the other hand, by their very nature, the regional plans are
organised around themes reflecting the priorities of each
Member State (improving the business environment, moder-
identify
nising public
telecommunication-related investments as such.

administration),

and do not

4. The Financial Regulation stipulates that (cid:145)studies(cid:146) can always be
accompanied by (cid:145)technical support measures(cid:146), which is reflected
in the glossary of terms approved by the TEN Financial Commit-
tee and confirms a larger acceptance in the meaning of (cid:145)studies(cid:146).

In addition, Article 3 of the guidelines clearly states as a priority
(cid:145)study and validation of the technical and commercial feasibility,
followed by the deployment of applications supporting the devel-
opment of a European information society, in particular applica-
tions of collective interest(cid:146). Studies have been carefully defined fol-
lowing this model, with a greater emphasis put on market feasibility
and validation so that the action could be best differentiated from
what is supported in the research.

5. TEN-telecom starts from results of technological develop-
ments whose marketability is not yet clear. TEN-telecom was pre-
sented to the research audience as a follow-on action. Indeed there
exist similarities with the research programme on telematics appli-
cations in (cid:145)areas of collective interest(cid:146) (such as education, environ-
ment, transport), since the guidelines were conceived originally as
a follow-on action to research assessing the marketability and the
business case for products which present sufficient technological
maturity but require clarification for future market deployment
and for establishing a convincing business plan to secure internal
or external project financing by well-committed partners. These
issues are marginally addressed by RTD projects in their exploita-
tion plans, where the core of the action addresses the conditions
of adoption of advanced technologies or methodologies in coop-
eration between users and suppliers, and not market or financial
package assessment. (See also the Commission(cid:146)s reply to para-
graph 48).

6. The decision-making process is outside the control of the
Commission. When the guidelines are adopted, the regular updat-
ing of the work programme and the definition of the calls intro-
duce the necessary element of flexibility in the design process of
the action.

7. Following close monitoring actions, on-the-spot checks were
carried out of both contractors and the two associated contrac-
tors. A legal action by the Commission is pending on one con-
tractor.

Concerning the audit carried out by the Court of a large contrac-
tor, the Commission has implemented an on-the-spot audit.

Projects(cid:146) monitoring, reviews and controls on the basis of con-
tractual specifications enable the Commission to ensure proper
execution of the contract, and, possibly, to detect irregularities.
More on-the-spot checks could be carried out with appropriate
resources devoted to them.

8. The mid-term evaluation report indicates that the objectives
of the ISDN guidelines for developing a range of services based on
ISDN were well met.

(1) TEN-ISDN (cid:151) Final report of the intermediate evaluation (1993 to

1997).

The intermediate evaluation of the TEN-telecom action (1993 to
1997) also raised additional recommendations which have been
taken into consideration in the continuation of the action (see
reply to paragraph 43).

C 166/20

EN

Official Journal of the European Communities

15.6.2000

9. The telecommunication gap in the majority of the regions eli-
gible under the Structural Funds (SFs) is concentrated in the
national and regional/local networks rather than in the interna-
tional links. In addition, the operations of the SFs are based on the
principle of subsidiarity and partnership with Member States. It
is the responsibility of Member States to define the development
plans, which will receive SFs funding. Interventions have therefore
a strong national/regional character.

10. An in-depth evaluation of the action, will take place from
May to September 2000, where the specific issues to be evaluated
are the following: relevance of the action(cid:146)s objectives, priorities
and implementing measures; the effectiveness and impact of the
action; its efficiency and cost-effectiveness; its utility and sustain-
ability; causal links from resources used through to activities and
presumed impacts (the intervention logic); lessons to be learnt in
terms of legal base, resources and delivery mechanisms for pos-
sible future interventions of similar type. The Commission shall
then submit proposals for revision of the guidelines on the basis
of such an evaluation and technical developments. Without pre-
empting political decisions, critical points for revision could be
the following:

(cid:151) the action would be clearly differentiated from what is cov-
ered by the research. A segmentation into three distinct
domains would be proposed, where the nature of actors
involved, the market potential and business definition, the
investment perspectives and financial packages are different:
the public-service domain, the global service domain, and the
growth-enhancing service domain addressing the risk-capital
market,

(cid:151) the action would be more focused. Annex 1 to the present
guidelines provides for both too large and too complex area
coverage. A simplified scheme would be proposed, building
on priority actions of the Europe initiative,

(cid:151) the work programme would remain sufficiently general to
reflect technology changes and new market trends in the defi-
nition of calls for proposals,

(cid:151) the structuring of projects and related Community support

would also be made clearer,

(cid:151) greater emphasis would need to be placed on the trans-

European dimension of the action,

The TEN-telecom action will build on the political support pro-
vided by the e-Europe initiative which concentrates on priority
actions for overcoming the handicaps that are holding back the
rapid development of an information society in Europe, in par-
ticular (cid:145)a public sector which is not playing a sufficiently active
role in enabling the development of new applications and ser-
vices(cid:146) and (cid:145)a lack of sufficiently dynamic, entrepreneurial, service-
oriented culture(cid:146). TEN-telecom is a relevant Community Instru-
ment to focus on the defined targets in the following areas: access
to multimedia educational and training resources, SMEs(cid:146) support
services for trans-European e-commerce and secured-access, risk-
capital participation in investment funds for high-growth innova-
tive projects, healthcare networked-management
services,
enhanced transport services such as innovative security emer-
gency and maintenance support services or dynamic and location-
based travel and traffic information, emergency management and
public safety systems, online access to public-sector information.

11. The 1994 to 1999 Structural Funds(cid:146) programming period
constituted a transition period from a monopolistic to an open
market. The Commission opted for a case-by-case approach, which
helped to solve many problems in compliance with the new regu-
latory framework, and in respect of regional-development objec-
tives, and to accelerate the liberalisation process in Cohesion
countries. For the new period 2000 to 2006, rules for ensuring
transparency and compliance with competition rules have been
established in the framework of the operations of the Funds.

TRANS-EUROPEAN TELECOMMUNICATIONS NETWORKS
(TEN-TELECOM)

Use of resources and summary of results

18. All TEN-ISDN preparatory studies (1993 to 1995) have been
filed by the Commission, and were well identified on the occa-
sion of the TEN-ISDN intermediate evaluation report, which was
communicated to the Court in February 1999 (1). Further TEN-
telecom projects from 1996 onwards were included in a database
which is accessible online by every project officer and provides
updated information on the status and deliverables of a project
from its initial appraisal, up to monitoring and evaluation.

19. Table 2 gives an overview of the type of actions financed
from 1993 to 1998: preparatory actions from 1993 to 1995
(TEN-ISDN and TEN-IBC), projects under the TEN-ISDN guide-
lines of 1995, projects under the TEN-telecom guidelines of 1997,
and joint measures with other programmes in 1996. In 1998,
administrative and associated measures accounted for ECU 1 mil-
lion (3,6 % of total commitments).

(cid:151) the external dimension would also have to be considered,
allowing primarily for participation of associated countries
within the framework of their agreements with the European
Community, and of countries from the EEA.

(1) TEN-ISDN (cid:151) Final report of the intermediate evaluation (1993 to

1997).

15.6.2000

EN

Official Journal of the European Communities

C 166/21

20. The Financial Regulation stipulates that (cid:145)studies(cid:146) can always
be accompanied by (cid:145)technical support measures(cid:146), which is reflected
in the glossary of terms adopted by the TEN Financial Committee
and confirms a wider acceptance of the meaning of (cid:145)studies(cid:146).

(cid:151) the preparatory actions were contributing to the identification
of the projects of common interest in the ISDN guidelines;
they addressed hurdles to the development of ISDN, poten-
tially fruitful fields for expansion of ISDN and necessary back-
ground information for the development of ISDN policy,

In addition, Article 3 of the guidelines clearly states as a priority
(cid:145)study and validation of the technical and commercial feasibility,
followed by the deployment of applications supporting the devel-
opment of a European information society, in particular applica-
tions of collective interest(cid:146). Studies have been carefully defined fol-
lowing this model, with a greater emphasis put on market feasibility
and validation so that the action could be best differentiated from
what is supported in the research: the study phase covers the
preparation of a business plan, identifying, in a convincing man-
ner, the market viability of the proposed venture, followed by the
validation and demonstration of the project in a real on-site com-
mercial trans-European context. At this stage, the business plan
would have been finalised and the total investment cost of the
overall commercial exploitation of the project would have been
well evaluated. A further initial market deployment phase could
also be aided, in duly justified cases, by up to 10 % of the total
investment cost, in order to complete the investment-financing
scheme.

Euro-ISDN guidelines of 1995

21. The delay in the decision-making process on the Euro-ISDN
guidelines is outside the control of the Commission.

22. Proposals must refer to these (cid:145)projects of common interest(cid:146)
when calls are published.

Euro-ISDN preparatory measures (1993 to 1995)

23. Forty-five projects were indeed selected and subsidised
between 1993 and 1995, as preparatory measures, before the
Euro-ISDN guidelines were adopted. The Commission started ini-
tiatives concerning the implementation of ISDN, taking into
account the general framework of trans-European networks, fol-
lowing the Council resolution of 25 May 1992 (1).

24. Although the use that the Commission has made of these
studies has not been fully documented, the impact of the sup-
ported activities in this first implementation period of prepara-
tory actions was significant:

(cid:151) the outcome of these studies was used internally and exter-
nally for discussions and consensus building in external bod-
ies concerned with standards for Euro-ISDN (IMIMG (2) body)
and in the promotion of ISDN use through external events
such as EIUF (3) plenaries and workshops.

25. The last call of September 1995 anticipated the future Euro-
ISDN guidelines and TEN Financial Regulation adoption and, as a
consequence, applies the rules of cost-sharing contract for stud-
ies, which may include market-validation pilot projects.

Euro-ISDN projects

27. The five mentioned studies, which cover migration strategies
from Euro-ISDN onwards, related to policy aspects of the devel-
opment of telecommunications infrastructures, and, as a conse-
quence received 100 % funding after an open call for tenders.
They were studies which prepared the next steps of the Euro-
ISDN action.

28. (a) The (cid:145)GTS(cid:146) market research and analysis provided insight
into the telecommunication infrastructure and the requirements
of customers from selected market segments for ISDN services in
Greece. It provided an additional impulse for ISDN access in a
country where it was notably lagging behind. The funds acceler-
ated the implementation of the necessary equipment supporting
multi-site and multinational interoperable telecommunication ser-
vices. The Commission considers such an aid useful to enable
SMEs in a peripheral region of the Union to gain access to
advanced generic services and hence better links to other Euro-
pean companies and international operability. In addition, it estab-
lished an operational alternative position to the incumbent in the
value-added telematic services sector.

(b) The (cid:145)No problems(cid:146) project (NP) can also be considered a suc-
cess story. It shaped the provision of Internet services in Austria,
integrating traditional generic services such as security services
into the Internet platform. The NP service was defined for 300 000
customers. Today, it gives 70 application providers access to the
platform for generic services such as directories, micropayments,
secure e-mails and light EDI (4).

(1) Council resolution of 25 May 1992 on the development of the ISDN
in the Community as a European-wide telecommunications infra-
structure for 1993 and beyond.

ISDN MOU Implementation and Management Group.

(2)
(3) European ISDN Users Forum.
(4) Electronic data interchange.

C 166/22

EN

Official Journal of the European Communities

15.6.2000

(cid:145)Medsalus(cid:146) considered the establishment of an ISDN value-
(c)
added network of tele-collaboration among healthcare profes-
sionals including teleconsultation, training, research, directories
and news. The project has allowed the partners to define pricing
and marketing strategy for such services and to determine the
most appropriate organisational structure. According to an inde-
pendent final review, the current situation is the following:

(cid:151) for the exploitation of the results from the market feasibility
phase, the project was reshaped in some respects. In addition
to the main industrial partner (a telecommunication operator
and service provider), new major actors were taken on board
from the healthcare area. The Medsalus services have been
taken up under the umbrella of these organisations with new
labels,

(cid:151) on the clinical side of the project, partners from the feasibil-
ity phase (hospitals, research institutes) have also maintained
contacts and cooperation at trans-European level.

29. Following close monitoring actions, financial audits were
carried out in respect of both contractors and the two associated
contractors. This means that all organisations involved were
audited.

As a result of the audit, substantial subcontractor costs were
rejected because the contractor concerned had failed to request
the Commission(cid:146)s written approval before entering into the sub-
contracts. Apart from that, the contractor was not able to provide
evidence of the work done.

30. Following the audit carried out by the Court, a letter was
sent on 15 April 1999 asking for the necessary information and
documentation that would allow completion of the audit.

In response to the above letter, the company provided the requested
documentation and a full set of revised cost statements in Octo-
ber 1999. After verification of these documents, it was decided to
carry out a further audit (29 and 30 November 1999) at the con-
tractor(cid:146)s premises in order to verify the original supporting docu-
ments. The Commission draft report is due in early 2000. From
an initial calculation, significant amounts could be recovered.

31. The Commission agrees that, in view of the present contrac-
tual provisions in respect of allowable costs, there is a risk of not
detecting overcharging costs. The Commission is in a process of
reviewing the research contracts. The Commission has increased
its ex ante verifications and the reviewing of contracts in research
and TEN-telecom. More on-the-spot checks could be carried out
with appropriate resources devoted to it. These checks could
replace some of the annual reviews which take place in Brussels.

New guidelines of 1997

32. The delay in political agreement on the new TEN-telecom
guidelines is outside the control of the Commission. The techno-
logical changes prompted legal adaptations that finally resulted in
the 1997 TEN-telecom guidelines, which adopted a user(cid:146)s point of
view and hence a multi-network approach, and neutrality towards
the technical platform over which services are delivered.

Preparatory actions for the new guidelines

35. The IBC preparatory actions were carried out before the
entry into force of the TEN Financial Regulation, as a follow-up
to the communication to the European Parliament and the Coun-
cil on the preparatory actions in the field of trans-European net-
works (integrated broadband communications (TEN-IBC) (1) and
were intended to help develop a framework of actions, with a
strong technology focus, in broadband communications. These
actions were 100 % funded studies (specifications for IBC), or
50 % funded trials, and did not address implementation of projects
on which the 10 % co-investment rule would apply.

36.
Indeed such actions were not included in the annual report
on the trans-European networks. However, they were the subject
of a specific final report to the European Parliament and the
Council (2).

Joint measures with other programmes

38. For the SME initiative, the projects were eligible under the
TEN-ISDN guidelines, and adopted under the procedures of the
TEN Financial Regulation. The specific circumstances of the initia-
tive: (cid:145)establishment of a network of regional platforms for the
development of electronic commerce among SMEs operating in
the tourism sector in the less-favoured regions of the Union(cid:146), have
been documented, and received a favourable opinion of the Mem-
ber States(cid:146) TEN-telecom Committee.

39. The efficient cooperation of six programmes in the area of
educational multimedia activities is a response to industry requests
and should be put to the credit of the Commission.

Evaluation of performance

40. Despite the negative opinion of the ACPC in late 1996, a
new open call for tenders was prepared in 1997 which led to an
intermediate evaluation of the TEN-ISDN action over the period
1993 to 1997 by external experts.

(1) COM(93) 372 final of 22 July 1993.
(2) COM(98) 45 final of 2 February 1998.

15.6.2000

EN

Official Journal of the European Communities

C 166/23

43. The report became available in February 1999 (1) and was
communicated to the Court. This report indicated that the objec-
tive of the ISDN guidelines(cid:146) objectives for developing a range of
services based on ISDN was well met. Most of the projects of
common interest identified in the ISDN guidelines, were addressed
during this period.

Although the TEN-ISDN action did not have success criteria for
the direct assessment of the achievement of objectives, it had con-
tractual monitoring indicators at project level, as a result of con-
tract negotiations. The intermediate evaluation of the TEN-telecom
action (1993 to 1997) also raised additional recommendations
which have been taken into consideration in the continuation of
the action:

(cid:151) a work programme has been defined and updated with com-

ments from the industry,

(cid:151) assessment of the guidelines objectives was carried out for the

first time in the 1999 reviews of projects,

(cid:151) significant improvements have also been made in the course
of the action in call for proposals(cid:146) preparation and appraisal
of bids, in the projects(cid:146) monitoring and review, and in the dis-
semination and support measures of the action.

COORDINATION WITH RELATED MEASURES

Telecommunication in the research policy

48. TEN-telecom starts from results of technological develop-
ments whose marketability is not yet clear. TEN-telecom was pre-
sented to the research audience as a follow-on action, each project
being defined in the wider context of a specific investment which
is being prepared. Indeed there exist similarities with the research
programme on telematics applications in (cid:145)areas of collective inter-
est(cid:146) (such as education, environment, transport), since the guide-
lines were conceived originally as a follow-on action to research
assessing the marketability and the business case for products
which present sufficient technological maturity but require clari-
fication for future market deployment and for establishing a con-
vincing business plan to secure internal or external project financ-
ing by well-committed partners. These issues are marginally
addressed by RTD projects in their exploitation plans, where the
core of the action addresses the conditions of adoption of advanced
technologies or methodologies in cooperation between users and
suppliers, and not market or financial package assessment.

44. The delay in political agreement on the guidelines is outside
the control of the Commission. When the guidelines are adopted,
the regular updating of the work programme and the definition
of the calls will enable reflection of market trends.

In order to maximise the synergies between the TEN and the
research instruments, TEN-telecom has been fully integrated into
the Directorate in charge of the horizontal aspects of IST research
and development working in the context of the information soci-
ety but with clear, distinct orientations.

45. Several recommendations have been used for the orientation
of the actions under the new guidelines, as mentioned in para-
graph 43. Impact on peripheral areas is not an explicit selection
criterion in Article 6(3) of the TEN Financial Regulation. However
several 1998 proposals included partners originating in periph-
eral regions of the Union. In addition, an important modification
in the updated work programme has been to put emphasis and
bring support to the business plan preparation in the study phase,
which should not last more than 18 months.

Finally, in accordance with the specifications of the guidelines, a
full evaluation of the TEN-telecom action will take place in the
second quarter of 2000. The report will assess the relevance of
the objectives, priorities and implementing measures of the action,
as well as its effectiveness and impact. It will comprise several
parts: one core study of the mid-term evaluation of the action
(1998 and 1999), one study on the status and validity of the
present TEN-telecom guidelines, and several reviews of running
projects bringing an overview of their contributions to the gen-
eral objectives of the action.

(1) TEN-ISDN (cid:151) Final report of the intermediate evaluation (1993 to

1997).

The justification of the TEN-telecom action appears to be twofold:

(cid:151) firstly, there is wide scope for supporting products which have
achieved their technological phase, in their preparation for
successful market deployment (business/market plan prepara-
tion and consolidation of consortia which can be a long and
risky process), and this is not normally the focus for research
actions,

(cid:151) secondly, Community aid lies in areas of general interest where
uncertainty of short-term viability and difficult organisational
requirements at trans-European level discourage purely pri-
vate initiative, and thus impair the development of the infor-
mation society for all in the Union. Examples can be found in
the environment
transport
(risk-management
(mobile emergency road services), health (continuity of care
and healthcare management systems), education (telematic-
based learning and vocational training services), or in growth
areas generating new activities, such as generic Internet-based
support services for trading and management of SMEs. These
examples form part of the priority actions of the Commis-
sion(cid:146)s e-Europe initiative.

systems),

C 166/24

EN

Official Journal of the European Communities

15.6.2000

The importance of the Structural Funds

Financial Instruments.

51. The main objective of the Structural Funds (SFs) is to reduce
the socioeconomic disparities among the regions of the EU. Inter-
ventions are therefore a function of regional needs and character-
istics. The telecommunication infrastructure gap in the majority
of regions eligible under the SFs is concentrated in the national
and regional/local networks rather than in the international links.
Accordingly, SF interventions during 1994 to 1999 (cid:151) and those
of the ERDF in particular (cid:151) have been, by and large, limited to
investments aimed at upgrading and completing the (basic) tele-
communications infrastructures.

In addition, the operations of the SFs are based on the principle
of subsidiarity and partnership with Member States. It is the
responsibility of Member States to define the development plans,
which will receive SF funding. Interventions have therefore a
strong national/regional character.

Yet, such investments, together with those aided by the EIB or the
EIF (networks and trunk exchanges, mobile telephony networks,
satellites networks, wireless local loops) contribute globally to the
trans-European interconnection of countries, and will enable fur-
ther interoperability of services and applications which are the
subject of the TEN-telecom aid.

The significance of the EIB and the EIF

52. The liberalisation and privatisation process of the telecom-
munications industry has led to important changes in the regula-
tory and policy framework for telecommunications. The Com-
munity promotion and support activities have to be adapted to
this new environment in a consistent way. To meet this new chal-
lenge, coordination between Commission services has been set up
with the aim of clarifying the impact of the new regulatory frame-
work more particularly on the grants for physical infrastructure
provided by the EIB and under the Structural Funds. Adaptation
measures have been negotiated with the Member States who had
selected the telecommunications sector as a priority for invest-
ments. In this new regulatory context, it would have been difficult
to direct the TEN-telecom aid towards subsidies of the interest on
loans from the EIB, or on contributions towards guarantees from
the EIF.

53. To date the EIF has not guaranteed any satellite project, nor
any optical network as such.

Coordinating Instruments

The schematic plans

In the field of telecommunications, the nature of these two groups
of projects differs substantially in nature. The projects funded
under the TEN Regulation are user-oriented application projects
which make use of the underlying physical infrastructure, whereas
the infrastructure attracts most of the funds and loans available
from the ERDF, EIB and EIF.

These differences explain the limited potential for cooperation
between these Instruments, which may include, on the one hand,
a grant for a feasibility study for a schools network under the TEN
Regulation (in the region of ECU 600 000) and, on the other, a
major EIB loan to a telecommunications operator (in the region
of ECU 200 million).

56. The difficulties encountered in completing the schematic
plans on telecommunications are manifold.

The first concerns the notion of TEN-telecom (cid:145)projects of com-
mon interests(cid:146) whose definition (except for the ISDN projects)
only appeared in the guidelines adopted in June 1997, three years
after the adoption of the Structural Funds programmes. It is clear
therefore that it was not possible to propose a clear taxonomy to
Member States for organising their plans in accordance with TENs(cid:146)
priorities.

The second difficulty has to do with the very nature of the regional
plans which are organised around themes reflecting the priorities
of each Member State. Only two countries (Italy and Greece) had
explicitly mentioned telecommunications as a separate area of
intervention, as can be seen from the Community support frame-
works (CSFs) and Single Programming Documents (SPDs) which
were published in 1995 and have been available on the Internet
since 1997. This means that, in most cases, it was not possible to
isolate telecom-related investments which are often hidden under
different headings (e.g. (cid:145)improving the business environment(cid:146) or
(cid:145)modernising public administration(cid:146)).

Besides these difficulties specific to the telecommunications sec-
tor, the schematic plan is considered more generally to have lost
some of its usefulness and priority, as the coordination between
the services was gradually strengthened and allowed an efficient
development of TENs, in particular in sectors where the projects
supported by different instruments are of a similar nature. In par-
ticular, the plan to upgrade the schematic plan into a fully auto-
mated database was not considered to be a priority or a core
activity of the services concerned and has not been pursued fur-
ther.

55. The coordination required by the TEN Financial Regula-
tion (1) aims at the coordination and coherence between projects
of common interest supported under the TEN Regulation and
projects undertaken with the help of contributions from the
Community budget, the European Investment Bank and other

(1) Council Regulation (EC) No 2236/95, of 18 September 1995,

Article 14.

Committees and coordination by the Commission

57. The Monitoring Committees of the SFs are the lowest level
of coordination of the SFs(cid:146) interventions where the Commission
participates. It is here that the coordination among the different
Community policies is best accomplished: representatives of Com-
munity sectoral policies are invited to attend the Monitoring
Committees together with the representative of regional policy

15.6.2000

EN

Official Journal of the European Communities

C 166/25

whenever decisions have to be taken on a specific sector. It is this
close collaboration that has allowed the identification of a bal-
anced Commission position in relation to complex and very dif-
ferent situations.

inter alia, that the nature and the characteristics (public use) of an
infrastructure scheme do not change after privatisation (cid:151) no
claw-back of Community finance should be envisaged.

During the negotiation of the operational programme (OP), the
transposition of the Community legislation into Greek law was
examined. This resulted in the introduction of an Article in the
Commission(cid:146)s decision for granting SF aid stipulating that the
payment flow had to be conditioned by advancements in trans-
position of the relevant Community legislation. In August 1998,
the payments were frozen.

In the Italian case, the request, which was based on the 1994 to
1999 CSF and which took the form of two operational pro-
gramme proposals by the Italian authorities, was treated in the
same way as any other application for assistance. Following the
evaluation of the proposal by the Commission, it was decided to
reallocate the resources concerned in the CSF mid-term review
decision of April 1998.

58-59. The content of the plans to be financed in the current
programming period (1994 to 1999) were discussed and negoti-
ated with Member States when the telecom markets were not yet
liberalised and the debate on the information society had just
started.

The Commission opted for a case-by-case approach. In such a
way many problems were successfully solved in compliance with
the new regulatory framework and with respect to regional devel-
opment objectives. For example, the telecom-related programmes
supported by the ERDF were used to accelerate the liberalisation
process in Greece (where the derogation period has been reduced
by two years from 2003 to 2001).

In its communication on (cid:145)Cohesion and the information soci-
ety(cid:146) (1), the Commission recognised that the majority of telecom
investments are profitable, though there may be a few cases where
public support is needed. In any case, the focus of SFs interven-
tions had to shift from infrastructure upgrading towards demand
stimulation, awareness raising, development of applications and
local content.

This new approach has been further developed in the draft guid-
ance for programmes for 2000 to 2006 setting the Commission
priorities for the interventions of the Funds.

Concerning privatisation, the general approach adopted by the
Commission (and this since before the 1998 reform) reflects the
fact that within the context of multiannual co-financed pro-
grammes, the current ERDF Regulations have, at project level,
been indifferent as to whether matching finance for ERDF resources
is from public or private sources. This means that (cid:151) provided,

The Commission has adapted its approach for the next round of
structural interventions. Under the new general regulations, Mem-
ber States will be obliged to inform the Commission of any sub-
stantial modification (such as privatisation) to a co-financed infra-
structure scheme which affects its nature or its implementation
conditions. Financial corrections may be applied following such
a modification.

61. Commission services will examine the suggestions of the
Court.

The consultation procedure for projects

64. The interservice consultation is a standard procedure in the
Commission which applies to all decisions which will be pre-
sented to the Commission. It is based on the principle of the unity
of the Commission administration. The purpose of this consulta-
tion is to inform and obtain advice from the other Commission
services and to achieve consistency and transparency. The TEN-
telecom consultation routinely involves 15 different services, each
in their own area of responsibility.

The Commission selection decision is not a (cid:145)fait accompli(cid:146) in the
sense that input from other DGs is most welcome and can be
taken into account in the negotiation of contracts.

A consultation on a Commission decision on the selection of
projects is an implementation decision (2). It takes place in the
strategic context established by the founding act. The coordina-
tion of ideas and strategies takes place when new Commission
proposals are put forward and are subject to the same interservice
consultation procedures. They are also preceded by ad hoc pre-
paratory work and meetings at services level.

65. Since EIB loans on individual projects are, in most cases,
generated by an explicit request from regional or national opera-
tors, the EIB provided a global estimate of its activity within a
multiannual programme. For the period 2000 to 2006 the Bank
has declared its willingness to develop a closer operational coop-
eration between its services and those of the Commission so as
to ensure the EIB(cid:146)s participation in SFs(cid:146) plans and programmes at
the earliest possible stage of their preparation.

66. The written consultation procedure does improve strategic
coordination as:

(cid:151) it functions as a filter adding discipline to the EIB(cid:146)s selection
and structuring of proposals brought forward for Commis-
sion opinion,

(1) COM(97) 7 of 23 January 1997.

(2) Council Regulation (EC) No 2236/95 of 18 September 1995,

Article 17(1).

C 166/26

EN

Official Journal of the European Communities

15.6.2000

(cid:151) it allows individual Commission services to review proposals
against their policy area and potentially propose changes.
Commission opinions are frequently preceded by requests for
further information from the EIB and discussions between
Commission services.

involved, the market potential and business definition, the
investment perspectives and financial packages are different:
the public-service domain, the global-service domain, and the
growth-enhancing service domain addressing the risk capital
market,

Special interdepartmental working party

67. While the specific recommendations have not been applied,
the Commission has adopted other coordinating measures. A spe-
cific coordination of the three TEN sectors was established. The
group of Commissioners responsible for TENs (1) met several
times between 1995 and 1999. The group of Commissioners rec-
ommended in October 1997 specific coordination measures (2),
while taking into account the specificity of each instrument.
Although this coordination primarily concerns sectors where the
nature of the projects supported by the different instruments is
similar, the future of coordination in the field of telecommunica-
tions has been kept under review. There has been inter-service
cooperation concerning the guidelines for the next programming
period (2000 to 2006) of Structural Funds interventions. An EIB
representative takes part in TEN-telecom workshops and Member
States(cid:146) TEN-telecom committees. Contact is also established with
the EIF about the financing of telecommunications infrastructure.

CONCLUSION AND RECOMMENDATIONS

68. An in-depth evaluation of the action will take place from
May to September 2000, where the specific issues to be evaluated
are the following: relevance of the action(cid:146)s objectives, priorities
and implementing measures; the effectiveness and impact of the
action; its efficiency and cost-effectiveness; its utility and sustain-
ability; causal links from resources used through to activities and
presumed impacts (the intervention logic); lessons to be learnt in
terms of legal base, resources and delivery mechanisms for pos-
sible future interventions of similar type. The Commission will
then submit proposals for revision of the guidelines on the basis
of such an evaluation and technical developments. Without pre-
empting political decisions, critical points for revision could be
the following:

(cid:151) the action would be clearly differentiated from what is cov-
ered by the research. A segmentation into three distinct
domains would be proposed, where the nature of actors

(1)

In addition to the Commissioners responsible for telecommunica-
tions, energy and transport, the group also includes those in charge
of budget, environment, regional policy, internal market, economic
and financial affairs, and, on an ad hoc basis, external relations and
competition.

(2) These recommendations were the fruit of seven interservice meetings,

including in some cases the EIB and the EIF.

(cid:151) the action would be more focused. Annex 1 to the present
guidelines provides for both too large and too complex area
coverage. A simplified scheme would be proposed, building
on priority actions of the eEurope initiative,

(cid:151) the work programme would remain sufficiently general to
reflect technology changes and new market trends in the defi-
nition of calls for proposals,

(cid:151) the structuring of projects and related Community support

would also be made clearer,

(cid:151) greater emphasis would need to be placed on the trans-

European dimension of the action,

(cid:151) the external dimension would also have to be considered,
allowing primarily for participation of associated countries
within the framework of their agreements with the European
Community, and of countries from the EEA.

The TEN-telecom action will build on the political support pro-
vided by the e-Europe initiative which concentrates on priority
actions for overcoming the handicaps that are holding back the
rapid development of an information society in Europe, in par-
ticular (cid:145)a public sector which is not playing a sufficiently active
role in enabling the development of new applications and ser-
vices(cid:146) and (cid:145)a lack of sufficiently dynamic, entrepreneurial, service-
oriented culture(cid:146). TEN-telecom is a relevant Community Instru-
ment to focus on the defined targets in the following areas: access
to multimedia educational and training resources, SMEs support
services for trans-European e-commerce and secured access, risk
capital participation in investment funds for high growth innova-
tive projects, healthcare networked management
services,
enhanced transport services such as innovative security emer-
gency and maintenance support services or dynamic and location
based travel and traffic information, emergency management and
public safety systems, online access to public sector information.

69. The Commission has developed new guidelines for the Struc-
tural Funds interventions in the field of telecommunications in
the framework of the new 2000 to 2006 programming period.
Such guidelines have already been submitted to the attention of
Member States in the context of the works of the Committee for
the Development and Reconversion of Regions.

15.6.2000

EN

Official Journal of the European Communities

C 166/27

In the telecommunication sector which is global and made
70.
up of several layers (basic infrastructure, generic services/service
(cid:145)middleware(cid:146) and applications), the coordination between the
various financing instruments will be intensified, taking into con-
sideration the different nature of projects, infrastructure projects
on the one side, generic services and applications of general inter-
est on the other, making use of the underlying infrastructure. This
applies in particular to adhesion countries where synergy is criti-
cal between investment in infrastructure supported by the inter-
national financial institutions (IFIs), such as the EIB or the EBRD,
and Community interventions from the Structural Funds or TEN-
telecom on the development of applications. In any case the prin-
ciples of promoting liberalisation and establishing a stable and

competitive regulatory framework in the sector should be adhered
to and implemented by these countries, in order to secure com-
mercial financing sources on the infrastructures. The issue of
developing new links with central and east European candidate
countries appears more complex than simply interconnecting
cross-border infrastructures.

71. Beyond project monitoring, reviews and controls which are
made on the basis of contractual specifications, more on-the-spot
checks could be made with appropriate resources devoted to
them. These checks could replace some of the annual reviews
which take place in Brussels.