EC: Commission Decision of 11 December 2007 on the State aid case C 53/06 (ex N 262/05, ex CP 127/04), investment by the city of Amsterdam in a fibre-to-the-home (FttH) network (notified under document number C(2007) 6072) (Text with EEA relevance)
Date: 2007-12-11
Institutions: European Commission
Subjects: Netherlands, State aid, control of State aid, investment, telecommunications, telecommunications equipment, transmission network

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COMMISSION

COMMISSION DECISION

of 11 December 2007

on the State aid case C 53/06 (ex N 262/05, ex CP 127/04), investment by the city of Amsterdam in
a fibre-to-the-home (FttH) network

(notified under document number C(2007) 6072)

(Only the Dutch version is authentic)

(Text with EEA relevance)

(2008/729/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

the EC Treaty. The Dutch authorities asked for an
extension of the deadline in August 2004 which was
accepted by the Commission on 7 September 2004.

Having regard to the Treaty
Community,
and in particular
Article 88(2) thereof,

establishing the European
subparagraph of
the

first

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above (1) and having regard to
their comments,

Whereas:

I. PROCEDURE

(1)

In April 2004, the municipality of Amsterdam contacted
the Commission regarding the public procurement
aspects of the roll-out of a FttH (fibre-to-the-home) tele­
communications access network. In addition, the munici­
pality requested the Commission to confirm that
the
project did not entail State aid within the meaning of
Article 87(1) of the EC Treaty. By letter of 22 July 2004,
of
the
Amsterdam that such a confirmation can only be given
after a notification of the measure by the Dutch auth­
orities. The Commission requested the Dutch authorities
on 23 July 2004 to provide any information necessary
for an assessment of the measure under Article 87(1) of

the municipality

Commission

informed

(1) OJ C 134, 16.6.2007, p. 9: State aid C 53/06 (ex N 262/05) —
Citynet Amsterdam — investment by the city of Amsterdam in a fibre-to-
the-home (FttH) network — Invitation to submit comments pursuant
to Article 88(2) of the EC Treaty.

(2)

(3)

(4)

In September 2004, the Dutch authorities convened with
the Commission to present and discuss the plans of the
municipality of Amsterdam. On 7 October 2004, the
authorities stated in their reply to the Commission’s
letter of 23 July 2004 that the project in Amsterdam
would be notified in the near
future. On 17 May
2005, the Dutch authorities notified the project — the
participation of the municipality of Amsterdam in an
undertaking carrying out the roll-out and owning this
network. The Dutch authorities were seeking confir­
the investment of
mation from the Commission that
the municipality of Amsterdam in the legal entity
owning the network is
in line with the Market
Economy Investor Principle (‘MEIP’) and accordingly
does not constitute State aid.

Following further information sent by the authorities on
23 June 2005, and a meeting which took place on
28 June 2005 between representatives of
the city of
Amsterdam and the Commission, the Commission sent
on 15 July 2005 a letter containing elements of an
the MEIP together
explanation of
with a second request for information.

the application of

that

The Dutch authorities stated in a letter, registered on
18 November 2005,
there was a delay in the
planning and that the municipality of Amsterdam was
the project and the
still working on the setup of
investment conditions. The Dutch authorities declared
that they would need more time in order to provide
the requested information and asked the Commission
to suspend the assessment until all data would be
available.

(5)

(6)

(7)

(8)

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16.9.2008

of Amsterdam informed

the
The municipality
registered on 23 December
Commission by e-mail
2005 that
the City council of Amsterdam had by
unanimity decided to invest in the roll-out of the FttH
that negotiations with
network and stated further
BAM/DRAKA (for the construction of the network) and
with BBned (for the exploitation of the network) and the
negotiations with ING RE and five housing corporations
(co-investors) were all on track and would be finalised by
January 2006.

(9)

(10)

letter

registered on 27 December 2005,

By
the
Commission received a complaint regarding the project
from VECAI (the association of cable operators in the
Netherlands, which changed its name in September
2007 into ‘NLKabel’) (2). UPC Nederland BV (a cable
operator present notably in Amsterdam, hereinafter:
‘UPC’ (3)
time
its concerns in March 2005. Both parties —
about
with whom several meetings took place — argue that
the participation of the municipality is not in line with
the MEIP and constitutes State aid within the meaning of
Article 87(1) of the EC Treaty.

informed the Commission for the first

On 3 March 2006, the Commission sent a reminder to
the Dutch authorities, referring to the statement of the
Dutch authorities in November 2005 that further infor­
mation would be provided once further progress had
been made on the setup of the project and which was
spring 2006. The Commission also
foreseen for
reminded the Dutch authorities of
the standstill obli­
gation of Article 88(3) of the EC Treaty.

The Dutch authorities sent further information in May
and June 2006 (5). The Commission sent an additional
request
for information to the Dutch authorities on
24 July 2006, in answer to which the Dutch authorities
submitted several batches of information (6). Following
an additional request of information of 29 September
2006, the authorities asked on 13 October 2006 for
an extension of the deadline to reply.

In the meantime, the roll-out of the network commenced
on 12 October 2006 (7). In view of these developments,
the extension of the deadline requested by the Dutch
authorities was
authorities
submitted part of their answers before the deadline of
26 October and a substantial amount of information was
also provided on 30 October, 16, 20 and 21 November
2006.

The Dutch

refused.

the EC Treaty and not

(11) UPC requested the District Court in Amsterdam in a
procedure for interim measures to order the municipality
of Amsterdam to respect the standstill obligation laid
down in Article 88(3) of
to
continue
the Commission has
the project before
request by UPC was
finalised its assessment. The
dismissed by the District Court which stated in its
judgement of 22 June 2006 that it was not obvious
that
in the project
involved State aid. According to the Court, the mere
is
fact
not to be considered as State aid. Moreover, the Court
concluded that the initial costs incurred by Amsterdam
(studies, etc.) would be reimbursed by the joint-venture
Glasvezelnet Amsterdam CV and therefore did not
constitute aid.

the municipality has initiated the project

the municipality’s

involvement

that

The Dutch authorities replied to the Commission’s letter
of 3 March 2006 on 3 April 2006, and sent additional
information by letter of 2 May 2006. On 19 May 2006,
the Commission’s services sent another letter to the
Dutch authorities, referring to the information received
from UPC which cast initial doubts on the application of
the
the MEIP and reminded the authorities again of
standstill obligation (4).

(12) UPC informed the Commission by letter of 22 September
2006 that it had appealed the decision by the District
Court. The municipality of Amsterdam (8) informed the
Commission in November 2006 that
the Court of
Appeal proposed to UPC and the municipality of
Amsterdam to await the Commission’s decision before
a judgement by the Court would be rendered. Both
parties accepted this proposal (9).

(2) VECAI

supplied further

information by e-mails

registered on

(5) The authorities sent information on 19 and 31 May, 1, 7 and

27 December 2005, 11 January 2006 and 31 January 2006.

13 June 2006.

(3) UPC Nederland BV is a subsidiary of Liberty Global

Inc. UPC
Nederland BV acts under the name of UPC in the Netherlands.
Liberty Global,
is an international cable
operator offering video, telephone, and Internet access services. It
operates broadband communications networks in several countries.
(4) Information supplied by UPC on 12 May and registered on 15 May

(Liberty Global)

Inc.

2006.

(6) The authorities sent information on 18, 25 and 29 August 2006.
(7) Cf. based on publicly available information, e.g. articles in news­
papers Parool (7 October 2006) and Trouw (13 October 2006).
(8) The last batch of information was submitted by letter registered on

22 September 2006.

(9) Minutes of the Court of Appeal dated 21 November 2006, No

200601252.

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(13)

the Commission
By letter dated 20 December 2006,
informed the Netherlands that it had decided to initiate
the procedure laid down in Article 88(2) of the EC Treaty
in respect of the notified measure.

(14)

By letter of 8 January 2007,
the Dutch authorities
requested access to several documents submitted by
UPC mentioned in the opening decision. By letter
registered on 13 February 2007, UPC agreed to share
the requested documents with the Dutch authorities,
which were forwarded by the Commission to the au-
thorities.

(15) On

is

the

Court

2007,

January

the MEIP

found that,

fulfilled, by providing

of Appeal
18
Amsterdam (10),
rejected the appeal brought by UPC
Nederland against
the municipality of Amsterdam to
stop further activities related to the measure. The Court
of Appeal
although the Commission
expressed in its opening decision certain doubts as to
whether
the
requested information to the Commission, the munici­
pality of Amsterdam could still prove that the measure
is in line with the MEIP and does not constitute aid.
the Court of Appeal
circumstances,
Under
considered it possible that
the Commission would
conclude that no aid is involved. The Court also found
that the municipality would be hurt if it would have to
stop all activities related to GNA, while UPC would not
activities
significantly
undertaken by Amsterdam.

from the preparatory

suffer

these

(16)

By letter of 5 March 2007, UPC asked the Commission
for access to confidential information submitted by the
Dutch authorities and to set up a ‘data room’ (11)
procedure for the measure at hand, in order to be able
to assess the Dutch authorities’ claims to substantiate
their complaint further. By letter of 26 March 2007,
the Commission informed UPC that
the State aid
procedures do not
foresee access for third parties to
the requested confidential information or for setting up
a ‘data room’ procedure.

(17)

The Dutch authorities responded by letter registered on
16 March 2007 to the Commission’s decision to open
the formal investigation procedure.

(18) After several exchanges of correspondence between the
Commission and the Dutch authorities on confidentiality
issues, the public version of the opening decision was

(10) Gerechtshof,
judgement in case 1252/06 KG of 18 January 2007.
(11) ‘Data rooms’ are typically used,
instance, during the due
diligence phase of merger
and
provide access to confidential company data for the prospective
bidders.

and acquisition transactions

for

to the complainants on 23 April 2007 and
sent
published in the Official
European
Union (12). The Commission invited interested parties to
submit their comments on the measure.

Journal

the

of

(19)

(20)

(21)

(22)

Following the opening of procedure,
the Commission
received comments from five interested parties, namely
from Liberty Global/UPC (13), Com Hem (14), Ono (15),
France Telecom (16) and another party which requested
anonymity (17). By letter registered on 30 July 2007, the
Commission forwarded the third party comments to the
Dutch authorities. The authorities submitted their obser­
vations by letter dated on 17 September 2007.

The Commission services met with representatives of
Liberty Global/UPC on 5 July 2007 and with the
Dutch authorities on 5 November 2007. The Dutch
on
authorities
9 November 2007 and on 12 November 2007.

information

submitted

additional

II. DESCRIPTION OF THE MEASURE

(FttH)

electronic

The municipality of Amsterdam decided in 2004 to
investigate the possibility of investing in a fibre-to-the-
access
home
network (18). Following reports, market analyses and
preliminary contacts with potential investors, the muni­
cipality decided formally in December 2005 on the said
investment and the conditions under which such an
investment would take place.

communications

about

together

The planned FttH network in Amsterdam will serve
37 000 households in Amsterdam in the districts of
Zeeburg, Osdorp and Oost-Watergraafsmeer, which
comprise
of
Amsterdam. The municipality of Amsterdam also
expressed its long-term ambition to extend the project
to other parts of Amsterdam, with up to 400 000
household
this
connections
potential extension is not part of
the project under
assessment.

altogether. However,

10 % of

city

the

(12) Cf. footnote 1.
(13) By letter dated and registered on 17 July 2007.
(14) By letter dated and registered on 16 July 2007.
(15) By letter dated and registered on 17 July 2007.
(16) By letter dated and registered on 17 July 2007.
(17) By letter dated and registered on 17 July 2007, non-confidential

version received on 27 July 2007.

(18) The deployment of fibre access networks is considered to be the
next big leap in the electronic communications sector. The new
fibre networks when compared with existing copper based
networks (such as ADSL or cable) will provide much higher
speeds and symmetrical services and are expected to pave the
way for numerous new,
innovative services and applications
based on IP technologies (IPTV, video on demand, telemedicine,
etc.).

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The three-layer model

(23)

The project in Amsterdam is based on a ‘three-layer model’ as outlined below.

Figure 1

Simplified overview of the Citynet Amsterdam project

(24)

The first layer is the so-called ‘passive network infrastructure’, which includes ducts, fibre and street
cabinets.

(25)

(26)

(27)

This passive infrastructure is activated by means of telecommunications equipment (the second or
‘active layer’) by a wholesale operator managing and maintaining the network and providing
wholesale services to retail operators. The active layer includes the management, control and main­
tenance systems necessary to operate the network, such as switches, routers or splitters.

The wholesale operator will provide an open, non-discriminatory access to retail operators to offer
television, broadband, telephony and other Internet-based services to end customers (third or ‘retail
layer’). In order to be able to provide these services, retail service providers will have to invest, inter
alia, in equipment, procure content and operate their own service platform (maintenance, customer
care, and billing).

The stakeholders of the project

The passive infrastructure will be owned and managed by the partnership Glasvezelnet Amsterdam cv
(‘GNA’) (19), whose shareholders are the municipality of Amsterdam, two private investors, namely
ING Real Estate (hereinafter: ‘ING RE’) (20) and Reggefiber (21), and five subsidiaries of social housing
corporations (22). A cooperation agreement (‘Samenwerkingsovereenkomst’) was signed by the parties
on 11 April 2006 and the investment agreement (‘CV-overeenkomst’) was signed on 26 May 2006.

(19) The successful bidder for the construction is Van den Berg Infrastructuren (BAM)/Draka Comteq Telecom. Van den
Berg is a subsidiary of BAM, a major construction company and Draka Comteq is a producer of cables. The successful
bidder for the operation of the network, tender 2005/S 79-76325, is BBned.

(20) ING RE is a subsidiary of ING, a financial services (banking and insurance) conglomerate.
(21) Reggefiber is engaged in several fibre network projects in the Netherlands and linked to the building and construction

group Volker Wessels.

(22) The financing of the social housing corporations in the Netherlands is currently subject of an existing aid procedure
carried out by the Commission (Case E-2/2005 Bestaande woonwet en financierings-methoden voor woningsbouwcor­
poraties). By letter dated 20 December 2005 to Commissioner Neelie Kroes, Vecai requested the Commission to
investigate the legal status of the housing corporations under the State aid rules. By letter of 3 February 2006,
Commissioner Kroes replied, explaining that Competition DG is dealing with the issue within the framework of the
before-mentioned ongoing procedure.

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(28)

(29)

(30)

invest

two housing

The municipality of Amsterdam invests EUR 6 million,
ING RE and Reggefiber invest each EUR 3 million, three
social housing corporations invest each EUR 1,5 million
and
each EUR
corporations
750 000 (23). The total equity investment amounts to
In addition, GNA acquired loan
EUR 18 million.
amounting to EUR […] (*)
from […] (24). The total
planned budget
for the project amounts to EUR 30
million. As also outlined in Figure 1, the Amsterdam
municipality owns one third of the shares of GNA, the
two private investors together another one third, while
the subsidiaries of
the housing corporations own the
remaining one third.

The passive infrastructure of GNA will be activated and
operated by BBned (25) on the basis of a contract between
GNA and BBned of […]. The necessary investments to
provide wholesale access will have to be undertaken by
BBned. BBned will lease fibre from GNA and have the —
[…] (26) — right
to provide wholesale transport and
related services to retail operators at
It
will pay a fee per household connected to GNA for the
use of the passive network.

its own risk.

The wholesale operator will provide open, non-discrimi­
natory access to retail operators to offer TV, telephony
and broadband Internet access services. The services
offered via the new network will compete with existing
offers of cable and telecommunications companies such
as KPN and UPC. Based on publicly available infor­
it appears that BBNed has already contracted
mation,
with several retail service providers who have started to
offer ‘triple play’ services (27) on the GNA fibre network
to end users. The Commission notes that BBned is also
affiliated companies Pilmo and
active,
Bbeyond, at retail level.

through its

the
Commission to conclude on the conformity of
investment by the city of Amsterdam in GNA with the
MEIP. The Commission considered it necessary to open
the formal
investigation procedure both for substantial
and for procedural (28) reasons.

(32)

the Commission was

In particular, the Commission was not convinced that the
investment of the municipality of Amsterdam in GNA
had been ‘concomitant’, i.e. it was performed at the same
time with the private investments by ING RE and
Reggefiber. Moreover,
not
convinced that the terms and conditions of the investment
by the municipality of Amsterdam in GNA were equal to
the terms and conditions under which the other parties
have invested. These concerns derived primarily from the
fact that the municipality of Amsterdam spent money on
the Citynet project before the establishment of GNA (so-
called ‘pre-investments’) (29). Based on the preliminary
assessment,
the Commission had also doubts with
regard to the feasibility of GNA’s business plan. Thus it
was not possible at that stage to exclude the presence of
State aid.

(33)

Taking also into account these difficulties encountered,
the impact of potential State aid on the investments of
the opening of procedure was also
private operators,
justified because the Dutch authorities did not submit
to the Commission all
information necessary to assess
the project.

III. GROUNDS FOR INITIATING THE FORMAL INVESTI­
GATION PROCEDURE

(34)

(31) On 20 December 2006,

the Commission decided to
initiate the formal investigation procedure as the Dutch
authorities did not provide sufficient evidence for the

(23) About one third of the houses (13 000) in this area are owned by

(*)

the social housing corporations.
[…] The information in brackets is covered by the obligation of
professional secrecy.

(24) […]
(25) BBNed is a private broadband operator, a subsidiary of Telecom
Italia. BBned was selected through a tender procedure which was
advertised in the Official Journal of the European Communities with
reference to 2004/S 138-118456, dated 17 July 2004.

(26) […]
(27) In telecommunications, ‘triple play’ is a term for offering high speed
television and telephone services over a single

Internet access,
broadband connection.

Finally, the Commission initiated the formal investigation
procedure also in order to give the Dutch authorities and
third parties the opportunity to submit their comments
on its provisional assessment of the measure described
and to make available to the Commission any relevant
information related to the measure.

(28) The Judgement of the Court of First Instance in case T-73/98 Société
chimique Prayon-Rupel SA v Commission [2001] ECR II-867, recital
93 says ‘the fact that the time spent considerably exceeds the time
usually required for preliminary examinations under Article 93(3) of
the Treaty may, with other factors, justify the conclusion that the
Commission encountered serious difficulties off assessment necessi­
tating initiation of the procedure under Article 93(2) of the Treaty’.
(29) The municipality commissioned several studies in 2003 and 2004
to prepare
the
construction and the exploitation of the network. In addition, the
city of Amsterdam financed certain digging activities and purchased
‘pre-
software
investments’ of the municipality amount to […].

the network. These

and organised the

construction of

the project

tenders

the

for

for

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IV. COMMENTS SUBMITTED BY THIRD PARTIES

(38)

(35) UPC submitted its comments by letter registered on
17 July 2007. UPC’s submission reiterates its position
expressed before the Commission decision to initiate
proceedings (30) according to which the business plan
of the Citynet project is based on unrealistic economic
assumptions, in particular regarding penetration rates and
wholesale prices, hence the business plan does not
appear to be commercially viable. To substantiate this
claim, UPC submitted a report prepared by a consultancy
firm, RBB Economics, which updates other
reports
prepared by the same consultancy on the issue (31)
submitted before the opening of
investi­
gation (32).

the formal

the

that

subsidies

successful

fibre
In addition, UPC argues
deployments
in the Dutch towns of Nuenen and
Hillegom (35) brought forward by the Dutch authorities
cannot be considered as a proper comparison with the
Amsterdam project, as these projects allegedly received
from the Dutch Ministry of
significant
Economic Affairs,
the networks are jointly owned by
the inhabitants and the operators, the projects are rela­
tively small (36), and existing broadband operators only
offered basic broadband services in both towns. This was
in contrast with the situation in Amsterdam, where high
speed offers are available on the existing cable and tele­
communications networks.

(36) As regards the commercial viability of the project, UPC
the new fibre network would not enable
argues that
operators to offer significantly different services from
the services offered by the current operators. Conse­
quently, and taking into account
the broadband
penetration in the areas to be covered by GNA has
already reached 65 % of the households, the new fibre
network would fail to attract enough customers for its
services to make its business plan viable.

that

(39) According to UPC, as GNA’s business plan is unlikely to
be realistic, the investment of the Amsterdam munici­
pality in GNA is not
in line with the MEIP and
amounts to State aid. By reference to the Commission’s
decision in the Appingedam case (37), UPC also reiterates
its prior position that any State aid involved in the
considered compatible with the
project
Treaty as it would be neither necessary nor propor­
tionate.

cannot be

(37)

this

To support
argument, UPC submitted figures
concerning the overall churn rates (33) for its own cable
network concerning the areas where GNA is already
providing (34)
triple play services. The churn figures
cover
the periods from 1 January 2006 to 1 June
2007 in the areas where the GNA network is being
deployed. The maximum churn figures indicate that
UPC’s penetration rates for analogue cable TV, Internet
access, telephony or digital TV in the concerned areas
were stable, and were even increasing for
Internet
access. Therefore, UPC observes that there are no indi­
cations that there was a marked decrease of penetration
due to the presence of GNA.

(30) See recital 30 and following of the opening decision.
(31) As the Dutch authorities requested that GNA’s business plan was
subject to the obligation of professional secrecy, RBB Economics
did not have access to GNA’s actual business plan and based its
study on publicly available information and on the public version
of the Commission’s opening decision.

(32) See recitals 30 and following of the opening decision.
(33) The overall churn rates indicated all customers who left UPC to any
other operator (for instance to KPN, GNA, moved to other districts,
etc.). Therefore, UPC considers this figure as the maximum churn
rate that the new GNA fibre network could have achieved at this
stage.

(34) GNA started to roll out the network in October 2006 and retail
operators using the GNA network via BBNed started offering
services in March 2007.

(40)

that

that

the fact

Furthermore, UPC also expresses doubts as to whether
the public investment in GNA is made on equal terms
with the investments of the other shareholders of GNA.
the municipality of
UPC argues
Amsterdam undertook
and
other GNA shareholders decided to commit themselves
to participate in the project after
the municipality
the
performed certain feasibility studies indicates that
investment was not pursued on equal terms by all the
shareholders which would shed further doubts on the
market conformity of the measure.

certain pre-investments

(35) For instance,

in certain parts of Nuenen and Hillegom, market
penetration of services over the fibre network is higher than
80 % of all households after one year of service provision. The
projects in Nuenen and Hillegom have a different setting than the
Amsterdam project, for instance no public investor is present in
Hillegom.

(36) The Nuenen fibre network passes 7 400 homes, less then 25 % of

the current size of the Amsterdam project.

(37) See Commission Decision of 19 July 2006, C 35/05, Broadband
development Appingedam (OJ L 86, 27.3.2007, p. 1), where the
Commission considered aid for the development of a optic fibre
access network to be incompatible with the common market as the
Dutch municipality of Appingedam developed its network with
State aid where private broadband network operators in the area
already offered similar services. In the Appingedam case, there was
no private involvement in the financing of the project and the MEIP
was not invoked by the Dutch authorities.

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(41)

Finally, UPC also points out that if the project fails, the
network might be sold cheaply to another operator,
which will not have to bear the full
investment costs.
This operator therefore could strengthen its competitive
position by capitalizing on a publicly funded project.
UPC also highlights the alleged precedent character of
the measure. In case the Commission were to find that
the measure does not constitute State aid, other munici­
follow the example of Amsterdam in
palities might
the
deploying FttH networks. UPC highlights
Dutch Ministry of Economic Affairs and an engineering
firm, Arcadis (38) have
freely
calculation (39)
available,
allegedly encouraging municipalities
to develop their
own FttH networks.

already developed a

business model

on-line

that

the proportionality of

(42) ONO, a Spanish cable operator offering broadcasting
transmission and telecommunications services, is of the
opinion that the Commission should apply the MEIP test
strictly as other municipalities might follow the example
and invoke the MEIP in similar projects which could give
rise to the proliferation of State subsidies. ONO asserts
that public intervention should only take place in specific
circumstances such as in the presence of market failure,
ensuring
and
the measure
technological neutrality,
respecting the principle of
which is allegedly not the case in the measure at hand.
If the investment of Amsterdam constituted State aid,
ONO argues that any aid involved would be incom­
patible with the common market, as the circumstances
are similar to that of Appingedam (40), and in that case
any aid granted will be subject to a recovery obligation.
ONO points out the alleged precedent character of the
decision on the question whether and under which
can be
conditions
supported with public funding.

FttH networks

rollout of

the

(43)

France Telecom (‘FT’), the incumbent fixed line telecom
operator in France, takes a similar view to UPC and
ONO. The company expresses its doubts whether the
investment of
the municipality of Amsterdam in the
in line with the MEIP. FT also
Citynet project
supports the Commission’s approach in distinguishing
State aid measures in ‘white’,
‘grey’ and ‘black’ areas,
which is applied by the Commission when carrying out

is

(38) Arcadis

is

management,
network deployments.

an engineering

company
consultancy and engineering services

that provides project
fibre

for

(39) The model is available at the following website:

http://ngn.arcadis.nl/

(40) See footnote 37.

the compatibility assessment in the presence of aid (41).
FT asserts that any State intervention in ‘black’ areas
(such as Amsterdam) seems difficult
to justify, as it
results in serious distortions of competition. According
to FT, this was particularly the case for the measure at
hand, since the deployment of
fibre access networks
require heavy investments from market operators.

(44)

The comments submitted by COM HEM, a Swedish cable
operator, take a similar line to the other operators. COM
the
HEM generally doubts the market conformity of
investment of the Amsterdam municipality. In its obser­
vations, COM HEM argues
that public funding for
broadband projects in urban areas are seldom in line
with the MEIP and have strong distortive effects on
competition. COM HEM also calls for a strict application
of the MEIP and highlights the precedent value of the
Amsterdam case to future municipal and other public
sector investments.

(45) Another party requiring anonymity, which provides tele­
communications services in several European countries,
welcomed the Commission decision to initiate the formal
investigation procedure. The company argues that
its
investment is endangered by the initiatives of municipa­
lities using public funds which have a distortive effect on
the market. The company expects the Commission to
ban any public money in the Citynet Amsterdam project.

(46)

(47)

V. COMMENTS SUBMITTED BY THE DUTCH AUTHORI­
TIES

By letter registered on 16 March 2007, the Dutch au-
thorities submitted their comments in connection with
the Commission’s decision to initiate the formal investi­
gation procedure. Furthermore, the Dutch authorities also
provided comments on non-confidential versions of the
studies prepared for UPC by RBB.

their

submissions,

Throughout
the Dutch authorities
maintain their position that the investment of the muni­
cipality of Amsterdam in GNA is in line with the MEIP
and therefore does not constitute State aid.

(41) The distinction between ‘white’,

‘grey’ and ‘black’ depends on the
In general terms,
level of existing offers of broadband services.
‘white areas’ are rural and scarcely populated zones with no
‘grey areas’ are zones where basic
broadband provision at all;
broadband services are already provided in some parts of
the
concerned territory; and ‘black areas’ are zones where different
broadband services are offered over at least 2 competing infra­
structures (such as telephone and cable TV networks).

(48)

(49)

(50)

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Official Journal of the European Union

16.9.2008

V.1. Comments submitted in connection with the
decision to initiate procedure

(52)

General comments

that

large-scale fibre
The Dutch authorities highlight
deployments are taking place in the US and in Asia,
and that Europe,
lagging
behind. The authorities claim that projects similar to
the one under assessment are particularly beneficial for
the European economy and fully in line with the Lisbon
agenda (42).

in comparative terms,

is

authorities

also emphasise

The
the pro-competitive
business model of GNA, which provides — contrary to
the closed model of cable operators — open and non-
discriminatory access to all retail operators. They argue
that the new business model, inter alia, promotes service
competition, boosts innovation and helps to reduce the
risk of service providers by allowing them to use funding
which matches the characteristics of each individual layer.

(53)

On the pre-investments

Regarding the pre-investments by the municipality of
the Commission noted in the opening
Amsterdam,
decision that
the municipality took initiatives before
establishing GNA which seemed to go beyond what
normal market practice would suggest. The Commission
expressed concerns that the pre-investments might have
for all
reduced the risks associated with the project
the
investing parties. Some of
business underlying the GNA business plan might have
been absorbed or mitigated by the municipality of
Amsterdam before
ING and
Reggefiber in GNA were made. Based on the information
submitted by the Dutch authorities before the opening of
the formal investigation, it could not be clarified whether
all shareholders in GNA did invest under the same terms
and conditions.

the start-up risk of

investments by

the

In their reply, the Dutch authorities underline that all
investors committed themselves on 24 May 2006 to
the
and
conditions.

in GNA on identical

investment

terms

the

commercial

subsidiaries of

The Dutch authorities take the view that the shareholders
of the project provide further evidence that the GNA
project is pursued on market terms. In this respect, the
authorities emphasize the fact that two private investors
and
the housing
corporations are willing to participate in the project
under the same terms and conditions as the municipality.
They also refer to the open tender procedures for the
construction of
the wholesale
the network and for
service provision of the network. They further highlight
that the fact that a significant bank loan was offered to
GNA on market terms constitutes clear evidence that the
project and the underlying business plan are based on
prudent market terms.

(51)

The Dutch authorities also stress that numerous similar
successful fibre projects all over Europe and especially in
the Netherlands (43) undertaken by market operators
provide sufficient evidence that such investments can
be pursued under normal market conditions.

(42) Communication from the Commission to the Council and the
European Parliament. Common Actions for Growth and Employment:
The Community Lisbon Programme, COM(2005) 330 of 20 July 2005.
(43) In the Stratix Consulting/Delft Technical University report prepared
for the Dutch authorities on 8 March 2007 and submitted to the
Commission on 16 March 2007,
the consultant company lists
approximately 50 ongoing fibre deployment projects in the Ne-
therlands as of December 2006, with a similar amount of new
projects announced and planned to be launched from 2007.

(54) As regards the pre-investments (reaching the amount of
EUR […]), the Dutch authorities claim that it has always
been the understanding of all GNA shareholders that the
pre-investments by the municipality of Amsterdam
would have to be repaid by GNA. To support
this
assertion, the Dutch authorities distinguish between two
parts in the pre-investments.

(55) As regards the first part, the Dutch authorities stress that,
although the agreements establishing the GNA were only
signed on 24 May 2006 binding all parties to the EUR
[…] investment, in the letters of intent of […], the future
GNA shareholders decided together to earmark a lump
sum of EUR […] (ex. VAT) for the preparation costs of
the project. Amongst others, this amount also covered
the costs of the tender procedures for the selection of the
builder of
the
wholesale operator (BBNed), certain costs related to the
notification procedure and certain digging activities.

the network (BAM/Draka)

and for

(56) As for the second part of the pre-investments (amounting
to EUR […]), the Dutch authorities argued that such pre-
investments are fully in line with normal market practice:
prudent market investors would follow the same practice
in joint projects as one of the parties usually has to take
on the role of ‘lead investor’. The authorities also stressed
that pre-investments by the municipality of Amsterdam
did not reduce the start-up risk of the investment for the
other GNA shareholders.

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Official Journal of the European Union

L 247/35

(57)

The Dutch authorities also argue that the pre-investments
did not provide any advantage to any party, therefore
could not constitute State aid within the meaning of
Article 87(1) of the EC Treaty. For instance, the start
of certain digging activities was triggered by the fact
that some civil works took place in areas which were
important
the GNA
network. Since all digging activities are coordinated in
Amsterdam, digging just a few months afterwards
would have been impossible, which would have caused
delays and additional costs for GNA.

the future construction of

for

(58)

Furthermore, the Dutch authorities claim that all these
costs were incorporated in the business plan and that no
new cost elements emerged that would not have been
known by the other GNA shareholders.

(59)

To support these claims, the municipality of Amsterdam
submitted a report prepared by Deloitte — an accounting
firm — of 18 January 2007, auditing the reimbursement
of the pre-investments. The report states that the above-
mentioned pre-investments, amounting to EUR […] were
entirely reimbursed by GNA at the end of 2006 with
charged. The Dutch authorities
interest would be
the Commission that
informed
rate
the
is […] % in line with the Dutch national
applied (44)
the interest amounts to EUR […] and were
law (45),
paid on […] by GNA.

interest

(60)

Furthermore, the Dutch authorities do not consider their
own feasibility studies as part of the pre-investments.
According to the Dutch authorities, all prudent market
investors would carry out such studies. The Dutch au-
thorities argue that these studies could not have reduced
or absorbed some of the start-up risk for the other GNA
shareholders, as the other potential shareholders have to
follow their own appraisal as well and assess their own
risks and benefits from the project.

(62)

that

the Dutch authorities assert

the preli­
Therefore,
the Commission regarding ‘conco­
minary doubts of
mitance’ and ‘identical
terms and conditions’ originating
from the pre-investments of the Amsterdam municipality
are properly addressed by the above-mentioned expla­
nations provided and by the reimbursement of
the
relevant pre-financed costs to GNA.

Comments on the doubts related to the GNA business plan

(63) With regard to GNA’s business plan, the Dutch authori­
ties argue that investments made by public authorities
satisfy the conditions of the MEIP if they are pursued
under the same terms and conditions as those made by
private investors. The presence of private investors
is done on market
should guarantee that
terms. Therefore,
it was not strictly
the Commission to analyse GNA’s
necessary
for
business plan.

the project
they argue that

(64)

the Dutch

all
authorities
Second,
assumptions of GNA’s business plan were not optimistic,
rather conservative ones.

consider

that

of

of

cost

capital

do not

(‘WACC’) (46)

(65) More particularly, regarding the financial indicators in the
business plan, in the opening decision the Commission
compared the targeted financial indicators with relevant
publicly available comparative data, namely the weighted
average
peer
companies (47). The Commission came to the preliminary
conclusion that overall, GNA’s targeted financial
indi­
cators
are highly
seem unrealistic,
dependent on the achievement of key success factors.
Furthermore, the Commission claimed that the forecasts
for the business plan’s key success factors are likely to be
very uncertain due to the novelty of the Amsterdam
the technology used (fibre tech­
project
nology),
the
limited project size (hence only limited economies of
scale) and the expected consumer demand for high
bandwidth services.

the business model

(three-layer model),

in terms of

but

(61)

Similarly, the feasibility studies of the other GNA share­
holders (such as ING RE’s or Reggefiber’s) carried out
financed by the
before
respective parties without being charged to GNA.

investing into GNA were

(44) Information submitted on 9 November 2007 and on 12 November

2007.

(45) […]

(46) The weighted average cost of capital (WACC) expresses the relative
cost of equity and debt capital of a business. WACC is a widely
accepted financial indicator to measure for any particular business
or project the rate of return required by the providers of capital
(both debt and equity) having regard to the risk characteristics
inherent in the project. Businesses or projects which are able to
earn returns (measured e.g. using the internal rate of return) greater
than the cost of capital add value for investors. Conversely, busi­
nesses or projects which, while they may still be profitable, produce
returns less than the cost of capital ‘destroy’ investor value.
(47) In the Commission’s benchmarking analysis, the assumptions of
GNA’s business plan were compared with the available information
of
its considered peer companies, mainly European telecom
operators.

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The Dutch authorities argue that the project’s internal
rate of return (48) should not be compared with WACC
figures of vertically integrated operators, as was done in
the Commission’s opening decision as
these figures
these network
three layers of
include the risk of all
operators. On the contrary, GNA is only investing in
the passive network, which has an expected economic
lifetime of 30 years (or even more) and which is more
similar
from which,
generally, lower rates of return are required by investors.

to infrastructure

investments

(70)

least

Regarding the targeted penetration rate, in the opening
decision,
the Commission came to the preliminary
conclusion that, based on the available data, achieving
‘minimum
[…] % penetration for GNA’s
at
scenario’ seems optimistic. Moreover, the target of […]
% of all households after […] seems aggressive and will
only be possible through a massive ‘penetration pricing’
strategy shifting existing customers of other operators to
the GNA network.

entail
copper

expenditure
fibre networks
than current
and cable
networks, the GNA wholesale prices are still considerably
lower than what market reports suggest.

lower operational
telecommunications

than

existing

The Dutch authorities argue that fibre networks entail
lower operational costs and have a longer economic
lifetime
lower
wholesale prices are possible compared to what data
on
cost
advantage provides sufficient room for relatively low
wholesale prices compared to the offers on current
copper networks.

networks might

networks

therefore

suggest.

existing

This

(71)

Regarding the validity of the investment cost figures, the
Commission found in the opening decision that
benchmark figures indicated that the capital expenditure
per connection projected by GNA appeared to be low in
comparison with data available from market players and
other sources.

(66)

(67)

(68)

should be

considered as

The Dutch authorities argue that there are already several
highly successful fibre projects in the Netherlands, where
fibre networks could achieve high penetration ratios. For
instance, as regards Nuenen or Hillegom, the authorities
claim that fibre penetration reached more than 80 % after
one year of operation. Furthermore, the Dutch authorities
argue that current broadband penetration rates are not
relevant in the case at hand: services provided over fibre
a new market
networks
compared to current broadband offers of
existing
current broadband penetration
operators. Therefore,
rates should not be used as a benchmark. In addition,
the authorities argue that numerous new services and
applications (49) are emerging that require high speed
symmetrical networks which can only be provided on
a fibre-to-the-home network. Based on these arguments,
the Dutch authorities stress that reaching approximately
[…] penetration rate in areas of Amsterdam where the
network is rolled out within […] is not only realistic, but
rather a conservative target.

(72)

(73)

(69)

In relation to the wholesale prices charged by GNA to
the wholesale operator, the Commission argues in the
that
opening decision that although experts

suggest

(48) The internal rate of return is used to make decisions on long-term

investments and compare different investment projects.

(49) Such as peer-to-peer applications, file downloading, HDTV services,

etc.

The Dutch authorities argue that the feasibility of the
planned investment costs are further underpinned by
the topology and the characteristics of the geographic
areas
area where
concerned in Amsterdam have
a high population
density and many newly built or renovated and multi-
household buildings that help to reduce the costs of the
deployment of the network per household.

the network

deployed:

the

is

the residual value of

Regarding the appraisal of
the
network, the Dutch authorities argue that the estimate
in GNA’s business plan is realistic, as the economic
fibre networks can be 30 years or even
lifetime of
more. Within this
timeframe, no major additional
investment or maintenance costs will be necessary,
networks.
copper
contrary
Furthermore, the authorities argue that the network in
place will have significant ‘strategic value’ due to the
‘natural monopoly
access
characteristics
networks’ that GNA will enjoy due to its first mover
advantage.

existing

cable

fibre

or

to

of

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Official Journal of the European Union

L 247/37

(74)

(75)

also

authorities

preliminary

commented

the
The Dutch
Commission’s
all
assumptions underlying the business plan seemed opti­
mistic and that there is a high degree of sensitivity for
the success of the project if even one of the targets (such
as penetration grade) does not materialize.

conclusion

on
that

participation of private investors in a project under
identical
terms and conditions as the public investor
should be considered as ‘conclusive evidence’ that the
MEIP is met and hence no State aid is involved.

In this respect, the Dutch authorities had the feasibility of
the assumptions reviewed and endorsed by a report by
Stratix Consulting/Delft Technical University (50). The
submitted report also assessed the feasibility of
the
planned GNA penetration rate. By analysing similar
projects in and outside Europe and in particular in the
Netherlands, estimating also the future market demand
for high bandwidth symmetrical networks (i.e. for fibre
networks), the submitted report argues that the planned
GNA penetration figures can be considered as a conser­
vative estimate. Furthermore,
that
following increased market demand for
the services
requiring fibre networks and also due to the pro-compe­
titive nature of the open infrastructure, the demand for
fibre networks may evolve even faster and to a higher
level than predicted a few years ago.

the report argues

Comments on Third Party observations

(79)

The Dutch authorities, by referring to Council Regulation
(EC) No 659/1999 (53), argue that if an undertaking’s
competitive position cannot be affected directly by the
measure at hand, that party cannot be qualified as an
the Dutch authorities call
interested party. Therefore,
the
to take into account
upon the Commission not
comments of ONO, France Telecom (54) and Com Hem,
since they do not have any business interest on the
Dutch and particularly on the Amsterdam broadband
market.

(76)

The main conclusion of the submitted study, shared by
the Dutch authorities,
the
is that
Amsterdam municipality is commercially viable and
therefore in line with the MEIP.

the investment of

(80)

V.2. Comments submitted in connection with Third
Party observations

General comments

(77)

First, the Dutch authorities reiterate their position that
the doubts of the Commission regarding ‘concomitance’
terms and conditions’ originating from the
and ‘identical
pre-investments of
the Amsterdam municipality have
been properly addressed by the reimbursement of the
relevant pre-financed costs by GNA. Furthermore, they
claim that GNA’s business plan is feasible and realistic,
therefore the investment of the Amsterdam municipality
in the GNA project is fully in line with the MEIP.

(81)

(78)

Second, the Dutch authorities also highlight again that,
according to their view,
in line with the existing case
law (51) and Commission’s decisions (52), the significant

(50) See footnote 44.
(51) The Dutch authorities are referring in particular

to the CFI
judgement of 12 December 2000, Alitalia v Commission, T-
296/97, recitals 80-81, Court Judgement of 21 March 1991, Italy
v Commission, C-303/88, ECR I-1433, recital 20; and CFI judgement
of 12 December 1996, Air France v Commission, T-358/94, ECR II-
2109, recital 70.

(52) The Dutch authorities are referring to Commission Decisions
95/404/EC on a procedure relating to the application of Council Regu­
lation (EEC) No 2407/92 (‘Swissair/Sabena’) of 19 July 1995, and
N 172/00 Seed and Venture Capital Scheme, Ireland of 17 October
2000 (OJ C 37, 3.2.2001, p. 48).

The Dutch authorities argue that all parties providing
comments in this case failed to take into account that
to
the investments of private investors are sufficient
conclude the MEIP conformity of the investment. They
also claim further that, according to the relevant Court
jurisprudence, the analysis of the business plan was not
necessary in the presence of these private investors.

the Dutch authorities argue that

Regarding UPC’s claim that broadband penetration in the
areas to be covered by GNA has already reached 65 %,
therefore GNA would fail to reach the targeted pene­
tration ratios,
the
addressable market
is much higher for GNA as not
only broadband services, but TV, telephony and other
new services will be offered to customers over GNA’s
In relation to the churn rates submitted by
network.
UPC aiming to demonstrate
sufficient
interest for the services which can be provided over the
GNA network, the Dutch authorities argue that the data
is not relevant as service delivery over the network only
started in March 2007, and therefore no conclusions
could yet be drawn based on those data (55).

the lack of

(53) Council Regulation (EC) No 659/1999 of 22 March 1999 laying
down detailed rules for the application of Article 93 of the EC
Treaty (OJ L 83, 27.3.1999, p. 1).

(54) France Telecom has recently sold its subsidiaries, Orange Neth­
erlands and Nederland Breedband to Deutsche Telekom. The trans­
action was approved by the Commission on 20 August 2007.
(55) The last data for the churn figures submitted by UPC relate to the

situation as of 1 June 2007.

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Official Journal of the European Union

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(82)

(83)

relevant

the assessment of

For the reasons explained in recital 79, the Dutch au-
thorities doubt
the four other
the qualification of
companies as interested parties and are of the opinion
that these parties only submitted general observations
the
for
which are not
measure at hand. Therefore, the Dutch authorities do
not consider it necessary to comment these observations.
The Dutch authorities also do not provide comments on
the observations by third parties on the compatibility of
any State aid contained in the measure as according to
the
is not
compatibility
assessment
necessary in the current
case as no State aid is
involved in the measure.

authorities,

a

VI. STATE AID ASSESSMENT

The Commission has examined whether the measure can
be qualified as State
aid within the meaning of
Article 87(1) of
the EC Treaty, which provides that
‘any aid granted by a Member State or through State
resources in any form whatsoever which distorts or
threatens to distort competition by favouring certain
undertakings or the production of certain goods shall,
in so far as it affects trade between Member States, be
incompatible with the common market’. It follows that
in order for a measure to be qualified as State aid, the
following cumulative conditions have to be met: 1) the
measure has to be granted out of State resources and be
imputable to the State, 2) it has to confer an economic
advantage to undertakings, 3) the advantage has to be
selective and distort or threaten to distort competition, 4)
the measure has to affect intra-Community trade.

particular,

(84) When assessing the measure, the market context has to
be taken into account: the electronic communications
sector has been fully liberalized several years ago in
In
Europe.
broadband
investments
in so-called ‘black areas’ where different
networks
broadband services
two
competing infrastructures (such as telephone and cable
TV networks) (56)
are primarily driven by private
companies. The Commission’s policy in this field is to
be stricter with regard to projects involving public funds
in such areas because of
the distortive effect on the
business of private operators (57).

are offered over

least

in

at

(56) See also footnote 41.
(57) See for instance Commission Decision of 19 July 2006, C 35/05,
Broadband development Appingedam (OJ L 86, 27.3.2007, p. 1), also
footnote 37.

(85)

(86)

VI.1. State resources

First, it has to be assessed whether the measure is granted
directly or
and
imputable to the State (58).

through State

indirectly

resources

In the current case,
the municipality of Amsterdam
invests EUR 6 million in the partnership GNA. Since a
municipality is to be considered as an emanation of the
State, this is to be considered as an investment with State
resources within the meaning of Article 87(1) of the EC
Treaty (59). The Dutch authorities have not contested the
existence of State resources.

VI.2. Advantage

VI.2.1. Market Economy Investor Principle

(87)

For
the purpose of establishing whether a financial
investment by the State in an undertaking involves an
advantage within the meaning of Article 87(1) of the EC
Treaty, the Commission applies the MEIP in line with the
relevant case law of the Court. Pursuant to that principle,
a transaction does not involve State aid if it takes place at
the same time and under the same terms and conditions
that would be acceptable to a private investor operating
under normal market economy conditions (60).

(58) C-345/02, Pearle and others [2004] I-7139, recital 35 with reference
to Case C-303/88 Italy v Commission [1991] ECR I-1433, recital 11
and C-482/99, France v. Commission, Stardust Marine [2002] ECR I-
4379, recital 24.

(59) Legally, the municipality does not invest itself in GNA but through
a special purpose vehicle that has been set up for this project […]
and which is owned by the municipality of Amsterdam via the
an undertaking
Development Corporation Amsterdam (OGA,
owned by the municipality of Amsterdam). The
investment
therefore stems from State resources which are imputable to the
State (the subsidiary is owned by the municipality and the decision
to invest itself has been taken by the municipality and is channelled
subsidiary upon initiative by the municipality).
through its
Therefore,
the conditions outlined in case C-482/99, recital 37
Stardust Marine (see footnote 58) have been met.

Italian Republic

(60) See for instance Judgment of the Court of 8 May 2003 In Joined
Cases C-328/99 and C-399/00:
and SIM 2
Multimedia SpA v Commission [2003] ECR I-4035, recitals 37-38,
‘Seleco judgement’; Joined Cases 296 and 318/82, Netherlands and
Leeuwarder Papierwarenfabriek BV v Commission [1985] ECR 809,
recital 17; Application of Articles 92 and 93 of the EC Treaty
and Article 61 of the EEA Agreement to State aid in the aviation
sector, op. cit.
recitals 25 and 26; Commission Decision of
2 August 2004 (2006/621/EC) on the State Aid implemented by
France for France Télécom (OJ L 257, 20.9.2006, p. 11); Commu­
nication of the Commission to the Member States 93/C 307/03 on
the application of Articles 92 and 93 of the EEC Treaty and of
Article 5 of Commission Directive 80/723/EEC to public under­
takings in the manufacturing sector
(OJ C 307, 13.11.1993,
p. 3), recital 2.

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(88) According to established case law, capital placed by the
state, directly or indirectly, at the disposal of an under­
taking in circumstances which correspond to normal
market conditions cannot be regarded as State aid.
investor
However,
disregards any prospect of profitability, even in the
long term, such an injection must be regarded as State
aid within the meaning of Article 87(1) of
the EC
Treaty (61).

investment by a public

the

if

(89) On this basis, a capital contribution from public funds
must be regarded as satisfying the market economy
investor test and not constituting State aid if, inter alia,
it was made at the same time as a significant capital
contribution on the part of a private investor made in
comparable circumstances (the ‘concomitance’ test) (62).

(90)

In the present case, the investment by the municipality of
Amsterdam was made jointly with two private investors,
namely ING RE and Reggefiber. The Commission will
therefore first examine whether the investment of the
municipality of Amsterdam fulfils the market economy
investor test due to the fact that it was made concomi­
tantly with a significant private investment. For this
purpose,
the Commission will examine the following
criteria:

(91)

First, it has to be identified whether these investors are
market investors and whether the investments by the
private investors have real economic significance. Such
significance should be assessed in absolute terms (a
significant portion of
investment) and in
the total
relation to the financial strength of the private investor
concerned.

(94)

(95)

have

other

Fourth, in cases where the State, other investors or the
beneficiary
this
investment (for example through a side-letter, providing
for a guarantee by the State), there may exist grounds to
doubt whether such equivalence in the mere investment
terms suffices (63).

relationships

outside

Subsequently, and at a subsidiary level, the Commission
will also examine GNA’s business plan, in particular in
view of
Liberty
Global/UPC and other interested parties, which argued
that there is no feasible business case for the network
built by GNA.

complainant

claims of

the

the

VI.2.2. Assessment of the measure in light of the MEIP

VI.2.2.1. S i g n i f i c a n t p a r t i c i p a t i o n b y

p r i v a t e i n v e s t o r s

(96) As

the Commission acknowledged in the opening
decision (64), both ING RE and Reggefiber can be
considered without any doubt as ‘private investors’ (65).
Additionally, both companies’ business
interests are
coherent with the project carried out by GNA: ING RE
is active in the real estate business and infrastructure type
of investments and Reggefiber is engaged in several fibre
network projects in the Netherlands. The Commission
also notes that the two different private operators can
bring different types of expertise in order to contribute to
the successfulness of the project.

(92)

Second, it has to be assessed whether the investment by
all parties concerned take place at the same time (‘conco­
mitance’).

(97)

(93)

Third,
it has to be identified whether the terms and
conditions of the investment are identical for all share­
holders.

In absolute terms, the two private investors both invest a
substantial amount (EUR 3 million, respectively) in the
partnership GNA. If an investment of EUR 3 million,
compared to the financial strength of both ING RE and
Reggefiber, could be considered in relative terms to the
size of the investors to be a small investment, such an
investment is certainly significant in relative terms to the
overall capitalisation of GNA and the capital contribution
of the municipality of Amsterdam.

(61) See for instance Judgment of the Court in case C-303/88 Italy v
‘ENI-Lanerossi
Commission
judgement’; Case T-358/94 Air France v Commission [1996] ECR
II-2109, recital 70.

ECR I-1433,

recital 20,

[1991]

(62) Case T-296/97, Alitalia [2000] ECR II-3871,

recital 81; case
T-385/94, Air France, [1996] ECR II-2109, recitals 148-149. Cf.
equally the Commission’s Position, The Application of Articles 92
and 93 of the EEC Treaty to public authorities’ holdings, Bulletin
EC-9/1984, para. 3.2(i) and (iii).

(63) In other words, the terms and conditions can be identical in one
agreement but, at the same time, other agreements can lay down
additional clauses with different rights and obligations.

(64) Footnote 48 of the opening decision.
(65) ING’s shares are 100 % floated on the stock exchange without any
shareholder owning more then 5 % of its shares. Reggefiber is a
subsidiary of Reggeborgh which is an investment vehicle of the
family Wessels. See also footnotes 20 and 21.

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(98)

the

single

largest

Indeed,

shareholder

Together the two private investors take up one third of
the total equity. In the context of this project, this stake
— while not giving the two companies outright control
of GNA — is a significant portion of
the overall
investment. To this end, the Commission observes that
both ING RE and Reggefiber are major shareholders of
GNA.
(the
Amsterdam municipality) owns 33 % of the equity of
GNA. Each ING RE and Reggefiber have a stake equal
if
to half of
combined, they hold the same stake as the municipality.
the five
The remaining shareholders in the venture,
housing corporations, hold singularly smaller
stakes
than ING RE and Reggefiber.
follows that within
GNA there is no single shareholder capable of exerting
majority control over the company. Moreover, the two
private investors can be singularly, and even more if
taken together, pivotal
controlling
majority within GNA (66).

the largest single shareholder;

in forming

that of

It

a

(99)

The Commission also notes that according to Dutch
corporate law, one third of the shares are sufficient to
form a blocking minority regarding any important
decision of GNA. Therefore, the two private investors
can jointly form a blocking minority within the
company.

(100) To conclude, both ING RE and Reggefiber are market
investors and their
investments have real economic
significance both in absolute and relative terms if seen
in the context of the shareholding structure of GNA.

VI.2.2.2. C o n c o m i t a n c e

(101)

the

the

opening

decision (67),
In
Commission
acknowledged that the municipality invested de jure at
the same time as the private investors in the partnership
GNA, but expressed some preliminary doubts about the
de facto concomitance of the investments of all GNA
shareholders, as the municipality had already undertaken
initiatives and investments before a final agreement with
all other investors was concluded.

and

negotiated

the
even
tenders
In
construction and the exploitation of
addition,
the municipality of Amsterdam financed
certain digging activities and purchased software for the
construction of the network.

the network.

contracts

for

(103)

In this respect, the Dutch authorities provided further
information (audited by Deloitte) on the pre-investments
and on their reimbursement of the pre-investments after
the opening of the formal investigation. According to the
Deloitte audit report, the commonly earmarked funding
of the GNA shareholders amounted to EUR […] out of
the total pre-investments of EUR […]. The remaining
EUR […] were initially financed by the municipality
only (68).

(104) The new information received during the formal investi­
gation enabled the Commission to establish the following
facts: First, a substantial part of the activities and pre-
investments (EUR […]) was explicitly agreed in the
‘Letters of Intent’ signed by the prospective shareholders
of GNA and co-financed by all of them proportionally to
the
their
the
even before
establishment of
in the venture considered
company, as all partners
and separately
individually
necessary
certain steps prior to GNA’s incorporation.

to undertake

stake

(105) Second,

all

(including

pre-investments

EUR […]
earmarked only by the Amsterdam municipality) were
included in the business plan on which the investment
was based and hence were agreed between all share­
holders of GNA. Thus, all partners
in the venture
considered those pre-investments as useful steps prior
to the establishment of GNA. According to the Dutch
authorities, there was agreement among all shareholders
that the portion initially financed by the municipality
would be reimbursed by GNA. In other words, the muni­
cipality’s conduct did not pre-empt or influence the
behaviour of the other market investors.

(102) The Commission noted that the municipality commis­
sioned several studies in 2003 and 2004 to prepare
the project. Furthermore, the municipality took initiatives
which seem to go beyond these preliminary steps.
Despite the absence of a firm commitment by private
the municipality published and organised
investors,

(66) The significance of private participation also has to be seen in the
context that broadband investment in black areas are primarily
driven by private operators. See also recital 84.

(67) Paragraphs 49 ff. of the opening decision.

(106) On the basis of the above, the Commission considers
that the fact that the municipality of Amsterdam did
carry out some limited pre-investments prior to the
formal setup of GNA does not call
into question the
fulfilment of the MEIP given that there was agreement
among
the municipality of
Amsterdam would have to be reimbursed for these pre-
investments.

shareholders

that

all

(68) See also recitals 54-55.

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VI.2.2.3. T e r m s a n d c o n d i t i o n s

(107)

In the opening decision (69), the Commission expressed
preliminary doubts whether the terms and conditions of
the investment for all shareholders were identical. More
specifically, the Commission expressed its doubts that the
pre-investments undertaken by the municipality of
Amsterdam might have absorbed or mitigated some
start-up risks associated with the project
for other
investing parties.

(108) These preliminary doubts derived from the fact

that,
although the Commission had requested several times a
complete overview of the pre-investment costs (70), and
the Dutch authorities submitted some information on the
settlements between Amsterdam, GNA and its share­
holders in this respect, this did not fully clarify all ‘pre-
financing’ activities by the municipality including the
amounts
of
Amsterdam.

the municipality

actually

spent

by

(109) Based on the submissions by the Dutch authorities at the
investigation was
the
moment
the formal
Commission was not
in a position to calculate or
verify the total amount of these ‘pre-investments’ which
the Commission estimated to be in the magnitude of
EUR 1,5 million. Furthermore, it was not fully clear to
the Commission how those costs were shared between
the shareholders and included in the business plan of
GNA.

initiated,

(110)

the Commission feared that

the ‘pre-
In particular,
financing’ by the municipality — partly without
the
explicit agreement of some of the other investors —
might have reduced the investment risk of the other
investors in GNA and could have had a positive impact
on their willingness to invest in GNA. The information
submitted by the Dutch authorities following the opening
of
investigation allayed these preliminary
doubts.

the formal

(111) First, as clarified by the information provided by the
the pre-
Dutch authorities on the reimbursement of
investment costs and by the submitted audit report, the
total pre-investment costs amounted to EUR […], divided
in two parts: EUR […] agreed and co-financed by all
prospective shareholders of GNA in the ‘Letters of
stake, and EUR […]
Intent’ proportionally to their
initially financed only by the Amsterdam municipality.

(69) Recitals 52 ff. of the opening decision.
(70) For instance in its letter to the Dutch authorities of 29 September

2006.

All these costs were properly charged to GNA, including
interest (71) and no additional GNA project costs seem to
have remained unaddressed.

(112) Second, all costs related to the pre-investment were also
initially included in the business plan of GNA, hence no
new costs seem to have emerged after the signing of the
GNA agreement that would have altered the terms and
conditions for the other shareholders. This is in line with
the finding that there was agreement among all share­
holders that the municipality of Amsterdam would have
to be reimbursed for the pre-investments carried out.

(113) Third, although the municipality of Amsterdam took the
lead and pre-financed part of the project costs, those
initiatives and investments could not have reduced the
risks involved in the project for the other shareholders.
Contrary to the preliminary doubts raised in the opening
decision, the Commission comes to the conclusion that
the investments initially financed by the municipality in
undertaking limited civil works and purchasing software
their nature and their limited
could not,
financial significance, have altered the risk profile of
the project. The same is true for the pre-investments
co-financed by all prospective shareholders in parallel
to the signing of the ‘Letters of Intent’. The analysis of
the business plan clearly shows that the business risks of
the investment in GNA is linked to the success of the
project in the years to come, particularly in terms of
market evolution, and not
steps
preparing the project.

to the very first

in view of

(114) Fourth,

the Commission does not agree with the
argument of UPC that the feasibility studies conducted
by the Amsterdam municipality might have reduced
some risk for
the other GNA shareholders, which
might have decided to invest in GNA only afterwards.
The Commission notes that any prudent market investor
would normally carry out its own assessment on the
strategy and profitability prospects (feasibility study) of
an investment project (72) without this being considered a
means to reduce the risks involved for other investing
parties.
the project were to fail, all
investing parties together would have to shoulder the
losses resulting from an underperforming business or,
in the worst case, the bankruptcy of GNA.

In any case,

if

(71) See also recital 59. The Dutch authorities informed the Commission
that the interest charge amounted to […] and was paid on […] by
GNA.

(72) See for instance Commission Decision of 7 June 2005 on Alitalia’s
restructuring plan (OJ L 69, 8.3.2006, p. 1), recital 194: ‘In order to
present its offer, Deutsche Bank carried out an assessment of the
company’s strategy and profitability prospects. In addition, before
concluding the final contract,
it proposes to carry out a due
diligence operation which any investor should carry out before
initiating the operation’.

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(115)

In view of this information, the Commission concludes
that all shareholders in GNA have invested under the
same terms and conditions.

(122)

VI.2.2.4. O t h e r r e l a t i o n s h i p s

(116) UPC argued that ING RE might have decided to invest in
the GNA project not on the basis of economic consi-
derations, but rather as part of their marketing strategy
to maintain a good relationship with the municipality of
Amsterdam, which is allegedly an important business
partner of ING RE.

respect,

received from UPC in this

In the opening decision (75), following the preliminary
analysis of GNA’s business plan and the
critical
remarks
the
Commission considered that not only the targeted
performance indicators, but all assumptions underlying
the GNA business
optimistic. The
Commission considered further that there was a high
degree of sensitivity for the success of the project if the
targets (such as the penetration rate) did not materialize,
the underlying assumptions
even more so if one of
deviated from the targeted levels.

plan seemed

(117)

for

It has to be assessed whether there are any other rela­
cooperation and investment
the
tionships outside
agreement which are
assessment
the
relevant
whether the investment meets the MEIP. In this respect,
the opening decision (73) referred to the fact that the
Dutch authorities have provided a statement in which
they declare that there are no other relations between
i.e. relations outside the notified
the parties concerned,
agreements, which are
the assessment
whether the investment is in line with the MEIP.

relevant

for

(118) The Commission’s own investigation and the information
submitted by interested parties have not brought forward
any elements indicating that the statement of the Dutch
authorities is incorrect.

(119) On this basis,

the Commission concludes

the
investment by the municipality of Amsterdam was
made at the same time and in comparable circumstances
as the significant capital contributions by the private
investors.

that

(123) The Commission received comments on the business
plan analysis contained in the opening decision both
from the Dutch authorities and from UPC which
enabled it to deepen its assessment.

(124) The Commission notes that the business plan of GNA
relates to a newly formed undertaking with no track
acting in a new and innovative business
record,
‘three-layer model’, where
segment
(FttH technology,
passive and active infrastructures are operated and
managed separately, with an open and non-discrimi­
natory
see
access offered to all
description part recitals 21-30). Thus,
in such a case,
the assessment of a business plan of a newly formed
undertaking is necessarily and inevitably based on
future market projections and hypotheses regarding the
likely evolution of demand and supply for FttH services.

retail operators,

(120) Accordingly, the investment made by the municipality of
Amsterdam is in line with the market investor principle
and does not constitute State aid.

Independent
business plan

reviews

conducted in relation to the

VI.2.2.5. A s s e s s m e n t o f

t h e b u s i n e s s p l a n

(121)

the Commission has also assessed the
In addition,
the
business plan of GNA,
doubts raised in its decision initiating the formal inves­
tigation and in view of
the interested
parties Liberty Global/UPC, ONO, FT, COM HEM and
an anonymous party (74).

in particular in view of

the claims of

(73) Recital 62 of the opening decision.
(74) In the following assessment, reference will be made mostly to UPC,
as their submissions are the most detailed. However, the assessment
also covers the more general remarks submitted by other interested
parties.

(125) The Commission notes that

the methodology of

the
business plan was audited and accepted by Pricewater­
houseCoopers (76), an independent audit company. More
specifically, after a first analysis of the first version of the
GNA business plan, PricewaterhouseCoopers proposed
to filter out certain preliminary
some modifications
inconsistencies. These
into
account in the updated GNA business plan. After those
the
modifications, PricewaterhouseCoopers stated that
model
economic
integrity issues’,
and the GNA business plan was
submitted to the Commission afterwards.

‘contain technical or

proposals were

does not

taken

(75) Recitals 63 ff. of the opening decision.
(76) Performed on 2 May 2006 on behalf of the Dutch authorities,

submitted to the Commission on 11 May 2006.

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(126) Following the Commission’s decision to open the formal
investigation procedure, the Dutch authorities submitted
a report prepared by Stratix Consulting/Delft Technical
University (77), reviewing and endorsing the feasibility of
focus on the
the GNA business plan, with a special
assumptions which were highlighted by the Commission
as ‘optimistic’ in the opening decision. The report came
to the conclusion that the GNA business plan is realistic
and that the underlying assumptions are correctly based
on current market trends and should be considered as
‘conservative’ estimates.

Financial indicators

(127) GNA applied three main financial performance indicators
to measure the success of the project being the cash-flow
generation, the return on equity and the internal rate of
return (IRR).

(128) The Commission considers that the IRR ratio appears to
be the most appropriate parameter for an analysis of the
business plan. The IRR is used to make decisions on
long-term investments
different
and
investment projects. The underlying IRR of GNA’s
business plan is […] %.

compare

to

for GNA, which is basically a start-up firm, must be
higher
than the WACC figures of a well-established
company with significant customer base and cash flow
generation, such as KPN or UPC.

(131) The Dutch authorities

regarding the benchmarks used for

question the Commission’s
assessment
the
assessment of the IRR in the opening decision. They
claim that the WACC figures are related to vertically
integrated operators, while GNA is only investing into
a passive network, which is more similar to an infra­
structure investment for which lower rates of returns
are generally required by investors.

(132) The Commission finds that the targeted IRR in GNA’s
business plan appears to be within the market expec­
tations for companies active in the telecommunications
market. In addition, the Commission recognises that the
investment project under scrutiny is different from that
of a vertically integrated operator and it presents charac­
teristics of an infrastructure type investment, for which a
lower IRR is required.

it

the broadband telecommunication markets,

(129) Given the novelty of the project and the dynamic nature
is
of
difficult
to carry out a benchmarking exercise. The
public availability of IRR figures from similar projects
is limited, not
least because these figures are rarely
made public as they are considered business secrets.
The most relevant publicly available comparative data is
that on the weighted average cost of capital (‘WACC’) of
other companies in the same industry. WACC data can
be a useful benchmark because a project is considered
worth undertaking if the IRR exceeds the WACC. Based
on information in the possession of the Commission,
industry figures fluctuate in the range between 8,1 %
and 10,6 % (78). Based on these figures,
the IRR in
GNA’s business plan appears to be within the acceptable
range.

such as

(133) The Commission also assessed the alternative financial
indicators used in the business plan,
the
positive cash flow generation and the return on equity.
The Commission could not carry out a thorough bench­
marking exercise for these indicators due to the lack of
publicly available data (79), and therefore assessed them
from the point of view of the adequacy and internal
consistence within the business plan. Based on this
the figures
analysis,
provided in the business plan appear to be acceptable
to a market economy investor.

the Commission concludes

that

(130)

In its submission, UPC argued that due to the novelty
and the high risk involved in the project, the targeted IRR

(77) Submitted on 16 March 2007, see also recital 75.
(78) UPC (Dutch cable operator) 10,6 %, Fastweb (Italian broadband
operator) 9 %, Telenet (Flemish cable operator) 8,5 %, KPN (Dutch
incumbent) 8,1 %.

Penetration rate

(134) One of the most important factors for the business plan
is the targeted penetration rate. As revenues for GNA will
depend to a large extent on the achieved penetration rate,
i.e. the percentage of connected households, the feasi­
bility of achieving the targeted penetration rate is of
crucial importance for the success of GNA’s business.

(79) It should be noted that in its submissions UPC also did not use
these indicators for its observations on GNA’s business plan.

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(135) GNA aims at achieving a penetration rate of […] % of all
households within […] months (and penetration levels
are expected to be saturated approximately at
this
level). In addition […] (80).

(136)

In its submissions, UPC expressed strong doubts whether
any significant market share (such as the 40 % target rate
mentioned in an investment report (81)) can be achieved
by the project. UPC, relying on the report by RBB and
figures concerning the overall churn rates for the areas
where GNA is already providing triple play services,
argues that
the current overall broadband penetration
in the areas planned to be covered by GNA has already
reached 65 %. More particularly, according to UPC, the
relatively strong competition in the area and the limited
new offers available on GNA’s fibre network further
the retail operators using the
supports the view that
GNA network via BBned will
to attract enough
customers.

fail

(137) UPC also stresses that it does not see any competitive
advantage of the new fibre network compared to the
existing offers of current broadband operators other
than the provision of symmetrical bandwidth to retail
customers, for which service demand is however inex­
istent. Moreover, UPC argues that their most advanced
broadband product in terms of available bandwidth (82)
has not been very successful so far and that customers
have a tendency of opting for cheaper and less-sophis­
ticated products whenever more advanced products are
offered in the market.

(138)

In contrast, the Dutch authorities argue that new services
can be provided over the symmetrical fibre broadband
connection (such as file sharing and other ‘peer-to-peer
applications’, HDTV), which belong to a different market
than the current asymmetrical connections. Furthermore,
the Dutch authorities relying on the already mentioned
study prepared by Stratix Consulting and Delft Technical
University stress that several successful examples not
only from the Netherlands, but also from the US and
Japan indicate that
the targeted penetration rate is
realistic.

(80) […]
(81) UPC/RBB conducted their analyses on publicly available infor­
mation, above all on an ING analyst report prepared on the feasi­
bility of a fibre-to-the-home project in Amsterdam: ING analyst
report ‘European Telecoms’, 24 February 2006.

(82) Namely Chello Extreme, currently offering 20 Mbps download and

2 Mbps upload speed.

(139) The Commission has assessed the arguments of

the
various parties in this respect. The Commission notes
in order to determine the penetration rate
that GNA,
curve, […]. This penetration rate forecast model
incor­
including take-up
porates all the assumptions required,
rates, speed of take-up rate and churn rates as well as
those assumptions that were quoted by the UPC as being
important factors to assess the feasibility of the business
plan. Therefore, the business plan includes the relevant
factors that are necessary for the assessment of the pene­
tration rate.

fast,

requiring

(140) On the question whether the penetration rates in the
business plan are achievable,
the Commission notes
that it will depend to a large extent on the evolution
of the market, the speed at which new applications and
technologies
fibre
very
broadband connection will be
adopted by service
providers and the reaction of customers to these new
possibilities. These
cannot be known with
certainty at this point in time, as is demonstrated by
sceptical
the different
views between UPC (more
regarding market prospects) and Reggefiber,
ING RE
and Delft Technical University (who have endorsed the
estimates in the business plan either as investors or as
independent consultants).

symmetrical

factors

that

the Commission notes

(141) More specifically on the churn rates submitted by UPC to
show that the project is failing to reach any meaningful
penetration rates,
the
submitted figures cover the period between 1 January
2006 and 1 June 2007, while retail operators using the
GNA network started offering the services to customers
in limited areas of Amsterdam only in March 2007.
Given the very limited amount of time elapsed since
the
services are provided over
Commission is not convinced that meaningful
infor­
mation could be elicited from the churn rates at this
stage.

the GNA network,

(142)

that

In relation to UPC’s argument
the successful
examples of small Dutch cities in fibre deployment,
such as Hillegom or Nuenen (83) should not be taken
into account as these cities are not comparable in
terms of size, competitive situation and subsidies to the
project of Amsterdam, the Commission considers that
those projects
although there are certain differences,
still provide some useful insights for the benchmarking
analysis as examples of fibre deployment projects in the
Netherlands.

(83) Where fibre penetration has reached more than 80 %.

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(143) Based on industry analysis (84) approximately 20-25 % of
the population on average is willing to migrate to a new
fibre network. […].

(149)

In contrast, the Dutch authorities argue that the new
fibre technology requires different cost calculations than
the traditional copper or cable lines. For instance, the
fibre network requires far lower operational expenditures
(such as maintenance, management costs) and also has a
longer economic life, i.e. a longer amortisation period (up
to 30 years).

(144) Moreover, based on current

trends,

the demand for
services being delivered over high bandwidth fibre
networks seem to be increasing at a higher pace than
what market experts expected a few years ago. The
current plans for fibre networks deployment especially
in the Netherlands and other European countries (85)
attractiveness of
provide
is
investments in fibre access networks. Therefore,
not unrealistic that a penetration rate of […] % of all
households could be reached after […] months.

evidence

further

the

for

it

(145) The Commission

therefore

concludes

is
conceivable for a market economy investor to invest in
the project on that basis of the penetration rates foreseen
in the business plan (indeed, this is what Reggefiber and
ING RE did).

that

it

Wholesale prices

(146) Wholesale prices per connection charged by GNA to
BBned for the exploitation of the passive network […].

(147)

In its submissions, UPC has calculated that GNA has to
charge at
least EUR 20-EUR 22 per month for a
wholesale connection enabling triple-play services on its
network. However, at
the final retail
service prices would necessarily be more expensive than
current similar offers of the existing operators, which
allegedly raises doubts about
the targeted penetration
rate.

this price level,

(148) To support its arguments, UPC submitted calculations (86)
for the wholesale prices based on the retail service prices
offered by service providers (87) on GNA’s network. UPC
argues that based on the current
is
unlikely that all three layers (passive, active and retail)
will be able to operate profitably at the same time.

retail prices,

it

(84) See for

instance JPMorgan (2006) study: The fibre battle —
Changing Dynamics in European Wirelines, 4 October 2006.
JPMorgan also calculates that the payback time of a fibre to the
home infrastructure — providing open access in an average metro­
politan market — starts looking attractive from a market share of
25 %.

(85) As for instance evidenced by the investments of Reggefiber, Casanet
in the Netherlands, Iliad, Free or France Telecom in France and
examples from other European countries. See also: The Netherlands:
FTTH deployment overview, 4Q2006 prepared by Stratix, January
2007.

(86) Source: Supplement to the RBB report on Amsterdam’s investment

in the FttH Citynet project, 7 November 2006.

(87) Undertakings such as Pilmo, Unet or InterNLnet are already offering
services on the GNA network with a limited geographical scope.

are

that

funds

simultaneously.

to be profitable
the Commission notes

(150) UPC also asserted that it is not possible for all three
layers (88)
In this
respect,
it assessed the
wholesale prices charged for access to the passive layer,
as this is the layer included in the business plan under
assessment, where public
involved. The
Commission found that these wholesale prices are not
unrealistic (89). The viability of
the other two layers,
operated by private operators,
is to a certain extent
affected by the wholesale prices charged for using the
passive layer. Considering the fact that the operation of
the second layer was won by BBned through an open
tender, that an open, non-discriminatory access is offered
to any operators on the retail layer and taking also into
account the wholesale prices of GNA, the Commission
does not see a risk that the two other layers might not be
operated profitably.

(151) As regards the prices charged by GNA for the wholesale
access, there are some indications that fibre networks
may entail
lower operational expenditure than legacy
telecommunication and cable networks. Based on these
considerations
the
also taking
benchmark information available and the results of the
Stratix Consulting/Delft Technical University report, the
Commission concludes that the wholesale prices in the
business plan are not unrealistic compared to similar
services provided by other operators.

into account

and

Investment costs

(152) The Commission also assessed the planned investment
costs. GNA calculates EUR […]. This
to an
overall cost for the passive layer of […] per household.
The benchmark figures, collected by the Commission, for
the complete infrastructure (active and passive together)
fluctuate between EUR 1 000 and EUR 2 000 (90), while
the ratio between the investment needs for passive and
active connection is roughly about two to one.

leads

(88) For a description of the three layer model see recital 23 ff.
(89) For the assessment of the wholesale prices see from recital 146 ff.
(90) For the whole infrastructure (active and passive) UPC/RBB estimates
EUR 1 500 per home passed (EUR 1 000/EUR 500 respectively),
KPN EUR 1 300, Hillegom (Dutch FttH project) EUR 1 200,
Corning (fibre optic manufacturer) EUR 1 200, Arthur D. Little
(consulting company) EUR 1 000 (EUR 600/EUR 400 respectively),
Fastweb (Italian broadband operator) EUR 1 200, ARCEP (French
regulator) EUR 2 000 (data from 2005 and 2006),
JPMorgan
(consulting company) EUR 1 000-EUR 2 000.

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(153) UPC supports the preliminary view of the Commission
expressed in the opening decision that the viability of the
business plan is highly dependent on the investment
costs and emphasizes that the calculated costs are very
low estimates. In contrast, the Dutch authorities argue
that the investment costs result from the topology of
the areas concerned, the high population density and
the presence of multi-household dwellings
(lowering
deployment costs per household). Moreover, the authori­
ties highlight that GNA has already signed a contract
with civil engineering companies Van den Berg/BAM
and Draka Comteq in […] 2006 (91)
specified
conditions which should guarantee that the deployment
costs will be in the range included in the business plan.

at

(154) Considering also the topography of the areas (densely
populated area on a flat terrain), the fact that the civil
engineering companies carrying out the works accepted
to do them for a price compatible with the business plan,
and the available benchmark data, the Commission finds
that the planned GNA investment figures appear to be
realistic. The Commission also takes note that GNA
calculated with a certain level of buffer in case of an
overrun of the investment costs which is in line with
prudent market investors’ practice and provides further
evidence for
the
investment costs.

the robustness of

the estimates of

Residual value of the network

(155) The estimated residual value of the passive network has a
role in GNA’s business plan to achieve the
pivotal
financial
the
targets and to provide a collateral
investors. GNA applies a multiple-based calculation to
determine the residual value of the asset (the projected
value of the network in […] is EUR […]), the value is
depending only on the achieved penetration rate. The
Commission also assessed with an alternative multiple-
based valuation the residual value of the GNA network,
resulting in a value range of EUR […] million at […] %
penetration rate, which matches GNA’s estimate.

for

(156) UPC suggests that the benchmark figures used by the
Commission in the opening decision (92)
for assessing
the network are too optimistic,
the residual value of
related to an established
since
are
figures
those
and customers.
revenues
company with recurring

(91) See also footnote 19.
(92) Footnote 37 of the opening decision.

Furthermore, UPC asserts that for the expected economic
lifetime of the network, an estimation of maximum 20
years appears reasonable (compared to the […] used in
the business plan of GNA). UPC also recommends using
a cash flow based assessment to check the residual value
of the network.

(157) The Dutch authorities argue that the calculation of GNA’s
business plan in relation to the residual value of the
network is realistic and based on a correct methodology.
In addition, they assert the economic lifetime of fibre
networks can be […] or even more. Furthermore, they
assert that the network in place will be valuable due to
its first-mover advantage and because the construction of
a second similar network might not be economically
viable in view of certain natural-monopoly characteristics
of fibre access networks. These latter factors allegedly
provide further evidence that the network in place will
have significant value even if the business plan does not
fully materialize.

(158) Since limited relevant market data were available for this
parameter, the Commission analysed the residual value of
the network with several alternative methods, including a
cash flow based assessment (93). Moreover,
industry
reports (94) support the view of the Dutch authorities
that the economic lifetime of fibre networks may reach
[…]. Based on the available data, the residual value does
not differ significantly from the price range derived from
benchmark data. The Commission also takes note that
the network is
likely to be a tangible asset with
significant value for the shareholders of GNA […] (95).

Methodological concerns

(159)

In the opening decision,
the Commission also raised
certain preliminary methodological concerns regarding
GNA’s business plan. For instance, corporate tax is not
included in the business plan. The Dutch authorities
argue that
the shareholders of GNA chose the legal
form of ‘gesloten commanditaire vennotschap’ that has
no obligation to pay profit tax. Therefore the results of
GNA will be consolidated directly by its shareholders and
the project is assessed on a ‘pre-tax base’.

(93) The cash flow based assessment (in line with the comments of UPC)

resulted in a value range of EUR […].
FttH Council

instance

for

(94) See

at
documents
http://www.ftthcouncil.org/ or Gartner
research of 14 February
2006: Governments Can Bring Moore’s Law to Broadband Access.
(95) The Dutch authorities have also submitted several
sensitivity
analyses and different business scenarios as part of
the GNA
business plan. The Dutch authorities argue that even in the
‘worst-case scenario’ the value of the asset will be sufficient […].

available

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Official Journal of the European Union

L 247/47

that

the Commission finds

(160) Having assessed the measure in more detail during the
the
formal
investigation,
elements of methodological
concern are of minor
importance, based on the choice of the business plan
into
methodology applied by GNA, and do not put
the business plan.
question the overall viability of
Furthermore,
that both the
private
PricewaterhouseCoopers
also
which audited the business plan endorsed (96) the me-
thodological choices on which the business plan is based.

the Commission notes

investors

and

Other
considerations
submitted by the complainants

regarding the business plan

(161) The Commission would like to point out that the Dutch
authorities have also submitted several sensitivity analyses
and business scenarios (97) to bolster the robustness of
GNA’s business plan further. This information further
demonstrated that GNA’s business plan takes
into
account all risks and opportunities related to the project.

(162)

In its submissions, UPC criticised further assumptions of
GNA’s business plan not explicitly mentioned in the
assessment of the business plan outlined in recitals 121
and following, concluding that the plan would not be
commercially feasible. The Commission would like to
the consultancy
reiterate that neither UPC nor RBB,
which carried out
for UPC in the
framework of the investigation of this case, had access
to the actual business plan of GNA. Hence, their analyses
were based on publicly available information, above all
on an analyst report prepared on the feasibility of a fibre-
to-the-home project in Amsterdam (98).

reports

several

‘residual value’ calculation) or are of limited relevance for
its assessment
choice of methodology in the
plan) (99).

(the

(164) UPC also stressed that the Commission should take into
account not only the individual assumptions but
the
interrelation between them. For instance, UPC argues
that high levels of penetration with high prices together
are considered as
impossible. The Commission has
assessed the methodology and the figures on which the
they can be
business plan is based and found that
considered acceptable to a private investor operating
under normal market economy conditions.

as

this

revealed

(165) UPC also argues that in its calculations about the GNA
business plan, it did not take into account that GNA will
provide rebates for the users of the network in the first
years,
in the
information was
Commission’s opening procedure. UPC argues that such
contribution by GNA to the marketing costs of
the
complete project further deteriorate any financial return
for the investors and provide further
of
evidence that the GNA business plan is not feasible. In
the Commission notes that
this respect,
is normal
market practice
are offered at
that new services
discount prices in the beginning in order to reach a
financial
certain customer
impact of those rebates was fully taken into account in
the GNA business plan, which was analysed by the
Commission.

Furthermore,

the project

base.

the

it

(166) As regards the Arcadis model (100) indicated by UPC as a
the
possible proxy
Commission notes that the model was not part of the
submission of the Dutch authorities, and the authorities
confirmed that there is no link between the project under
scrutiny and the Arcadis model.

the GNA business plan,

for

(163) The Commission notes that the main determinants of the
business plan brought
forward by UPC have either
already been addressed in the Commission’s assessment
of GNA’s business plan (such as penetration rate,
subscriber take-up rate, churn rate, wholesale revenues,
investment costs, life-expectancy of the network in the

(96) Performed on 2 May 2006 on behalf of GNA, submitted to the

Commission on 11 May 2006. See also recital 125.

(97) In case of a business plan, sensitivity analysis enables for decision
makers to assess the dependency of the financial outcomes of the
business plan to the changes in the underlying assumptions.
Similarly, different business
scenarios also highlight different
outcomes of the project in light of different market assumptions.
(98) The ING report came to the conclusion that a fibre-to-the-home
network in Amsterdam is financially feasible and viable (ING
analyst report ‘European Telecoms’, 24 February 2006). However,
the business plan used in the analyst report is significantly different
compared to that of GNA (e.g. methodology, projected timeframe,
financial targets, etc.).

(167) Furthermore, the Commission has no indication that the
loan of EUR […] provided by […] was not provided on
market terms. The interest rate required by […] (101) and
the potential collateral value of the asset in place provide
sufficient evidence that the loan was granted on market
terms.

(99) GNA applies a different business plan methodology compared to
the one applied in the ING report mentioned in footnote 98. In
GNA’s methodology, a cost of capital indicator was not required.
in its analysis, the Commission also used the cost of
However,
figures to benchmark the IRR rate of GNA’s business
capital
plan. See also recital 134 and following.

(100) See recital 41.
(101) The authorities provided the Commission with loan agreements on
[…] and it is stated that the interest charged is equal to […] %.

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Conclusion on the business plan

(168) After the formal

investigation and having assessed the
additional information received, the Commission comes
to the conclusion that the GNA business plan is in line
with the MEIP.

may well have contributed to the public and private
investors’ decision to accept a relatively higher level of
risk (104).

(169) The business plan is based on the main forecast that the
evolution of the telecommunication and media markets
in the Netherlands will translate in significant demand for
high speed broadband services, which will be to a large
extent be satisfied by FttH networks. From this forecast,
which has been endorsed by the report of Stratix Consul­
ting/Delft Technical University, derive the assumptions
the GNA
regarding prices and penetration rate of
network.
(e.g.
investment costs), these factors drive the result that the
project will sufficiently remunerate its investors.

Together with

assumptions

other

(170) The Commission has

therein

benchmarking

assessed the plan and the
assumptions
it with
by
comparable projects wherever possible, by checking its
the
internal
and
is
assumptions. The conclusion from this assessment
that the business plan is methodologically correct and
takes into account all
factors that may
the relevant
impact on the success of the project.

consistency

feasibility

the

of

(171) Furthermore, the Commission finds that GNA’s business
plan does not contain manifestly erroneous assumptions.
The assumptions underlying the plan are realistic if seen
against the main forecast on the evolution of the tele­
communications and media markets. They also appear
realistic when
comparable
projects. The reservations that may be raised against
the business plan as a
some of
matter of principle or starting from a different forecast
about the future evolution of the relevant markets are
not sufficient to undermine its overall credibility. Such
divergence of views pertains to the wide margin of
judgment
investment
that comes into entrepreneurial
decisions.

the assumptions of

benchmarked

against

(172)

(also)

in communications

should be underlined that

two private investors
It
specialised
infrastructure
investments, ING RE and Reggefiber, took a significant
stake in the project on the basis of the business plan.
[…] (102). In addition to the financial returns, the project’s
strategic value (as a relatively small ‘pilot project’ to test
the potential of FttH technology in densely populated
areas and the underlying novel business model (103))

(102) […]
(103) Namely the ‘three-layer model’, where the passive and the active
layers are operated and managed separately, with an open and
non-discriminatory access offered to all retail operators, see also
Figure 1.

elements

(173) Having these
concludes
normal market economy conditions could invest
GNA on the basis of its business plan.

the Commission
investor operating under
in

a private

in mind,

that

line regarding the application of

(174) As regards the submissions of UPC, ONO, FT, COM HEM
and the anonymous party, asking the Commission to
the
adopt a strict
MEIP in the present case in view of
the alleged
‘precedent character’ of the project for other broadband
investments
to
highlight
the MEIP assessment always has to be
conducted on a case-by-case basis in line with the
existing case-law and its decision-making practice in
this field.

the Commission wishes

in Europe,

that

(175) Overall,

the Commission therefore concludes that

the
investment by the municipality of Amsterdam does not
constitute State aid since it was made at the same time as
a significant capital contribution on the part of a private
investor made in comparable circumstances. In addition,
an examination of
equally
is in accordance with
confirmed that
the Market Economy Investor Principle.

the business plan has

the investment

VII. CONCLUSION

(176) Following the opening of

the

formal

investigation
the Dutch authorities addressed the preli­
procedure,
minary doubts expressed by the Commission in the
opening decision in a satisfactory manner. In particular,
all pre-investments by the Amsterdam municipality,
which were one of the main concerns of the Commission
in the opening decision, were reimbursed by GNA. The
Commission finds that the municipality of Amsterdam
invests in GNA on the same terms and conditions as
the private parties involved in the project, which are
investing on the basis of GNA’s business plan.

(104) Small risky investments can also be explained by real option
theory, according to which risky investments can entail a two-
stage process. In the first stage, only a small investment is made
(i.e. the company is purchasing an option). Some time later, when
more information is known,
the company can make a larger
investment
(i.e. exercising this option) or abandon its plans,
thereby limiting its losses to the initial small-scale investment
(i.e. to the costs of the option). By shouldering higher risk and
uncertainty in the first stage (with small commitment), companies
can reduce the risks of subsequent (larger) investments.

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(177) Consequently, the Commission concludes that the investment of the municipality of Amsterdam in
GNA does not constitute State aid within the meaning of Article 87(1) of the EC Treaty as it is in
conformity with the Market Economy Investor Principle,

HAS ADOPTED THIS DECISION:

The investment by the municipality of Amsterdam in Glasvezelnet Amsterdam C.V., which is developing a
fibre network in Amsterdam, as notified to the Commission by letter of 17 May 2005, does not constitute
State aid within the meaning of Article 87(1) of the EC Treaty.

Article 1

The measure may accordingly be implemented.

This Decision is addressed to the Kingdom of the Netherlands.

Article 2

Done at Brussels, 11 December 2007.

For the Commission

Neelie KROES
Member of the Commission