Communication from the Commission to the European Parliament and the Council - Moving to the deployment and operational phases of the European satellite radionavigation programme
Date: 2004-10-06
Institutions: European Commission
Subjects: EU financing, EU programme, financing plan, private investment, satellite navigation, service concession

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 06.10.2004 
COM(2004)636 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Moving to the deployment and operational phases of the European satellite 
radionavigation programme. 

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Introduction 

Having taken note of the Commission communication of 18 February 2004,1 on 9 March 2004 
the  Council  adopted  conclusions  inviting  the  Commission  to  present,  by  the  end  of 
October 2004, a communication on the basis of which it will be able to take, by the end of the 
year, the necessary decisions on the start of the deployment and operational phases, including 
decisions on the maximum EC financial contributions for these phases, and the definition of 
the  services.  Since  2002,  the  programme  has  been  in  its  development  phase,  which  will  be 
followed by the deployment phase (2006-2007) and the operational phase (from 2008). 

Prior  to  launching  the  deployment  and  operational  phases,  it  was  necessary  to  settle  four 
matters: 

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confirmation  that  there  will  be  a  significant  contribution  from  the  private  sector 
towards the funding of these phases; 

the definition of the services offered; 

the establishment of the structures for the management of the system; 

the conclusion of an agreement with the United States on the interoperability of the 
American and European systems. 

The last two matters are now settled. Council Regulation (EC) No 1321/2004 on the structures 
for  the  management  of  the  European  satellite  radionavigation  programmes  and  Joint  Action 
2004/552/CFSP on aspects of the operation of the European satellite radionavigation system 
affecting  the  security  of  the  European  Union,  both  dated  12  July  2004,2  established  the 
structures  for  the  management  of  the  system.  In  addition,  the  total  interoperability  of  the 
European and American systems is expressly provided for in the agreement signed with the 
United States on 26 June 2004. 

Where  private  funding  is  concerned,  the  Galileo  Joint  Undertaking,  which  has  been 
operational  since  summer  2003,  has  been  given  the  task  of  completing  the  procedure  for 
selecting a concession holder. The first phase, shortlisting, was completed in February 2004. 
At the end of August 2004 two of the three short-listed consortiums submitted their detailed 
bids in the context of the second phase of the procedure. The Joint Undertaking assessed these 
bids in September 2004 and produced a report. In accordance with its terms of reference, the 
Joint Undertaking will select one of the candidates for the concession, subject to the approval 
of its Administrative Board. 

The  purpose  of  the  Joint  Undertaking’s  report,  accompanied  by  this  communication,  is  to 
secure  the  necessary  political  directives  on  the  public  funding  of  the  next  phases  of  the 
programme  and  the  public  service  tasks,  in  particular  the  definition  of  the  services.  On  this 
basis,  the  Joint  Undertaking  will  be  able  to  embark  upon  the  last  concession  phase,  the 
negotiation of the concession contract to be signed in the course of 2005. This will be done in 
close  liaison  with  the  Supervisory  Authority  which,  as  licensing  authority,  will  sign  the 

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COM(2004) 112 final. 
OJ L 246, 20.7.2004, p. 1 and p. 30. 

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contract and ensure its implementation in accordance with Article 2(1) of Regulation (EC) No 
1321/2004. 

1. 

THE FUNDING OF THE DEPLOYMENT AND OPERATIONAL PHASES 

The significant development of the satellite radionavigation markets prompted the European 
institutions  to  opt  for  a  public-private  partnership,  in  the  form  of  a  concession,  for  the 
deployment and operational phases of the GALILEO programme. While the private sector is 
willing  to  invest  massively  in  the  project,  given  the  commercial  prospects,  a  Community 
financial contribution is nevertheless necessary in order to ensure the programme's financial 
stability. 

1.1. Strong commercial prospects 

The outstanding prospects for the development of satellite radionavigation markets have been 
stressed by various studies3 ordered by the Commission since 1999, of which the Council has 
been  informed.  Developments  in  recent  years  confirm  the  expansion  of  the  markets  for 
satellite radionavigation products and services. Even the most optimistic estimates have been 
exceeded. 

The  world  market  for  satellite  radionavigation  products  and  services  doubled  from 
EUR 10 billion in 2002 to EUR 20 billion in 2003. It will amount to around EUR 300 billion 
by  2020,  with  some  3 billion  receivers  in  operation.  These  receivers  will  combine  all  the 
services offered by the GALILEO, EGNOS and GPS systems. 

Innovative  applications  are  being  marketed  every  day.  The  price  of  receivers  is  constantly 
falling. They are now available at less than EUR 150. As with mobile phones a few years ago, 
the fall in prices will result in a rapid spread of radionavigation services in all sectors, making 
them  as  commonplace  as  consumer  electronic  equipment  such  as  watches,  cameras,  mobile 
phones,  etc.  Satellite  radionavigation  is  penetrating  all  segments  of  society,  giving  the 
GALILEO programme a citizen's dimension. 

Ever  since  the  inception  of  the  GALILEO  project,  the  Council  wanted  substantial 
private-sector participation in the programme. In its resolution of 19 July 1999, it invited the 
Commission  "to  create  timely  and  realistic  conditions  for  securing  finance  largely  from 
private  sources  within  the  framework  of  a  public-private  partnership".4  This  position  was 
subsequently  constantly  reasserted.  In  conclusions  adopted  on  26  March  2002,  the  Council 
agreed,  for  the  funding  of  the  deployment  phase  "to  work  towards  a  cost-share  of  at  most 
one-third for the Community budget and at least two-thirds for the private sector". In addition, 
in  these  conclusions  and  the  conclusions  which  it  adopted  on  9 March 2004,  the  Council 
expressly envisaged Community funding for the operational phase. 

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In particular, the GALA, Geminus, PricewaterhouseCoopers and Galilei studies. 
OJ C 221, 3.8.1999, p. 1. 

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1.2. Sources of private-sector funding 

According to the interim report drawn up by the Galileo Joint Undertaking, the bid made by 
the  shortlisted  consortiums  confirmed  the  assumptions  made  about  the  funding  of  the 
deployment  and  operational  phases,  as  proposed  by  the  Council.  Each  of  the  consortiums 
undertakes  to  fund  at  least  two-thirds  of  the  cost  of  the  deployment  phase,  estimated  at 
EUR 2.1 billion, and requests the payment of a balancing subsidy during the first years after 
the system is put into service. 

In  its  abovementioned  communication  of  18 February 2004,  the  Commission  indicated 
several potential sources of private-sector funding for the deployment and operational phases. 

Income from the sale of services accounts for a substantial proportion of the financing plans 
presented by the shortlisted consortiums. Going directly to the concession holder, this income 
will  enable  it  to  obtain  a  return  on  the  capital  invested  and  repay  the  loans  contracted.  It 
should be noted that each of the consortiums stresses the importance of the income expected 
from sales relating to the public regulated service (PRS). 

Income  from  intellectual  property  rights  is  also  a  major  aspect  of  the  financing  plans 
presented by the shortlisted consortiums. As with the income relating to the sale of services, it 
will go directly to the concession  holder to which the Supervisory Authority will  assign  (in 
the  context  of  the  concession  contract)  licences  for  the  exploitation  of  intellectual  property 
rights  relating  to  the  system's  components  and  applications.  The  Galileo  Joint  Undertaking, 
together  with  the  Commission  and  the  European  Space  Agency,  has  worked  out  an  overall 
approach aimed at ensuring legal protection for the key elements of the system, in particular 
with regard to the treatment of signals. This approach will make it possible to cover all users, 
whatever service is used. It is advocated by the applicants for the concession which regard it 
as a significant source of income, making it unnecessary to impose a charge on receivers, as 
was envisaged in the abovementioned communication of 18 February 2004. 

Lastly,  the  financing  plans  presented  by  the  shortlisted  consortiums  also  provide  for  a 
substantial  commitment  in  terms  of  equity  funding  backed  up  by  solid  bank  support.  The 
European  Investment  Bank,  which  has  close  contacts  with  the  various  applicants  for  the 
concession, will play a major role in the financial arrangements by providing very long-term 
loans with an appropriate grace period. 

1.3. The Community funding required 

The  European  satellite  radionavigation  system  represents  a  major  public  infrastructure 
offering  numerous  advantages  for  the  European Union.  It  will  make  it  possible  to  get  away 
from dependence on a monopoly third-part system for crucial areas of applications which are 
growing  in  number  each  day.  It  will  ensure  control  over  the  technology  required  and 
radionavigation and timing functions which are vital to the economy. It  is  a civilian system 
designed  for  civilian  users,  and  will  meet  needs  which  cannot  be  satisfied  by  the  existing 
system. It fits in with European space policy as described in the White Paper presented by the 
Commission  on  11  November  2003.5  All  this  justifies  the  involvement  of  the  public 
authorities in funding the programme's deployment and operational phases. 

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Given  the  scale  and  quality  of  the  project  wanted  by  the  European  Community,  and  taking 
into account the commercial income that the system is likely to generate, public funding will 
be needed to supplement the private funding for these two phases. 

The  cost  of  the  deployment  phase  is  estimated  at  EUR 2.1  billion.  Since  each  of  the 
shortlisted  consortiums  has  undertaken  to  bear  two-thirds  of  this  cost,  i.e.  EUR 1.4  billion, 
EUR 700 million will be needed from the Community budget in order to fund the phase. 

The operational phase will be funded by the private sector, but given the constraints arising 
from  the  public  service  obligations  imposed  on  the  operation  of  the  major  public 
infrastructure that the GALILEO system represents, and the time needed for the private sector 
to develop fully the satellite radionavigation market and the marketing of its services, it will 
be  necessary  to  provide  some  exceptional  public  funding  during  the  first  years  of  the 
operational phase. 

In  order  to  ensure  funding  from  the  Community  budget,  on  14  July  2004  the  Commission 
submitted a proposal for a European Parliament and Council regulation on the implementation 
of the deployment and commercial operating phases of the European satellite radionavigation 
programme.6  This  proposal  bases  the  GALILEO  programme  on  a  specific  legal  instrument 
which  is  consistent  with  the  future  European  space  programme  and  is  more  appropriate  for 
meeting its needs while reflecting the concern for sound financial management. It provides for 
a financial contribution from the European Community of EUR 1 billion for the period from 
1 January 2007  to  31 December 2013.  EUR 500 million  are  assigned  to  the  funding  of  the 
deployment  phase,  which  should  also  receive  EUR  200 million  under  the  current  financial 
perspective for 2006, and EUR 500 million are earmarked for the funding of the first years of 
the operational phase. The latter figure is indicative and will be adjusted, where appropriate, 
according to the outcome of negotiations with the applicants for the concession. 

The management and monitoring of the use of the Community contribution to the GALILEO 
programme  will  be  the  responsibility  of  the  European  GNSS  Supervisory  Authority,  in 
accordance  with  the  abovementioned  Council  Regulation  No  1321/2004.  The  Supervisory 
Authority is scheduled to be set up in the first half of 2005. It is not out of the question that 
the European Space Agency may, if necessary, contribute to the funding of the programme's 
deployment and operational phases by means of a contribution to the Supervisory Authority. 

It should be stressed that the proportion of public funding may be reduced depending on the 
commercial income generated for the concession holder by operating the system. A clause in 
the concession contract will explicitly cover this. 

For its part, the Commission will endeavour to promote the use of satellite radionavigation in 
its  initiatives  in  various  areas  such  as  emergency  calls,  maritime  safety,  fishing  and 
agriculture in conjunction with the GMES (Global Monitoring for Environment and Security) 
system, the interoperability of railway systems (ERTMS), justice and home affairs, etc. 

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1.4. Income from third countries 

The upsurge in international cooperation is continuing. Several third countries are particularly 
keen  to  participate  in  the  GALILEO  programme,  including  financially.  Cooperation 
agreements were signed with China on 30 October 2003 and with Israel on 13 July 2004. In 
addition to the Russian Federation, India and Ukraine, with which discussions with a view to 
an  agreement  are  well  under  way,  promising  contacts  have  been  established  with  South 
Korea,  Australia,  Mexico  and  Brazil.  In  addition,  Switzerland  and  Norway,  which  are 
members  of  the  European  Space  Agency,  and  Canada,  an  associate  member,  are  examining 
the  possibility  of  financial  participation  in  the  subsequent  phases  of  the  programme.  A 
significant contribution may be expected from the various third countries in question. 

The  third  countries  associated  with  the  GALILEO  programme  represent  a  good  market 
development  opportunity.  Each  of  these  countries  has  companies  with  significant  technical 
and  commercial  capacities  in  the  areas  of  space  and  satellite  radionavigation,  which  can 
provide a boost for European industry. In each of these countries, all the operators and users 
stress the need to develop a civilian satellite radionavigation system specifically designed to 
meet their needs through five different services with the functions needed for the large-scale 
development  of  this  new  technology:  integrity,  guarantee  of  service  and  linkage  with 
telecommunications. They therefore appreciate the different nature of the GALILEO system 
compared  with  the  American  GPS  system  and  see  the  importance  of  bilateral  agreements 
which cover all the areas of cooperation and make it possible to take part in the future of the 
various aspects of such a promising technology. 

As  it  is  open  to  very  wide  cooperation  with  third  countries,  the  GALILEO  programme  will 
give the latter the opportunity to participate in the construction, development and management 
of  a  strategic  infrastructure.  In  this  respect,  it  will  contribute  significantly  to  the  external 
dimension  of  European  Community  policy.  The  diversity  and  extent  of  the  methods  of 
participation  envisaged,  concerning  the  concession,  research  programme,  contracts  awarded 
by the European Space Agency, regulatory aspects, participation in the Joint Undertaking and 
association  with  the  future  Supervisory  Authority,  are  certainly  beneficial  for  international 
cooperation. 

Cooperation  with  third  countries  will  also  make  it  possible  to  ensure  the  support  of  those 
countries  within 
international  bodies  responsible  for  frequency  allocation  and 
standardisation. It will also guarantee that the services offered by the system will be marketed 
without any barrier within the countries concerned. 

the 

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2. 

REQUIREMENTS RELATING TO THE SERVICES TO BE OFFERED 

The GALILEO system must offer various services with specific features and guarantee a high 
degree of security. 

2.1. The services to be offered 

The services that will be offered by the GALILEO system are set out in detail in Annex 1 to 
the  Commission  communication  of  24  September  2002.7  They  are  defined  in  the  high-level 
definition  document  which  was  drawn  up  in  2002  and  has  constantly  been  updated  in 
consultation  with 
its  conclusions  of 
6 December 2002, the Council indicated that the invitations to tender launched in the context 
of  the  GALILEO  programme,  in  particular  concerning  the  concession,  would  cover  five 
services:  an  open  service,  a  commercial  service,  a  safety-of-life  service,  a  public  regulated 
service  (PRS),  and  assistance  for  the  search  and  rescue  service  of  the  COSPAS-SARSAT 
system and other relevant systems. 

the  various  user  groups.  On 

this  basis, 

in 

The bids on the basis of which discussions are in progress with the shortlisted consortiums are 
in  accordance  with  the  specific  technical  features  required  and  each  propose  the  five 
abovementioned services. 

It should be stressed that the public regulated service (PRS) is one of the key aspects of the 
programme.  It  will  enable  the  public  authorities  to  have  a  secure  high-performance  service. 
Many  ministries  have  taken  part  in  the  technical  definition  of  this  service  and  confirm  the 
need  to  establish  it.  This  applies  in  particular  to  the  services  responsible  for  border 
surveillance and inland security, which are fighting crime, smuggling, illegal immigration and 
terrorism,  etc,  and  civil  protection  teams.  However,  use  of  the  public  regulated  service  will 
remain optional. Member States and their administrations will be free to use it or not. In their 
draft  business  plans  that  are  being  drawn  up  the  shortlisted  applicants  for  the  concession 
confirm  the  existence  of  considerable  demand  for  this  service  in  many  Member States  and 
stress the scale of the income that they expect to generate from it. The cost of using the public 
regulated service will be borne by the users alone, but will remain reasonable out of concern 
for good public administration. 

In  addition,  the  costs  generated  by  including  the  public  regulated  service  in  the  system 
represent  a  very  small  percentage  of  the  overall  infrastructure  costs.  This  service  has  very 
little impact on the definition of the main satellite parameters, namely the weight, power and 
volume of the equipment. The impact on the cost of the ground segment is negligible. 

In  addition,  the  research  carried  out  over  the  last  two  years  and  the  discussions  with  the 
United  States  have  made  it  possible  to  determine  precisely  the  frequency  plan  for  the  five 
services offered. The agreement signed with the United States on 26 June 2004 removes the 
final political obstacles to approval of this plan. 

Lastly, where EGNOS is concerned, in its conclusions of 5 June 2003 the Council indicated 
that  the  “advantages  of  a  possible  inclusion  of  the  management  of  EGNOS  as  part  of  the 
future concession agreement for the management of GALILEO should be evaluated together 
with  potential  GALILEO  concessionaires”.  Consequently,  the  GALILEO  Joint  Undertaking 

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included EGNOS in the discussions which it is holding with the shortlisted consortiums which 
have declared themselves ready to take over the management of EGNOS in the context of the 
GALILEO concession. This matter will be the subject of a Commission proposal on the basis 
of the results of the negotiations with the shortlisted applicants, the results of the discussions 
with  the  Member  States'  authorities  responsible  for  the  control  of  civil  aviation,  and  the 
features of the European navigation plan under study. 

2.2. Compliance with security requirements 

As  the  Council  has  stressed  on  various  occasions,  the  GALILEO  system  is  a  sensitive 
infrastructure  requiring  special  protection  measures  regarding  security  and  safety.  It  is 
necessary to guard against two potential dangers: the system must be protected against threats 
to  its  operation,  whether  malicious  or  otherwise;  also,  it  is  necessary  to  prevent  its  use  for 
purposes contrary to the interests of the EU and its Member States. 

The  abovementioned  Regulation  (EC)  No  1321/2004  and  Joint  Action  2004/552/CFSP  of 
12 July 2004 are the two texts on which the safety and security of the GALILEO system will 
be  based  during  the  deployment  and  operational  phases:  the  Regulation  sets  up  the 
Supervisory  Authority  which  will  in  particular  be  responsible  for  more  technical  matters 
concerning  the  security  and  safety  of  the  system;  the  Joint  Action  concerns  threats  to  its 
integrity or its operation and measures to be taken in the event of a crisis. The System Safety 
and Security Committee to be set up by the Supervisory Authority, which will be composed 
of  representatives  of  the  Member  States,  will  take  over  from  the  Galileo  Security  Board 
(GSB). 

The  Joint  Undertaking  has  ascertained  that  the  shortlisted  consortiums  offered  all  the 
necessary  guarantees  with  regard  to  security  and  safety.  The  teams  which  will  manage  the 
system  will  consist  of  people  authorised  to  have  access  to  classified  documents  and 
procedures.  In  their  bids  each  of  the  consortiums  has  included  compliance  with  security 
measures which at present are drawn up by the Security Board and will in future be drawn up 
by  the  Supervisory  Authority.  They  have  also  provided  for  the  possibility  of  the  Council 
imposing a degradation in signal quality in the event of a crisis in a region of the world. 

Conclusions 

In  accordance  with  its  terms  of  reference,  the  Galileo  Joint  Undertaking  has  successfully 
completed the procedure for selecting the future concession holder. The conditions governing 
the launch of the GALILEO programme have been met. In particular, the following have been 
confirmed: 

–  the strategic aspects of an infrastructure aimed at guaranteeing the independence of the EU 

while ensuring complementarity with the American GPS system; 

–  the  technical  definition  of  a  system  giving  the  EU  control  over  satellite  radionavigation 

technology; 

–  the commercial viability of the system as a result of the availability of substantial income; 

–  the complementarity of the five services proposed for the programme, which are designed 

to meet the needs of civilian users as a whole; 

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–  the  integration  of  EGNOS,  the  precursor  of  the  European  global  satellite radionavigation 

system into the approach pursued, including the concession arrangement; 

–  a significant financial contribution from the private sector; 

–  lastly, the international dimension of the project and the growing desire of third countries 

to participate actively and financially in the programme. 

The  other  conditions  set  by  the  Council  for  moving  to  the  next  phases  of  the  programme, 
namely system deployment and operation, have also been met: 

–  the  conclusion  with  the  United  States  of  an  agreement  on  the  interoperability  of  the 

American and European systems, which was signed on 26 June 2004; 

–  the  establishment  of  the  future  structures  for  the  management  of  the  system,  the 
Supervisory Authority and security arrangements, with the adoption by the Council of the 
two texts of 12 July 2004; 

All the conditions are therefore met for the Council to confirm: 

–  the irrevocable transition to the programme deployment and operational phases; 

–  the essential features of the system, in particular as regards services; 

–  the commitment of the public authorities with regard to the funding of the deployment and 

operational phases and the monitoring of the system. 

Confirmation is necessary in order: 

–  to enable the Joint Undertaking to complete the negotiation of the concession contract due 

to be signed in the course of 2005, and 

–  to enable private-sector stakeholders to confirm their bids and financial commitments. 

The Commission will continue to inform the European Parliament and the Council at regular 
intervals  about  the  progress  of  the  programme.  The  Joint  Undertaking's  Supervisory  Board 
will continue with the concession procedure. The results of this procedure will be presented 
by  the  Commission  to  the  European  Parliament  and  the  Council  in  agreement  with  the 
Supervisory  Authority  which,  at  the  beginning  of  2005,  will  begin  the  essential  tasks  for 
implementing the deployment and operational phases. 

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