Source: EURLEX
Language: en
Format: md

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# 52012SC0449

**COMMISSION STAFF WORKING DOCUMENT Executive Summary of the Impact Assessment Accompanying the document Commission Communication Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks /\* SEC/2012/0449 final \*/**

  

1.
Problem  Definition
1.1.
The underlying problem: the
funding gap and the need to protect competition

The existence of a high performing broadband
infrastructure is considered to be an important factor for economic development
throughout the world. High speed internet access enables businesses, especially
small ones, to remain competitive and it allows consumers to benefit from many
advanced online services that improve their quality of life.

When publishing its Digital Agenda for Europe[1] in 2010, the Commission underlined that Europe needs widely
available and competitively priced fast and ultra-fast Internet access. The
Digital Agenda restated the objective to bring basic broadband to all Europeans
by 2013 and set the objective to ensure that, by 2020:

Ø
all Europeans
have access to much higher Internet speeds of above 30 Mbps, and

Ø
50% or
more of European households subscribe to Internet connections above 100 Mbps.

The estimated costs to achieve those objectives
are up to EUR 60 billion for the first stage and EUR 270 billion for the
second.[2]

While most of
the necessary investments to achieve the goals of the DAE, as highlighted
above, will be carried out by private companies , there are areas in which
market investment is not profitable. Due to the economic characteristics of the
industry, private investments alone will not suffice to attain such ambitious
coverage goals and governments will have to step in with the smart (and
pro-competitive) use of public funds to extend high-speed and very high speed,
next generation access ("NGA") network coverage to those areas in
which market operators are unlikely to invest on commercial terms. The goal of achieving ambitious infrastructure development targets
needs to be qualified in the sense that effective competition shall also take
place between and on these infrastructures. Effective competition will help to
maximise “consumer welfare”, in the form of lower prices and of better and more
services for European citizens and companies

To give guidance as to how public investment
can reconcile these conflicting goals, the Commission adopted in 2009 the
Broadband Guidelines[3]. The Broadband Guidelines aim to contributing to the achievement of
the policy objective of broadband coverage by appropriately directing public
subsidies. The Guidelines are complementary to encouraging private
investment via appropriate regulation and to undertake other actions to
stimulate insufficient demand. Whenever the other regulatory policies will not
succeed in stimulating private investment because of existence of a market
failure, public authorities may decide to fund a broadband infrastructure with
the aim to achieve the coverage objectives set at European level to spur
economic growth and development. The goal the Guidelines want to achieve is to
channel public investment in the most pro-competitive way.

1.2.
Why is Commission action considered?

The present Broadband Guidelines foresee that
they would be revised within three years after entering into force to take into
account the main technological and regulatory developments. In particular,
since the Guidelines entered into force in 2009, they pre-date the adoption of
the Digital Agenda and therefore, the current rules are not fully compatible with
the Digital Agenda targets.

1.3.
Issues identified in the consultation process

The following issues have been identified to be
relevant for the application of State aid rules in the broadband sector:

·
Directing State aid where it is needed:
Detailed mapping and coverage analysis

·
Ensure competition by an effective tender
process

·
Best value for money: define the right
criteria for the selection process

·
Ensure effective wholesale access

·
Access pricing

·
Better involvement of NRAs

·
Relationship between SMP regulation and State
aid rules

·
Framework programmes

·
Better use of existing infrastructures

·
Claw-back mechanism to avoid
over-compensation

2.
Analysis of subsidiarity

EU State aid control is the exclusive
competence of the Commission according to Articles 107 and 108 TFEU. If Member
States notify aid, but also ex officio, the Commission has to assess the
measure under the Treaty.

3.
Objectives

The general objective of the Broadband
Guidelines, as explained in the context part of the Report and in the
Guidelines themselves, is to increase growth and consumer welfare by wide and
rapid deployment of fast and ultra-fast broadband networks in a competitive
market landscape. This general objective can be further specified into the
following specific objectives:

1.       Bringing infrastructure to under
served areas:

i.          aligning
with the DAE

ii.          Accelerating
NGA roll-out

iii.         Avoiding
duplication of infrastructure

2.       Avoiding undue competition distortions

i.          mimicking
the market mechanism through tender process

ii.          increasing
transparency

iii.         ensuring
open access

iv.         reducing
aid to the minimum

3.       Minimising administrative burden

i.          encouraging
Framework programmes

ii.          streamlining
regulatory and state aid obligations

iii.         improving
NRA involvement

4.
Policy Options

As mentioned above, rapid deployment of
broadband networks is not sustainable without public funds. With this
perspective the following three options have been set out.

4.1.
Baseline Scenario: Option 1: prolonging the existing Guidelines for three more years

The current Guidelines bind the Commission to
carry out the revision process within three years from their adoption. After
carrying out the revision as envisaged, the Commission could conclude that no
change is needed from the current text, which has been consistently applied in
the past three years with satisfactory results.

4.2.
Option 2: Amendment of the
Guidelines to ensure a rapid and competitive deployment of broadband
infrastructure

The evaluation of the current policy highlighted
a number of issues for which fine-tuning may be suggested without completely
upsetting the approach followed in the existing Guidelines. Different
sub-options are possible:

First sub-option (minimum level): improve
the use of resources

This sub-option includes: adapting the rules
for access to publicly financed infrastructure, clarifying the rules for public
tendering, stricter rules for the use of existing infrastructure, involvement
of NRAs in the implementation, more transparency (including ex post reporting),
a lighter claw-back mechanism.

The current Guidelines foresee, as a quid pro
quo for the subsidies received, an obligation to provide effective wholesale
access on the subsidised network. This provision can be fine tuned by requiring
a neutral and open infrastructure for ultra-fast networks, which tend to have
the characteristic of natural monopolies, while for more remote areas the
access obligation can be subject to a proportionality test.

To ensure competitive markets, a number of
other amendments concern the selection of the most economically advantageous
offer (regarding the geographical coverage and the effect on competition), wholesale
access and access pricing. To ease the administrative burden on the granting
authorities, it can be foreseen to increase the thresholds for projects to
include a claw-back mechanism from 1 million Euros to 10 million Euros.

The existing Broadband Guidelines require that
Member States consult the relevant NRAs if they grant aid to broadband
networks. Under this option, in the new Guidelines the position
of NRAs can be clarified and strengthened.

The current Guidelines put strong emphasis on
transparency in State aid broadband schemes, yet the relevant provisions are
kept at a general level without detailed specifications. This can be improved
by (a) including more details on the content of the transparency obligations,
(b) including a requirement for Member States to keep a centralised database of
infrastructures and of tenders.

Second
sub-option (intermediate level): Adapt the Guidelines to technological progress

The second sub-option builds on the first one
but in addition includes adaptation to technological developments. The current
Guidelines define NGA as mainly wired based technology. As the performance of
technological platforms (cable mobile, satellite etc) is constantly improving, the
definition can be refined to include other platforms, as long as they can
exhibit NGA capabilities.

The existing conceptual framework of the
Guidelines (basic/NGA networks, white/grey/black areas) will not be changed. Yet,
the principle behind the conceptual framework can be made more explicit by
introducing the notion of “step change.

Third sub-option (advanced level): Align the Guidelines with
the Digital Agenda

The third sub-option includes the measures
discussed for the less ambitious sub-options (1) and (2) and adds a specific
additional compatibility section for ultra-fast networks.

With a view to support the Digital Agenda
targets, the additional section introduces the possibility to publicly finance
NGA infrastructure in black NGA areas, provided that strict conditions and
important pro-competitive safeguards are respected. To preserve the incentive
to invest, private investments need to be protected against being overbuilt
with publicly financed infrastructure.

4.3.
Option 3: A more
radical amendment of the Guidelines by putting DAE objectives first

A third option is that of radically changing
the approach followed so far and modify substantially the current Guidelines in
order to meet the need to accelerate as much as possible broadband rollout and
the achievement of the DAE targets. It is important to note that even a radical
amendment cannot go as far as overhauling completely the existing approach (as
regards the target areas, for example) because it would run against the general
objective of keeping markets open and not crowding out private investments.

Therefore the third option will remain within
those limits by proposing to introduce in the text new concepts and definitions
as well as new requirements for the compatibility test. In particular: the DAE
targets would be incorporated in the Guidelines concepts, the access obligation
requirements would be reduced, the proportionality requirements would be eased.

5.
Analysis of Impacts

Bearing in mind that the Commission does not
have the choice not to intervene in the sector (i.e. not performing the state
aid assessment of the measures in question) and that there is already a
consistent case practice and Guidelines in place, only the variation of the
relevant impact factors of each option will be pointed out

5.1.
Option 1: Baseline scenario: prolonging the existing Guidelines for three more years

This option has the advantage of celerity but
would not address all the specific objectives pursued by the revision exercise.
Moreover, nearly all stakeholders and Member States
have – to various degrees – argued in favour of adapting the current
Guidelines. Thus, this baseline option of merely prolonging the current
Guidelines has not been supported in the consultation process.

5.2.
Option 2: Amendment of the
Guidelines to ensure a rapid and competitive deployment of broadband
infrastructure

This option builds on the current policy of the
Commission and gives an immediate follow up to the issues arising from
regulatory and technological developments, case practice, stakeholders
consultation and expert reports. In general, the existing conceptual approach
of the Guidelines would be kept, thereby reaping the benefits of consistency
and legal certainty.

First sub-option (minimum level): improve
the use of resources

Several measures proposed under the first
sub-option support specific objectives related to the avoidance of distortion
of competition. Improving and clarifying the conditions for access to publicly
financed broadband infrastructure has the benefit of further improving the
pro-competitive nature of the approved measures. Better access conditions
generate more competition on the network and thereby a larger variety of
services at lower prices. Incumbents are generally not in favour of stricter
access rules, as they argue that obligations under State aid should be aligned
to regulation. Alternative operators instead favour better access conditions as
it would allow them to compete on existing infrastructure. Consumers would
benefit from these measures as a better implementation of the Guidelines would
lead to a more competitive broadband infrastructure.

With regard to the involvement of NRAs, this
option leads to adding a few specifications to better detail the role they are
expected to play in the State aid procedure. Such role implies neither
assessment nor discretionary policy decisions.

A better use of existing infrastructure would
improve the availability of broadband networks and would allow focussing
available resources on areas where such infrastructure is lacking.

As regards the specific objective of reducing
the administrative burden, this sub-option provides a mixed result. A more
extensive involvement of NRAs could entail certain additional administrative
costs for both the governments and NRAs themselves. However, that administrative
cost would be limited. Also the transparency measures will have mixed results
regarding the administrative burden. On the one hand, it is a limited burden on
administrations which have to publish information on a website. On the other
hand, the availability of such data reduces searching cost to private investors
(incumbents and alternative operators) and it reduces administrative costs for
other administrations. The benefits of increased transparency should outweigh
the administrative burden arising from it.

Clarifying the rules on the use of existing
infrastructure in the tender procedure for state aid, should offer to alternative
operators better access to such infrastructure when preparing their own bids.

Second
sub-option (intermediate level): Adapt the Guidelines to technological progress

Being cumulative, the impact of the second
sub-option is the same as the one of the first sub-option with an incremental
effect from a new NGA definition.

Broadening the NGA definition has two effects
on competition. On the one hand, it will increase the number of platforms and
operators which can participate in a public tender for state-funded NGA
networks. This should increase the competition in the tender and thereby
potentially reduce the necessary aid amount. On the other hand, different
technologies have different qualitative performances, including the technical
ability to grant access. If a platform is selected which, for technological
reasons can only provide inferior access, the competitive impact of the new
infrastructure is reduced.

The broadening of the NGA definition has
several effects on broadband roll-out. First, it may increase the areas which
are considered to be NGA "grey" or "black". Second, it will
encourage private investment in these technologies as they would be better
protected against being overbuilt by another publicly funded NGA network. As a
result of the first effect, granting State aid may no longer be granted in
certain areas. Whether that has an effect on overall public investment in NGA
networks is uncertain.

Third sub-option (advanced level): Align the Guidelines with
the Digital Agenda

This option
balances the risk of crowding out private initiatives in profitable areas with
the need to encourage fibre rollout: public funds will be allowed in such areas
only if it is proven that existing private investments merely concern marginal
and temporary improvements, while the subsidies aim at encouraging a
substantially new infrastructure. In the public consultation incumbent and
cable operators have argued that their investments in upgrading their own
infrastructure may be jeopardised by the public intervention. While such
investments may not be too capital intensive and not imply new infrastructure
development, nevertheless they need to be protected to avoid unduly altering
the market mechanism. The public consultation suggested that a
"competition check" may be a good solution to mitigate these effects.

5.3.
Option 3: A more
radical amendment of the Guidelines by putting DAE objectives first

This option would allow
to reduce the amount of state aid necessary, as the profitability of the funded
network would increase (the aid beneficiary would be able to exclude
competitors using the newly built infrastructure).

However, it is not obvious that this more
lenient approach would actually lead to increased investment in NGA and
ultrafast NGA. As most of the infrastructure is built by private investors, the
latter may decide to hold back on such investment if the perceived risk of
later being "over-built" by state funded infrastructure is increased
(the crowding out effect). Second, public money would be used to finance
dominant operators (or even monopolies).

The option of incorporate the DAE quantitative
targets in the Guidelines definitions would have the benefit of increasing
consistency of EU documents and would more directly adapt the Guidelines to the
Digital Agenda. It would also introduce a very clear-cut division which would
increase stakeholders’ understanding (in particular small local authorities) as
regards the objective of the public intervention they undertake. However, this
approach would also entail substantial drawbacks. First, the approach is
currently untested and neither the Commission nor the national/local
authorities have experience with it. As a consequence, it could generate
uncertainty among stakeholders. In addition, the assessment may actually be
more complicated: introducing three categories ("basic", "slow
NGA" and "ultra-fast NGA") instead of currently two, many more
possible combinations would have to be assessed. Specific compatibility
conditions for the different categories would have to be applied. Moreover,
quantitative definitions bear the risk of being quickly outdated, which would
require another revision of the Guidelines in a short period of time, while
binding the Commission to their application while they are in force.

Limiting access obligations to what would be
imposed under sectoral regulation, would have the likely impact of reducing
investment costs and necessary aid amount per project. Additionally, as regards
existing operators, in particular incumbents, it would reduce their cost and
increase legal certainty. However, the risk is high that investments might not
materialise at all, that public funds would help to create or strengthen
dominant positions and that public authorities may fund with taxpayers' money
the rollout of "closed" NGA architectures. This would restrict future
competition on the subsidised infrastructure with consequent increasing prices
and decreasing quality.

Abandoning the involvement of NRAs in state aid
process would overcome the problems indicated by some Member States as regards
the formal entitlement of the NRAs to intervene in State aid cases and reduce
the administrative burden. On the other hand, it would entail a loss of control
over how access conditions and tariffs are set on subsidised networks, a
potential loss of consistency.

Relaxing the public consultation requirement
and/or the tender requirement has the advantage of speeding up the planning of
the measure and the timing for granting authorities to be able to implement
their measures. On the negative site, commercial operators might hold
back/postpone their investments due to enhanced public intervention in this
area, public and EU monies might be misused or not effectively used. The
Commission could face a high number of complaints and litigations.

6.
Comparing the Options

Options || Effectiveness || Efficiency || Coherence

Baseline: Prolonging the existing GL || - || +/- || -

Option 2: Revising the GL || || ||

Sub-option (1) || + || + || +/-

Sub-option (2) || + || + || +

Sub-option (3) || ++ || + || ++

Option 3: Radical overhaul of the GL || - || - || +

7.
Monitoring and Evaluation

All Member States that adopt aid schemes
covered by the Broadband Guidelines shall submit annual reports on such schemes
to the Commission. In addition, a specific evaluation on the effectiveness of
the State aid broadband measures cannot be carried out because the basic set of
data on the measures is not available. Therefore the new Guidelines proposes
that a basic set of data –as the name of the aid beneficiary, the aid amount
received, the aid intensity and the technology applied – shall be published on
a central website and made available for the general public. Furthermore, the
new Guidelines introduce a light ex-post reporting obligation.

[1]               COM (2010) 245

[2]               Source: State aid Scoreboard: Report on State aid contribution to
Europe 2020 Strategy – Spring 2011

[3]               See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52009XC0930(02):EN:NOT

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