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Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
Impact of EU Policy options for revision of the Universal Service provision
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Impact of EU Policy options for revision of the Universal Service provision

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SVP Advisors participated in a Consortium which was commissioned a Study by the EC on the “Impacts of EU Policy options for revision of the universal service provision”. This Study intended to assist …

SVP Advisors participated in a Consortium which was commissioned a Study by the EC on the “Impacts of EU Policy options for revision of the universal service provision”. This Study intended to assist the Directorate-General for Information Society and Media (DG INFSO) in the formulation of potential policy options and providing qualitative and quantitative assessment. In particular, this Study aimed at assessing whether universal service at the EU level is an appropriate tool to advance basic broadband development and if so, when and how it should be used, or whether this should be left to other EU policy instruments or national measures. Based on our study, as well as the results of an extensive public consultation process, the EC decided in the end not to include broadband access as part of the Universal Service.

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  • 1. VAN • DIJKMANAGEMENT CONSULTANTS EUROPEAN COMMISSION Information Society and Media Directorate-General *** * * * * * *** * Impact of EU Policy options for revision of the universal service provision Assignment under the Framework Contract for Impact Assessment and Evaluation-Related-Services N° 2007/035 – LOT 2 FINAL REPORT 25 October, 2010Report submitted by the consortium lead by Van Dijk Management Consultants and comprising SVP Advisors and time.lex VAN DIJK – MANAGEMENT CONSULTANTSAVENUE LOUISE 250 – BOX 14 – B-1050 BRUSSELS (BELGIUM) – WWW.BVDMC.COM
  • 2. VAN • DIJKMANAGEMENT CONSULTANTS Contact for this assignment : Ms Tine DEBUSSCHERE Director eCommunication Services Administrator VAN DIJK MANAGEMENT CONSULTANTS Avenue Louise 250, b 14 B-1050 BRUSSELS Belgium Tel.: +32 (0)2 641 00 00 Fax: +32 (0)2 641 00 30 E-mail: tdb@bvdmc.com The opinions expressed in this report are those of the authors and do not necessarily reflect the views of the European CommissionDocument ControlDocument Final Report for the study on the Impact of EU Policy options for revision of the universal service provisionPrepared by Tine Debusschere, VDMC; Alexandre de Streel, on behalf of VDMC; Leen Moria, VDMC; Laurence Mourlon-Beernaert, on behalf of VDMC Julio Villalobos, SVP Advisors Date 25 October 2010
  • 3. VAN • DIJKMANAGEMENT CONSULTANTS Table of Contents1. INTRODUCTION ..............................................................................................................7 1.1. The concept of Universal service in the European Union............................................................9  1.1.1 The origin of the USO concept....................................................................................................9   1.1.2 The concept of USO in the 2002 Directive................................................................................13  1.1.2.a General principles .............................................................................................................13   1.1.2.b The Scope of universal service ..........................................................................................13   1.1.2.c The designation of universal service providers .................................................................16  1.1.2.d USO financing....................................................................................................................17   1.1.3 The current state of affairs as a result of transposing the 2002 Directive in the EU Member  States .................................................................................................................................................21  1.1.3.a Scope of the universal service at MS level ........................................................................21  1.1.3.b The Designation of Universal service providers................................................................22  1.1.3.c Financing of USO ...............................................................................................................22   1.1.4 Further evolutions at the EU level since the 2002 Directive.....................................................23  1.1.4.a The reviews of 2005/2006 and of 2008 ............................................................................23  1.1.4.b The 2009 reform ...............................................................................................................24  1.2. The scope of this study ...........................................................................................................25  1.2.1 Current EU concept of USO.......................................................................................................26   1.2.2 Services considered ..................................................................................................................26   1.2.3 Relation to the periodic review of the scope of universal services ..........................................28 2. IDENTIFICATION AND ASSESSMENT (DEFINITION) OF THE PROBLEM ... 29 2.1. Identification of the problem (‘What is the problem’)..............................................................29  2.1.1 Development of the broadband market...................................................................................29  2.1.1.a Technological developments in the broadband sector.....................................................29  2.1.1.b Infrastructure versus service competition ........................................................................31  2.1.1.c Market development in the EU Member States ...............................................................31  2.1.2 The future broadband development ........................................................................................42  2.1.2.a Release of “Digital dividend” will increase availability of spectrum for wireless broadband  services in the coming years .........................................................................................................42  2.1.2.b Convergence of fixed and mobile networks (FMC)...........................................................43  2.1.2.c Evolution towards Next Generation Networks (NGN) ......................................................43  2.1.2.d Evolution towards Bundled offers ....................................................................................45  2.1.3 What elements of market evolution could impact the appropriateness of USO as a tool to  advance broadband development?...................................................................................................45  2.2. Assessment and description of the problem............................................................................47  2.2.1 What are the reasons behind the problem?.............................................................................47  2.2.1.a Problem of insufficient broadband coverage....................................................................47  2.2.1.b Problem of insufficient broadband take‐up......................................................................48  2.2.2 Who is affected by the problem (specific actors, sectors …)? ..................................................54  2.2.3 What is the scale of the problem?............................................................................................56  2.2.4 Why is public intervention necessary, why at the European level? .........................................58  2.2.4.a Need for public intervention.............................................................................................58   2.2.4.b Why intervention at the EU level? ....................................................................................61  2.2.4.c Can EU act, and if so, how: the principles of subsidiarity and proportionality .................64  2.2.5 How was the problem avoided or reduced via other institutional contexts, regulations or  policies? .............................................................................................................................................65 Assessment of appropriateness of universal service for advancing basic broadband development 3Final report
  • 4. VAN • DIJKMANAGEMENT CONSULTANTS 2.2.5.a At the EU level...................................................................................................................65   2.2.5.b At the Member States level: The National Broadband plans............................................73 3. DEFINITION OF THE POLICY OBJECTIVES........................................................... 75 3.1. General objectives ..................................................................................................................75 3.2. Specific objectives ..................................................................................................................76 3.3. Operational objectives............................................................................................................77 4. IDENTIFICATION AND DESCRIPTION OF POLICY OPTIONS.......................... 79 4.1. Option 1: ‘No policy change’ (2009 Regime) ............................................................................79 4.2. Option 2: ‘No EU  regulation related to USO’ ...........................................................................80 4.3. Option 3: ‘Mandating broadband internet access for all citizens at a speed of 2Mbit/s’ ...........81 4.4. Option 4: ‘Refinement of the 2009 regime’..............................................................................81 4.5. Option 5: ‘A reformed and focused USO’ .................................................................................85 4.6. Summary of the main differing characteristics of the policy options regarding broadband and USO at the EU level .......................................................................................................................87 5. ASSESSMENT OF THE POLICY OPTIONS............................................................... 92 5.1. Qualitative assessment ...........................................................................................................92  5.1.1 Preliminary assessment of elements with major national flexibility ........................................93  5.1.1.a Mechanisms available for providing financial support to specific user groups ................93  5.1.1.b Sources for funding of USO net cost .................................................................................95  5.1.1.c Conclusion .........................................................................................................................98   5.1.2 Overall qualitative assessment of the economic, social and environmental impacts of each  policy option ......................................................................................................................................98  5.1.2.a Identification of the relevant impacts...............................................................................98  5.1.2.b Qualitative assessment of Option 1: No policy change (2009 regime)...........................102  5.1.2.c Qualitative assessment of Option 2: No EU regulation related to USO ..........................103  5.1.2.d Qualitative assessment of Option 3: Mandating 2 Mbps access for all EU citizens........104  5.1.2.e Qualitative assessment of Option 4: Refinement of the 2009 Regime...........................105  5.1.2.f Qualitative assessment of Option 5: A reformed and focused USO................................107  5.1.2.g Comparison of the options..............................................................................................109  5.2. Quantitative assessment....................................................................................................... 112  5.2.1 Assessment of the cost of ensuring full coverage (availability)..............................................113  5.2.1.a Cost of ensuring full coverage in the EU 27 ....................................................................113  5.2.1.b Assessment of the cost of ensuring full coverage with 2Mbps connectivity ..................123  5.2.1.c Estimation of the part of the cost of full coverage to be funded by the sector under each  option..........................................................................................................................................125  5.2.2 Assessment of the cost of ensuring affordability ...................................................................126  5.2.2.a Estimation of the cost of affordability of broadband services........................................126  5.2.2.b Assessment of the estimated cost of affordability .........................................................131  5.2.2.c Comparison of the cost of affordability between options ..............................................135  5.2.3 Assessment of the costs of managing the universal service system ......................................136 Assessment of appropriateness of universal service for advancing basic broadband development 4Final report
  • 5. VAN • DIJKMANAGEMENT CONSULTANTS 5.2.3.a Identification of cost categories......................................................................................136   5.2.3.b Conclusion.......................................................................................................................140   5.2.4 Overall quantitative assessment.............................................................................................140  5.3. Overall cost‐benefit assessment of each policy option........................................................... 142 ANNEX 1 : OVERVIEW OF NATIONAL BROADBAND PLANS (SITUATION AS OF DECEMBER 2009) ..........................................................................................................144 ANNEX 2 : DETAILED QUALITATIVE ASSESSMENT OF EACH POLICY OPTION..............................................................................................................................................157 Policy option 1: ‘No policy Change’ (2009 Regime) ....................................................................... 157 Policy option 2: ‘No EU Regulation related to USO’ ...................................................................... 161 Policy option 3: ‘No policy Change’ (2009 Regime) ....................................................................... 164 Policy option 4: ‘Refinement of the 2009 Regime’ ........................................................................ 167 Policy option 5: ‘A reformed and focused USO’ ............................................................................ 171 ANNEX 3 : DESCRIPTION OF THE TECHNO­ECONOMIC MODEL FOR THE CALCULATION OF THE NET COST OF MANDATING BROADBAND INTERNET ACCESS FOR ALL EU CITIZENS AT A SPEED OF 2MBIT/S ..................................176 General architecture of the Techno‐Economic Model................................................................... 176 Description of the Techno‐Economic model main assumptions .................................................... 178 Inputs of the Techno-Economic model................................................................................... 181 ANNEX 4: BREAKDOWN OF NET COST OVER THE DIFFERENT TYPE OF AREAS (PER COUNTRY) ...............................................................................................186 Calculations based on the least expensive offers.......................................................................... 186 Calculations based on the median value offers ............................................................................ 187 Assessment of appropriateness of universal service for advancing basic broadband development 5Final report
  • 6. VAN • DIJKMANAGEMENT CONSULTANTS List of AbbreviationsARPU Average Revenue per UserBIAC Broadband Internet Access CostCAPEX Capital ExpenditureDAE Digital Agenda for EuropeDG INFSO Directorate General Information Society and MediaDSLAM Digital Subscriber Line Access MultiplexerDOCSIS Data Over Cable Service Interface SpecificationeSGEI Services of General Economic Interest in electronic communicationsEAFRD European Agricultural Fund for Rural DevelopmentERDF European Regional Development FundFMC Fixed-Mobile ConvergenceFTE Full-Time EquivalentFTTx Fiber to the x, where x can be filled in by home (H), curb (C) , building (B)…HH HouseholdsIA Impact AssessmentICT Information and Communication TechnologiesISP Internet Service ProviderLTE Long Term EvolutionMS Member StatesNBS National Broadband SchemeNGA Next Generation AccessNGN Next Generation NetworksNRA National Regulatory AuthorityOPEX Operating ExpenditurePON Passive Optical NetworkP2P Point to PointSGEI Services of General Economic InterestSMEs Small and Medium EnterprisesTFEU Treaty on the Functioning of the European UnionUSD Universal Service DirectiveUSO Universal Service ObligationsUSP Universal Service ProviderVAT Value Added TaxWiMAX Worldwide Interoperability for Microwave AccessxDSL Different Digital Subscriber Line technologies, e.g. ADSL, ADSL2+, SDSLAssessment of appropriateness of universal service for advancing basic broadband development 6Final report
  • 7. VANMANAGEMENT CONSULTANTS • DIJK1. INTRODUCTIONThe present report constitutes the final report for the study on the “Impacts of EUPolicy options for revision of the universal service provision”. This study supports theEuropean Commission Directorate-General for Information Society and Media (DGINFSO). It aims in particular to assist the formulation of potential policy options andproviding qualitative and quantitative assessment. The key issue of the study iswhether universal service at the EU level is an appropriate tool to advance basicbroadband development and if so, when and how it should be used, or whether thisshould be left to other EU policy instruments or national measures.The report presents the outcome of the three tasks – divided over two Stages – asidentified in the terms of reference for the study. Between Stage 1 and Stage 2, apublic consultation was organised by the Commission 1 .The link between the two Stages of the study, the study tasks and the impactassessment steps is illustrated in the following figure: STAGE 1 ,------------------------------------~ ,.. " " Main Impact Assessment steps:" I I I TASKl: Data gathering, a na Iys is of in puts I .Identification and assessment (definition) ofthe problem _--------------------- 1 §Ib9~_~ _----------~+---------------+~-----------,.. .. !oo ,/ • Defin ition ofthe policy objectives TASK 2: Supporting the : • Identification and description of a na lysis of contributons : the main policy options to public consultation I r.--- ---.. • Ana lysis ofthe impacts ofthe TASK 3: Assessment of policy options and comparison ofthe TASK 3: Assessment of policy options options policy options • Compa rison ofthe options and, where possible and appropriate, identification of a preferred option " ~----------T-+-------------.....~-----------~ , ... ... ... ---------------- ~~::::::::::::::::::_-­ ------------------, ... . • Specification of monitoringand eva luation ofthe preferred policy option Figure 1: Overview of the scope of the study1Seehttp://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htmAssessment of appropriateness of universal service for advancing basic broadband development 7Final report
  • 8. VAN • DIJKMANAGEMENT CONSULTANTSThe present report will thus first of all identify and define the problem and define theobjectives for the sought after solution for dealing with this problem (cf. Chapter 1).Referring to the tender specifications, the problem definition will strongly focus onuniversal service obligations for broadband services and particular attention will be givento the broad range of policy initiatives that have been taken in recent years forimproving the penetration and take-up of these services.Regarding the objectives (cf. Chapter 2), distinction will be made between general,specific and operational objectives. The relation with the objectives of other policyinitiatives will be made.After all, the analysis of the impacts of EU policy options for the revision of the universalservice provision should be based on the potential of the policy options to attain theobjectives that are defined in order to tackle a well-defined problem.In a next step (cf. Chapter 3), policy options are identified. The policy options that arepresented relate first of all to the minimal set of options as presented by theCommission in its tender specifications (Options 1, 2 and 3). This list has beencompleted with two additional options that are inspired by the detailed problemdefinition. For each policy option, a detailed description is provided, making explicitreference to the policy objectives in Chapter 4.The detailed qualitative and quantitative assessment of each policy option ispresented in Chapter 5. The qualitative assessment presents to what extent eachoption is more or less contributing to achieving the different policy objectives. Thequantitative assessment provides indications of the cost of overall availability andaffordability of basic 2Mbps broadband access services as well as indications on thecost of managing the Universal Service system.Finally, all of the above-mentioned steps have been further refined and / orcompleted based on the contributions to the public consultation on “Universalservice principles in e-communications” that was organised by the Commissionbetween 2 March 2010 and 7 May 2010 2 .The report was prepared for and funded by DG INFSO and will serve as an inputinto their own regulatory impact assessment exercise, if any. The analysis in thisstudy is based on information regarding policy and market developments availableat the end of September 2010. The calculations presented in Chapter 5 take intoaccount costing and pricing elements from end 2009 - beginning 2010.Before presenting the actual impact assessment of EU Policy options for revision of theuniversal service provision, the concept of universal service as well as the scope of thestudy is introduced in more detail.2Seehttp://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/universal_service2010/presentations/questionnaire_en_100302.pdfAssessment of appropriateness of universal service for advancing basic broadband development 8Final report
  • 9. VAN • DIJKMANAGEMENT CONSULTANTS1.1. THE CONCEPT OF UNIVERSAL SERVICE IN THE EUROPEAN UNIONA profound insight in the concept and reasoning behind imposing universal serviceobligations (USOs) is a basic requirement for a good understanding of the ideaspresented in the different parts of this impact assessment study. Therefore, animportant part of the introduction is devoted to resuming: The origin of the USO concept ; The concept of USO in the 2002 Universal Service Directive (USD) ; The current state of affairs as a result of transposing the 2002 Directive in the EU Member States; Further evolutions at the EU level since the 2002 Directive.1.1.1 THE ORIGIN OF THE USO CONCEPTUniversal Service Policy may have different meaning and objectives depending ofthe country and the development of the network. 3 It may vary from a social safetynet to an industrial policy tool. 4The wide range of possibilities in universal service policies, are clearly shown in atable composed by Claire Milne, as reproduced below:3 For example, the origin dates back to the beginning of the 20th century when it was decidedin the USA that all of the distinct local network would be integrated into one global network,offering “universal access” to all subscribers: see M. Muller (1997), Universal Service:Competition, Interconnection, and Monopoly in the Making of the American System, MIT Press.4 An “industrial policy” refers to a set of actions taken by government in order to affect theway in which factors of production are being distributed across industries.Assessment of appropriateness of universal service for advancing basic broadband development 9Final report
  • 10. VAN • DIJKMANAGEMENT CONSULTANTS Stage 1: Stage 2: wide Stage 4: Stage 5: Stage 3: mass network geographic network services to market establishment reach completion individualsTeledensity* 0 to 5 per 100 1 to 20 per 100 15 to 40 per 100 35 to 60 per 100 Over 50 per 100GDP per capita rage Low income Lower middle Upper middle High income High income income incomeBusiness take-up 0-30% 20-80% 70-100% 100% 100%Household take-up 0-10% 5-30% 20-85% 75-100% 100% CommercialTypical telephone Administrative Operational Entrepreneurial (maybe Competitivecompany culture (govt. dept.) (huge workforce) privatised) Large scale Technical Growing callTypical management capital network Growing the revenues Profitabilitypreoccupations investment in (improvement, network (marketing) new technology public service) Limited demand Investment Affordability of due to due to Manpower for funds, service to poorerMain constraints to high prices (of plant installation appropriate households;network expansion low incomes) and to meet mass Market appeal technology and cultural use of alternative demand (waiting skills acceptability of communications lists) telephony Govt. control (for Installation andTypical public policy national security rental charges Network Investment Free, fairmeasures (telecom) and economy); kept low to competition, cost- incentives competition geographically stimulate line oriented tariffs uniform charges demandUniversal service goal Technological Geographic Economic Social (achieve Libertariantype (acquire new (maintain (stimulate political (individual right technology) regional parity) economy) cohesion) to communicate) Everyone can Telephone Long distance Widespread meet basic service available service linking all residential take Telephone communication in all populationExamples of universal major centres; up of telephony; affordable to all; needs; public centres;service goals public telephones meet all telephone service access to widespread where demand reasonable adaptable to advanced adoption of warrants demands for special needs services (esp. telephony in telecoms education, business health) Needs created byTypical market Main small Rural, disabled, Payphone rates Main household new services (e.g.research focus business low-income and locations requirements mobility, requirements needs internet) ProfitableTypical public policy Licence Control speed of Identify and meet licences subject to Targetedmeasures (universal conditions on prices non-market unprofitable subsidiesservice) network rollout rebalancing demand obligations Table 1: The five stages of universal policy development (Source: C. Milne (1998), “Stages of universal service policy”, Telecommunications Policy 22, p. 776)Assessment of appropriateness of universal service for advancing basic broadband development 10Final report
  • 11. VAN • DIJKMANAGEMENT CONSULTANTSAs the table above clearly shows, there is not one ‘universal set of characteristics’ thatunambiguously defines the concept of USO and that is thus applicable in allcircumstances. This said, it is important for our study to understand how the conceptof USO has been defined in the regulatory framework for electronic communicationsservices in Europe.In the EU, the concept of universal service is linked to the liberalization process thattook place during the nineties and was conceived as a social safety net and not anindustrial policy tool. 5 It covers a number of particular or specific objectives,contributing to general public interest 6 , which were previously – i.e. in a monopolistcontext - ensured by a public service policy defining the monopolist organizations(i.e. by regulation). These objectives are availability, affordability 7 andaccessibility 8 . Moreover, in pursuit of these objectives, ensuring adequate qualitymust be monitored.With the opening of the market, new approaches, methods or tools have beendefined in order to pursue these same public interest objectives as mentioned abovein a competitive environment. In this way, the concept of universal service obligationsin Europe is thus directly linked to the change from a monopolist to a competitivecontext. More precisely, USO should remedy the shortcoming of the competitiveenvironment for attaining the objectives listed above. Furthermore, the concept ofUSO in se does not provide any indications on who should be responsible forfinancing the cost related to providing the universal services.Regarding the link between USO and the competitive environment, it should beemphasized that the introduction of competition itself was motivated by its expectedpositive contribution to the same objectives of quality, availability and affordability.More precisely, USO was defined as a measure accompanying the introduction ofcompetition, allowing public intervention in case the previously regulatedmonopolist situation of certain citizens would deteriorate after the market opening inthe sense that existing services would no longer be provided. Therefore, this context ofcompetition requires that any universal service obligation is implemented in a waythat results in minimal market distortion. After all, the starting point for theEuropean electronic communications sector policy is that stimulation competition isthe preferred approach to achieve the three objectives mentioned previously. At alltimes, market development based on competition should thus be given priority.5 On the origins of the concept of universal service in the EU, Communication from theCommission of 15 November 1993 Developing universal service for telecommunications in acompetitive environment, COM(93) 543, and Council Resolution of 7 February 1994, OJ16.2.1994 C 48/1.6 Please note that general public interest refers more generally to equality and continuity.7 ‘Affordability’ refers to the fact that maintaining and using a service does not place anunreasonable financial burden on consumers, particularly on vulnerable disadvantagedconsumers.8 ‘Accessibility’ refers to the fact that services must be useable by all social groups and inparticular by the disabled. Assessment of appropriateness of universal service for advancing basic broadband development 11Final report
  • 12. VAN • DIJKMANAGEMENT CONSULTANTSIn theory, it could thus be argued that all public intervention measures or tools thatcontribute to the objectives of availability, affordability and accessibility in acompetitive environment can be referred to as universal service obligations.In practice however, the implementation of USO in Europe includes the possibility ofsector specific funding for the cost of universal service provision (cf. also section1.1.2.d). As a consequence, all other and subsequent policy choices for the practicalimplementation of USO (e.g. the listing of services, the designation of the universalservice provider(s) (USP), the development of a pricing policy in general and forspecific disadvantaged groups in particular) need to take into account this additionalaspect of USO in Europe. More precisely, the success of USO as a ‘safeguard’ that thecompetitive environment actually attains the three public service objectives for theservices in its scope, will depend on the extent to which USO can find the rightbalance between the positive impact of preventing exclusion of certaindisadvantaged citizens and the negative impacts of the financial burden placed onthe sector (e.g. in terms of increasing overall prices and thus reducing overallaffordability).Furthermore, the EU legislation balances carefully European harmonization andflexibility left to the Member States. For the services which are harmonized at theEuropean level (the scope of the USO), the modalities of their provision leave someflexibility to the Member States. Conversely, for the services that are not harmonizedat the EU level (other services than in the USO), the rules related to the modalitiesleave less flexibility to the Member States. Scope of USO Designation and Financing schemes 4 services in USOs State and/or sector fund EU level (harmonization) (some flexibility) Other services to be State funding only National level decided by Member States (flexibility) (some harmonization) Table 2: Overview of required balancing between the scope of the USO services and the financing mechanismsThe universal service at the WTO levelFinally, the concept of USO as defined at the EU level is consistent with 9 theprovisions in the WTO Reference Paper on basic Telecommunications of 24 April1996, Art 3, stating that: ‘Any Member has the right to define the kind of universal serviceobligation it wishes to maintain. Such obligations will not be regarded as anti-competitive perse, provided they are administered in a transparent, non-discriminatory and competitively9 See USD 2002/22/EC, Recital 3 USDAssessment of appropriateness of universal service for advancing basic broadband development 12Final report
  • 13. VAN • DIJKMANAGEMENT CONSULTANTSneutral manner and are not more burdensome than necessary for the kind of universal servicedefined by the Member’.1.1.2 THE CONCEPT OF USO IN THE 2002 DIRECTIVEThe main elements of this Directive, further defining the concept of USO at EU level,are presented in the following paragraphs.1.1.2.a GENERAL PRINCIPLESThe Universal Service Directive provides that any measure taken to guaranteeuniversal service should meet the principles of objectivity, transparency, non-discrimination and proportionality. 10 It should also fulfill two important but subtlydifferent principles: competition should not be distorted and distortions withinmarkets should be minimised. 11The first principle, which stems directly from the Treaty, entails that universalservice measures may not distort competition between undertakings active on thesame market. This, in turn, implies that all undertakings active on a relevant marketcould be designated as a universal service provider, or that each provider that incursa net cost for doing so should be compensated on the same basis.At the same time, even if the state of competition may not be altered by universalservice measures, markets are often nonetheless distorted, because at least someuniversal services have to be provided at prices that depart from normal commercialconditions (i.e. at below market-prices or even below their costs of provision);therefore the provision of such services may require subsidising, which in turn mayrequire taxes or levies to be imposed. Therefore, in accordance with the secondprinciple, these markets distortions have to be minimised. This implies that the leastcostly way of ensuring the provision of universal service should be chosen by theMember State and, if compensation is to be provided from within the sector, the baseof contributors should be as wide as possible. 12 The principle of the minimisation ofmarket distortions should be seen as a gateway for the economic principle ofefficiency to enter the policy and regulatory arena. 131.1.2.b THE SCOPE OF UNIVERSAL SERVICEIn Article 3 of the USD, universal service obligations are in general described as:‘Member States shall ensure that the services set out in this Chapter are made available at thequality specified to all end-users in their territory, independently of geographical location,and, in the light of specific national conditions, at an affordable price’.10 See USD 2002/22/EC, Art.3(2).11 See USD 2002/22/EC., Arts.1(2) and 3(2) and Liberalisation Directive 2002/77/EC, Art.6(1).See R. Cawley, “Universal Service: specific services on generic networks – some logic beginsto emerge in the policy arena”, presented at the 2001 TPRC Conference and available athttp://tprc.si.umich.edu/tprc01/Program01.HTM.12 See USD 2002/22/EC, recitals 4 and 23.13 This principle was heavily relied upon by the Court of Justice in Case C-220/07 Commissionv France [2008] E.C.R. I-95, paras.29 and 31.Assessment of appropriateness of universal service for advancing basic broadband development 13Final report
  • 14. VAN • DIJKMANAGEMENT CONSULTANTSThe scope of the current universal service is described in Articles 4 to 7 of the 2002Directive 14 .List of services to be made availableFirstly, it comprises access 15 for a connection to the public telephone network at fixedlocation, allowing end-users to make and receive calls, fax, and data communications.The data rate should be sufficient to permit functional Internet access, taking intoaccount prevailing technologies used by the majority of subscribers andtechnological feasibility. In 2002, this was limited by the Directive to a singlenarrowband network connection at 56 Kbps 16 . As the Directive is technologicallyneutral, the connection at the fixed location or address 17 could be fulfilled via wire orwireless technologies (including cellular) provided they allow call, fax and datacommunications to be carried out and that the tariffs for outgoing and incomingcommunications are structured in such a way as to meet the affordability criterion.Moreover, Member States should choose the least expensive technologies amongthose available because the provision of the universal service should minimisemarket distortions.Secondly, universal service comprises at least one comprehensive and regularlyupdated directory, in a printed and/or electronic form approved by the nationalregulatory authority (NRA). The directory should list fixed and mobile subscriberdata in a non-discriminatory way, and abide by the ePrivacy Directive, under whichall subscribers listed in a directory have to give their consent 18 . Moreover, acomprehensive directory enquiry service should be available.Thirdly, sufficient public pay telephones (that inter alia enable the placing of emergencycalls free of charge) should be available to meet the reasonable needs of end-users interm of geographical coverage 19 .Finally, with respect to accessibility, it is foreseen that disabled people can have anequivalent access to the above mentioned services as that enjoyed by other end-users(connection at a fixed location, directories and directory enquiry services, public14 I.e. scope in the narrow sense, meaning the list of services to be made available. The fullscope of US obligations, including provisions on the designation of undertakings, onaffordability of tariffs and on control of expenditure, can be found in Articles 3 to 10.15 This ‘Access’ obligation refers to the objective of ‘availability’.16 See Recital 8 of the USD 2002/22/EC that left some flexibility to Member States forallowing a data rate below the upper limit of 56 kbps to exploit the capabilities of wirelesstechnologies that may be of particular relevance in some future Member States.17 It should thus be underlined that connection at fixed location does not mean connection viafixed public network, but only connection at a specified address, which Member States mayrestrict to the end-users primary location/residence (see Recital 8 of the 2002 Directive).18 See ePrivacy Directive 2002/58/EC, Articles 12 and 16.19 Nevertheless, to ensure minimum regulation, an NRA may decide not to impose theseobligations if, after public consultation, it considers that these facilities or comparable servicesare widely available. More generally, when the market is satisfactorily providing for theelements of universal service, the Member State may not designate a universal serviceprovider.Assessment of appropriateness of universal service for advancing basic broadband development 14Final report
  • 15. VAN • DIJKMANAGEMENT CONSULTANTSphone boxes). For example, specific services such as textphone for the deaf or speech-impaired people, or billing in specific formats such as Braille for the blind or partiallysighted, could be made available free of charge 20 .Affordability and qualityIn the European context, universal service implies not only availability, but alsoaffordability. Moreover, it implies a certain specified quality of service. On thedetermination of both of these characteristics, Member States enjoy some flexibilityto ensure, in accordance with the principle of subsidiarity, that universal service fitsnational circumstances.Tariffs for the universal service should be affordable, in the light of specific nationalconditions in particular in relation to national consumer prices and income. 21 Forinstance, affordable tariffs may be linked to the penetration rate or to the price of abasket of basic services related to the disposable income of specific categories ofcustomers. Particular attention should be paid to the needs and capacities ofvulnerable and marginalised groups. To achieve affordability, Member States mayrequire that the designated universal service providers offer tariffs which departfrom those offered under normal commercial conditions (i.e. which are at lowerprices or even below cost), that they comply with a price cap, or that they offersimilar tariffs across the whole territory. Among all these possibilities, MemberStates should choose the combination that minimises market distortions. 22Empirical evidence has shown that affordability is not only linked to the level ofexpenditure, but also to the way customers can control it. Therefore, the universalservice providers should also offer, at no additional cost, facilities and services thatenable subscribers to monitor and control expenditure and avoid unwarranteddisconnections. 23 In addition, to limit the expenses of the subscribers, universalservice providers may not require consumers to subscribe for additional facilities orservices which are not necessary or not required for the service requested. 24Quality of service is a factor that is as important as price. Therefore, information onservice quality should be made available and NRAs may impose credible20 See Recital 13 of the 2002 USD.21 See Art.9 of the 2002 USD.22 It has been shown that self-selected tariffs (where the universal service provider proposes asuite of tariff plans that consumers can choose, depending on their consumption pattern) maybe efficient, as it gives an incentive to consumers to reveal their preferences and limit thesubsidy to those subscribers that are really in need. Moreover, subsidies that are targeted to aspecific group of citizens or specific area are more efficient than a general geographicalaveraging of tariffs. It might also be appropriate to choose two different mechanisms, one foruneconomic areas and one for uneconomic customers in economic areas. In the first case,tariffs below costs could be imposed on the designated operator(s), whereas in the secondone, vouchers could be distributed to those specified customers, who could then themselveschoose between providers and benefit from competition between them: J.M. Cheffert (2000),“Universal service: Some observations relating to future European debates?”, Info 241.23 See USD, Art.10 (2) and Annex I, Part A.24 See USD, Art.10 (1).Assessment of appropriateness of universal service for advancing basic broadband development 15Final report
  • 16. VAN • DIJKMANAGEMENT CONSULTANTSperformance targets taking into account the views of interested parties. 25 Providersof universal service should thus publish adequate and up-to-date quality of serviceinformation, based on both standardised parameters 26 and any other parametersdeveloped by the NRA, in particular those that take into account the specific needs ofdisabled users. Moreover, NRAs can set performance targets, and persistent failureto meet these would result in sanctions being taken against the universal serviceproviders.1.1.2.c THE DESIGNATION OF UNIVERSAL SERVICE PROVIDERSIf necessary, Member States may designate one or more undertakings to guaranteethe provision of universal service, in part or all of the national territory 27 . In order tofulfil the principle of avoiding distortions of competition, the method used todesignate providers should be transparent, objective and non-discriminatory. Hence,all undertakings that are able to provide the universal service 28 , irrespective oftechnology used, should be entitled to participate in the designation process and beaware of it. In order to fulfil the principle of minimising market distortions, themethod should ensure that universal service is provided in a cost-effective manner,i.e. in the least costly way. If it is efficient, different undertakings could be designatedto provide different elements of universal service and/or to cover different parts ofthe national territory. 29In practice, a whole range of designation mechanisms is allowed: tendering, publicconsultation or when those can not work, direct designation. Auctions 30 can beefficient and should be used when there is already sufficient competition on the localaccess market. Otherwise, they may be problematic, due to the difficulty of ensuringthat sufficient undertakings are in a position to bid against the incumbent (as newentrants would need to use alternative network infrastructure or use the incumbent’sassets) and because of the asymmetry of information between the incumbent and25 See USD, Art.11.26 See USD, Annex III,27 See USD, Art.8.28 Sufficient coverage is hereby not a pre-condition per se for being able to provide universalservices.29 To guarantee the principles of non-discrimination and the minimising of marketdistortions, national law may not require that the provider of the universal service should beable to cover the entire national territory: Case C-220/07 Commission v France [2008] ECR I-95,para.34. Also the pending Case C-154/09, Commission v Portugal which concerns the ability ofthe Portuguese legislator to designate the incumbent PT Comunicações as the universalservice provider until 2025 without relying on an efficient, objective, transparent and non-discriminatory procedure.30 For a typology of auctions and the criteria to be taken into account when designing anauction for universal service obligations: Sorana, “Auctions for universal service subsidies”,(1998) 18 Journal of Regulatory Economics, 33; Nett, “Auctions: an alternative approach toallocate universal service obligations”, (1998) 22 Telecommunications Policy, 661; CompetitionEconomists Group, 33-36. See also Weller, “Auctions for universal service obligations”, (1999)23 Telecommunications Policy, 645, who details the scheme proposed by GTE in the UnitedStates for an auction leading to in-market competition, which was criticised by Laffont andTirole, at 244-260.Assessment of appropriateness of universal service for advancing basic broadband development 16Final report
  • 17. VAN • DIJKMANAGEMENT CONSULTANTSpotential entrants, e.g. concerning the net costs and benefits of serving particulargroups of subscribers.1.1.2.d USO FINANCINGThe USD specifies that : “Where, on the basis of the net cost calculation referred to inArticle 12, national regulatory authorities find that an undertaking is subject to an unfairburden, Member States shall, upon request from a designated undertaking, decide: a. to introduce a mechanism to compensate that undertaking for the determined net costs under transparent conditions from public funds; and/or b. to share the net cost of universal service obligations between providers of electronic communications networks and services.” 31Two funding or financing mechanisms can thus be applied by the Member States:public funding and sector specific funding. Moreover, it is allowed to use ‘differentelements of universal service through different funding mechanisms, and/or to finance the netcosts of some or all elements from either of the mechanisms or a combination of both’ 32 .These mechanisms can only be activated after determining the net cost of theuniversal service obligations. Furthermore, the activation is dependent on theobligatory assessment by the NRA of the unfair burden of this cost. This procedure ispresented in the following scheme:  Direct designation of Calculate net cost US provider(s) by the of USO ("ex-post"*) Member States If YES: Activate sectoral or public funding OR USO may OR If NO: No funding Unfair represent burden unfair confirmed? burden? Designation of US provider(s) by a Net costs are identified designation by designation mechanism mechanism (e.g. tendering) * Based on accounts and/or other information that is audited or verified by the national regulatory authority Graph 1: Consecutive steps preceding the financing of the USO net costReferring to the link between USO and the competitive environment (cf. supra), it isfurthermore specified that: “A sharing mechanism shall respect the principles oftransparency, least market distortion, non-discrimination and proportionality” 33 and “this31 See USD, Article 13, 1.32 See 2002 USD, Recital (21)33 See USD, Article 13, 3.Assessment of appropriateness of universal service for advancing basic broadband development 17Final report
  • 18. VAN • DIJKMANAGEMENT CONSULTANTSmeans that the transfers result in the least distortion to competition and to user demand” 34 .“Least market distortion means that contributions should be recovered in a way that as far aspossible minimises the impact of the financial burden falling on end-users, for example byspreading contributions as widely as possible 35 ”.Remark on the appropriateness of financing procedure for substantial newinvestmentGraph 1 presented above clearly indicates that– even in the case of e.g. auctions forthe selection of the most cost-efficient universal service provider – no guarantee canbe given to the selected provider that the costs incurred for providing the universalservice are indeed going to be considered as an unfair burden 36 . As such, the USOfinancing mechanism brings about important uncertainties and could possiblediscourage undertakings from being a candidate provider.Also, the current compensation mechanism implies an important delay between themoment of the actual investment for providing universal services and therecuperation of the net cost. 37 In practice, several years can thus elapse beforefunding is received. This again could possible discourage certain undertakings forwhich pre-financing is very difficult or even not feasible 38 .The next paragraphs further comment on the two mechanisms that are currentlyforeseen for financing the net cost of USO. a.1. Sector specific fundingThe undertakings that are currently eligible for bearing a part of the net cost of USOare providers of electronic communications networks and services. These actors – e.g. anInternet Service Provider, offering access to the Internet – can also offer other servicesthat do not fall under the electronic communications services, such as the provisionof web-based content 39 . Undertakings that only provide other services thanelectronic communications services are however not eligible for contributing to thenet cost of USO.Intuitively, the contributions of providers of e-communications networks andservices to the net cost of USO could be regarded justified because of the benefitsthese operators derive e.g. from the wider roll-out of infrastructure, the larger34 See USD, Annex IV – Part B: Recovery of any net costs of universal service obligations35 See USD, Recital (23)36 The importance of respecting the consecutive steps for the activation of a USO fund andespecially of making the assessment of the unfair burden has been stressed by theCommission when it brought Belgium to the European Court of Justice. The Commissionconsiders that Belgium has not correctly transposed provisions of the USD as the Belgian Lawprovides for no assessment of the question whether the provision of social tariffs representsan unfair burden for the undertakings concerned.37 See 14th Implementation Report – Volume 1 – Part 2 (page 45): “In majority of those MemberStates where a decision to activate the compensation mechanism has already been taken, […] effectivecompensation faces long delays due to administrative procedures, appeals and court proceedings.”38 This difficulty has also been raised by Cheffert (2000).39 See also Framework Directive 2002/21, Recital (10).Assessment of appropriateness of universal service for advancing basic broadband development 18Final report
  • 19. VAN • DIJKMANAGEMENT CONSULTANTSnumber of customers receiving and making calls, etc. This rationale behind thesector-specific funding for mainly voice telephony could be further transferred to thecontext of broadband in the information society. Very soon, it then becomes clearthat there might be a case to extend the scope of eligible actors for the sector specificfunding, in order to include e.g. providers of web content or web based services(both private and public, cf. e.g. eHealthcare, eGovernment). After all, these actorswould directly benefit when broadband services would be available to widercustomer bases.Finally, it is foreseen that not all undertakings providing electronic communicationsnetworks and services are obliged to contribute since “the net cost of universal serviceobligations may be shared between all or certain specified classes of undertakings.” 40 Forexample: “Member States may choose not to require contributions from undertakings whosenational turnover is less than a set limit.” 41Results of the public consultationIn the contributions to the public consultation on universal service principles in e-communications (March 2010) 42 , some operators argued – given the convergence ofthe internet, media and telecommunications industries – for extending thecontributory basis to e.g. web content providers. Also some national governmentsnoted there might be need to consider whether content providers should also beobliged to contribute in the future. Other market players however believed that suchan approach is not feasible provided e.g. the managerial difficulties and the endlessdisputes on the calculation of the contribution of each contributor. Furthermore,since current broadband offers are sold without subsidies from content providers,including them in the universal service financing system for broadband would easilydistort the market. a.2. Public funding (government budgets or ‘general taxation’)The possibility of financing the net cost for USO by means of public funding wasadded in 2002 compared to the 1998 framework 43 , where the possibility of financingwas limited to the sector.In general, economic literature has shown that, unless there are significantinefficiencies within current taxation, compensation of the net cost of USO by means40 See USD, Recital (23)41 See USD, Article 13 (3).42 Seehttp://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm43 See Directive 98/10 of the European Parliament and of the Council of 26 February 1998 onthe application of open network provision (ONP) to voice telephony and on universal servicefor telecommunications in a competitive environmentAssessment of appropriateness of universal service for advancing basic broadband development 19Final report
  • 20. VAN • DIJKMANAGEMENT CONSULTANTSof public funding is less distorting and more efficient than the use of a sector specificfund 44 .This is because the taxable basis is broader, thus the distortive effect of the taxes isaccordingly smaller. Opponents to public funding for universal service argue thatallowing public funding could generate competitive distortions between MemberStates, and competitive disadvantage for the countries using sector specific fundscompared to those using the general budget. Such fears however are unfounded asdifferences in compensation mechanisms are similar to divergences between MemberStates in other economic factors, such as the cost of labour or capital or the taxationregime. Moreover, the universal service net cost burdens are small-scale whencompared with overall economic activity. Finally, undertakings in the electroniccommunications sector still generally compete within national markets, even ifcommunication is by definition an international activity.Regarding the list of services that are included in the scope of USO in relation to thefinancing source, national public budgeting procedures could require NRAs toprovide politicians with detailed estimates for the upcoming cost of USO. As suchand in comparison with financing based on sector specific funding, NRAs could bestimulated to focus more strongly on limiting USO to situations in which marketfailure is clearly demonstrated. a.3. Remark on other financing possibilitiesThe procedure to be followed for activating the USO fund somehow limits thepossibilities of financing. After all, any possible financing mechanism required thatthe burden on the undertaking providing the universal service is first assessed.Because of that, the following financing approaches are excluded in spite of theiradvantages: Direct subsidy to end-users (‘vouchers’): efficient to meeting universal service objectives in a very much directed way; Direct subsidy to operators: enables operators to have a pre-financing of the required investments; Pool operator together to invest in infrastructure: this approach would by definition guarantee open access to networks.44 See e.g. Report of the Competition Economists Group (CEG) on “Reforming Universal ServicePolicy” (2007, Report for GSM Europe) in which it was estimated that the welfare loss fromusing industry funds may be as much as three times higher than funding from generaltaxation.Assessment of appropriateness of universal service for advancing basic broadband development 20Final report
  • 21. VAN • DIJKMANAGEMENT CONSULTANTS1.1.3 THE CURRENT STATE OF AFFAIRS AS A RESULT OF TRANSPOSING THE 2002DIRECTIVE IN THE EU MEMBER STATES1.1.3.a SCOPE OF THE UNIVERSAL SERVICE AT MS LEVELAs Member States enjoy a certain level of discretion with respect to universal service,some heterogeneity in scope of the services included in the national obligations, andin their evolution, can be perceived. More specifically, the following observations 45can be made: • In recent years, several Member States have limited the scope of the universal service obligations as some universal service elements are being delivered by the market under normal commercial conditions. Illustrative of this is the following non-exhaustive list of examples: - Directory and directory enquiry services have been taken out of the scope of USO in the Czech Republic, and are only intended to be designated for certain groups of disabled users in Denmark; - Provision of access at a fixed location is removed out of the scope of USO in the Czech Republic and Hungary, and Latvia has proposed a similar measure; - A reduction in the number of public payphones required can be observed in some Member States such as Hungary and Slovakia, and payphones are not included at all anymore in the USO scope in Denmark; • Measures for the disabled and users with special needs often consist of different forms of special tariff plans and prices, discounts for connection and call making, and obligations concerning the provision of public payphones with specific requirements for usage by disabled users. It has been observed that there is some heterogeneity in the measures employed by the Member States, and that the depth and scope of their impact also varies; • A small number of Member States have recently enlarged or are contemplating of enlarging the scope of the services included in USO. These elements, for which no sector-specific funding is/would be possible (see 1.1.2.d), include: - ISDN services, leased lines and maritime emergency services in Denmark; - Broadband services: next to Finland, also other Member States such as Spain 46 , France, Cyprus and Romania have initiated considerations in this regard. So far, Finland is the only country taken concrete measures to designate universal service providers for broadband 47 .45 Examples drawn from the 13th, 14th and 15th Report on the Implementation of theTelecommunications Regulatory Package.46 In Spain, a legislative proposal foreseeing universal access to the internet at a speed of1Mbps at “affordable rates” from the 1st of January 2011 is currently being considered.47 FICORA has designated 26 telecom operators as universal service providers in variousparts of Finland. The universal service obligations started at the 1st of July 2010. Theconnection speed must be 1 Mbps. No price cap for the broadband subscription fee was fixedAssessment of appropriateness of universal service for advancing basic broadband development 21Final report
  • 22. VAN • DIJKMANAGEMENT CONSULTANTS1.1.3.b THE DESIGNATION OF UNIVERSAL SERVICE PROVIDERSIt is left to the discretion of Member States to determine the most efficient andappropriate mechanism for selecting the undertakings to supply universal service,provided that the requirements of the framework are respected. This implies thatMember States should ensure the provision of universal service in a cost efficientmanner, whilst respecting the principles of objectivity, non-discrimination andminimum market distortion. In this regard, the mechanism used to designateoperators for the provision of universal service must not a priori exclude anyundertakings, and the conditions of the designation procedure must allow forevaluation of all offers of interested parties to provide particular elements in thewhole or part of the national territory 48 .A number of Member States have not yet designated universal service providers in away that is based on the rules of the current US framework. These countries includeBelgium (other than social tariff component), Bulgaria, Greece, Italy, theNetherlands, Portugal, Spain. Three of them (Greece, Portugal and Spain) arecurrently in the process of preparing new designations. Eight Members Statesdesignate universal service providers based on a tendering procedure: these are theCzech Republic, Estonia, France, Hungary, Poland, Romania, Slovenia and Cyprus.1.1.3.c FINANCING OF USOCurrently, sector specific funding for USO is foreseen as the only or main financingmechanism for the net cost of USO in most of the EU Member States. Finland andSweden, and most recently the Czech Republic are the only three Members Statesproviding for a financing mechanism from public fund only. Malta and Portugalallow both public and sector-specific funding. In Latvia, the law requires setting upof a specific sector-sharing mechanism for the compensation of universal service netcosts but until such a mechanism is established compensation should be paid fromthe state budget.A compensation mechanism is currently only activated in a minority of MemberStates. These are Belgium (for social tariffs only), the Czech Republic, France, Italy,Latvia, Romania 49 and Spain.in advance, but FICORA indicated that a monthly fee of 30 to 40 EUR would be reasonable inmost cases. A reasonable delivery time and price will be determined case-specifically.See: http://www.ficora.fi/en/index/viestintavirasto/lehdistotiedotteet/2010/P_27.html48 See 14th Report on the Implementation of the Telecommunications Regulatory Package.49 The Romanian compensation mechanism is currently under scrutiny of the Commissionservices for compliance with the framework;Assessment of appropriateness of universal service for advancing basic broadband development 22Final report
  • 23. VAN • DIJKMANAGEMENT CONSULTANTS Country Year USO net cost USO net cost per capitaBelgium 2003 48.4 million EUR 4.61 EUR 50Czech Republic 2006 13.8 million EUR 1.29 EURFrance 2007 22.86 million EUR 0.36 EURItaly 2003 41 million EUR 0.71 EURLatvia 2008 0.54 million EUR 0.24 EURRomania 2008 0.47 million EUR 0.02 EURSpain 2007 71.09 million EUR 1.55 EUR Table 3: Overview of USO net costs shared between operatorsThe fact that currently only a very limited number of Member States have actuallyactivated USO funds, could be considered as a confirmation that the current USOsystem is in balance. At the same time however, the number of MS activating a USfund is increasing. This can be explained by the fact that more and more incumbents(which are the universal service providers in most Member States) are losing marketshare on the retail markets, which leads to a reduced capacity of bearing the burdenof the net cost of USO and thus an incentive for asking the activation of a USO fund.1.1.4 FURTHER EVOLUTIONS AT THE EU LEVEL SINCE THE 2002 DIRECTIVESince 2002, the scope of the universal services was reviewed twice. Furthermore, in2009, the 2002 Universal Service Directive was amended by the Citizens’ RightsDirective. The impact of these on the elements of the 2002 USD presented in section1.1.2, are presented in the following paragraphs.1.1.4.a THE REVIEWS OF 2005/2006 AND OF 2008Article 15 and Annex V of the Universal Service Directive 51 request the Commissionto review periodically the scope of the universal service and to appreciate theopportunity to propose to modify this scope. This assessment has to be made takingaccount of social, market and technological developments (e.g. mobility, data ratesand prevailing technologies used by the majority of subscribers) and is based on twoquestions or ‘preliminary conditions/criteria’ which have to be completed if theCommission wishes to propose a change to the universal service’s scope: 1) are specific services available to and used by a majority of consumers and does the lack of availability or non-use by a minority of consumers result in social exclusion (“majority use test”)? 2) does the availability and use of specific services convey a general net benefit to all consumers such that public intervention is warranted in circumstances50 Approximately half of this amount relates to the component ‘social tariffs’ for which the ECbrought Belgium to the ECJ since it considers that there has been no assessment of thequestion whether the provision of social tariffs represents an unfair burden for theundertakings concerned.51 See USD 2002/22/ECAssessment of appropriateness of universal service for advancing basic broadband development 23Final report
  • 24. VAN • DIJKMANAGEMENT CONSULTANTS where the specific services are not provided to the public under normal commercial circumstances (“market failure test” 52 )?The first periodical review of the scope of universal service was presented in 2005 53 ,based on which it was concluded that there was no necessity to modify the scope ofuniversal service. For mobile communications, evidence demonstrated that thecompetitive provision of mobile communications has resulted in consumers havingwidespread affordable access and that the conditions for including this service inuniversal service were therefore not fulfilled. For the broadband services, it wasconcluded that only a small, though growing minority of European consumers weremaking use of broadband services so that broadband in 2005 had not yet becomenecessary for normal participation in society, such that lack of access implies socialexclusion. Nevertheless, a number of questions to be further investigated were raisedsuch as the impact of the growth of IP-based services on the current USO modelwhich is based on access as well as services and the compatibility of the currentfinancing model of USO in the context of market liberalisation and the opening tocompetition.In 2008, a second periodical review was published by the Commission 54 . For themobile communications, the same conclusion of the first review was reaffirmed. Forthe broadband service, it was concluded that the first criterion for including a servicein the scope of universal service (service used by a majority of consumers) is beingapproached rather quickly compared to the first review and that consequently thesituation needs to be kept under review.1.1.4.b THE 2009 REFORMIn general, the most important changes for USO in the Citizens’ Rights Directive canbe summarized as follows: 1. the flexibility given to Member States to up-grade the provision of universal service to a connection to the public communications network allowing broadband data rates (Recital 5 of the Citizens Rights Directive 2009/136); 2. the possible imposition on all undertakings of requirements aiming at facilitating access and choice of e-communications by the disabled (Art. 7 of the Universal Service Directive); 3. the separation of the provision of a connection/access from the provision of services (Article 4 of the amended Universal Service Directive and Recital 15 of the Citizen Rights Directive); 4. the inclusion of public voice telephony access points in the scope of universal service (New Art. 6(1) of the Universal Service Directive).These changes do however not affect the provision on the financing of the cost or theprovisions on the selection and designation of the universal service provider.52 USD, Recital (25) refers to “a substantial majority of the population”.53 See COM(2005) 203, 24.5.200554 See COM(2008) 572, 25.9.2008Assessment of appropriateness of universal service for advancing basic broadband development 24Final report
  • 25. VAN • DIJKMANAGEMENT CONSULTANTSFor the purpose of this study, the first and third modification is of particularimportance. Regarding the first modification, Recital (5) of the 2009 Directive statesthat ‘Data connections to the public communications network at a fixed location should becapable of supporting data communications at rates sufficient for access to online servicessuch as those provided via the public Internet. The speed of Internet access experienced by agiven user may depend on a number of factors, including the provider(s) of Internetconnectivity as well as the given application for which a connection is being used. The datarate that can be supported by a connection to the public communications network depends onthe capabilities of the subscriber’s terminal equipment as well as the connection. For thisreason, it is not appropriate to mandate a specific data or bit rate at Community level.Flexibility is required to allow Member States to take measures, where necessary, to ensurethat a data connection is capable of supporting satisfactory data rates which are sufficient topermit functional Internet access, as defined by the Member States, taking due account ofspecific circumstances in national markets, for instance the prevailing bandwidth used by themajority of subscribers in that Member State, and technological feasibility, provided thatthese measures seek to minimise market distortion.’Compared to the provisions in the 2002 USD 55 , reference is no longer made to anarrowband connection and the indication on an upper limit (56 kbps in the USD) hasbeen removed, so larger discretion is provided to the Member States. No preciseindications are provided as to how the specific national circumstances need to betaken into account. Recital (5) states the following: “Flexibility is required to allowMember States to take measures, where necessary, to ensure that a data connection is capableof supporting satisfactory data rates which are sufficient to permit functional Internet access,as defined by the Member States, taking due account of specific circumstances in nationalmarkets, for instance the prevailing bandwidth used by the majority of subscribers in thatMember State, and technological feasibility, provided that these measures seek to minimisemarket distortion”. Depending on the definition of functional internet access by eachindividual Member State and taking into account the specific circumstances innational markets, broadband services with different speeds could thus be added tothe scope of USO at national level.It should be noted that the introduction of the larger discretion for Member States toinclude broadband services of a specific speed, was not based on the assessment ofthe two criteria of Article 15 of the Universal Service Directive as defined for thereview of the scope of the universal service (cf. section 1.1.4.a). As such, it cannot beexcluded that the USD will be used by Member States as an industrial policy toolinstead of the social safety net that was previously conceived by the EU (cf. section1.1.1). Furthermore, this change upsets the balance between the flexibility regardingthe scope of the universal services and the harmonization of the fundingmechanisms, especially in view of the magnitude of funding required forimplementing such an industrial policy tool.1.2. THE SCOPE OF THIS STUDYThe scope of the policy options that will be considered in the context of this study onthe review of USO can be defined in terms of the extent to which the55 See Directive 2002/22, Recital (8)Assessment of appropriateness of universal service for advancing basic broadband development 25Final report
  • 26. VAN • DIJKMANAGEMENT CONSULTANTS(implementation of the) current EU concept of USO in the electronic communicationsector can be modified, in terms of services considered; i.e. only basic broadbandservices are considered and in terms of its relationship with the periodic review ofthe scope of universal services.1.2.1 CURRENT EU CONCEPT OF USOMore precisely, since the purpose of the current study is to assess ‘whether universalservice at EU level is an appropriate tool to advance broadband development and if so, whenand how it should be used, or whether this should be left to other EU policy instruments ornational measures’, we have understood that a number of aspects related to theimplementation of USO as currently foreseen in the Amended USD can indeed bequestioned.Examples of such aspects are e.g. the requirement that the NRA first needs to assessif the net cost represents an unfair burden for the universal service provider beforecompensation can be agreed upon or the way in which the contributions to theuniversal service fund are collected. More precisely, it could be evaluated if some ofthese aspects require refinement or modification in order to make USO moreappropriate for broadband services, given the assumption that broadband shouldindeed be added to the services within the scope of USO.Other aspects, which are part of the fundamental characteristics of the current EUconcept of universal service, such as e.g. the possibility of sector funding forcompensating the net cost of providing universal service, have not been howeverconsidered as candidates for changes in this study.1.2.2 SERVICES CONSIDEREDIn terms of services considered, the scope of the policy options under considerationfor this study will clearly be limited to adding broadband services to the services whichfall currently within the scope of USO.Broadband capacity has previously been defined by the European Commission 56 ascapacity with a speed equal to or higher than 144 kbps. However, the 15thImplementation Report recognizes that today only a fraction of all retail broadbandlines provide speeds of 144 kbps, and that in future reports (and as of 1/1/2010) 1-2Mbps will be estimated as being the minimum download speed. This evolution isamongst others linked to the growth of e.g. content-oriented services that requirecontinuously higher speeds.56 See 15th Implementation Report, Annex 2, § 4.1 Broadband Access Definitions(http://ec.europa.eu/information_society/policy/ecomm/doc/implementation_enforcement/annualreports/15threport/15report_part2.pdf)Assessment of appropriateness of universal service for advancing basic broadband development 26Final report
  • 27. VAN • DIJKMANAGEMENT CONSULTANTSFurthermore, since the appearance of Next Generation Access 57 (NGA), a distinctionis more and more often made between “basic broadband access” (or first-generationaccess) and “very high speed broadband services” (or second-generation access,based on NGA). This distinction can also explicitly be found in the “CommunityGuidelines for the application of State aid rules in relation to rapid deployment ofbroadband networks” 58 . Also, besides "basic broadband”, the Digital Agenda forEurope 59 sets targets concerning "fast" internet access at speeds of above 30 Mbpsand "ultra-fast" internet access at speeds above 100 Mbps (see further section 2.2.5.abelow).An overview of different possible services delivered through broadband and thelevel of broadband access they require is presented in the following graph: ~IeMooicne t.tJltiocatoo Collaboration Interactivrty level Vrtuli Sports Utioty ComlXltng Glds VrtuaJL...a1:lcfataies Next-Gmer<iion TV 64-256Khps 512 Khps-2 Mbps 3l Mbps-l Gbps Effectrve BandYtidth Access Typo _ . . . ,. • rFA;RST;mG:aNiEERAiiAiTn;ON;;--"llr~~ffi,;;;;:;;~:;-;;::::::::~::::::-------------- BROAllIWIO BROAOBIlND NEXTGE~RATlONGraph 2: Examples of services delivered through broadband and the required bandwidths(SOURCE: Digital highways – the role of government in 21st century infrastructure – Booz & Company)For the purpose of this study, only basic broadband access will be considered since thisis the broadband service that is currently most widely spread amongst consumers inEurope (cf. section 2.1.1.b).57 ‘Next generation access (NGA) networks’ (NGAs) mean wired access networks which consistwholly or in part of optical elements and which are capable of delivering broadband accessservices with enhanced characteristics (such as higher throughput) as compared to thoseprovided over already existing copper networks. In most cases NGAs are the result of anupgrade of an already existing copper or co-axial access network (See Draft CommissionRecommendation on regulated access to Next Generation Access Networks (NGA).http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/nga_2/090611_nga_recommendation_spc.pdf)58 See 2009/C 235/04, 30.09.2009.59 See COM(2010) 245 final/2: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0245:FIN:EN:PDFAssessment of appropriateness of universal service for advancing basic broadband development 27Final report
  • 28. VAN • DIJKMANAGEMENT CONSULTANTSAlthough the definition or assessment of some policy options could indicate the needfor a broader review of the current USO model (e.g. because of the growingimportance of IP based services, the added value of including telephone services as aspecific USO on top of access to broadband internet services could eventually bequestioned), the assessment presented below will be limited to the broadbandservices. This means that, wherever appropriate, remarks will be made regarding thepotential impacts of a specific policy option for broadband on other universalservices; the policy options will however not include details on these impacts.In this respect, it is noteworthy that one stakeholder contribution to the publicconsultation 60 suggested that a reform of the universal service regime should foreseethat the obligation of the USP for providing access at a fixed location and telephonyservices is lifted once a publicly supported broadband network (under the“Community Guidelines for the application of State aid rules in relation to rapiddeployment of broadband networks”) or if some form of broadband universalservice were introduced.1.2.3 RELATION TO THE PERIODIC REVIEW OF THE SCOPE OF UNIVERSALSERVICESFinally, the objective of the present impact assessment study is clearly not to conducta third periodical review of the scope of USO. More specifically, the impactassessment will take a global approach when addressing the question on theappropriateness of adding broadband services to the Universal Service Obligations.By consequence, the study will thus not necessarily be limited to those elements thatcan directly be linked to the evaluation of one of the two criteria presented above.Therefore, in order to avoid any possible misunderstanding, we explicitly take theassumption that - for the policy options for which inclusion of broadband services inUSO is assumed - both criteria are met. This assumption is thus purely theoreticaland does not provide any indications of the opinion of the consortium on whetherthe two above-mentioned criteria are actually fulfilled for broadband services. On thecontrary, by making this assumption, the consortium solely wishes to indicate that –at least for the policy options that assume continuation of USO - it will directly focuson the larger debate on and assessment of the appropriateness of includingbroadband services in the Universal Service Obligations (USO) as they are definedtoday. Of course, in case the option of including broadband in USO would beimplemented, it would need to be verified if both criteria are indeed met or ifproposals for modifying these are necessary.60See contributions to the public consultation on universal service principles in e-communications.Assessment of appropriateness of universal service for advancing basic broadband development 28Final report
  • 29. VAN • DIJKMANAGEMENT CONSULTANTS2. IDENTIFICATION AND ASSESSMENT (DEFINITION) OF THEPROBLEMThe purpose of this study is to assess the extent to which a number of policy optionsare effective and efficient for dealing with a problem. By consequence, it is of theutmost importance to first clearly identify and describe this problem, so that thepolicy options can be focused on the main bottlenecks identified.2.1. IDENTIFICATION OF THE PROBLEM (‘WHAT IS THE PROBLEM’)The key question addressed in this study is ‘whether universal service at EU level is anappropriate tool to advance broadband development and if so, when and how it should beused, or whether this should be left to other EU policy instruments or national measures’.Since answering this question requires a profound understanding of its broadercontext, the problem definition will include a large number of elements related tobroadband development in Europe and how this has been stimulated so far, so thatthese elements can also be taken into account when defining and delimitating at alater stage the objectives and future policy options related to USO.For the sake of clarity, the problem definition will therefore whenever possibledistinguish between elements related to: 1. the identification and assessment of the problem of insufficient broadband development (i.e. the underlying problem that needs to be dealt with by the policy options proposed in Chapter 4); and 2. the question if USO at the EU level could be an appropriate tool provided these elements (i.e. those aspects that will impact the extent to which USO could be an appropriate tool).2.1.1 DEVELOPMENT OF THE BROADBAND MARKETSince the appropriateness of USO for broadband services will depend on how theseservices have developed in recent years, the nature of the problem will first of all bedescribed in terms of broadband market developments.2.1.1.a TECHNOLOGICAL DEVELOPMENTS IN THE BROADBAND SECTORBroadband internet can be supplied by different technological solutions. Thefollowing paragraphs give a brief overview of the main technologies for internet datatransmission currently used.‘xDSL’ stands for Digital Subscriber Line and represents a family of technologies thatprovides digital data transmission over the wires of a local telephone network (e.g.ADSL, ADSL2+, SHDSL). xDSL technologies allow for a download speed of up to 24Mbps (ADSL2+) and an upload speed of up to 1 Mbps for asymmetrical DSL, andAssessment of appropriateness of universal service for advancing basic broadband development 29Final report
  • 30. VAN • DIJKMANAGEMENT CONSULTANTSsomewhat higher for symmetric offers (SHDSL). Actual speeds are however highlydependent on the distance to the DSLAM. Moreover, the more performing VDSLtechnology (with maximum download speeds of up to 52 Mbps), only works oververy short distances of up to about 1,3 km, and therefore is only useful when rolledout at the level of the street cabinets (see further).‘Cable Internet’ works by using TV channel space for data transmission, with certainchannels used for downstream transmission, and other channels for upstreamtransmission. In the past speeds of up to 10 Mbps were possible with the wellestablished DOCSIS 1.1 standard, but the recent development of new technologieshas permitted cable internet to attain speeds comparable to FTTx, in particularthanks to the use of DOCSIS 3.0 decoders. Download speeds of up to 200 Mbps andupload speeds of up to 100 Mbps can in theory be obtained thanks to this newstandard. However, as the network architecture is such that bandwidth is sharedbetween users, actual speeds are highly dependent on the number of subscriberssharing the connection, and commercial offers mostly lie in the range of 10-50 Mbpsdownload speed.‘FTTx’, groups Fibre to the Home (FTTH), Fibre to the Building (FTTB), Fibre to theCabinet (FTTC), … and is defined as a telecommunications architecture in whichdata transmission is provided over optical fibre cables extending from thetelecommunications operator’s switching equipment to (at least) the boundary of thehome living space or business office space, cabinet, etc. In the case of FTTC, VDSL orVDSL2 (see above) is often used for the remaining distance between the cabinet andthe home. The architectures are based on either a Passive Optical Network (PON) orPoint to Point (P2P) architecture, the first one sharing the signal from the localexchange between subscribers, the second one having a dedicated subscriber line.FTTx offers are characterised by much higher up and download speeds, and in anumber of cases, symmetrical speeds. In the EU, few commercial offers above 100-200 Mbps exist, but the FTTx technology can in principle obtain speeds of over 1Gbps.As for wireless solutions (for mobile and/or fixed internet), different technologiesare possible, one of them being ‘Satellite Internet’, which uses a satellite ingeostationary orbit to relay data from the ISP to its customers. Today, satelliteoperators have already made all required upfront investments to put the necessaryinfrastructure in place to develop and assure that broadband satellite services areavailable everywhere in Europe 61 . In recent studies prepared for the EuropeanCommission, it is estimated that there were approximately 5% of households inEurope that were not covered by a terrestrial broadband solution in 2008 62 .Furthermore, prices of terminals and of bandwidth have dropped considerably sincea few years 63 . Speeds provided are usually lower than offers based on the othertechnologies. Currently, 2 Mbps connection can be provided to all households notbeing covered by other technologies today and from 2010 onwards, significant61 Cf. European Satellite Operators Association (ESOA), Response to Public Consultation onUniversal Service Principles in E-Communications, dd. 7 May 2010.62 See Broadband Coverage in Europe Final Report 2009 Survey Data as of 31 December 200863 See Broadband Coverage in Europe Final Report 2009 Survey Data as of 31 December 2008Assessment of appropriateness of universal service for advancing basic broadband development 30Final report
  • 31. VAN • DIJKMANAGEMENT CONSULTANTSincreases in speeds are expected 64 . Satellite internet widely recognized bycommercial operators as well as policy makers as an efficient solution for broadbandaccess for people living in remote or sparsely populated regions, due to the highcosts in providing these areas with wired broadband access. The recent wave ofinvestments in new satellites operating in the Ka band is a good illustration ofthis interest.Other frequently used wireless technologies are e.g. 3G (incl. 3G+) and 4G (e.g. LTEand WiMAX). Common download speeds observed today for wireless offers are upto 8 Mbps. In the case of 3G services (UMTS) and 3G+ services (HSPDA), theeffective bandwidth per user falls quickly with the number of simultaneous usersmaking use of the same cell. After all, compared to other technologies (such as DSLor satellite) the cluster of clients that share a certain amount of bandwidth isrelatively small for 3G and 3G+, so possibilities for mitigating the effect of reducedbandwidth with more simultaneous users are smaller. Moreover, since users aremobile, the number of users of a specific mobile network (access) part is highlyvariable. Finally, the fact that the same network provides services to users withdedicated data devices as well as users with smartphones and other 3G enabledhandsets further contributes to the erosion and lack of consistency in regards to thequality of services.Compared to the 3G and 3G+ technologies, 4G technologies are characterized byimproved spectral efficiency and peak data rates that can reach 100 Mbps. Within therange of existing 4G technologies, WiMAX has been chosen as a reference technologyfor the study because, at the time of the start of the study (end 2009), it was a moreproven alternative and was commercially more widespread than LTE, even thoughLTE is now (en 2010) forecasted to be the technology of choice for the provision ofmobile broadband services in the EU (cf. also section 5.2.1.a).2.1.1.b INFRASTRUCTURE VERSUS SERVICE COMPETITIONThe development of the broadband market is furthermore characterized bycompetition at the infrastructure level (i.e. between operators that have invested innetworks based on different technologies – cf. supra) as well as at the level of services.In the latter case, internet service providers (ISP) that have not or only partiallyinvested in a proper network are buying wholesale access services from networkoperators, allowing them to compete at the service level.2.1.1.c MARKET DEVELOPMENT IN THE EU MEMBER STATESTo get an overall view on the state of affairs and evolution of broadband marketdevelopment in the 27 EU Member States and the disparities between them, somestatistics on broadband coverage and take-up (and their evolution) should be analysed.Coverage refers to the supply side (availability) of the broadband services. Most often,it is expressed as a percentage of population to which the broadband services are64Cf. ESOA, Response to Public Consultation on Universal Service Principles in E-Communications, dd. 7 May 2010.Assessment of appropriateness of universal service for advancing basic broadband development 31Final report
  • 32. VAN • DIJKMANAGEMENT CONSULTANTSavailable 65 . Take-up refers to the demand side (usage) of the broadband services.Most often, it is presented as a proportion between the volume of services (e.g.number of lines) and the total population.In addition, the analysis of the broadband supply will further be detailed byincluding information on the speeds of broadband lines provided and theirevolution. Finally, since the broadband market is more and more evolving towardsoffers of bundled services, some statistics on single versus bundled broadband offerswill be presented 66 .Preliminary remarks on the limitations of available statisticsStatistical data often distinguishes between different types of broadband accesstechnology (or ‘platforms’) and aggregated data are sometimes very difficult toobtain. After all, regarding coverage, it is not possible to verify to what extent thepercentage of population that is not served by one specific technology, is covered byanother technology. And also for take-up, the demanded volumes of each individualtechnology cannot be simply added up for estimating the part of the populationhaving broadband access since e.g. mobile broadband is not only used as a substitutefor other broadband technologies but also as a complement to fixed technologies. b.1. Coverage – Fixed broadband networksAccording to a forthcoming study 67 , fixed DSL broadband networks were availablefor approximately 94%% of the EU population in December 2009. Already publisheddata shows that in December 2008, these networks were available for approximately92,7% of the EU population 68 . Since data for Romania and Bulgaria 69 is howevermissing for previous years of data collection, the following aggregated DSL coveragestatistics will only take into account figures for the EU-25, to allow for a comparisonover time. Therefore, the EU-25 DSL coverage average of December 2008 whichamounted to 94%, will be taken as a starting point. This figure is an increase of about1,5% from the previous year (92,5% in December 2007) and of about 14,5% sinceDecember 2003 70 . The average figure however hides a great disparity betweencountries, both in coverage as well as in growth of coverage. Illustrative of this is for65 Please note that expressing coverage in terms of population implies that a high coveragerate does not necessarily mean that a high part of the territory of the country is covered, ase.g. large and sparsely populated regions without coverage might exist. It is thus important tokeep this definition in mind when interpreting the results.66 Unless indicated otherwise, the data used in this section are drawn from the “BroadbandCoverage in Europe” Report of IDATE for DG INFSO (2009 Survey, data as of 31 December2008)67 Broadband Developments in Europe 2010, IDATE – according to Europe’s DigitalCompetitiveness Report 2010 (SEC (2010) 627)68 This figure refers to the percentage of the population depending on a Local Exchangeequipped with a DSLAM, which could include a slight overestimation as this percentage doesnot take into account that some customers are located too far away from the Local Exchangein order to have a well-functioning and good quality broadband service.69 Coverage rates for Bulgaria and Romania amounted respectively to 78% and 68%.70 Although figures are not directly comparable since data for one or more of the first years ismissing for several countriesAssessment of appropriateness of universal service for advancing basic broadband development 32Final report
  • 33. VAN •MANAGEMENT CONSULTANTS DIJKinstance the fact that the EU 15 have a coverage rate that is about 17% higher thanthat of the new Member States 71 : 120% 100% - l 80% f- f--- - 60% 40% 1 ~ I- I- I- t - ~ - ~ 20% f--- 0% - lJ r- _ December 2003 _ December 2004 _ December 2005 _ December 2006 December 2007 _ December 2008 --Growth 2003-2008 Graph 3: Evolution of DSL coverage in the EU, 2003-2008 (Based on: Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)At the end of 2008, DSL coverage rates in the EU-27 vary between 68% (Romania 72 )and 100% (Belgium, Denmark, Luxembourg, France and the UK).As the following graph shows, the national disparities are even much greater forcable modem coverage 73 , where some countries have no network rolled out (Greeceand Italy) and others have coverage rates of over 90% (Malta and the Netherlands).The EU-25 average coverage of cable networks was about 41,9% in 2008. 100% 60% 90% r----- ~ "" 50% 1" I 80% I1 70% f--- 60% r-- I1 1 1 40% 1 50% ~ I1 ~ 1 1- I 30% .. It- I1 A 40% c-- 1- 30% I 1 1 20% 20% --------i I / ,,--H 1I J / J .. 10% 10% 0% J IJ 11 V .. V I .... .I 0% _ December 2003 _ December 2004 _December 2005 _December 2006 December 2007 --Growth 2003-2007 Graph 4: Evolution of cable modem coverage in the EU, 2003-2008 (Based on: Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)71 Excluding Bulgaria and Romania for which no coverage statistics are available before 2008.72 Not presented in graph as the information on the years before 2008 is missing.73 Defined as the percentages of population living in households effectively passed for cableand provided services based on a cable modem.Assessment of appropriateness of universal service for advancing basic broadband development 33Final report
  • 34. ~Z . , ~l.. ~~ Ul- 80~< ~> zUnlike for DSL coverage, the new Member States on average appear to have caughtup with the EU 15, with an average cable coverage rate of 43% (compared to 41,7%for the EU 15). As the above graph shows, this is largely due to rather recent networkroll-outs and/or upgrades.Combining statistics on DSL and cable coverage to obtain indications on total basicbroadband coverage is currently not possible with the available data. However, sincenetwork roll-out will most probably be concentrated in densely populated areas, itcan be expected that the national DSL and cable networks largely overlap, whichwould mean that in December 2009, approximately 6% of EU population did nothave access to fixed broadband networks because of coverage problems.As the figures have shown, there are large national differences in broadbandavailability or coverage. Moreover, national coverage statistics sometimes hide largedifferences between regions. To illustrate this, the following graphs show thedifference between average rural coverage and national coverage percentages, forDSL as well as cable technology (since coverage is likely to be less in rural areas dueto economic reasons): Cr :::c Vl r- ..... :l ... ... ... ... :J C 111 111 DI < DI < DI DI < DI OQ OQ - CD CD CD CD CD t: t: n n 0 0 , $. >- 0 0 0 b I " $. ( b 0 0 $. 00 ( b 0 0 .... $. ( 0 0 b " ( $. b 0 0 IJ $. ( b 0 0 ... $. ( 0 0 b ~ " "" $. b 0 0 •~ ~ $. 0 0 b ~ - >- $. b 0 0 k $. b 0 0 Italy Hungary Estonia Denmark Luxembourg Slovenia Cyprus Cze eh Re publie Austria Nethe rlands Ireland Malta Germany Bulgaria Slovakia Spain Sweden Finland Lithuania Poland Latvia Gre ece Romania UK Belgium France Portugal • ~ ~ • ;0, 0" ~ ~ ~ < < " " " " ;;; ";;J " e: " " ~ 0 0 Graph 5: Comparison of average rural DSL coverage with average national coverage, 2008 (Based on: Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)Assessment of appropriateness of universal service for advancing basic broadband development 34Final report
  • 35. ~Z . , ~l.. ~~ Ul- 80~< ~> z !:!. C- ::IC < :l :l ... < ... < ... lil lil c:: c:: Ql Ql OQ Ql Ql Ql OQ CD CD CD CD CD CD ~ o o o n n n ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ >- 0D C» -...l ... ~ l ~ I ~ I tIJ I N ~ . I I Italv Hungarv Estonia Slove nia Oenmark Cyprus Cle eh Re publie Luxembourg Austria Nethe rlands Swe de n Ireland Malta UK Germany Bulgaria Slovakia Spain Finland Lithuania Poland Lalvia Gre ece Romania Be Igium France Portugal • • C ~ ro- ro- IJ IJ Q bi 3 ~ < " ;;; ;;) " " e: <5 ~ ~ ~ f1l f1l f1l f1l n n 0 Graph 6: Comparison of average rural cable modem coverage with average national coverage, 2008 (Based on: Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)For DSL networks, the coverage in rural areas is on average about 16% smaller thanthe national averages. The difference is even much more important for cablenetworks, where a difference of about 30% between the rural average and thenational average can be observed. b.2. Coverage – Mobile broadband networkAs for mobile 3G population coverage, some parallel conclusions can be made, i.e.the national averages can greatly differ between countries, with Poland having thesmallest coverage of 31% and Malta and Denmark being 100% covered, and there is asubstantial difference in coverage rates between the EU 15 and the newer MemberStates (86% compared to 51%). O· Cl r+ W < :l ... - Ot! Ql Ql Ql CD CD Z n 0 * * * * * * * * * * * >- I 0 0 D 0 C» 0 -...l I 0 Ol o U"I 0 ~ I ö tIJ 0 f,) I 0 I--" o 0 Lithuania Hungary Slove nia Bulgaria Germany Slovakia Denmark Cyprus Cle eh Re publie latvia AVERAGE EU 15 AVERAGE EU 12 Ireland Ilalv Luxe mbourg Malta UK Belgium Estonia Spain Finland Poland Portugal Sweden AVERAGE EU 27 Nethe rlands Austria Romania France Gre ece • IJ g " 00 !!: ~ f1l 0Graph 7: 3G coverage in the EU in 2008 (Based on: Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)Assessment of appropriateness of universal service for advancing basic broadband development 35Final report
  • 36. VAN • DIJKMANAGEMENT CONSULTANTSNo readily available information (i.e. aggregated statistics) could be found on theextent to which mobile broadband technology was used in 2008 for providingcoverage to the population that is not served by DSL or cable technology. b.3. Usage: number of subscribersIn December 2008) there were about 113,4 million fixed broadband subscribers in theEU-27. As the following chart displays, the most prominent broadband technology isDSL, which accounts for about 79,2% of subscribers. About 15,1% of subscribers isconnected through a cable modem, and the remaining 5,7% covers FTTx as well asvarious fixed wireless access technologies (in a ratio of about 1/5 versus 4/5). EU Broadband ,subscriber,s (in thousands) • D5L • Ci3Jble modem • Fixed Wir,elessand FFTx Graph 8: Distribution of EU fixed broadband subscribers by technology (Based on: Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)By January 2010, the number of broadband subscribers had climbed to 123,7 millionaccording to the 15th Implementation Report 74 . From this figure, 79% are DSL lines,19% are lines using technologies other than DSL (except FTTH) and 2% are FTTHlines.Since mobile broadband is not only used as a substitute for other broadbandtechnologies but also as a complement to fixed technologies, the above figures do nottake into account the mobile subscriber base, estimated at 62,2 million active users atthe end of 2008. b.4. Usage: take-up statisticsCoverage statistics, which indicate the degree of availability of broadband services asa percentage of population, are not sufficient to get an overall view on the generaldevelopment of these services. Combining them with take-up statistics however74 See COM (2010) 253Assessment of appropriateness of universal service for advancing basic broadband development 36Final report
  • 37. VAN •MANAGEMENT CONSULTANTS DIJKallows for an in-depth understanding of the evolution of the broadband market.Usage is often represented by penetration rates, which indicate the number of fixedaccess lines (or number of subscriptions) per 100 inhabitants. On average, a fixedbroadband penetration rate of 22,9% can be found in the EU. This penetration rate isbuilt up of 17,9% DSL penetration; 3,4% cable penetration and 1,5% FTTx and fixedwireless penetration. EU Broadband penetration per technology 40,00% 40% 35,00% 35% 30,00% 25% 30% 25% 25,00% 25% - 21%20% ... 20% 20,00% 16% 20% IA" 15,00% ••,;u", 15% u" ~ ~.; 10,00% 5,00% 0,00% • • •• ••• • • ••• • •• • • 10% 5% 0% Ol -c ~ -c > -c <- -" ~ U C ~ Ol Ol ~ Ol Ol " Ol Ol Ol "i C " " " " j " ~ u u c -c ~ c c .. .~ ~ " ~ ~ ~ :::> ~ ~ ~ -" ~ c. ~ E Ol C Ol § Ol j ~ 0 ~ C Ol -;: Ol ~ ~ ~ & .;;-c "" "" Ol Ol Ol ~ " " L " I - :::; Ê .:: L ~ Vi Vi ." .. " w " . w w .. ." " u .. Z ~ a ~" ~ ~ .OSL • Cable • Fixed Wireless. and FFTx TDTAL Graph 9: EU fixed broadband penetration, in terms of number of access lines per 100inhabitants, per technology in 2008 (Based on: Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)Large national differences can be observed, as penetration rates in the newerMember States on average are about 45% smaller than the average penetration rate ofthe EU 15.Usage figures can also be expressed in terms of households, so that an accurate viewof the percentage of households having access to the internet at home through abroadband connection can be given. Suchlike statistics are collected by both Eurostatand Eurobarometer: Households having access to the Internet at home using a broadband connection 90% ou" 76% 77% 80% 7 69% 70% "" 58% 57% ,,~ 56% 58% 56% 60% 50% 47% 49% 0." u,. u,. 0." 46% 0." 39% 40% 30% 20% 26% • • • • - • 10% 0% • Ol -" -c ~ • -c > Ol Ol -c m • Ol Ol c <- ~ U ~ C "tij ~ u " g Ol -c ·c E " " " ~ ~ ~ ~ j ~ ~ ~ "" "" ~ ~ ~ ~ ~ ~ ~ c c -c ~ c Ol § Ol ~ ~ Ol Ol Ol ~ ~ ~ u: -" ~ E Vi " I :::; 0- Vi " " L u ~ L z ~ " -c a ·c :::> Graph 10: Percentage of households having access to the internet at home using a broadband connection in 2009 (Based on: Eurostat)Assessment of appropriateness of universal service for advancing basic broadband development 37Final report
  • 38. VAN • DIJKMANAGEMENT CONSULTANTS Households having access to the internet at home using a broadband connection - Eurobarometer HÈ ~ 3_ 40% • 30% 20% 10% 0% Graph 11: Percentage of households having access to the internet at home using a broadband connection in 2009 (Based on: Special Eurobarometer 335 – e-communications Household Survey 2010 75 )As the above graph shows, in terms of usage or take-up, 44% of EU households donot have access to broadband internet at home according to Eurostat. When isolatingthe results of the newer Member States, it can be observed that as much as 57% ofhouseholds do not have broadband access at home. Eurobarometer results show thateven 52% of households would not have a broadband subscription at home.Differences in results can be explained by factors such as the size of the sample andthe difference in composition (i.e. whereas Eurostat uses a larger sample, it onlyincluded people in the age group 16-74 years old), but in general results seem topoint in the same direction.Moreover, these national averages hide regional differences in broadband take-upthat may exist in some countries. To illustrate this, in the following graph, theaverage national percentage of household take-up is complemented with thehousehold take-up percentages of the regions in that country presenting the highestand lowest take-up percentages. These figures are derived from the Eurostat regionalstatistics 76 , in which regions corresponds to e.g. provinces. For each country, the topof the vertical line indicates the highest regional take-up percentage in that countryand the bottom of the line indicates the lowest regional take-up percentage. The ballrepresents the national average take-up percentage and the size of this ball indicatesthe number of regions the statistics are divided into, and thus the degree of detail ofthe segmentation.75 Seehttp://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm76 Seehttp://epp.eurostat.ec.europa.eu/portal/page/portal/information_society/data/database:‘Regional Information Society Statistics’Assessment of appropriateness of universal service for advancing basic broadband development 38Final report
  • 39. ~z ., ~l.. ~~ 80 Ul-~< ~> z .... lj; :5:, ë: c5 Q. <fi!. C" Q. C" Q. ~ ~ ~ ~ ~ :::tI .-+ ... ... ::J ::J ::J ::J "C 3 OQ Ql Ql s:::: Ql OQ Ql Ql Ql Ql CD CD CD CD VI VI VI VI - n n 0 0 0 0 0 " 0 - ~ I!- " 0 r i I-e- J./ f6- - Cl e- . 11- • f--e - " 0 . 1---1 ~ re I ~ f-e- ~ - ~ l- ~ • , ~- -i ~ • ~. 0 ~ r- ~ I" - e 0 N ~ 0 0 Cyprus Slovenia Sweden Bulgaria Slovakia latvia lithuania Netherlands Austria Hungary Germany Denmark CZech Republic Belgium Malta Estonia Greece Finland France Portugal Spain Ireland Poland luxembourg Romania II"IV United Kingdom Graph 12: Percentage of households having access to the internet at home using a broadband connection in 2009, per region (Based on: Eurostat)The household take-up percentage can vary up to 26% between regions within thesame country (this maximum difference is observed in Greece), and in some regionshousehold take-up is not higher than a mere 20%.In 2.2.1 the reasons behind these take-up statistics will be analysed, as well as theirimplications. b.5. Speed of broadband linesOn average, in January 2010 61,2% of fixed broadband lines in the EU had a speed inthe range between 2 and 10 Mbps. 15,4% of lines had a lower speed, whereas 23,4%of lines had a speed of over 10 Mbps. As for the above figures on coverage andtake-up, it can be concluded that aggregated data on speeds hide great differencesbetween Member States, as the following figure illustrates:Assessment of appropriateness of universal service for advancing basic broadband development 39Final report
  • 40. VAN • DIJKMANAGEMENT CONSULTANTS Distribution -of fixed broadband lines by,speeds 0% 20% 40% 60% gO% 100% Austria Belgium Bulg,aria Cyprus Cz,ech RJepublic Denmark Estonia Finland Franeoe Germany Gr,eec,e Hungary Ireland Italy LaMa Lithuania Lux,e mb ou rg Malta etherlands Poland Portugal RJomania Slovakia Slovenia Spain Sweden Unit,ed ... ~----~---~---- ...- - - -... ----~ EU15 EU12 EU27 • >= 144kbpsand<: 2 Mbps • >= 2Mbpsand <: 10 Mbps • >= 10Mbps Graph 13: Distribution of fixed broadband lines by speeds, situation of January 2010 (Based on: 15th Implementation Report – COM (2010) 253)Whereas averages for the EU15 show that the percentage of lines with speeds above2 Mbps is slightly higher in these countries than for the EU27 average, the newMember States appear to lag behind with respect to speed, in a sense that over one-third of the lines is situated in the range between 144 kbps and 2 Mbps. The reasonwhy the EU27 average is not brought down further by these poorer results for theEU12 can be found in the fact that the number of lines in the newer Member States ismuch smaller than in the EU15 when looking in absolute terms.Assessment of appropriateness of universal service for advancing basic broadband development 40Final report
  • 41. VAN • DIJKMANAGEMENT CONSULTANTSSince statistics on speeds have only been collected by DG INFSO since 2008, theevolution of the speeds can only be analysed over a short time frame. However, asthe following graph shows, in comparison to 18 months ago there are almost 10%less lines in the 144 kbps – 2 Mbps range. Evolution of .speeds of fixed broadband line.s 100% - . - - - - - - - - - - - - - - - - - - - - - - - - . BO% ,60% 4()% 20% 0% July 200B July2009 January 2010 • >= 144kbps,and< 2 Mbps • >= 2Mbpsand< 10 Mbps • >= 10Mbps Graph 14: Evolution of the distribution of speeds of fixed broadband lines between July2008 and January 2010 (Based on: Broadband access in the EU: situation at 1 July 2008 – DG INFSO, Broadband access in the EU: situation at 1 July 2009 – DG INFSO and 15th Implementation Report COM (2010) 253) b.6. Single versus bundled offersFinally, broadband internet services are more and more being offered as a part of apackage of different services for one single subscription. These packages are alsoreferred to as “bundled offers”. Currently, more than one third of EU householdssubscribes to a package. 86% of households indicated that the bundle they aresubscribed to includes Internet services. Furthermore, of those who access theInternet, 57% are doing so as part of a service package. Significant differences areobserved, but analysis shows that in most countries with a high rate of broadbandinternet access (e.g. the Netherlands, Denmark, Sweden, France) a high rate ofbundling is observed. Finally, the most popular bundles include a fixed line 77 .77 See e-Communications Household Survey – Special Eurobarometer 335, October 2010)Assessment of appropriateness of universal service for advancing basic broadband development 41Final report
  • 42. VAN •MANAGEMENT CONSULTANTS DIJK Households having bundles 70% 60% 60% 53%52% 51% 47% 46% 50% 41% 42%43% 40% 37%39% 40% 40% 38% 40% 34% 34%36% 34%36% 31% 28% 27% 30% 24%25% 25% 18% 19% 21% 20% 13% 10% 0% Greece Luxembourg Sweden Czech EU 15 EU 12 EU 27 France Cyprus Denmark Germany Hungary United Belgium Austria Portugal Poland Spain Malta Romania Estonia Latvia Slovenia Netherlands Italy Finland Ireland Slovakia Bulgaria LithuaniaGraph 15: Households having bundles end 2009 (Based on: e-Communications Household Survey – Special Eurobarometer 335, October 2010)Bundled offers are most often considered to be convenient because there is only oneinvoice. Another advantage perceived by the consumers consists of lower prices forthe bundled offers compared to the sum of the separate services 78 . Frequentlymentioned disadvantages consist of the fact that packages often include services theconsumer does not really need and that they bound the consumer to the sameprovider for all services.2.1.2 THE FUTURE BROADBAND DEVELOPMENTThe developments presented in section 2.1.1 will continue evolving in the future.Some of these further evolutions can already be clearly identified today. It is useful toexamine these as they will also impact the appropriateness of USO for basicbroadband services. Four important evolutions are presented in the followingparagraphs.2.1.2.a RELEASE OF “DIGITAL DIVIDEND” WILL INCREASE AVAILABILITY OF SPECTRUM FORWIRELESS BROADBAND SERVICES IN THE COMING YEARSThe development of wireless platforms requires that sufficient high-quality 79(“premium”) spectrum is available. Such spectrum is currently still largely used inEurope for providing analogue terrestrial TV. The benefits of freeing up thisspectrum, resulting in a ‘digital dividend’ 80 , are widely recognized. Moreover, thespectrum currently used by analogue terrestrial TV is unique in terms of volume and78 See e-Communications Household Survey – Special Eurobarometer 335, October 2010)79 High-quality spectrum is characterised by an optimal balance between transmissioncapacity and distance coverage. It brings about less investment to provide wider coverage,leading to a reduction of costs and better service quality (e.g. inside buildings or to remotepopulations in rural areas).80 The ‘Digital Dividend’ is referring to spectrum that is freed up by the switchover fromanalogue to digital terrestrial TV as a result of the superior transmission efficiency of digitaltechnology. The spectrum of the digital dividend is high-quality (‘premium’) spectrum.Assessment of appropriateness of universal service for advancing basic broadband development 42Final report
  • 43. VAN • DIJKMANAGEMENT CONSULTANTSquality. Therefore, a number of steps have been taken to accelerate the switchoverfrom analogue to digital terrestrial TV 81 and to guarantee the optimal use of thedigital dividend.2.1.2.b CONVERGENCE OF FIXED AND MOBILE NETWORKS (FMC)Fixed-mobile convergence (FMC) refers to the trend towards seamless connectivitybetween fixed and wireless telecommunications networks. The ultimate goal of FMCis to optimize transmission of all data, voice and video communications to andamong end users, independent of their locations or devices. FMC implies that asingle device can connect through and be switched between wired (fixed) andwireless (mobile) networks. This convergence thus somehow reverses an earliertrend of fixed-mobile substitution.The importance of fixed and mobile compatibility is evidenced by e.g. the strategy ofmost incumbent fixed operators: years after separating mobile telephony divisionsfrom the core activities, they are now building up stronger relationships again withthe mobile operators 82 . The ongoing trend towards FMC already resulted in theseamless integration of fixed and mobile telephony 83 and furthermore has a directimpact on how broadband products are going to be (re-)defined in the future, withsome first indications today including e.g. the combination of DSL broadbandservices and (mobile) USB-modem connectivity to the Internet (e.g. through 3G,UMTS or HSDPA) in one single broadband subscription 84 , increasing the mobility ofbroadband availability.2.1.2.c EVOLUTION TOWARDS NEXT GENERATION NETWORKS (NGN)As noted above, the majority of current fixed broadband access lines in the EU 27 canbe situated in the range between 2 and 10 Mbps. During the limited time frame forwhich consistent figures on speeds employed in the EU exist, an increase in averagespeed has been noticed, and this evolution is expected to continue, and possibly evenaccelerate. After all, developments at the level of the applications, which require highquality and high speed networks, are happening in quick succession, examples beinginnovative music and video formats, online games or new modes of social interactionon the web 85 . Networks need to keep up with the ever more demandingrequirements of these services. Next Generation Access (NGA) networks such asFTTx, VDSL and DOCSIS 3.0 are therefore already being rolled out in certain (mostlyurban) areas in the EU.81 Also often referred to as the ‘analogue switch off’.82 See e.g. i2010 High Level Group – The challenges of convergence dd. 12/12/2006.83 See e.g.http://www.telindus.nl/oplossingen/unifiedcommunications/fixedmobileconvergence.asp84 Suchlike subscriptions are offered by e.g. : Telekom Austria in Austria, Belgacom inBelgium, Telefonica in Czech Republic, Orange in France, Vodafone in Ireland, Fastweb andLibero in Italy, KPN and Tele2 in Italy, Sapo and Clix in Portugal, Movistar and Orange inSpain, Telia in Sweden and BT in the UK.85 Cf. ‘How to Reward the Risk of Investment into Fibre in a Competitive Environment’, Speech byCommissioner Reding at the ECTA 2009 Conference.Assessment of appropriateness of universal service for advancing basic broadband development 43Final report
  • 44. VAN • DIJKMANAGEMENT CONSULTANTSVery high speed internet is moreover also becoming more and more the norm in anumber of other developed regions, as the following graph with average advertisedbroadband speeds (in red) and ranges of advertised broadband speeds (in blue)shows for a number of EU and other OECD countries (2008 figures). Especially interms of average advertised broadband speed, Japan and Korea can be considered asforerunners, with average advertised speeds of respectively 91 Mbps and 79 Mbps. Advertised broadbandspeed ranges and average advertised broadband speed f·or aselection ·of OECD c,ou nt ries Belgium 1000 20000 Hungary 512 20000 Italy 512 20000 Poland 25fi 20000 CzeJ:h RepubliJ: 2048 20480 Slovak RepubliJ: 153fi 20480 Ireland 1000 24000 United Kingdom 2000 24000 GreeJ:e 512 2457fi Austria 2048 25600 Luxembourg 2000 30000 Portugal 2000 30720 Denmark 512 50000 Germany 2048 50000 Spain 1000 50000 Netherlands 3114 60000 FranJ:e 1000 100000 Sweden 250 100000 Finland 275 110000 MexiJ:o 25fi 4000 Turkey 512 10240 Canada 25fi 25000 NewZealand 256 25000 Swiuerland 300 25000 Australià 256 30000 NOr"<IàY 1250 50000 United Stàtes 7fill 50000 I(eland 1000 100000 Korea llOOO 100000 Japan 256 1000000 Graph 16: Advertised broadband speed ranges for a selection of OECD countries and average advertised broadband speed, in kbit/s, logarithmic scale (Based on: OECD Communications Outlook 2009)It is expected that speeds will moreover increase further in the near future, as is forexample the case in Korea, where broadband speeds would according to recentstatements reach 1 Gbps by 2012.Assessment of appropriateness of universal service for advancing basic broadband development 44Final report
  • 45. VAN • DIJKMANAGEMENT CONSULTANTS2.1.2.d EVOLUTION TOWARDS BUNDLED OFFERSAs previously shown, bundled offers of electronic communications services such asfixed telephony, broadband internet, TV and mobile telephony are becoming moreand more widespread. It cannot be excluded that in the future, some services mighteven no longer be offered as a single service by certain operators, or be offered atrelatively high prices. This limit in choice for consumers could in that case possiblynegatively impact the evolution towards a broadband for all-situation.2.1.3 WHAT ELEMENTS OF MARKET EVOLUTION COULD IMPACT THEAPPROPRIATENESS OF USO AS A TOOL TO ADVANCE BROADBAND DEVELOPMENT?The previous sections extensively elaborated on the changes that are taking place inthe broadband sector and provided a first indication of possible contributions of USOas a tool for stimulating broadband development.Referring to the origin and concept of USO as defined at the EU level (cf. section 1.1),a number of reasons can be identified why the appropriateness of USO to tacklebroadband issues is not completely straightforward and should be analysed in moredetail. Among them are the following: As explained in section 1.1.1, the universal service obligation for voice services was introduced at the time of the opening of the market to competition, to warrant that the objectives of availability, affordability and accessibility would further be ensured after moving away from the monopolist situation. It thus entailed the continuation of an existing service already provided to all citizens. A universal service obligation for broadband services would however be introduced to develop a (partially) new network in order to deliver broadband services to people that are not served yet, since it would have to remedy the market failures that result in a lack of supply of broadband. The underlying market forces are thus completely different for voice and broadband services, and this calls for further analysis; As will be shown in 2.2.1.b, the lack of broadband take-up is partially due to a lack of interest in broadband services by EU citizens, which was less the case for voice services under the monopolist regime. To remedy this problem, policy initiatives should focus on stimulating the demand for broadband services, through actions such as increasing awareness, creating content through eGovernment initiatives, providing education etc. Introducing universal service obligations for broadband will do little to tackle this problem of a lack of demand, since it will mainly focus on increasing supply of broadband. Although it can be useful in correcting part of the problem, USO as a remedy can thus in any case not suffice as a measure, and it should thus be investigated if USO has indeed specific added value compared to other possible measures; The market for broadband services cannot be considered as a mature market, but is on the contrary characterized by strong technological innovations and under constant evolution. When analyzing the case for including broadband in the universal service obligations, these evolutions in the short and medium term should be thoroughly investigated, since some developments could lead to serving (some of the) under-served areas in the future without publicAssessment of appropriateness of universal service for advancing basic broadband development 45Final report
  • 46. VAN • DIJKMANAGEMENT CONSULTANTS intervention. Known examples of possible evolutions include the opening of the digital dividend (see section 2.1.2.a) and the decreasing costs of new technologies. It should thus be analysed if an intervention could possibly create inefficiencies in the market; There are several indications that including broadband in USO would entail very large costs (cf. section 2.2.3), which might seem disproportionate considering the number of potential beneficiaries. Also, the high costs that may be associated with universal broadband have a high risk of resulting in increasing prices, thus negatively impacting the objective of affordability of broadband services, as the service would be made less affordable for a large group of users, i.e. through the additional cost that would have to be supported by the mainstream users. This would be the case regardless of the financing policy chosen, but would be most concentrated in case of sector-specific funding; Also linked to the cost aspect is the observation that under USO one of the most important policy choices to be made is the list of universal service obligations that is imposed. After all, the more comprehensive this list of services, the higher the net cost of USO will be and the bigger the risk of creating a negative impact on attaining the objectives of competitive market functioning. Based on the economic rationale behind USO, two elements thus seem of particular importance when drawing up this list of services: 1. Referring to the context of competition, the obligations imposed should ideally be directly linked with a market failure. In other words, market failure for specific services should first be analysed and determined before USO measures are taken; 2. The overall burden of imposing a specific obligation on the whole sector should be estimated in order to evaluate if adding this service does not bring an imbalance in the USO system (i.e. thus prior to the assessment of the burden for the universal service provider in case of adding the service to the list of obligations, which precedes the activation of the USO fund). Although these elements are relevant for the services currently comprised under USO, no detailed and harmonized analysis of them is necessarily made at the national level. Because of the above-mentioned high costs associated with the broadband network roll-out, these two elements could however become even more important in case broadband is included in the list of USO services; More generally speaking, the need for global economic recovery and the vital role that the electronic communications sector, and more specifically broadband, is expected to play in this 86 , could make it questionable if the burden of providing 100% coverage could and should indeed be borne by the electronic communications sector, which is a flexibility given under USO.All of the above mentioned elements can also be found in the contributions to thepublic consultation on universal service principles in e-communications. Indeed,many respondents pointed out the important changes in the sector since its early86See A European Recovery Plan, COM(2008) 800, and Investing Today for Tomorrow’sEurope, COM(2009) 36. See also COM(2009) 103 final “Better access for rural areas to modernICT”.Assessment of appropriateness of universal service for advancing basic broadband development 46Final report
  • 47. VAN •MANAGEMENT CONSULTANTS DIJKliberalization in general and the specific developments in the broadband sector inparticular when assessing the appropriateness of universal service obligations forbroadband development.The appropriateness of USO for broadband services will thus depend on the extent towhich the choices made for implementing USO can be adequately adapted to a.o. theelements listed above.2.2. ASSESSMENT AND DESCRIPTION OF THE PROBLEM2.2.1 WHAT ARE THE REASONS BEHIND THE PROBLEM?In the following paragraphs, we further analyse the statistical data presented in2.1.1.b which point to insufficient and highly diverse broadband coverage and usageacross the EU, to gain an understanding of the reasons behind these problems. Forcoverage as well as take-up, attention is afterwards given to how USO could possiblycontribute to solve these problems.2.2.1.a PROBLEM OF INSUFFICIENT BROADBAND COVERAGE a.1. Positive relationship between coverage and take-upCombining statistics on national coverage rates (in this case defined as the maximumof DSL and cable coverage per country) and take-up rates (in terms of number ofhouseholds having broadband access at home) shows that a certain positiverelationship exists between both factors. Relation between coverage and take-up 90,00% 80,00% f) SE ~N.5 -70,00%i~ 60,00%E til ~ @ MIl~ ~ Pil @ ~7m. 4:; ~ 50,00% ,0.B ; Ylgo Si/!i ~ 40,00% !JoI @~~ 30,00%"Cl ~ ~ ~c!! ~ 20,00%... -= o go 10,00%jol! 0,00% 60% 65% 70% 75% 80% 85% 90% 95% 100% 105% Broadband coverage (as maKimum of DSL and cable coverage) Graph 17: Relation between maximum fixed national coverage rates and percentage ofhouseholds having access to the internet at home using a broadband connection (Based on: Broadband coverage in Europe – IDATE for DG INFSO – 2009 Survey)The correlation between both data series is about 0,443, which means that over 44%of take-up values can be explained by coverage percentages. This positiverelationship thus implies that broadband availability is a prerequisite for (further)broadband development. However, with DSL coverage amounting to 92,7% for theEU 27 in December 2008 and usage being limited to about 56% of households, it isAssessment of appropriateness of universal service for advancing basic broadband development 47Final report
  • 48. VAN • DIJKMANAGEMENT CONSULTANTSclear that availability of broadband, albeit an important factor, is not the onlyvariable influencing broadband take-up. a.2. Aspects related to market development of direct relevance for evaluating the appropriateness of USO as a tool to advance broadband developmentGiven that broadband take-up partially depends on coverage, it is clear that attentionshould be paid to enhancing coverage across the EU. Since universal service is apolicy instrument amongst others with the objective of ensuring availability, it is clearthat this is a measure that could be of use to tackle problems of broadband coverage.The important disparities between Member States and regions will in any caserequire an approach that allows for a good balance between harmonization at the EUlevel and flexibility at the Member State level.Results of the public consultationMost respondents to the public consultation on universal service principles in e-communications (March 2010) 87 believed however that including broadband in thelist of universal services could only have a limited impact on advancing broadbandfor all. More precisely, universal service is most often – with the exception of mostconsumer organisations –considered only as “a complementary tool of last resort”(cf. “social safety net”) once sufficient market development is obtained bycompetition or by using other instruments (cf. section 2.2.5). It was generally stressedthat universal service obligations should not be used for achieving the industrialpolicy objectives of broadband for all.2.2.1.b PROBLEM OF INSUFFICIENT BROADBAND TAKE-UP b.1. Why are some people not taking up broadbandTo get a further understanding of the problem of unsatisfactory broadband take-up,it is useful to look at it from the opposite perspective, i.e. looking at the reasons why44% of the EU households do not have broadband access.Firstly, when subdividing the national average percentages of households having abroadband connection at home (cf. 2.1.1.b) according to income, the following resultscan be obtained, which show that income is one of the other factors greatlycontributing to the take-up of broadband:87http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htmAssessment of appropriateness of universal service for advancing basic broadband development 48Final report
  • 49. VAN • DIJKMANAGEMENT CONSULTANTS Households in Households in Households in Households in lirst income second income third income lourth income quartile having quartile having quartile having quartile having Households having access to the access to the access to the access to the access to the Internet at Internet at Internet at Internet at Internet at home home usinga home usinga home usinga home usinga using a broadband broadband broadband broadband broadband connection - TOTAl connection connection connection connection Austria 58% 39% 51% 63% 77% Belgium 63% 37% 55% 74% 89% Bulgaria 26% 3% 10% 28% 63% Cyprus 47% 15% 45% 64% 80% Czech Republic 49% 15% 38% 64% 80% Denmark 76% 74% 69% 75% 85% Estonia 62% 32% 59% 79% 92% Finland 74% 56% 76% 89% 92% France 57% Germany 65% 42% 55% 68% 84% Greece 33% 10% 20% 34% 58% Hungary 51% 23% 42% 62% 80% Ireland 54% Italy 39% latvia 50% 22% 38% 52% 82% lithuania 50% 14% 29% 61% 88% luxembourg 71% 56% 58% 78% 81% Malta 63% 35% 65% 76% 91% Netherlands 77% 66% 75% 84% 83% Poland 51% 20% 42% 62% 81% Portugal 46% 14% 25% 52% 78% Romania 24% 4% 8% 25% 44% Slovakia 42% 12% 35% 54% 65% Slovenia 56% 25% 43% 64% 80% Spain 51% 20% 50% 71% 84% Sweden 80% 60% 79% 84% 93% United Kingdom 69%Table 4: Percentage of households having access to the internet at home using a broadband connection in 2009, per income quartile (Based on: Eurostat)According to the eCommunications Household Survey 88 , other important factorsimpacting people having internet are the following: age, household size and level ofurbanization. The older the resident and the smaller the household, the more likely itis to not be equipped with a broadband connection. On the contrary, the level ofurbanization positively influences the likelihood the household is to be equippedwith a broadband connection. This observation can partially be explained by the factthat the degree of urbanization is linked to the coverage rate (which has a positiveinfluence on take-up, see above), but also by correlations between the level ofurbanization and other factors (such as income and age) positively influencingtake-up.The e-Communications Household Survey probes for the reasons for not havingbroadband access (for narrowband users) and the reasons for not having internetaccess (for households who do not have internet access at home). Together theseresponses give a good idea of the reasons for not having broadband access at home.The most recent results for both questions are being displayed below:88 See most recent report of October 2010 – Special Eurobarometer 335.Assessment of appropriateness of universal service for advancing basic broadband development 49Final report
  • 50. VANMA • DIJK AGEMENT CONSULTANTS UE27 "JVISORS BE BG CZ DK D-W DE D-E EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK EU27TOTAL 11583 401 656 571 154 399 616 224 388 390 614 544 352 534 255 487 538 129 570 218 111 439 483 623 691 354 578 276 150 498You or someone in your household plan to 8% 5% 3% 8% 10% 9% 9% 5% 4% 8% 10% 6% 12% 10% 7% 9% 8% 5% 5% 3% 12% 8% 8% 4% 5% 10% 9% 4% 10% 9%subscribe connect in the next six monthsYou and the members of your household 7% 9% 11% 3% 20% 4% 4% 8% 7% 7% 6% 9% 3% 5% 19% 5% 8% 7% 12% 13% 8% 8% 6% 14% 20% 9% 15% 13% 3% 2%do not know exactly what the Internet isNo-one in your household is interested in 58% 65% 56% 54% 64% 72% 69% 56% 47% 57% 66% 57% 59% 52% 66% 42% 55% 58% 54% 74% 54% 73% 56% 61% 38% 64% 45% 68% 61% 55%the InternetThe local area of your household is not 2% 0% 2% - 1% 1% 1% 2% 3% 4% 1% 0% 3% 3% 1% 5% 2% - 1% 0% 1% 1% 3% 1% 7% 6% 3% 1% 2% 0%covered by a broadband access networkinfrastructureThe initial installation cost for the 6% 10% 2% 10% 4% 2% 4% 8% 9% 8% 3% 6% 6% 6% 9% 8% 2% 3% 8% 2% 7% 6% 6% 5% 10% 2% 11% 2% 6% 5%broadband network is too highThe monthly subscription cost of 7% 10% 4% 13% 9% 3% 5% 10% 9% 8% 4% 11% 7% 7% 8% 8% 6% 1% 11% 3% 9% 7% 9% 5% 8% 3% 13% 3% 6% 5%broadband Internet is too highThe cost of buying a personal computer 9% 10% 15% 20% 14% 6% 9% 18% 14% 10% 4% 7% 9% 4% 5% 15% 14% 1% 17% 6% 6% 15% 12% 7% 14% 6% 18% 1% 7% 7%and modem is too highThe monthly subscription cost is too high 9% 14% 10% 18% 10% 3% 5% 9% 12% 3% 5% 11% 10% 6% 8% 16% 14% - 22% 2% 10% 11% 12% 8% 12% 6% 18% 1% 7% 9%The interested members of your household 6% 4% 9% 11% 1% 4% 5% 10% 12% 5% 7% 4% 3% 13% 5% 9% 8% 1% 6% 2% 3% 7% 4% 7% 6% 10% 20% 9% 10% 4%have access at work, school or elsewhereand this is sufficientYou or someone in your household are 2% 1% 1% 1% 2% 2% 3% 5% - 2% 3% 1% 0% 2% 2% 1% 1% 2% 1% - 2% 1% 1% 1% 2% 0% 2% 0% 1% 1%concerned about access to unsuitablecontentOther (SPONTANEOUS – SPEC IFY) 5% 6% 3% 3% 3% 2% 2% 4% 12% 3% 2% 6% 12% 3% 12% 5% 0% 8% 2% 1% 13% 2% 3% 2% 0% 5% 3% 7% 7% 9%Table 5: Households without internet access at home: reasons for not having access to the internet at home (Based on: e-Communications Household Survey – Special Eurobarometer 335, October 2010)
  • 51. VAN • DIJKMANAGEMENT CONSULTANTS UE27 BE BG CZ DK D-W DE D-E EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK EU27TOTAL 1530 50 17 23 53 133 192 51 26 58 39 12 44 72 36 87 149 59 19 1 62 86 43 14 32 92 51 66 59 23You or someone in your household plan to 7% 6% 13% 13% 14% 9% 8% 2% 21% 17% 4% - - 7% 13% 5% 2% 2% 10% - - 9% 13% 4% 2% 3% 19% 3% 10% 7%subscribe connect to a broadband accessin the next two monthsYou and the members of your household 26% 31% 35% 46% 43% 22% 23% 30% 28% 11% 40% 14% 11% 34% 33% 39% 35% 34% 41% 84% 30% 49% 16% 41% 16% 39% 41% 39% 25% 25%are satisfied with the speed of your currentdial-up connectionThe local area of your household is not 16% 2% - - 11% 10% 12% 29% 15% 35% 6% - 56% 17% - 10% 11% - 6% - 7% 6% 7% 27% 16% 26% 29% 7% 22% 4%covered by a broadband access networkinfrastructureThe initial installation cost for the 4% 6% - 3% 14% 0% 2% 11% - 6% 9% - 5% 6% 7% 10% 1% 1% 6% - 3% 10% 9% 14% - 4% 4% 4% 6% 4%broadband network is too highThe monthly subscription cost of 5% 4% 4% - 16% 5% 5% 7% - 3% 1% 4% - 5% 8% 6% 3% 1% 11% - 11% 13% 2% 11% 4% 2% 8% 5% 14% 4%broadband Internet is too highThere is not enough attractive online 3% 3% 3% 12% 5% 2% 2% 1% - 4% 6% - - 3% - 2% 2% 2% - - 1% 5% 9% - - - 1% 2% 7% -content or e-services justifying the extra-costThe equipment of your household (e.g. PC ) 5% 7% 15% 11% 3% 5% 6% 11% - 3% 5% - 6% 2% - 0% 3% - - - 4% 6% 6% - 3% 1% 5% 3% - 12%is not compatible with broadbandYou and the members of your household 10% 23% - 11% 11% 11% 11% 15% - 3% 2% - 5% 18% 7% 8% 6% 18% 16% - 3% 21% 1% 13% 17% 10% 4% 12% 7% -do not use Internet enoughOther (SPONTANEOUS) 5% 10% - - 7% 4% 4% 2% - - - 12% 11% 2% - 1% 6% - 4% - 1% 3% - - - 13% 3% 20% 14% 29% Table 6 Households with narrowband internet access: reasons for not having broadband access at home (Based on: e-Communications Household Survey – Special Eurobarometer 335, October 2010)Assessment of appropriateness of universal service for advancing basic broadband development 51Final report
  • 52. VAN • DIJKMANAGEMENT CONSULTANTSFurthermore, Eurostat has the following statistics on ‘reasons for not havingbroadband access at home’ 89 : Households without I broadband connection because same Households without Households without Households without Households without members can access broadband connection broadband connection broadband connection broadband connection broadband somewhere because it is toD because it is not because they do not because of other else (e.g. at work) expensive available in the area need it reasonsgeoftimeAustria 6% 14% 18% 32% 34%Belgium 6% 17% 1% 21% 15%"Bulgaria 5% 26% 7% 43% 25%Cyprus 12% 21% 7",1, 62% 17%Czech Republic 13% 22% 5% 43% 19%Denmark 1% 5% 2% 7% 5%Estonia 33% 18% 55%* 67%FinlandFrance 10% 10% 47",1, 24% 9%Germany 12% 20% 23% 41%Greece 6% 24% 5% 53% 17%Hungary 16% 39% 12% 35% 27%Ireland 6% 11% 57% 14% 15%Italy 2%* 11% 23% 28%* 5%*latvia 26% 53% 32% 31% 2%lithuanÎa 16% 38% 9% 61% 16%luxembourg 3% 6% 4% 58% 30%Malta 0% 5% 0% 21% 74%Netherlands 1% 4% 4% 23% 69%Poland 7% 21% 21% 47% 14%Portugal 19% 48% 17% 61% 27%Romania 6% 26% 22% 37% 28%Slovakia 14% 11% 5% 41% 35%Slovenia 25% 27% 60% 43% 12%Spa in 16% 31% 21% 40% 20%Sweden 21% 17% 28% 32% 22%United Kingdom 20% 10% 40%* 31%EU 27 7% 15% 19% 30% 12% Table 7: Reasons for not having broadband access at home (Based on: Eurostat)Although for several reasons some differences between both data sets can beobserved 90 , from the Eurobarometer as well as the Eurostat figures it can beconcluded that two important reasons for not having internet (and also morespecifically broadband) access, besides the lack of coverage (which was already dealtwith above) are (directly or more indirectly) linked to: - the lack of interest; - the costs which are perceived as too high.Whereas the first reason is more important in the EU 15, the issue of costs seems tobe relatively more important in the new Member States.89 The table displays 2009 data, unless these figures are not available. In the latter case, ifavailable, 2007 data are mentioned (with an *) to obtain a complete as dataset as possible.90 Some possible reasons include: the Eurostat survey asks everyone why they do hot havebroadband access, whereas the Eurobarometer survey asks this questions only to those withnarrowband access. To those who do not have any access at all, it is asked why they do nothave internet access in general. Furthermore, there are differences in the size of the sampletaken into account in both surveys, and unlike Eurobarometer, Eurostat only takes intoaccount the age group 16-74 years in the sample.
  • 53. VAN • DIJKMANAGEMENT CONSULTANTS b.2. Aspects related to why people do not take broadband access that are of direct relevance for evaluating the appropriateness of USO as a tool to advance broadband developmentTo increase broadband take-up, finding remedies for both problems is crucial.Remedying the lack of interest in the internet can be done through among othersdemand-side initiatives. Remedying the cost problem necessitates initiativesimproving the affordability of broadband access for all. As for the previouslydiscussed availability issue, one of the possible instruments for this appears to beuniversal service provision, which thus at least deserves to be further investigated.Results of the public consultationIn response to the public consultation on universal service principles in e-communications (March 2010) 91 , many respondents drew attention to the importanceof demand side initiatives. More precisely, it was often argued that demand sideinitiatives for basic broadband services are more important and more urgent thansupply side measures as the obstacles preventing the increase of take-up are notexpected to disappear easily, even after an important increase of availability.Incumbent operators, new entrants as well as (regulatory) authorities thereforebelieve that demand side measures should feature prominently in any EU Strategyfor Broadband for all.A large majority of the respondents – with the exception of most consumerorganisations 92 – agreed that these initiatives should not fall within the universalservice framework. Universal Service was not considered as an appropriateinstrument to cover the gap between coverage and take-up that is observed today.First of all, it was generally argued that the size of this gap clearly indicates that therequired solution does not correspond to “providing the social safety net”.Furthermore, dealing with non-price factors was considered to be the most efficientapproach. Suggested measures included most often raising awareness and skills,improving digital literacy and increasing the development of relevant socialelectronic services. Finally, providing that increasing broadband take-up benefits thewhole European society and economy (e.g. increase of EU competitiveness) publicfunding of demand side measures was again considered to be the most efficient andleast distorting choice. Public funding of demand side initiative – outside the scopeof USO – is today already part of many national broadband strategies.91 See :http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm92 Several consumer organisations suggested to include a very large number of demand sidemeasures in the Universal Service Obligations (incl. the provision of hardware and software)in order to make the concept op USO more holistic.Assessment of appropriateness of universal service for advancing basic broadband development 53Final report
  • 54. VAN • DIJKMANAGEMENT CONSULTANTS2.2.2 WHO IS AFFECTED BY THE PROBLEM (SPECIFIC ACTORS, SECTORS …)?Today, having access to broadband services is considered to be a key element tomaintain social contacts, cultural and political participation, finding a job, accessinginformation and markets, saving costs, learning skills, etc. As such, everyone isaffected by the issue of availability and affordability of qualitative broadbandservices.For the identification of the stakeholders for the impact assessment analysis, adistinction will again be made between the two elements of the problem definition,i.e. the main impacts on these stakeholders of (not?) having broadband as well as theimpacts of a possible decision to include broadband services in the scope of USO.The first element, i.e. who is affected by not having broadband access, is analysed in apositive way, i.e. by focusing on the effects of having access to broadband. It isgenerally acknowledged that having access to broadband has a number of economicand social advantages. These can often not be attributed to a specific user group, butare positive effects for society as a whole. In contrast to the second element of theproblem definition (which is the focus of our study), a distinction is thus not madebetween different types of actors. Without aiming to be exhaustive, the followingpositive effects of having broadband access, which are often linked and influencedby one another, can be mentioned 93 : • Growth of the economy, thanks to e.g. broadband-related process improvements, specialization in knowledge-intensive activities and broadband-based innovation; • Enhancement of the productivity of processes and businesses; • Job creation; • Better exploitation of the possibilities of the Single Market; • Improvement of the access to information, through services as online education, eCommerce etc.; • Increase of the accessibility of public services (eGovernment, eHealth, etc.), as well as their efficiency, e.g. through a decrease of the administrative burden; • Increase participation, social and territorial cohesion.Furthermore, the effects of having broadband access can also be viewed at incomparison to having narrowband access, and for this Graph 2 in paragraph 1.2.2 isuseful (cf. page 26). This graph indicates different types of services that can bedelivered through narrow- and broadband-internet, and thereby gives a goodindication of the services that are only available to consumers with broadband accessand thus of the benefits that come with broadband access. From this graph itbecomes apparent that some services which are considered to be part of ‘basicinternet services’ today cannot be delivered through a narrowband connection.93 See e.g. COM (2006) 129 “Bridging the broadband gap”; “The impact of broadband ongrowth and productivity”, a 2008 study by Micus on behalf of DG INFSO; “The economicimpact of ICT: evidence and questions”, i2010 High Level Group Issue Paper of 2006; “Theimpact of ICT on employment”, a 2009 report by Humboldt Universität zu Berlin for DGINFSO; COM (2009) 649 “Consultation on the future EU 2020 strategy”Assessment of appropriateness of universal service for advancing basic broadband development 54Final report
  • 55. VAN • DIJKMANAGEMENT CONSULTANTSThis is consistent with observations such as the fact that future CommissionImplementation Reports will take 1-2 Mbps as the minimum download speed (seeparagraph 1.2.2) and the fact that the number of internet offers in the baskets 144-512kbps and 512 – 1024 kbps are decreasing over time, in absolute terms as well as incomparison to the total number of internet offers available in the EU 94 .Regarding the second element of the problem definition, i.e. regarding the decisionto add broadband service in the scope of USO, the following impacts for differentgroups of stakeholders can be identified:Impacts for providers of electronic communications networks and services include: - Obtaining compensation for investing in un-served areas will be subject to the USO specific financing stepwise approach; - Compensation of the cost of providing basic broadband service will be coming from funds that can be both sector specific or public. Today and for the current US obligations, most Member States have chosen to finance the compensation for the universal service provider by means of a sector specific fund; - Timing required for the transposition of a possible new scope for USO, e.g. including basic broadband services at a minimum speed, could impact the transitional regime regarding current “Broadband for all” instruments; - Mechanisms for designating universal service providers per Member State are not known yet, whereas currently the applicable rules for e.g. obtaining subsidies are clear; - Providers with plans to develop innovative broadband networks could be impacted by the way in which USO designation and financing mechanisms are developed.Impacts for governments include: - The burden of funding the cost of providing coverage of basic broadband services in the whole territory, discounts for specific user groups, etc. could be imposed on the sector instead of being funded by general taxation.Impacts for NRAs include: - Overall responsibility for stimulating overall broadband development; - Responsibility for implementing universal service obligations in the most efficient, i.e. less market distorting way; - Burden of developing methodology for determining the net cost of USO for broadband - possibly based on different technologies in different regions – as well as administrative costs for managing a94See Broadband Internet Access Cost (BIAC) – second half of 2009, prices as at 1-15 October2009, Report of Van Dijk Management Consultants for DG INFSO, January 2010Assessment of appropriateness of universal service for advancing basic broadband development 55Final report
  • 56. VAN • DIJKMANAGEMENT CONSULTANTS potentially complicated system for sharing the net cost between (specific) actors in the sector.Impacts for citizens include: - Clarity and transparency on the services that will be made available, as well as from which provider, possibly also at what conditions; - Depending on the level of the burden of the obligations imposed on the sector, financing of USO for basic broadband services by the sector could impact the overall pricing strategies of operators; - The extension of USO with broadband could impact the continuation of the other existing instruments for stimulating broadband for all; - Some financing mechanisms such as vouchers are not possible under the current USD; for citizens in Member States where these are currently used, these could be abolished, leading to less flexibility for citizens in choosing e.g. their service provider.Impacts for businesses include – on top of the impacts that are also applicable tocitizens: - For the businesses providing services and applications with added value, commercialised on the Internet, it could be envisaged that these also contribute to the financing of the net cost of USO (cf. section 1.1.2.d); - For the businesses requiring higher speeds than the basic broadband speed in USO, there could be a risk that very high speed investment plans are slowed down in case priority needs to be given to overall basic coverage.The detailed assessment of how and to what extent all of these stakeholders wouldindeed be impacted under each of the policy options will further be elaborated in theimpact assessment in Chapter 5.2.2.3 WHAT IS THE SCALE OF THE PROBLEM?The scale of the problem can be expressed in many different terms, the mostimportant being volume and costs.Section 2.1.1.b already provided a detailed overview of current market coverage andtake-up; the scale of the problem in terms of volume can thus be defined as the gapbetween the current market development and full market coverage.In terms of costs, much less information is available on how much it would cost tocome to full basic broadband coverage in all EU Member States. The followingAssessment of appropriateness of universal service for advancing basic broadband development 56Final report
  • 57. VAN • DIJKMANAGEMENT CONSULTANTSsources give some general indications of the order of magnitude of the funds thatcould be required 95 : For some countries, figures on national initiatives subject to state aid rules (cf. paragraph 2.2.5.c) already being implemented or being under consideration are available, for instance: - the Irish National Broadband Scheme (NBS), which allows any fixed residential or business customer located within the NBS coverage area to apply for broadband services under the scheme and which covers about 223.000 buildings, has a total investment cost of 223 million EUR 96 ; - under the Digital Britain scheme, the UK has a Universal Service Commitment to remedy the fact that 1 in 10 households cannot enjoy a 2Mbits connection by 2012, and although no unanimous figures on the global cost exist, it is expected that the 200 million pounds under spend from the Digital Switchover Help Scheme may not be sufficient 97 ; - a German federal measure to support investments in rural and remote areas where there is no minimal broadband coverage of 1 Mbps at affordable prices, is expected to cost about 141 million EUR between 2008 and 2010 98 ; - Another German measure designed to support the development of broadband infrastructure in economically weak areas (where there is no 2 Mbps available at affordable prices), which primarily focuses on connectivity for undertakings and thus on local SMEs, will receive support of 60 million EUR in the period 2008-2013 99 ; - The roll-out of broadband infrastructure in rural and peripheral areas of Greece, with a goal to give all residential users broadband access of at least 512 kbps and business users broadband access of at least 2 Mbps, is executed through a competitive tendering process. The maximum available budget however amounts to 160 million EUR 100 . The broadband strategy included in the European Economic Recovery Plan, which aims to reach 100% coverage of high speed internet by 2010 and calls for promotion of competitive investments in fibre networks and endorsement of the Commissions proposals to free up spectrum for wireless broadband, has led to the allocation of 360 million EUR for the specific purpose of developing broadband infrastructure in rural areas 101 across the EU. This amount should be considered together with the foreseen co-financing rates of 90% and 75% for respectively Convergence and non-Convergence regions;95 The focus hereby is on “basic” broadband services, i.e. not taking into account availablefigures for NGA roll-outs96 http://www.dcenr.gov.ie/Communications/Communications+Development/NBS+FAQs97 http://www.culture.gov.uk/images/publications/digitalbritain-finalreport-jun09.pdf98 See State Aid N 115/200899 See State Aid N 238/2008100 See State Aid N 201/2006101 See COM (2009) 36Assessment of appropriateness of universal service for advancing basic broadband development 57Final report
  • 58. VAN • DIJKMANAGEMENT CONSULTANTS It is also worth noting that the Commissions Broadband Communication of September 2010 102 ) refers to recent studies that indicate that between € 38bn and € 58bn would be needed to achieve the 30 Mbps coverage for all by 2020 (using a mix of VDSL and next generation wireless) and between € 181bn and € 268bn to provide sufficient coverage so that 50% of households are on 100 Mbps services.Since one of the goals of the present impact assessment is precisely the quantificationof the order of magnitude of costs of different options for future broadbanddevelopment through USO, reference if furthermore made to Chapter 5 in which theresults of the quantitative impact assessment for a.o. 100% 2Mbps coverage, obtainedthrough our bottom-up cost model, are described and analysed.2.2.4 WHY IS PUBLIC INTERVENTION NECESSARY, WHY AT THE EUROPEAN LEVEL?2.2.4.a NEED FOR PUBLIC INTERVENTION a.1. Broadband is key for economic (growth) and non-economic (social inclusion) developmentThe crucial impact of broadband development on markets and competition has beennoticed in numerous studies and communications 103 . The importance of broadbanddevelopment was indicated in the Communication on “Bridging the Broadband gap”of (March 2006) 104 :“The access to high speed internet through "broadband" connections is opening up hugepossibilities and constitutes concrete evidence of the promises of the "information society".The benefits of broadband are such that the inability to have access to it is an issue whichshould be addressed urgently.”The role of broadband connections has since then been further confirmed, e.g. in theCommunity Guidelines of September 2009 for the application of State aid rules inrelation to rapid deployment of broadband networks:“Broadband connectivity is a key component for the development, adoption and use ofinformation and communication technologies (ICT) in the economy and in society. Broadbandis of strategic importance because of its ability to accelerate the contribution of thesetechnologies to growth and innovation in all sectors of the economy and to social andterritorial cohesion” 105 .102 See COM(2010) 472103 See COM (2004) 369, 12.5.2004; COM(2005) 203; COM(2008) 572. L. Holt and M. Jamison(2009), “Broadband and contribution to economic growth: Lessons from the US experience”,Telecommunications Policy 33, 575-581.104 See COM(2006)129 final105 See Communication from the Commission, Community Guidelines for the application ofState aid rules in relation to rapid deployment of broadband networks, 2009/C 235/04. Seealso COM(2005) 229; COM(2002) 263 and COM(2009) 103.Assessment of appropriateness of universal service for advancing basic broadband development 58Final report
  • 59. VAN • DIJKMANAGEMENT CONSULTANTSMore recently, the Commission Communication on a Digital Agenda for Europe 106stated: “The future economy will be a network-based knowledge economy with the internet atits centre. Europe needs widely available and competitively-priced fast and ultra fast internetaccess. The Europe 2020 Strategy has underlined the importance of broadband deployment topromote social inclusion and competitiveness in the EU.”Finally, the September 2010 Broadband Communication of the Commission 107 statesthe following on the broadband targets set in the Digital Agenda for Europe: “Thetarget for fast and ultra-fast internet access was chosen because of the central role it will playin economic recovery and in providing a platform to support innovation throughout theeconomy, as electricity and transport did in the past.” a.2. Market forces do not deliver an optimal level of broadband access: market failureFirst market failure: the network effectBeneficial externalities occur when there are benefits which accrue to individuals ororganizations as a result of other individuals or organizations consuming orproducing something, and the benefits concurred on others are not taken intoaccount in the original decision. 108In telecommunications, it is argued that large network benefits (positive externalities)existed during the period in which the telephone changed from being a servicepurchased by a minority to one subscribed to by the majority, i.e. its value dependson the connection with other telephones and this value increases with the number ofconnections.The policy needed for people to make their decision about whether to subscribe, as ifthey were also taking account of these externalities, is for the price of the service to bereduced by the amount needed to make up for the shortfall in private demandcompared to the socially optimal level.It is not clear what the importance of network externalities is for broadbandconnection as some services are reciprocal and others are unilateral and as thebroadband deployment is different across Member States.Second market failure: the merit goodThere are some goods and services the consumption of which people considersgood (e.g. culture goods) or bad (e.g. smoking) depending on social perceptions orscientific evidence 109 . The existence of merit goods means that it is not possible to106 See COM(2010) 245107 See COM (2010) 472108 See WIK (2000) and Katz M.L. and Shapiro C. (1994), “Systems Competition and NetworkEffects”, Jour. of Economic Perspectives 8(2), 93-115, Liebowitz S.J. and Margolis S.E. (2002),“Network Effects”, in Cave M., Majumdar S., Vogelsang I (eds), Handbook ofTelecommunications Economics V.I, North-Holland, 75-96.109 See WIK (2000)Assessment of appropriateness of universal service for advancing basic broadband development 59Final report
  • 60. VAN • DIJKMANAGEMENT CONSULTANTSrely exclusively on the concept of consumer sovereignty as there are sometimes caseswhere society decides that it is prepared to pay in order to encourage theconsumption of these goods over the level provided by a market outcome.Those who make merit good arguments are claiming that in some cases individualsdo not know their own best interest, or that there is a more important social interest(not market failure) at stake. Whilst the electorate does not often support this level ofpaternalism by governments, there are exceptions, such as compulsory tax fundededucation, and in those countries which have it, universally available free orsubsidized health care, or electronic communications service, such as broadband.Elements indicating market failure at the supply sideAlthough approximately 94% 110 of the EU population is covered by at least onenetwork capable of offering broadband services, large differences in broadbandcoverage persist between countries and even more between regions. More precisely,some less densely populated, rural areas subsist today where competitive marketmechanisms are not sufficient to deliver basic broadband access and “where it isunlikely that the market will provide the service on a reasonable timescale” 111 .Elements indicating market failure at the demand sideIt has been found that, besides by a lack of availability, take-up of broadbandInternet is being hindered by affordability issues 112 and a lack of interest of consumers.A more detailed overview of the reasons why some people are not taking upbroadband is presented in section 2.1.1.b. a.3. ConclusionGiven the importance of broadband for economic and social development and theabove-mentioned market failures, it is clear that, despite very positive statements onthe significant overall broadband development 113 , public intervention is needed forallowing everyone to benefit of the positive effects of broadband development.The need for public policies and interventions for increasing broadband penetrationand uptake has been largely recognized 114 and strongly recommended 115 . This need110 In December 2009 - This percentage does not take into account the households in the areacovered by ADSL which are situated too remotely from the MDFs and thus connected by acopper line that is too long in order to allow for a sufficient broadband quality. It also doesnot take into account that areas covered by different technologies are not always overlapping,i.e. that wireless technologies could be available in areas not covered today by ADSLtechnology.111 See COM(2008) 572.112 See COM(2006) 129 “Bridging the broadband gap”113 See COM(2008) 572114 See for instance COM (2006) 129 reminding some results of a public discussion launched inthe context of the Digital Divide Forum as to the desirability of public intervention “The publicconsultation confirms the importance attributed to this issue by local/regional and national authoritiesas well as by the industry and various associations” and concluding that “local/regional authoritiesAssessment of appropriateness of universal service for advancing basic broadband development 60Final report
  • 61. VAN • DIJKMANAGEMENT CONSULTANTScan moreover be especially underlined as far as rural communities are concerned.Reasons that have been identified for the “rural-urban broadband divide” (i.e. amongstother the low density of population, remoteness, lack of competition, low income,lack of access to new technologies, low quality of service, high cost of provision 116 )indicate elements of market failure related to both the supply as well as demand side.The delivery of broadband services to regional, rural and remote areas remains thuschallenging and “requires a strong strategic approach with complementarities and synergiesbetween Community, national and regional funds and policies” 117 .More specifically related to market failure at the demand side and in the case whereit would be concluded that competition mechanisms are also not sufficient to addressthe issue of affordability, then the public intervention in order to achieve the definedpublic objectives laying behind the concept of “broadband for all” would also bejustified to tackle the specific issue of affordability. After all, the benefits ofbroadband access can only be fully reaped if there is also an uptake of the broadbandservices.Finally, regarding the lack of interest, public intervention could be justified to raise theawareness regarding the benefits related to having a broadband access.2.2.4.b WHY INTERVENTION AT THE EU LEVEL?A number of economic as well as social reasons why public intervention at EU levelfor broadband services is justified are presented in the following paragraphs. b.1. Economic reasonsNecessity of coordination of various EU policies to alleviate the Internal marketfragmentationWidespread broadband access is a key condition for the development of moderneconomies and a major aspect of the Lisbon and EU2020 agenda. Today however,large gaps between broadband developments can be observed between EU countries(cf. section 2.1.1.b).In this context, the European Economic Recovery Plan 118 aims to ensure thatbroadband is available to all Europeans by 2010 119 . The European Union launched aare best placed to plan a broadband project that takes into account local needs and technologicalrequirements”. See also COM(2006) 163 final.115 See COM (2005) 229 “i2010 – A European Information Society for growth and employment”referring to the fact that “making ICT products and services more accessible, including in regionslagging behind, is an economic, social, ethical and political imperative”.116 See COM(2006) 129 “Bridging the broadband gap”; COM(2009) 36 “Investing today fortomorrow’s Europe”.117 See COM(2009) 103 final “Better access for rural areas to modern ICT”118 See A European Recovery Plan, COM(2008) 800, and Investing Today for Tomorrow’sEurope, COM(2009) 36. See also COM(2009) 103 final “Better access for rural areas to modernICT”.119 COM (2009) 103 final; COM (2008) 800, 26.11.2008Assessment of appropriateness of universal service for advancing basic broadband development 61Final report
  • 62. VAN • DIJKMANAGEMENT CONSULTANTSlarge number of initiatives and adopted various policies 120 (both on supply-side anddemand-side) intended to encourage the take-up of broadband services and tostimulate further deployment (in particular in less developed areas) 121 . All MemberStates have been strongly and regularly invited to use EU available policyinstruments and to consequently adjust their National Broadband Strategies in orderto correct market failures or complement the action of market forces. The need topromote further extension of broadband networks, both at Member State and atEuropean Union level, with the aim of providing access to poorly served and highcost areas were the market cannot deliver was also confirmed in the March 2009Competitiveness Council at which Member States agreed on the target of a 100%broadband coverage between 2010 and 2013 and by the EU2020 strategy thatprovides for broadband access for all by 2013, access for all to much higher internetspeeds (30 Mbps or above) by 2020, and 50% or more of European householdssubscribing to internet connections above 100 Mbps.The Digital Agenda for Europe identified the following EU actions that should helpmeet these EU2020 targets: reinforce and rationalize the funding of high-speedbroadband through EU instruments by 2014 and explore how to attract capital forbroadband investments through credit enhancement, propose an ambitiousEuropean Spectrum Policy Programme in 2010 and issue a Recommendation in 2010to encourage investment in competitive NGA networks 122 .Furthermore, the assessment of these various broadband strategies suggests thatbroadband deployment in the EU is led by a common approach and similarrecognized principles 123 , e.g. primary role of the market in the expansion ofbroadband; complementary role of public policy to the effective functioning of themarket; crucial role of public policy in extending coverage of under-served areas;role of security to stimulate broadband use; need for an assessment of broadbandavailability and take-up, etc.The rationale of the EU intervention is thus twofold. It aims to ensure consistency ofapproach and to alleviate fragmentation of the Internal market between the MemberStates. Fragmentation could after all lead to economic inefficiencies such as possiblelegal procedures invoked by opposing stakeholders on individual decisions (legalcertainty), differences in the access models between and within Member States,duplicating costs for legal advice, differences in roll out schemes, uncertainty formarket players about the timing of new initiatives that may be considered indifferent regions.Stimulation of pan-European on-line servicesPublic intervention at the EU level also aims to ensure that pan-European servicesdelivered over broadband infrastructures, may be offered on a sufficiently large120 See below, section 2.2.5, e.g. Regulatory framework for electronic communications and EURadio Spectrum policies, EU structural Funds and Rural development fund, state aid policy,etc.121 See COM(2006) 129 final122 See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32010H0572:EN:NOT123 See COM(2004) 369Assessment of appropriateness of universal service for advancing basic broadband development 62Final report
  • 63. VAN • DIJKMANAGEMENT CONSULTANTScustomer base, in order to enjoy economies of scale on the supply-side (in theproduction costs) and on the demand-side (due to the network effects 124 ).More precisely, the EU 2020 Strategy calls for a true single market for online contentand services (i.e. borderless and safe EU web services and digital content markets,with high levels of trust and confidence, a balanced regulatory framework with clearrights regimes, the fostering of multi-territorial licences, adequate protection andremuneration for rights holders and active support for the digitisation of Europesrich cultural heritage, and to shape the global governance of the internet..The Digital Agenda for Europe therefore aims at opening up access to content,making online and cross border transactions straightforward, building digitalconfidence and reinforcing the single market for telecommunications services, with arange of key actions to be taken by the European Commission.Necessity to alleviate competitive distortions between Member StatesUniversal service, and in particular the designation and the financing schemes, maycreate distortions between countries and between firms. For instance, USO could be atool to promote a telecommunications national champion by favouring the nationalincumbent in the designation process. Therefore it is important that the EUguarantees a level playing field between firms and countries.Financial efficiency of approachFinally, a consistent EU approach is expected to implicate a more efficient allocationof financial resources, when compared to a system of different national, regionaland/or local public policies. b.2. Social reasonSocial and territorial cohesionAn ambitious European broadband policy is also justified on social grounds topreserve and improve the European Social model. Given the importance of ICT aspart of eSGEI 125 , and in particular broadband, in everyday life, it is necessary thatevery EU citizen has access to an affordable broadband connection. The protection ofsuch right can be based on Article 14 TFEU 126 and Article 36 of the Charter of124 A network effect (or “network externality”) is the positive effect that one user of a good orservice has on the value of that product to other people. Network effects typically apply totelephone networks: when more people own a telephone, the value of the telephone forreaching other people becomes larger.125 SGEI are commercial services which are of general economic utility, and for whichtherefore public service obligations are imposed. The electronic communications sector andits subsectors are well-known examples of SGEI and are often referred to as “eSGEI”.126 Article 14 TFEU provides that: “Without prejudice to Article 4 of the Treaty on European Unionor to Articles 93, 106 and 107 of this Treaty, and given the place occupied by services of generaleconomic interest in the shared values of the Union as well as their role in promoting social andterritorial cohesion, the Union and the Member States, each within their respective powers and withinthe scope of application of the Treaties, shall take care that such services operate on the basis ofprinciples and conditions, particularly economic and financial conditions, which enable them to fulfiltheir missions. The European Parliament and the Council, acting by means of regulations inAssessment of appropriateness of universal service for advancing basic broadband development 63Final report
  • 64. VAN • DIJKMANAGEMENT CONSULTANTSFundamental Rights 127 , which both refer explicitly to the promotion of social andterritorial cohesion.This reference can also be found in the Communication from the Commission“Community Guidelines for the application of State aid rules in relation to rapiddeployment of broadband networks” which indicates the importance of State aid forbroadband as ‘a tool to achieve equity objectives, i.e. as a way to improve access to anessential means of communication and participation in society as well as freedom ofexpression to all actors in society, thereby improving social and territorial cohesion’ 128 .Since (e)SGEI and State aid measures include most often Member State initiatives, thejustification of EU intervention based on social grounds is thus rather indirect and atthe sanctioning level. b.3. ConclusionThus, an intervention at the EU level may be justified, but it should carefully balancethe requirement for harmonization (because of the above mentioned reasons) withthe requirement of flexibility for the Member States (because of diversity ofpreferences regarding the scope of eSGEI and the differences in national marketstructures). Therefore, harmonization is more justified for the modalities to provideUS (designation of the universal service provider and financing scheme) than for thedefinition of the scope of the universal service as there is less heterogeneity ofpreferences for the former than for the latter.2.2.4.c CAN EU ACT, AND IF SO, HOW: THE PRINCIPLES OF SUBSIDIARITY ANDPROPORTIONALITYThe EU action is limited by the principles of subsidiarity and proportionality. 129 Inthe case of universal service, those principles are met; hence an EU action in thatregard is justified.The subsidiary principles provides that in areas which do not fall within its exclusivecompetence, the Union shall act only if and in so far as the objectives of the proposedaction cannot be sufficiently achieved by the Member States, either at central level orat regional and local level, but can rather, by reason of the scale or effects of theproposed action, be better achieved at Union level. For the economic and socialreason described above, the principle of subsidiarity is fulfilled provided that therequirement for harmonization are carefully balanced with the requirement offlexibility for the Member States because of diversity of preferences regarding thelevel of eSGEI and the difference in market structures.. This is confirmed by theaccordance with the ordinary legislative procedure, shall establish these principles and set theseconditions without prejudice to the competence of Member States, in compliance with the Treaties, toprovide, to commission and to fund such services”.127 Article 36 on access to services of general economic interest provides that: "The Unionrecognises and respects access to services of general economic interest as provided for in national lawsand practices, in accordance with the Treaties, in order to promote the social and territorial cohesion ofthe Union.”.128 COM(2009) C 235/04129 Art. 5 TEU.Assessment of appropriateness of universal service for advancing basic broadband development 64Final report
  • 65. VAN • DIJKMANAGEMENT CONSULTANTSUniversal Service Directive, whose provides that: “setting a common level of universalservice for telecommunications for all European users and harmonising conditions for accessto and use of public telephone networks at a fixed location and related publicly availabletelephone services and also achieving a harmonised framework for the regulation of electroniccommunications services, electronic communications networks and associated facilities,cannot be sufficiently achieved by the Member States and can therefore by reason of the scaleor effects of the action be better achieved at Community level.” 130The proportionality principle provides that the content and form of Union actionshall not exceed what is necessary to achieve the objectives of the Treaties. Thisprinciple is met when the minimization of market distortion is guaranteed (efficiencyof the public intervention instrument as well as its cost-effectiveness, i.e. attaining theobjectives at the least possible intervention and at the least possible cost).2.2.5 HOW WAS THE PROBLEM AVOIDED OR REDUCED VIA OTHER INSTITUTIONALCONTEXTS, REGULATIONS OR POLICIES?Under the rules of the USD of 2002, universal service obligations could be activatedas a policy tool at EU level to advance broadband development only if there would arisk of social exclusion of the minority. However, other supply- as well asdemand-side initiatives are possible, and some of them have been introduced in thepast at EU level to tackle problems linked to broadband development. Given thedifferent and diverse nature of these, it cannot be expected that one of thesemeasures is capable of exhaustively solving all problems. At best, they can beexpected to help to reduce the problem in complement to other initiatives.Furthermore, there are several initiatives which have previously been taken at thenational level, that are worthwhile mentioning for their possible merits in reducingthe problem.2.2.5.a AT THE EU LEVEL 131 a.1. EU Regulatory framework for electronic communicationsPromotion of competition and stimulation of market forces to enhance open accessand facilitate competitive entry in the context of liberalized markets and based on theEU framework for electronic communications has been a major tool aiming (betweenother) at harmonizing and increasing broadband development and reducingdisparities between Member States (in particular after 2004 enlargement). EU actionmainly took place through (i) the control of Member States implementation of theregulatory framework and (ii) the mechanism of cooperation 132 used for assessmentof NRA’s market analysis and choice of regulatory measures intended to remedymarket failures.130 See Recital 51 of the 2002 Universal Service Directive.131 See also Communication “Bridging the broadband Gap”, COM(2006) 129, 20.3.2006.132 See Article 7 of Framework DirectiveAssessment of appropriateness of universal service for advancing basic broadband development 65Final report
  • 66. VAN • DIJKMANAGEMENT CONSULTANTS a.2. i2010 and Digital Agenda for Europei2010 StrategyThe i2010-European Information Society 2010 strategic framework was introduced topursue three goals 133 :(1) To boost the single market for businesses and users by eliminating regulatory obstacles and enhancing regulatory consistency in the telecoms sector and for audiovisual media services (in particular TV and video-on-demand);(2) To stimulate ICT research and innovation in Europe by pooling public and private research funding and focusing it on areas where Europe is or can become a global leader, such as on LTE (long-term evolution) mobile technology, which will revolutionise wireless broadband, or ESC (electronic stability control), which helps prevent car accidents in case of sudden manoeuvres or on slippery roads;(3) To ensure that all citizens benefit from Europe’s lead in ICT, in particular through first-class online public services accessible to all; safer, smarter, cleaner and energy-efficient transport and by putting the cultural heritage of the EU at our fingertips by creating the European digital library.It led to several tangible results: 134- More and more Europeans are online. The number of regular internet users has increased from 43% in 2005 to 56% in 2008; most of them use the internet almost daily and with high-speed internet access. Regular internet use is also becoming more inclusive, with the numbers of users in disadvantaged groups (the inactive, the less educated and those aged 55-64) rising the fastest;- Europe has become the world leader in broadband internet. With 114 million subscribers, it is the largest world market and penetration rates are rising swiftly. Half of all European households and more than 80% of European businesses have a fixed broadband connection, three quarters of them with average download speeds above 2 Mbps. Broadband internet is available to 93% of the EU25 population, up from 87% in 2005;- High rates of broadband connectivity have translated into higher usage of advanced services. Europeans are rapidly changing their habits, adopting new ways to communicate. 80% of regular internet users engage in increasingly interactive activities, e.g. communicating, using online financial services, sharing and creating new content and participating in innovative processes;- Europe has made fast progress in the supply and use of the 20 benchmarked online public services. The supply of fully available services to citizens has increased to 50% in 2007 (27% in 2004) and for businesses to 70% (58% in 2004). One third of European citizens and almost 70% of businesses in the EU use eGovernment services;- ICT policies have been increasingly mainstreamed. Member States have recognised the importance of ICT for productivity and growth and the potential See COM (2005) 229, 01.06.2005.133 See Europe’s Digital Competitiveness Report : main achievements of the i2010 strategy1342005-2009, COM(2009) 390, 04.08.2009.Assessment of appropriateness of universal service for advancing basic broadband development 66Final report
  • 67. VAN • DIJKMANAGEMENT CONSULTANTS of ICT to achieve a range of socio-economic objectives. Many Member States now have integrated national ICT strategies with objectives similar to those of the i2010 initiative.However, despite these positive results, as the statistical data in section 2.1.1.bshows, digital gaps between countries and between regions within countries, whichoften stem from issues of availability and affordability, still persist in the EUterritory.Digital Agenda for Europe (DAE) 135The i2010 strategy has now been updated with the Digital Agenda for Europe, whichwas presented on 19 May 2010 by Commission Vice-President Neelie Kroes whoemphasized that:"We must put the interests of Europes citizens and businesses at the forefront of the digitalrevolution and so maximise the potential of Information and Communications Technologies(ICTs) to advance job creation, sustainability and social inclusion. […] The ambitiousstrategy set out today shows clearly where we need to focus our efforts in the years to come.To fully realise the potential of Europes digital future we need the full commitment ofMember States, the ICT sector and other vital economic players."The DAE has seven main goals:− A new Single Market to deliver the benefits of the digital era;− Improve ICT standard-setting and interoperability;− Enhance trust and security;− Increase Europeans access to fast and ultra fast internet;− Boost cutting-edge research and innovation in ICT;− Empower all Europeans with digital skills and accessible online services;− Unleash the potential of ICT to benefit society.As for basic broadband, the specific DAE target is that the broadband networkswould cover 100% of EU citizens by 2013. For fast and ultra-fast internet, the aim isto ensure that by 2020, all Europeans have access to internet at speeds of above 30Mbps and 50% or more of European households subscribe to internet access above100 Mbps.Thus, while the promotion and development of ubiquitous basic broadband servicesremains a challenge, new and more far-reaching objectives dealing with e.g.high-speed broadband are currently also being taken to the next level.Broadband Communication and NGA Recommendation under the DAEAs identified as Key Action in the DAE Communication, on 20 September 2010, theCommission adopted three complementary measures to facilitate the roll out andtake up of fast and ultra-fast broadband. These are the Broadband Communication,the Next Generation Access (NGA) Recommendation and the proposal for amultiannual Radio Spectrum Policy Programme (on the latter, see section a.5 below).135 http://ec.europa.eu/information_society/digital-agenda/index_en.htmAssessment of appropriateness of universal service for advancing basic broadband development 67Final report
  • 68. VAN • DIJKMANAGEMENT CONSULTANTSIn the Broadband Communication entitled “European Broadband: investing indigitally driven growth” 136 , the Commission asks that to achieve the broadbandgoals: • Member States develop operational national broadband plans, with concrete measures and guidance on funding; • A number of regulatory and financing measures is adopted at national and local level to promote investment and reduce investment costs, including direct public investment or public financing in line with State Aid rules; • Wireless broadband is further promoted (see also the proposal for a multiannual Radio Spectrum Policy Programme); • Use of the Structural and Rural Development Funds is optimized; • Enhanced broadband finance instruments are developed.The Recommendation on regulated access to NGA networks 137 indicates to nationaltelecoms regulators how they should regulate third-party competitive access to ultra-fast fibre networks (NGA networks) that bring high-speed broadband connections tohomes and workplaces. It aims to give national regulators the tools to support newentrants to the NGA market, and to support infrastructure-based investment fromestablished market players. The most important principles of this Recommendationare the following: price regulation for access to fibre networks will fully reflectinvestment risk, and will enable investing companies to make attractive profits,national regulators must have at their disposal a full range of access remedies fromwhich they select the appropriate combination to drive market entry andinfrastructure-based competition in the light of national market circumstances, exante regulation should reflect differences in the conditions of competition (betweenindividual markets and areas within a given market), resulting in light-touchregulation where competitive forces are strong, arrangements for co-investment aresupported and the setting of lower access prices to the unbundled fibre loop isallowed in return for up-front commitments on long-term or volume contracts. a.3. EU Funds and the Economic Recovery Plan 138Structural Funds and the Rural Development Fund contribute to the development ofregional and rural areas, in particular as far as broadband deployment and take up isconcerned, aiming amongst others at ensuring availability of ICT infrastructure“where the market fails to provide it at an affordable cost and to an adequate level to supportthe required services” 139 .The current Structural Funds programmes of 2007-2013 are to invest almost € 2.3billion in communications infrastructures mainly broadband networks. TheEuropean Regional Development Fund (ERDF), the largest Structural Fund ofCohesion Policy aiming to strengthen economic and social cohesion by correcting136 COM (2010) 472137 C(2010) 6223138 See A European Recovery Plan, COM(2008) 800, and Investing Today for Tomorrow’sEurope, COM(2009) 36. See also COM(2009) 103 final “Better access for rural areas to modernICT”.139 See COM(2006) 129 final, 20.03.2006, Bridging the broadband gap.Assessment of appropriateness of universal service for advancing basic broadband development 68Final report
  • 69. VAN • DIJKMANAGEMENT CONSULTANTSimbalances between EU regions, provides also a large support 140 for demand sideactions.Furthermore, the European Economic Recovery Plan channelled additional €1.02bninto the European Agricultural Fund for Rural Development (EAFRD) 141 forbroadband and the Health Check of the Common Agriculture Policy (CAP). A totalof around €360 million of this funding was programmed for broadband-relatedprojects. EAFRD can be used to support the development of ICT in rural areasamongst others through (i) the creation of new broadband infrastructure; (ii) theupgrade of existing broadband infrastructure; (iii) laying passive broadbandinfrastructure. a.4. State Aid control 142The Commission provides that State aid measures can, under certain conditions, beeffective tools for achieving objectives of common interest and states “State aid cancorrect market failures, thereby improving the efficient functioning of markets and enhancingcompetitiveness. Further, where markets provide efficient outcomes but these are deemedunsatisfactory from a cohesion policy point of view, State aid may be used to obtain a moredesirable, equitable market outcome. In particular, a well targeted State intervention in thebroadband field can contribute to reducing the ‘digital divide’ that sets apart areas or regionswithin a country where affordable and competitive broadband services are on offer and areaswhere such services are not.”Where a notified measure has been found by the Commission to constitute aidwithin the meaning of article 107(1) TFEU, the Commission will assess whether theaid measure can be deemed compatible with the common market 143 , based on article107(3) TFEU. The Commission will perform this compatibility assessment through abalancing test. More precisely, the Commission evaluates the positive impact of themeasure against its potential negative effects on competition by assessment of the: objective of common interest of the aid measure (e.g. market economic and/or social failure); design of the measure, in terms of policy appropriateness, effectiveness and proportionality; possible distortions of competition and impact on trade 144 .140 See the key findings in “Survey : European Economic Recovery Plan in Regions & Cities :One year on, January 2010, Final report”, stating that “broadband infrastructure projects andextraordinary investments in rural areas is where additional EERP measures have been used most”.141 See Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for ruraldevelopment by the European Agricultural Fund for Rural Development (EAFRD).142 See Community Guidelines of 17 September 2009 for the application of State aid rules inrelation to rapid deployment of broadband networks, O.J. [2009] C235/7.143 See the latest list of Commission decisions on State aid to broadband:http://ec.europa.eu/competition/sectors/telecommunications/broadband_decisions.pdf144 See also Non-Paper of the Commission of May 2009 on Common Principles for anEconomic Assessment of the Compatibility of State Aids under Article 87.3.Assessment of appropriateness of universal service for advancing basic broadband development 69Final report
  • 70. VAN • DIJKMANAGEMENT CONSULTANTSObjective of the measureTo assess the objective of the state aid, the Commission differentiates depending (i)on the level of broadband connectivity available in the targeted area; (ii) and whetherthe aid relates to traditional or NGA fixed broadband networks.The Commission defines NGA broadband networks as wired access networks whichconsist wholly or in part of optical elements and which are capable of deliveringbroadband access services with enhanced characteristics 145 . Aid for traditional broadband networks Staid aid Description allowed? BlackAt least 2 traditional broadband networks are available No areaNo traditional broadband network available and no plan by private White Yesinvestors to roll out such an infrastructure within 3 years area Grey Need furtherOnly 1 network available area assessment Aid for NGA broadband networks Staid aid Description allowed? BlackAt least 2 NGA networks are available or should be available within 3 years. No areaNo NGA network available, no plan by private investors to roll out such aninfrastructure within 3 years and no other traditional broadband White Yesinfrastructure exists or rolling-out a NGA network would be unprofitable. areaNo NGA network available but at least 2 traditional broadband networks Need furtherexist, without any plan to invest in NGA. assessmentOnly 1 NGA network available or planned to be rolled-out within three Grey Need furtheryears and no plan by private investors to roll out an additional area assessmentinfrastructure within three years. Table 8: Overview of situations in which State Aid for broadband is allowed or notIn the situations where further assessment is needed, the Commission recognizesthat either the monopoly situation or the absence of NGA network could affect theprovision of specific services, their quality or the level of prices. In these cases stateaid will only be allowed if it is demonstrated that (i) services currently offered do notsatisfy the needs of citizens or business users; and (ii) there is no less distortivemeasure available to reach the same goal.To establish if these conditions are met, the Commission will assess: the inadequacyof the overall market conditions (level of prices, type of services offered and theirconditions), the absence of effective wholesale network access proposed to thirdparties, the presence of entry barriers and whether regulation imposed by the NRA isnot sufficient to overcome the identified problems.145Even though it is not clearly specified in the text, ADSL2+ networks would not be includedin the scope of NGA broadband networks.Assessment of appropriateness of universal service for advancing basic broadband development 70Final report
  • 71. VAN • DIJKMANAGEMENT CONSULTANTSIn addition for NGA networks, the Commission will assess whether the one NGAnetwork already in place benefited from access to ducts not accessible to othernetwork operators.Design of the measure and the need to limit distortions to competitionThe Commission has set a number of necessary conditions the state aid must complywith to be considered compatible with the common market. Not fulfilling anyone ofthese conditions would most likely mean that the aid is not compatible with thecommon market.- Clear identification of the area targeted by the measure through a coverage analysis. This analysis should be accompanied by an analysis of the competitive conditions in this area;- Organisation of an open tender process to award the subsidised project and favouring the most economically advantageous offer in this process;- Technological neutrality, i. e. not favouring any technology or network platform unless there is an objective justification to this. For NGA, networks architecture should support effective and full unbundling and satisfy all types of access an operator may seek, such as access to ducts, unbundled fibre and bitstream;- Encourage use of existing infrastructure, to avoid unnecessary duplication of resources;- Provide third parties with effective wholesale access for at least seven years. In case of NGAs, it includes the right to use ducts or street cabinets. When setting the access conditions for NGA networks, Member States will also have to consult the relevant NRA to have a consistent approach with the obligations imposed on the Wholesale (physical) network infrastructure access and the wholesale broadband access market;- Benchmarking of prices to avoid excessive wholesale prices, price squeeze or predatory pricing by the selected bidder;- Claw-back mechanisms to avoid over-compensation of the selected bidder if broadband grows beyond anticipated level.ConclusionWhereas the State Aid provisions can potentially have far-reaching impacts to ensurebroadband development in areas where no broadband infrastructure is available, it isclear that this measure is merely a facilitator or enabler for national initiatives, and nota guarantee to ensure ubiquitous broadband development in the entire EU. After all,the initial initiative will lie with the Member States.Assessment of appropriateness of universal service for advancing basic broadband development 71Final report
  • 72. VAN • DIJKMANAGEMENT CONSULTANTS a.5. Spectrum PolicyIn 2005 146 , the Commission identified the release of the digital dividend as aspectrum policy priority 147 . More precisely, it was proposed that the beginning of2012 be agreed for the switchover in all Member States. Furthermore, at the end of2007, the Commission published a communication 148 ‘on a common approach to the useof the spectrum released by the digital switchover’ in order to ensure from a social andeconomic perspective an optimal use of the dividend. In this communication, wirelessbroadband access is considered ‘to be probably the most promising means to bridge the“broadband gap” and overcome the “digital divide”, especially in rural areas’.In October 2009, the Commission published its Recommendation on ‘Facilitating therelease of the digital dividend in the European Union’ 149 . In this Recommendation, it ispointed out that ‘The current economic crisis has underlined the urgency of makingsufficient radio spectrum available for the development of high-speed wireless infrastructureto provide broadband services, in order to create productivity gains and cost savings in thebroader economy. This is in line with the goals of the Economic Recovery Plan, endorsed bythe European Council meeting of 12 December 2008, which sets a target of 100% broadbandcoverage to be achieved between 2010 and 2013. As stressed in the Competitiveness CouncilKey Issues Paper of March 2009, this can only be completely achieved by using wirelesstechnologies, for example in rural areas where wired infrastructure is impractical’. In thisRecommendation, the Commission insisted again on the deadline for the analogueswitch off of January 1st, 2012. Also, all Member States are requested to supportregulatory efforts towards harmonized conditions of use in the EC of the 790-862MHz sub-band for electronic communications services other than broadcastingservices. The choice of this sub-based was based on a underlying study 150 whichpointed out that ‘opening up one part of the digital dividend – the 790-862 MHz sub-band –to wireless broadband services by 2015, in all Member States and under common conditionsof use, would generate ad added value compared to individual national initiatives of at leastEUR 17 billion and up to EUR 44 billion depending on the pace of the development ofwireless broadband services in this sub-band’.As mentioned earlier, on 20 September 2010, the European Commission made aproposal to the European Parliament and Council for a multiannual Radio SpectrumPolicy Programme, which aims to improve co-ordination and management of radiospectrum in the EU, in particular to facilitate the growth of wireless broadband 151 .146 See COM(2005) 204 – Communication on “Accelerating the transition from analogue todigital broadcasting”.147 See COM(2005) 465 – Communication on “EU spectrum policy priorities for the digitalswitchover in the context of the upcoming Regional Radiocommunications Conference 2006 (RRC-06)”.148 See COM(2007) 700 final – Communication on reaping the full benefits of the digitaldividend in Europe: A common approach to the use of the spectrum released by the digitalswitchover.149 See Commission Recommendation of 28 October 2009 facilitating the release of the digitaldividend in the European Union (2009/848/EC)150 See http://www.analysysmason.com/EC_digital_dividend_study.151 See COM(2010) 471:http://ec.europa.eu/information_society/policy/ecomm/radio_spectrum/documents/legislation/index_en.htm#rspp_proposalAssessment of appropriateness of universal service for advancing basic broadband development 72Final report
  • 73. VAN • DIJKMANAGEMENT CONSULTANTSThe top priority is to earmark sufficient spectrum for wireless services, includingbroadband. It is proposed that EU countries complete by 2012 the process of givinglicences to operators to use spectrum bands which have already been technicallyharmonised at EU level for the use of wireless broadband (the 900/1800 MHz bands,the 2.5 GHz band and the 3.4 – 3.8 GHz band). In addition, EU countries are asked toopen up the 800 MHz band to wireless broadband by the beginning of 2013 (withpossible derogations until 2015 in exceptional cases). Other provisions are e.g. thefact that collective use of spectrum and spectrum trading would be promoted, thatthere would be more EU-wide coordination on certain aspects of spectrum policy,that there would be good coordination between spectrum harmonisation andstandardisation to assure that services and wireless devices can be used seamlesslyacross borders, that spectrum is available for policy priorities, etc.In summary, it can be concluded that at EU level all provisions are currently beingtaken to enable competitive broadband deployment based on wireless technologiesin the coming years. This is especially relevant for rural areas where broadbandcoverage is not available yet and investment in wired infrastructure is not efficient.Taking into account the evolutions of in the spectrum policy domain, it could thusmake sense to provide wireless technologies first the opportunity to develop in areasthat are currently un-served. In case these developments do not prove to besufficient, it could then be considered to take additional measures.2.2.5.b AT THE MEMBER STATES LEVEL: THE NATIONAL BROADBAND PLANSWidespread availability and use of broadband was already one of the mainobjectives of the eEurope 2005 Action Plan 152 . In this context, Member States havebeen drawing up National Broadband Strategies aiming to implement variousinitiatives to accelerate the deployment and take-up of broadband supporting bothsupply-side and demand-side tools 153 . The Broadband Communication of 20September 2010 further calls on Member States to commit to the broadband targetsand to set out an operational national broadband plan defining national targets, withthe goal of having fully operational plans for (ultra)high speed networks withconcrete implementing measures to realise their targets, notably as regards thenecessary funding. b.1. Supply-side measures 154Broadband supply-side strategies are directly impacting infrastructure deploymentand are consequently characterised by two objectives: ensuring all areas havebroadband coverage (in particular by increasing coverage in under-served areas) andachieving a rapid roll-out of NGA infrastructure.Most strategies focus on 100% coverage of basic (for example 2Mbps) broadband andset target dates that are typically in the range 2010 to 2012. To achieve this, nearly allstrategies opt to use public funds to supplement private investment.152 See COM(2002) 263.153 See COM(2004) 369 “Connecting Europe at High speed : national broadband plan”;154 See COM(2004) 369 “Connecting Europe at High speed : national broadband plan”; Annexto the Communication on Bridging the broadband gap, SEC(2006) 354, 20.3.2006, Chapter 3.Assessment of appropriateness of universal service for advancing basic broadband development 73Final report
  • 74. VAN • DIJKMANAGEMENT CONSULTANTSSome strategies (e.g. Germany, Greece, Finland, France, Luxembourg & UK) gobeyond full coverage with basic broadband and look towards NGA capable ofspeeds over 50Mbps with a target date of 5 to 8 years. However, the EU is currentlybehind the world leaders in NGA roll-out and a patchwork of efforts in only alimited number of Member States will not deliver the €200-300bn of investmentneeded to catch up 155 .A comprehensive overview of the national broadband plans, related to increasingbroadband availability can be found in Annex 1. b.2. Demand-side measures 156National Broadband Strategies also include demand-side measures aiming atencouraging broadband development through demand stimulation. For instance,some Member States (e.g. Italy, Austria, Sweden) implemented policies consisting offinancial incentives (e.g. fiscal subsidies for broadband connections).Demand-side initiatives at national level have also been adopted with the aim ofincreasing usage in the public sector, connecting public institutions or SMEs,improving content to make the internet more attractive and ensuring all have theskills to exploit its benefits. More specifically, some Member States with fullcoverage, high rates of broadband usage and high levels of infrastructurecompetition (e.g. Sweden, Denmark and the Netherlands) focus their broadbandstrategy on content and other demand side actions: e.g. inclusion, skills and medialiteracy programmes and online public services such as eHealth and Education.One of the main focus areas of the Digital Agenda for Europe is to enhance demand-side actions concerning digital literacy, skills and inclusion. It does, among others,promote greater coordination of ICT skills initiatives at Member State level,especially by proposing digital literacy and competences as a priority for theEuropean Social Fund regulation (2014-2020), and foresees proposals to make surethat public sector websites (and websites providing basic services to citizens) arefully accessible to people with disabilities by 2015.155See McKinsey for ETNO 2008.156See COM(2004) 369 “Connecting Europe at High speed : national broadband plan”; Annexto the Communication on Bridging the broadband gap, SEC(2006) 354, 20.3.2006, Chapter 3.Assessment of appropriateness of universal service for advancing basic broadband development 74Final report
  • 75. VAN • DIJKMANAGEMENT CONSULTANTS3. DEFINITION OF THE POLICY OBJECTIVESReferring to the Impact Assessment Guidelines 157 , when defining the objectives adistinction is made between general objectives, specific objectives and operationalobjectives (or ‘measures’). Firstly, the general objectives are defined by taking intoaccount the different aspects of the problem definition presented above. Within thisgeneral framework, specific and operational objectives are then identified. Theseobjectives are the result of internal brainstorming exercises and, in line with the IAGuidelines, they have been developed in an iterative process, i.e. by interactionsbetween on the one hand the objectives and on the other hand the policy options thatare defined in the following chapter and their implications, drawbacks, etc.Since the objective of this study is to assess possible EU policy options, the policyobjectives will be formulated from a European perspective. The objectives presentedbelow do thus not address the motivation of additional special measures thatMember States can take at their own initiative in conformity with EU law.Based on this framework of objectives, different policy options can be analysed inorder to evaluate whether universal service at EU level is an appropriate tool toadvance broadband development and if so, when and how it should be used, or whether thisshould be left to other EU policy instruments or national measures.3.1. GENERAL OBJECTIVESFor defining the general objectives of the policy initiative sought for, it is useful totake a broader view of the general long term EU policies and objectives in which thepolicy initiative would be situated. More specifically, the EU 2020 Strategy whichwas launched by the Commission on 3rd March 2010 158 , aims that Europe would ‘beturned into a smart, sustainable and inclusive economy delivering high levels of employment,productivity and social cohesion’.One of the building blocks of this new strategy is the new Digital Agenda for Europeas it has been recognized that the electronic communications sector in general, andbroadband connectivity in particular, has the potential to play an important role inthe realization of these general economic, social and environmental objectives. In theCommunication from the Commission on the EU 2020 Strategy it is mentioned thatone of the seven flagship initiatives to catalyse progress under the priority themes ofsmart, sustainable and inclusive growth is “a digital agenda for Europe, to speed up theroll-out of high-speed internet and reap the benefits of a digital single market for householdsand firms” and more specifically that “the aim is to deliver sustainable economic and socialbenefits from a Digital Single Market based on fast and ultra fast internet and interoperable157 See European Commission Impact Assessment Guidelines of 15 January 2009, SEC(2009)92.158 See Communication from the Commission: Europe 2020 – A strategy for smart, sustainableand inclusive growth, COM (2010) 2020 of 3rd March 2010.Assessment of appropriateness of universal service for advancing basic broadband development 75Final report
  • 76. VAN • DIJKMANAGEMENT CONSULTANTSapplications, with broadband access for all by 2013, access for all to much higher internetspeeds (30 Mbps or above) by 2020, and 50% or more of European households subscribing tointernet connections above 100 Mbps”.The Digital Agenda for Europe furthermore stipulates that to reach these ambitioustargets, one of the two main goals will be to “guarantee universal broadband coverage(combining fixed and wireless) with internet speeds gradually increasing up to 30 Mbps”.Given these aims of the EU 2020 and the Digital Agenda and referring to section 2.2.4on why public and EU intervention are required, the issue that is dealt with in thisstudy is to ensure that the legal tools relied upon to achieve such aims, and inparticular the universal service provision, meet two general objectives.The first general objective is that universal service provisions achieve an optimalbalance between the harmonization at the European level (regarding the scope of theservice as well as the means) and the flexibility left for the national level.The second general objective is that universal service provisions ensure that theservice is provided in the most efficient way, or in other words, that the social cost ofproviding universal service is minimized.3.2. SPECIFIC OBJECTIVESFor each of the two general objectives above, a number of specific objectives canfurther be derived.Specific objectives for achieving an optimal balance between harmonisation andflexibility: Objective 1: Ensure a minimum level of broadband service at the EU level. Objective 2: Respect the heterogeneity of preferences among Member States; Objective 3: Alleviate distortions between Member States;Specific objectives for ensuring the efficiency and cost-effectiveness of publicintervention: Objective 5: Ensure that there is no distortion or restriction of competition; Objective 6: Ensure that market distortions are minimized; Objective 7: Ensure user choice; Objective 8: Ensure legal certainty and transparency.The specific objectives listed above will now be further translated in a number ofoperational objectives or “measures”, allowing for a further evaluation of theobjectives that can indeed be attained by imposing universal service obligations.Assessment of appropriateness of universal service for advancing basic broadband development 76Final report
  • 77. VAN • DIJKMANAGEMENT CONSULTANTS3.3. OPERATIONAL OBJECTIVESFor each of the specific objectives presented above, a number of operationalobjectives or “measures” can be identified. Specific objective Operational measures Ensure that all citizens have access to a minimumOBJECTIVE 1: broadband service, regardless of their location in the EU;Ensure a minimum level of Ensure affordability of a minimum broadband servicebroadband service at the EU for all citizens;level Provide targeted support to increase accessibility for disabled users. Allow for national initiatives of broadband developmentOBJECTIVE 2: beyond EU requirements;Respect the heterogeneity of Allow for flexibility for the MS to define affordability;preferences among MemberStates Allow for flexibility for the MS in the financing of the services beyond the EU minimum set of services. Ensure a better level playing field for electronic communications operators across the EU;OBJECTIVE 3: Define guidelines for a harmonized implementation ofAlleviate distortions between EU initiatives;Member States Allow the EC to provide MS with comments on the implementation guidelines for harmonization. Ensure that the US designation process is open to all undertakings providing electronic communications networks and services;OBJECTIVE 4: Ensure that the service is provided and that theEnsure that there is no operators are designated in a technology neutral way;distortion or restriction of Promote competitive tendering for selecting thecompetition provider of basic broadband services in areas that are not served by the market; Ensure that the US net cost will be reimbursed. Make analysis of current market situation before intervening in the market; Define financing mechanisms for corrections to theOBJECTIVE 5: functioning of competitive market mechanisms that areEnsure that market the least distorting for market development;distortions are minimized Provide operators the possibility to further develop services before intervening in the market (e.g. based on new and innovative technologies); Minimize as much as possible the net cost. Ensure user choice between service providers;OBJECTIVE 6: Ensure user choice for separation of provider ofEnsure user choice connection and provider of services; Ensure user choice between services in terms of single versus bundled services.Assessment of appropriateness of universal service for advancing basic broadband development 77Final report
  • 78. VAN • DIJKMANAGEMENT CONSULTANTS Specific objective Operational measures Ensure maximum certainty with respect to reimbursement (e.g. amount known in advance); Ensure a public consultation or public tendering for theOBJECTIVE 7: choice of the USP;Ensure legal certainty and Ensure a public consultation or publication of thetransparency calculation of the net cost; Ensure maximum transparency regarding discounts, tax breaks or other support to certain categories of users.All of the seven specific objectives for which operational objectives (or ‘measures’)have been defined, can be pursued to a greater or lesser extent by the different policyoptions for USO at the EU level, as presented in the next chapter.Assessment of appropriateness of universal service for advancing basic broadband development 78Final report
  • 79. VAN • DIJKMANAGEMENT CONSULTANTS4. IDENTIFICATION AND DESCRIPTION OF POLICY OPTIONSThe previous chapter has listed a number of specific and operational objectives that,as far as the development of the broadband market is concerned, contribute toattaining the general objectives of the Framework Directive. For the purpose of thisstudy, we will however be solely focussing on defining and comparing differentpossible approaches for dealing with basic broadband services as part of USO at theEU level, so that the policy options presented hereunder will only (to a smaller orbigger extent, depending on the option) respond to those operational objectives ormeasures that have at the end of Chapter 3 been identified as possibly relevant underUSO.In addition to the two indispensable and obvious options of “No policy change”(OPTION 1) and “No USO regulation at the EU level” (OPTION 2); three additionaloptions have been identified, each differently corresponding to the different specificand operational objectives identified in the previous chapter. - The first (OPTION 3) relates to ‘Mandating broadband internet access for all citizens at a speed of 2Mbit/s’; - The second (OPTION 4) presents a ‘Refinement of the 2009 regime’; - The third (OPTION 5) responds to a ‘Reformed and focused USO’.The five policy options are described in more detail in the following paragraphs. Atthe end of the presentation of each option, a first indication is given of the way theseoptions correspond to the different objectives. Whenever possible, relevant elementsobtained during the public consultation on universal service principles in e-communications 159 were used for further developing the policy options.A more detailed and complete assessment of this will however be made in thefollowing chapter, in which the impacts are assessed in detail.4.1. OPTION 1: ‘NO POLICY CHANGE’ (2009 REGIME)The ‘NO POLICY CHANGE’ OPTION implies that the EU provisions on USO aremaintained. These provisions can be found in the USD 160 , as amended by theCitizens’ Rights Directive 161 , which needs to be transposed by the Member States by25 May 2011.Therefore at the date, the scope of European universal service will include severalservices:159 See :http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm160 See Directive 2002/22/EC, OJ 24.4.2002 L 108/51.161 See Directive 2009/136/EC of the European Parliament and of the Council of 25 November2009, OJ 18.12.2009 L 337/11.Assessment of appropriateness of universal service for advancing basic broadband development 79Final report
  • 80. VAN • DIJKMANAGEMENT CONSULTANTS Provision of access at a fixed location and provision of telephone services. The connection should be capable of supporting services of voice, facsimile as well as data communications at rates that are sufficient to permit functional Internet access. The satisfactory and sufficient data rates should be defined by each Member States taking due account of specific circumstances in national markets, for instance the prevailing bandwidth used by the majority of subscribers in that Member State 162 (hence may include broadband connections in some countries); Directories and directory enquiry services ; Public pay telephones and other publics voice telephony access points; Measures for disabled end-users.The ‘NO POLICY CHANGE’ OPTION also implies that all other current instruments foradvancing broadband development are maintained (cf. section 2.2.5).OPTION 1, which would not entail policy changes, would in any case make sure thatSPECIFIC OBJECTIVE 2: Respect the heterogeneity of Member States, is maintained.Given the European provisions are complied with, OPTION 1 could also help inattaining SPECIFIC OBJECTIVE 1: Ensure a minimum level of broadband service at theEU level and SPECIFIC OBJECTIVE 4: Ensure that there is no distortion or restriction ofcompetition.4.2. OPTION 2: ‘NO EU REGULATION RELATED TO USO’OPTION 2 assumes that the specific EU provision on universal services would beremoved and that general EU law will apply to Services of General Economic Interestin electronic communications.Regarding the scope of the SGEI, such option implies that a minimum set ofavailable, affordable and accessible services is not any more guaranteed at theEuropean level, but that each Member State has the full flexibility to define the scopeof eSGEI applicable to its territory (in particular the type of broadband access) underthe marginal control of the Court of Justice.Regarding the financing of the eSGEI, this option implies that there is no longer arestriction on the use of sector financing to a minimum set of services defined at theEuropean level, so that Member States have full flexibility on the financing meanswithin the limits of internal market law and competition law (in particular the Stateaids control), and thus have more flexibility with respect to sector financing thanunder the current system.Under the ‘NO EU REGULATION RELATED TO USO’ OPTION it is also assumed that allother current instruments for advancing broadband development are maintained (cf.section 2.2.5).162 See Recital (5) Directive 2009/136/EC.Assessment of appropriateness of universal service for advancing basic broadband development 80Final report
  • 81. VAN • DIJKMANAGEMENT CONSULTANTSOption 2 thus increases substantially the flexibility of the Member State, at theexpense of the internal market and the European eSGEI. This implies that OPTION 2would positively contribute to SPECIFIC OBJECTIVE 2: Respect the heterogeneity ofpreferences of Member States.4.3. OPTION 3: ‘MANDATING BROADBAND INTERNET ACCESS FOR ALLCITIZENS AT A SPEED OF 2MBIT/S’Under OPTION 3, the current first generation supply side measures for bridging thedigital gap at the level of basic broadband services (cf. section 2.2.5) are beinggrouped by including these services in the scope of USO. More specifically, access tothe internet at a speed of 2Mbit/s would be mandated at the EU level, independentlyof the penetration and take-up of broadband in each Member State. Since thisrequirement would in most countries entail a substantial network roll-out orupgrade, would be much more comprehensive than ‘procuring for theunderprivileged’ and would not take into account and adapt to the specific nationalcircumstances in the Member States (e.g. prevailing bandwidth used by the majorityof subscribers and technological feasibility), this option would mean that the USO,which in the past was a social safety net, would become an industrial policy tool. Theoriginal overall concept of USO would thus be altered under this option.The funding mechanism for the universal broadband service would allow for publicas well as sector-specific funding. Also, Member States would continue having thepossibility of defining additional obligations which are then however funded bygovernment.As it would procure a 2Mbit/s access across all Member States of the EU, OPTION 3would, more than OPTION 1, contribute to attaining SPECIFIC OBJECTIVE 3: Alleviatedistortions between Member States. However, imposing a 2Mbit/s universal accesswould be an obstruction to possible national initiatives which would go beyond EUminimum requirements, and as such OPTION 3 would have a negative effect onSPECIFIC OBJECTIVE 2: Respect the heterogeneity of preferences among MemberStates.4.4. OPTION 4: ‘REFINEMENT OF THE 2009 REGIME’This option provides for three amendments to improve the 2009 regime. The firstrelates to the scope of universal service: the definition of functional internet accessand its possible extension to broadband access. The second relates to the financing ofthe universal service: the unfair burden condition. The third relates to the way thecontributions to the universal service fund are collected.It should be stressed however, that these amendments would not replace or alter thecurrent USO concept of being a social safety net, since, as will become clear in thefollowing paragraphs, this option would let Member States maintain the flexibility toadapt the US to the specific national circumstances (e.g. prevailing bandwidth usedby the majority of subscribers and technological feasibility).Assessment of appropriateness of universal service for advancing basic broadband development 81Final report
  • 82. VAN • DIJKMANAGEMENT CONSULTANTSFirst amendment: Introduction of an ex ante impact analysisAs detailed in Chapter 1, the 2009 reform upset the balance between harmonizationand national flexibility that was set in 2002. The reform removes the ceiling on thefunctional Internet access, hence gives more flexibility to the Member States to definethe level of access according to their national circumstances (for instance taking intoaccount the majority of use and technological feasibility as mentioned in recital 5 ofthe Citizens Rights Directive 2009/136). This increased flexibility could thus includemore substantial network investments compared to the investments required for theminimum set of universal services previously defined in the 2002 USD. However, thereform does not increase the harmonization in parallel, for instance on financing.Furthermore, the inclusion of broadband in the scope of US has, because of thespecific characteristics of the broadband sector (cf. section 2.1.3 – e.g. multiple marketplayers offering broadband services over different technological platforms), anumber of far-reaching consequences and implies a trade-off between a number ofaspects, all of which may differ according to national circumstances. E.g. in case of anincorrect timing of introduction of USO as a measure for broadband development,there is a risk of hindering the market itself attaining (part of) the objectives withoutintervention. As for the 2002 USO, it is important to have a correct balance betweenthe positive impacts of preventing exclusion and the negative impact of placing aburden on the sector and thus on the end-users.This option aims at reinforcing and framing the criteria of recital 5 of the CitizenRights Directive (majority of use and technological feasibility) by requiring thatMember States do a fully-fledged impact analysis of national circumstances beforeexpanding the scope of universal access and service on their territory. The analysiswill focus on availability as the existing level of national discretion under the 2009Regime would be maintained for Member States for ensuring affordability andaccessibility. Each impact analysis should furthermore be conducted according tonew Commission Guidelines and then be notified to the Commission.Those guidelines will thus cover the definition of the scope and the establishment ofthe financing scheme of the universal service. They would be more comprehensivethat the previous guidelines of the Commission that dealt only with the financingscheme. 163 The Guidelines will require that any national impact analysis identifiesand specifies the social and/or economic objectives and desired outcomes and isdone in the following steps: 1. Consideration of whether broadband is an essential service of significant social importance.163See Communication from the Commission of 27 November 1996 on the AssessmentCriteria for National Schemes for the Costing and Financing of Universal Service inTelecommunications and Guidelines for Member States on Operation of such Schemes,COM(96) 608.Assessment of appropriateness of universal service for advancing basic broadband development 82Final report
  • 83. VAN • DIJKMANAGEMENT CONSULTANTS 2. Estimation of the degree of expected market penetration of broadband service and assessment of the nature and extent to which broadband will not be made available by the market and why. 3. Consideration of the social and economic disadvantages incurred by those without access to broadband if there is no government intervention in this expected market situation. 4. Estimation of the costs of intervention to widen broadband deployment through the use of the USO mechanism; and comparison of this cost against the use of other approaches to establish that the USO mechanism is superior. 5. Establishment that the benefits of intervention through the USO exceed the costs of doing so, taking into account the incidence of such benefits and costs (especially those on unsubsidized telecommunications/Internet/broadband Internet customers); and of effects on other communications and broader policy objectives. 164Intervention should only occur where overall benefits persuasively outweigh overallcosts and where a substantial increase in the level of USO expenditure would notresult. As such, there would be no room for ‘bidding up’ services by policy makers,pushing the cost of universal service to unjustified heights.One of the aspects to be analysed in the impact analysis would be theappropriateness to impose an open access obligation to the universal serviceprovider. While it would have large benefits in terms of empowering consumers (i.e.providing choice), the specific circumstances need to be investigated in order toavoid creating e.g. disincentives for operators.Other aspects that, according to different parties (see e.g. contributions to the publicconsultation), could possibly be included in the scope of the impact analysis, are: An analysis of the appropriateness to limit public intervention to the wholesale market, allowing for competition between alternative operators at the retail level, versus designation of a retail operator that should provide access at competitive retail prices; An analysis of the appropriate level of segmentation (e.g. geographically, groups of people); An analysis of the enforcement principles (e.g. public procurement compared to designating a USP); An analysis of complementary measures (e.g. demand measures); An analysis of the most suite technological solutions.As already mentioned, it should be noted that the ex ante impact analysis proposedwould only be applicable for broadband services, and not for the other services thatare currently included in the minimum set of services at the European level. This is164This test is an adaptation of the test proposed by P. Xavier (2006), Rethinking Universalservice for a Next Generation Network environment, OECD Working Party onTelecommunication and Information Services Policies, p. 40.Assessment of appropriateness of universal service for advancing basic broadband development 83Final report
  • 84. VAN • DIJKMANAGEMENT CONSULTANTSbecause the rationale for the introduction of the impact analysis step can precisely befound in the fact that the context for broadband services is very different than the onefor e.g. basic telephone services, as explained above. This way, harmonization isaimed for, while a certain degree of flexibility is given in order to assess theappropriateness of the measure in light of the specific national circumstances.Thus, the inclusion of broadband in the scope of USO services at the EU level would– as in the USD, amended by the Citizens’ Rights Directive - not be accompaniedwith the determination of a minimum or maximum speed. On the contrary, thechoice of the speed relevant for inclusion in the set of services at the national level,would be made dependent on the national circumstances that prevail from the ex anteimpact analysis, which implies that OPTION 4 can in fact be considered as a ‘FramedOPTION 1’. It is clear that the flexibility given with respect to broadband speed is animportant point in creating a balance between EU intervention and national freedom,in light of the extra burden placed on the Member States due to the imposition of animpact analysis.It is clear that the first amendment of OPTION 4 was inspired by the need foroptimally pursuing different objectives, most notably SPECIFIC OBJECTIVE 3: Alleviatedistortions between Member States, SPECIFIC OBJECTIVE 4: Ensure that there is nodistortion or restriction of competition, and SPECIFIC OBJECTIVE 5: Ensure that marketdistortions are minimized.Finally, as the ex ante impact analysis would include an analysis of theappropriateness of the establishment of an open access regime, OPTION 4 couldpossibly positively contribute to SPECIFIC OBJECTIVE 6: Ensure user choice.In the public consultation, the principle of introducing an ex ante impact assessmentfor identifying the appropriate intervention was generally supported by thestakeholders. It was also noted that consistent approaches could further bestimulated through existing cooperation mechanisms such as COCOM, the HighLevel Group 165 or BEREC (the Body of European Regulators for ElectronicCommunications).Second amendment: Abolishment of the principle of establishing an unfair burdenAs discussed in section 2, designating an operator as universal service provider forbroadband services would in many cases result in further network roll-out, therebynecessitating substantial investments, of another magnitude of what was the case forthe current list of USO services established at the EU level, which focused more onmaintaining a status quo. These most probably very large investments 166 arethreatened by the obligation imposed by the EU on the NRAs of needing to prove anunfair burden, as stipulated in Article 12 USD. After all, it would mean that auniversal service provider would only know after his designation as universalservice provider and potentially even after making investments whether or not he165 See Europe’s Digital Agenda: http://ec.europa.eu/information_society/digital-agenda/index_en.htm166 As assessment of these cost for each EU Member State will be presented in Chapter 5.Assessment of appropriateness of universal service for advancing basic broadband development 84Final report
  • 85. VAN • DIJKMANAGEMENT CONSULTANTSwould be eligible for compensation. This would thus entail a significant level ofuncertainty, which in turn could negatively impact the broadband development andthe costs associated with it (e.g. because some efficient operators might seek to avoidthis risk by not tendering for the role of a universal service provider).Therefore, OPTION 4 would also encompass for the broadband services an adaptationof Article 12 USD, by omitting the evaluation of the US obligation being an unfairburden on the universal service provider. This would imply that the compensationshould cover the difference between the incremental costs and incremental revenues.The second amendment would, by increasing the level of certainty for the universalservice provider of being reimbursed, respond to SPECIFIC OBJECTIVE 4: Ensure thatthere is no distortion or restriction of competition and SPECIFIC OBJECTIVE 7: Ensurelegal certainty and transparency.Third amendment: System of VAT-like tax for financingThe third amendment will explicitly provide that the net cost of the universal servicecould be recovered by a VAT type tax on electronic communications services, andthat such mechanism should be encouraged. Indeed, such mechanism is simple (as itis just an addition to an existing regime), immediately operational, transparent,neutral and avoids the danger of double imposition on inputs and outputs, and issimilar across all the Member States. This amendment has already been suggested byseveral authors. 167By putting more emphasis on financing mechanisms that are less distorting for themarket, the third amendment would positively influence SPECIFIC OBJECTIVE 5:Ensure that market distortions are minimized.4.5. OPTION 5: ‘A REFORMED AND FOCUSED USO’OPTION 5 entails a more radical reform of the USO in order to adapt it to theelectronic communications market evolutions, to put emphasis on take-up and notonly penetration, and to focus on those really in need.In this option, USO focuses on affordability and accessibility 168 whereas availabilityshould be ensured by other policies. The rationale behind this option is linked to theremarks made under OPTION 3, i.e. that ensuring access of all EU citizens, regardlessof their location, to broadband services of a defined speed (2Mbit/s or other), wouldno longer fall under the original concept of universal service as a social safety net,but would constitute an industrial policy decision. This would be the case since asubstantial part of the networks would still need to be rolled out under thisrequirement. Under OPTION 5, it is thus assumed that US would not be theappropriate tool to implement this industrial policy, but that other policy tools167See Cheffert (2000, p. 248). Reynold et al. (2008)168Accessibility in this context is defined as the ease with which all people, including andespecially those with disabilities, can have access to and can use broadband services.Assessment of appropriateness of universal service for advancing basic broadband development 85Final report
  • 86. VAN • DIJKMANAGEMENT CONSULTANTSwould ensure availability. Universal service would solely focus on its role as a socialsafety net and concern issues of affordability and accessibility.The availability of new broadband infrastructures will thus be ensured by Europeanand national, in particular cohesion policies and actions under the Digital Agenda forEurope, and the deployment of new or upgraded infrastructures could only befinanced with public funds but not with sector funding. Such policies should ensurethat those infrastructures remain open to service providers such that effectivecompetition may take place to the benefit of consumers. This option is justified by thefact that ensuring availability of new infrastructures relates more to an industrialpolicy objective than to a social objective. Such industrial policy will be financed byState funds only.Thus, as a social safety net, USO will focus on affordability and accessibility of goodquality access (and services) on the available (new) broadband infrastructures. Thus,the USO would cover mainly two aspects. First, USO would ensure that customers inneed receive support in order for them to pay the market price of the new availableinfrastructures. A particular attention should be paid to people living in rural areasas the market price of the new infrastructures in those areas may be higher than inurban areas. Second, USO should also ensure that people with disability can use theservice. USO would thus not be charged with assuring a global level of affordability,but would be focused on specific user groups for which affordability truly constitutesan issue. It should also ensure that people with disability can use the service. Thecost of the USO is the amount of the support to the people in need in urban and ruralareas, and the cost of adapting the services for the disabled.Finally, assuming that open access conditions are imposed as part of the measuresensuring availability of the broadband infrastructure, OPTION 5 would be compatiblewith empowering consumers, i.e. by providing choice at the broadband service level.Under this option, the USO should be financed by the State budget or by the sector.The three amendments made to the current regime with respect to scope andfinancing (ex ante impact analysis, removal of unfair burden and introduction ofVAT-like tax system) under OPTION 4, would logically not be incorporated in theproposed OPTION 5, since under this option the USO tool would not include thenecessary investment for network roll-out, which was precisely the motivation forthe proposed amendments.OPTION 5 would focus very specifically on obtaining some aspects of SPECIFICOBJECTIVE 1: Ensure a minimum level of broadband service at the EU level.Assessment of appropriateness of universal service for advancing basic broadband development 86Final report
  • 87. VAN • DIJKMANAGEMENT CONSULTANTS4.6. SUMMARY OF THE MAIN DIFFERING CHARACTERISTICS OF THE POLICY OPTIONS REGARDING BROADBAND AND USO AT THEEU LEVEL OPTION 3 OPTION 5 OPTION 1 OPTION 2 OPTION 4 Mandating A reformed and No policy change No EU Refinement of the 2Mbps access focused USO (2009 Regime) USO Regulation 2009 Regime for all EU citizensSCOPE Affordability and accessibility to the available broadband infrastructures. The speed of the broadband services whose affordability and accessibility is ensured would depend on theScope of broadband No indication of minimum Broadband services at the No indication of minimum available infrastructure inservices included in USO or maximum speed of the No USO definition at EU EU level are defined as a or maximum speed of the the Member State.at EU level broadband services that can level. connection with a speed of broadband services that can Given the national be included in USO. 2 Mbps. be included in USO. broadband plans, this would at least correspond to 2 Mbps and would in time further evolve to very high speed internet services, based on Next Generation Technologies.
  • 88. VAN • DIJKMANAGEMENT CONSULTANTS OPTION 1 OPTION 2 OPTION 3 OPTION 4 OPTION 5 Mandating A reformed and No policy change No EU Refinement of the 2Mbps access focused USO (2009 Regime) USO Regulation 2009 Regime for all EU citizens The broadband services included at MS level need to “take due account of specific circumstances in national The broadband services markets, for instance, the that can be included in USO prevailing bandwidth used by at the MS level need to have the majority of subscribers in a speed of 2 Mbps. The broadband services The broadband services that Member State, and included at MS level are included at MS will depend technological feasibility, The only flexibility of a MS defined depending on the on the services that are provided that these measure The MS have full flexibility consists in deciding that the outcome of an ex-ante impact made available based onDefinition of broadband seek to minimize market of including broadband of a market is delivering distortion”. (Recital (5), analysis following the national broadbandservices included in USO certain speed in the national sufficiently, so that no USO Directive 2009/139) guidelines provided by the strategy and followingat MS level USO or not within the obligations are required. Commission and of which other measures taken. limits of general EU law. No further indication in the the outcome should be Availability (and its costs) No further indication in the Directive is provided on notified to the Commission. would not be supported by Directive is provided on how this should be done; USO scheme. how this should be done; no approval by the no approval by the Commission of the MS Commission of the MS decision is foreseen. decision is foreseen.Assessment of appropriateness of universal service for advancing basic broadband development 88Final report
  • 89. VAN • DIJKMANAGEMENT CONSULTANTS OPTION 1 OPTION 2 OPTION 3 OPTION 4 OPTION 5 Mandating A reformed and No policy change No EU Refinement of the 2Mbps access focused USO (2009 Regime) USO Regulation 2009 Regime for all EU citizensUNIVERSAL SERVICE PROVIDER Member States can designate one or more undertakings to provide Regarding the affordability different elements of of available broadband Member States can universal service (e.g. services, the support will be designate one or more connection and service) given directly to the undertakings to provide and/or to cover different customers who may then different elements of parts of national territory. choose its provider. In this universal service (e.g. Member States (national, case, there is no need of a connection and service) The designation should be regional as well as local designation of a USP. and/or to cover different based on an “efficient, authorities) can designate parts of national territory. objective, transparent and one or more undertakings non-discriminatory to provide different The ex-ante impact analysis designation mechanism” elements of universal will include the assessmentDesignation of the USP which ensures that service (e.g. connection and Idem Option 1. of the most cost-efficient “universal service is provided service) and/or to cover manner of providing in a cost-efficient different parts of national universal service (e.g. based manner”(USD 2002/22/EC; territory. on the choice of technology, Article 8(2)) definition of the parts of the The designation is based on territory for which distinct Some indications are the own preferred criteria. undertakings can be provided on how the cost- designated, etc.). efficient provision of US could be assessed (e.g. Case The Commission may C-220/07 France v. comment on this impact Commission). analysis.Assessment of appropriateness of universal service for advancing basic broadband development 89Final report
  • 90. VAN • DIJKMANAGEMENT CONSULTANTS OPTION 1 OPTION 2 OPTION 3 OPTION 4 OPTION 5 Mandating A reformed and No policy change No EU Refinement of the 2Mbps access focused USO (2009 Regime) USO Regulation 2009 Regime for all EU citizensFINANCING The net cost is calculated where the NRA considers Cost of the support given to that the provision of US end-users. may represent an unfair Depending on how the USP burden. was designated: - calculation ex-post in Depending on how the USP The MS decide on if andDetermination of the case of direct was designated: how the net cost of USO isnet cost of USO Idem Option 1. designation of USP - calculation ex-post in determined according the usage of elements case of direct general EU law. provided by USP as designation of USP part of the designation - usage of elements mechanism (e.g. provided by USP as auction) part of the designation mechanism (e.g. auction) The financing mechanisms The financing mechanisms The MS decides on the kind consist of funds that can be consist of funds that can be of funding mechanisms it activated for compensating activated for compensating The financing mechanisms wishes to install (raising of the net cost of USO. the net cost of USO. consist of funds that can be a fund, vouchers for specific activated for compensating groups of low-income or Activation can only take Activation of the financing the net cost of USO. disabled users).Financing mechanism place after the assessment Idem Option 1. mechanism would no by the NRA of the unfair longer depend on the The MS decide on when a burden of USO for the US assessment by the NRA of financing mechanism is provider. the unfair burden of USO activated within the limits for the US provider. of general EU law. No indications are provided in the Directive on whatAssessment of appropriateness of universal service for advancing basic broadband development 90Final report
  • 91. VAN • DIJKMANAGEMENT CONSULTANTS OPTION 1 OPTION 2 OPTION 3 OPTION 4 OPTION 5 Mandating A reformed and No policy change No EU Refinement of the 2Mbps access focused USO (2009 Regime) USO Regulation 2009 Regime for all EU citizens elements need to be taken into account when assessing the unfair burden condition. Net cost of USO can be compensated by means of Net cost of USO can be public or sector specific compensated by means of funding. public or sector specific funding. Idem Option 1, but in Any national schemeFunding sources for the net addition, a VAT like system serving to share the net cost The funding can also be Idem Option 1. Idem Option 1.cost of USO of the provision of raised by other means, such is encouraged. universal as a taxation of end-users service obligations shall be (e.g. fixed amount per communicated to the month added to the Commission (Directive invoice). 2002/77; article 6)Assessment of appropriateness of universal service for advancing basic broadband development 91Final report
  • 92. VAN • DIJKMANAGEMENT CONSULTANTS5. ASSESSMENT OF THE POLICY OPTIONSIn the following sections, the ability of the policy options to attain the objectives,identified for pursuing the problems as presented in Chapter 2, will be assessed andcompared in more detail.For the assessment and comparison of the policy options, a number ofcomplementary approaches have been developed, with the aim to provide ascomplete a picture as possible of all relevant qualitative and quantitative impacts.In summary, the following assessments will be presented in the following sections: Qualitative assessment of the policy options - Preliminary assessment of the elements with national flexibility; - Overall qualitative assessment of the economic, social and environ- mental impacts of each policy option; Quantitative assessment of the policy options - Assessment of the cost of full coverage (availability); - Assessment of the cost of affordability; - Assessment of the administrative costs. Overall cost-benefit assessment of each policy option.The assessments are based both on desk research, internal analysis, brainstormingand discussions with experts, as well as on the contributions to the public consultationon universal service principles in e-communications 169 .5.1. QUALITATIVE ASSESSMENTOne of the elements of a detailed comparative assessment of the policy optionsconsists of a qualitative assessment of the way in which the options answer to thedifferent objectives determined in Chapter 3. Therefore, a set of economic, social andenvironmental impacts, which relate to the seven specific objectives identified above,will be defined, and subsequently reviewed per policy option.However, as the detailed assessment will show, the analysis is hampered by the factthat the different policy options, which detail the possible policies at the EU level,leave a certain level of flexibility for the Member States on different aspects ofimplementation. Since it cannot be anticipated which choices the different MemberStates will make vis-à-vis these flexibilities and since assumptions on these choices169 See :http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htm
  • 93. VAN • DIJKMANAGEMENT CONSULTANTSwould be relevant for all policy options, the following paragraphs will discuss theseelements, and will assess the most optimal national choices that can be made. Theconclusion presented in 5.1.1.c will then be taken into account separately in thegeneral cost-benefit assessment of each policy option.5.1.1 PRELIMINARY ASSESSMENT OF ELEMENTS WITH MAJOR NATIONALFLEXIBILITYThe policy options presented in Chapter 4 leave room for flexibility for the MemberStates at a number of levels that are common to all options. Given the possibleimpact that the choices regarding some elements 170 can have on attaining the globalobjectives, the following paragraphs will provide a preliminary assessment of themechanisms available for providing financial support to specific user groups (i.e.those in low-income groups who cannot afford broadband services) and themechanisms and sources available for raising the funding of the USO net cost.5.1.1.a MECHANISMS AVAILABLE FOR PROVIDING FINANCIAL SUPPORT TO SPECIFIC USERGROUPSA number of possibilities exist for Member States that wish specific user groups (i.e.those in low-income groups who cannot afford broadband services) to benefit fromfinancial support when purchasing universal services. Targeted financial support isin general considered to be an efficient instrument for improving affordability.Different ways to provide a discount that are common to all options are presentedand compared in the table below: Transparency of the Economic efficiency User choice mechanismDiscount on one This mechanism There is no user choice The mechanism is veryspecific tariff plan includes the risk that since based on this transparent for the end- the tariff plan is not mechanism, only one user: the tariff plan adapted to the precise tariff plan is provided that is eligible for a needs of the social by one provider. discount is easy to groups targeted. This identify and the could have a negative amount of the discount impact on the economic can be read directly efficiency of increasing from the invoice. the affordability of broadband services.Discount on self- Gives an incentive to Allowing specific user Could reduceselected tariff plans consumers to reveal groups to choose their transparency for thei.e. the universal their preferences and preferred tariff plan users: since the userservice provider limit the subsidy to the amongst a number of would need to make aproposes a suite of ones really in need 171 . possibilities enables to choice and thus better align the service evaluate the offer thattariff plans that to the specific needs of is the most interestingconsumers can each user. for his/her situation;choose depending on sufficient informationtheir consumption170Without being exhaustive on all levels that allow for flexibility for the Member States.171M.H. Riordan, "Universal Residential Telephone Service", in M. Cave et al (ed), Handbook ofTelecommunications Economics, 424-477.Assessment of appropriateness of universal service for advancing basic broadband development 93Final report
  • 94. VAN • DIJKMANAGEMENT CONSULTANTS Transparency of the Economic efficiency User choice mechanismpattern should be easily made available in a format that facilitates comparison between offers.Table 9: Comparison of mechanisms for giving financial support to specific user groups,common to all policy optionsAn alternative approach for increasing the affordability consists of direct subsidiesto end-users or ‘vouchers’ 172 . Vouchers are issued by governments and distributeddirectly to those low-income user groups that are in need. They can however not bepart of the calculation of the US cost under the current EU framework since noburden at all is laid on the undertakings.Vouchers have a manifest advantage compared to the discounts presented in Table 9as they ensure that there is no discrimination between providers (i.e. all providersaccept vouchers for the payment of the services they provide) and that users havefull flexibility to choose their preferred service provider and tariff plan.The fact that vouchers always imply state funding as they are not compatible withthe EU framework for universal service, and can thus not be financed via a sectorfund, might discourage Member States to use this very efficient instrument. This ishowever not the case for OPTION 2: No EU Regulation for USO: under this option, aMember State could decide not to apply the burden criterion for determining the netcost of USO.ConclusionFinancial support mechanisms based on a suite of tariff plans seem preferable over anapproach in which there are only discounts on one tariff plan, assuming thatsufficient transparency is provided on the possible options. A very efficientinstrument, both in terms of reducing market distortion and of decreasing thegeneral burden of the cost of USO (cf. section 5.1.1.b) 173 , consists of ‘vouchers’. Theseare however not possible under the current framework and can thus only beconsidered under OPTION 2.172 Voucher systems have been successfully used in the USA for a long time to support low-income users (cf. Lifeline and Link-up programs).173 In term of administrative costs, the approach based on vouchers would require theestablishment of a database identifying all consumers eligible for obtaining financial supportin order to increase the affordability of broadband services. This database is however alsorequired for other approaches based on discount plans. Moreover, a system would need to bedeveloped for reimbursing the different providers. Since this reimbursement would be basedon the value of the vouchers received by each provider, this should not imply a particularlyheavy financial burden. Finally, no administrative burden would be related to the collectionof the funds for compensating the cost of the vouchers.Assessment of appropriateness of universal service for advancing basic broadband development 94Final report
  • 95. VAN • DIJKMANAGEMENT CONSULTANTS5.1.1.b SOURCES FOR FUNDING OF USO NET COSTCurrently, two methods are foreseen for compensating the net cost of universalservice. These are public funding and sector specific funding. Regarding publicfunding, the assumption is taken that this cannot be raised by direct taxation 174 onend-users (e.g. collected via an additional tax on the end-users bill) 175 .As mentioned previously in paragraph 1.1.2.d, of these two methods, public fundingis considered to be the least distorting and most efficient. This is mainly because thetaxable basis is broader, thus the distortive effect of the taxes is accordingly smaller.Another advantage is that the government, which decides about the scope universalservice, would have to bear its costs. As it is the same authority which would decideand pay, it may be expected that the decision on universal service will reflect thesocial preferences of the government’s Member State.A more structured framework for comparing public and sector specific funding ofUS, as well as the way in which these funds can be collected is presented below 176 : Economic efficiency Simplicity and transparency Probably the least distortive approach This mechanism is simple as it reliesGeneral taxation since with this approach, taxes are raised upon the existing tax collecting system from the broadest possible tax base (hence (reducing the administrative cost of the distortive effect of the tax is collecting the compensation), and minimized). transparent as it relies upon the standard budgetary procedures. It ensures that the government, which decides about the universal service, would bear its costs, hence the decision can be expected to correctly reflect social preferences. This approach does not require distortive This mechanism is very simple as itPart of revenues of taxes. However, the opportunity cost of does not require any collectingprivatization using privatization revenues to finance mechanism (apart from the selling of universal service instead of other general the privatised companies), as well as interest services should be calculated. transparent. However, if the part of the revenues put in a fund is too limited, there can be uncertainty regarding the longer term funding of the net cost of USO. This approach does not require distortive This mechanism is very simple as itPart of revenues of taxes. However, the opportunity cost of does not require any collectingspectrum licensing using spectrum revenues to finance mechanism (apart from the selling ofand pricing universal service instead of other general the spectrum), as well as transparent. interest services should be calculated. However, if the part of the revenues put174 The possibility of direct taxation on end-users is considered to be a public fundingapproach as it is assumed that taxes can only be decided upon or imposed by governmentand not by companies.175 See e.g. ‘Study on the re-examination of the scope of universal service in the telecommunicationssector of the European Union, WIK 2000’(http://ec.europa.eu/archives/ISPO/infosoc/telecompolicy/en/Study-en.htm)176 Table inspired a.o. by the OECD Report ‘Rethinking Universal Service for a NextGeneration Network environment’ (prepared by Dr. Patrick Xavier) – 18 April 2006.Assessment of appropriateness of universal service for advancing basic broadband development 95Final report
  • 96. VAN • DIJKMANAGEMENT CONSULTANTS Economic efficiency Simplicity and transparency in a fund is too limited, there can be uncertainty regarding the longer term funding of the net cost of USO.Table 10: Comparison of mechanisms and sources for raising funding of the USO net cost:public funding Economic efficiency Simplicity and transparency Could lead to competitive distortions This mechanism is not transparent as theContributions between services and providers, size of the contributions is in most casesproportional to depending on which providers need to not known in advance. This can be athe “contributory contribute to the net cost of USO. barrier for new providers that want tocapacity” enter the market. The less operators having to contribute to(most often the fund, the higher each contribution The required contributions per providerrevenue) will be, and the larger the market are rolled into the costs and prices of the distortion risks will be. services in a way that is not transparent for end-users. If the contribution of the operator is too high, there is a risk that the development of the sector is slowed down and that a vicious circle appears: more intervention weakens the market mechanism, which leads to even more intervention. In particular, if the contribution of the new entrant is too high, there is a risk that competition is hampered. As the government, which decides about the universal service, does not bear its costs, there is a negative externality that may lead to a scope of universal service which is too extensive and too costly compared to the social preferences Announcing the tax rateVAT like tax ex ante makes the contribution Idem supra.approach at the requirement much more transparent,provider level reducing economic uncertainty (e.g. compared to the system of proportional contributions that are determined ex post – cf. supra). The required contributions per provider are rolled into the costs and prices of the services in a way that is not transparent for end-users.Table 11: Comparison of mechanisms and sources for raising funding of the USO net cost:sector specific fundingResults of the public consultationIn addition to the above mainly economic elements, contributions of serviceoperators to the public consultation also pointed out more generally that sectorspecific funding for the prevention of social exclusion is unfair and inappropriatesince these policies will benefit the entire society and all sectors of activity. Ifuniversal service is seen mainly as a social welfare benefit then the case for centralAssessment of appropriateness of universal service for advancing basic broadband development 96Final report
  • 97. VAN • DIJKMANAGEMENT CONSULTANTSgovernment funding is even stronger. After all, social policies should be the burdenof the state and should not be confused with sector-specific measures for thecorrection of market failure.Furthermore, incumbent operators pointed out that, since only few Member Statesactually activate a funding mechanism, in many countries where a universal serviceprovider was designated, the USP is bearing all costs. This means that the USP has tocross-subsidize unprofitable universal services with margins out of services whichare profitable.Also by new entrants, it was pointed out that the current sector financedcompensation mechanism has failed to provide a faire, non discriminatory andtransparent way to fund the universal service cost and that they should be ended.One NRA explicitly pointed out the difficulty to calculate the net cost and to find abalance between the universal service provider and the rest of the sector.ConclusionEven when both public funding and sector specific funding are allowed, it isprobably unlikely that Member States will indeed finance universal service with ownpublic budgets 177 . Indeed, when making the trade-off between increasing the overalleconomic efficiency and not using general public funds, most Member States seem infine to prefer the latter. Possibly, extra-ordinary revenues (such as the revenues ofprivatisation or spectrum licensing) could be looked at differently by Member Statesas these are directly coming from the electronic communications sector. This couldmake it easier to motivate their employment for raising a fund at the direct benefit ofend-users of the same sector.Regarding public funding it is worth questioning why governments which aresubsidising e.g. education, housing, etc. to specific groups without imposing the costof this on the suppliers of these services, are not applying the same arrangements tothe electronic communications sector 178 . After all, since providers in the electroniccommunications sector are operating in competitive circumstances that are more andmore similar to other industries (cf. e.g. convergence with broadcasting andinformation technology industries); the historical justification that public monopoliesinitially always financed their non-profitable activities with cross-subsidisation isbecoming outdated. Also, the so-called ‘network effect’ (see 2.2.4.a) that isundeniably present in the telephony sector, is less clear in the market for broadbandservices. By consequence, a treatment of subsidies in the electronic communicationssector similar as that of other competitive sectors could be recommendable.In case the optimal approach of public funding cannot be followed, sector specificfunding based on a VAT like taxation of the providers is preferable above aproportional contribution approach. Any policy option stimulating the (harmonised)application of a VAT like taxation of providers should thus be favoured.177 See also Cheffert 2000: Universal Service: some observations relating to future Europeandebates.178 See also OECD Report ‘Rethinking Universal Service for a Next Generation Networkenvironment’ (prepared by Dr. Patrick Xavier) – 18 April 2006.Assessment of appropriateness of universal service for advancing basic broadband development 97Final report
  • 98. VAN • DIJK MANAGEMENT CONSULTANTS5.1.1.c CONCLUSIONEven if it cannot be predicted what choices for the implementation will be made byeach Member State under the different policy options, it still remains useful to assesswhat options allow for or stimulate Member States for choosing the most optimalchoices possible. Based on this assessment, a ranking of the policy options has beenmade in the table below, indicating mainly which option stands out for the twomechanisms discussed: OPTION 3 OPTION 1 OPTION 2 Mandating OPTION 4 OPTION 5 No policy No EU 2Mbps Refinement A reformed change USO access of the and focused (2009 Regulation for all EU 2009 Regime USO regime) citizensMechanisms available forproviding financial 2 1 2 2 2support to specific usergroupsMechanisms and sourcesfor raising the funding of 2 2 2 1 2the USO net costTable 12 Ranking of the policy options reflecting the possibility of making the mostoptimal choices for some flexibilities left to the MS5.1.2 OVERALL QUALITATIVE ASSESSMENT OF THE ECONOMIC, SOCIAL ANDENVIRONMENTAL IMPACTS OF EACH POLICY OPTIONThe following paragraphs present the qualitative assessment of the impact of each ofthe five policy options. Next to a more general description of the expectedconsequences of the implementation of each option, a detailed analysis is made of thetype, magnitude and likelihood of impacts corresponding to each policy option. Thetable in which all impacts of all options are compared is presented at the end of thissection.5.1.2.a IDENTIFICATION OF THE RELEVANT IMPACTSThe impact of each policy option will be assessed in relation to each of the six specificobjectives. These specific objectives have been derived from the general objectives.These in turn are drawn from the Framework Directive for electroniccommunications which is generally considered to be greatly contributing to theoverall development of the EU economy; creating high levels of employment andsocial progress (cf. EU 2020 Strategy/DAE). More precisely regarding the broadbandsector, the specific objectives point out – given the problem definition – the preciserequirements in terms of “conditions to be met” in order to ensure that the generalobjectives are met. Since the specific objectives are directly linked to the generalobjectives from which they are derived, the assessment of the impacts at the specificobjective level will provide for the most detailed possible approach. Moreover, giventhe relation between the specific and general objectives, it is redundant to assessimpacts of policy options in relation to the general objectives.Assessment of appropriateness of universal service for advancing basic broadband development 98Final report
  • 99. VAN • DIJKMANAGEMENT CONSULTANTSThis can be illustrated by the following example: the assessment of the extent towhich a policy option (directly) contributes to the SPECIFIC OBJECTIVE 6 of socialinclusion also indicates how it will (indirectly) contribute to the promotion of theinterests of the citizens in the European Union (cf. Framework Directive) and thus tosocial progress (cf. EU 2020 Strategy/DAE). Or also: the assessment of how a policyoptions help to ensure that there is no distortion or restriction of competition(SPECIFIC OBJECTIVE 2) indirectly indicates the extent to which competition in theprovision of electronic communication networks and services is promoted (cf.Framework Directive) which positively impacts the development of the broadbandsector, enhancing e.g. the overall development of EU economy and creating highlevels of employment (cf. EU 2020 Strategy/DAE). By consequence, the impactassessment presented below will thus not assess the (indirect) impacts of theavailability of broadband, but will however assess how the policy options contribute(directly) to making broadband available. Since the indirect impacts on the generalobjectives are for each policy option equally related to the direct impacts on thespecific objectives, comparison between options at the indirect impact level does notadd value in the context of this impact assessment study.The way the list of impacts is to relate to the specific and general objectives is furtherillustrated in Figure 2 : GENERAL OBJECTIVES The general objectives contribute to the overall Lisbon Strategy and upcoming EU2020 Strategy and relate to the overall development of the EU economy, creating high levels of employment and social progress. The subsidiarity and proportionality principle in the Lisbon Treaty furthermore imply that instruments for advancing broadband development should be chosen in order to: - Achieve an optimal balance between harmonisation and flexibility; - Ensure the efficiency and cost-effectiveness of public intervention. SPECIFIC OBJECTIVES IMPACTS Objective 1: Ensure a minimum level of Per specific objective: broadband service at the EU level; Identification of economic, social Objective 2: Respect the heterogeneity of and environmental impacts. preferences among Member States; IMPACTS Objective 3: Alleviate distortions between Member States; Objective 4: Ensure that there is no distortion Per impact: or restriction of competition; Assessment provides indications Objective 5: Ensure that market distortions are of the extent to which the policy minimized; options specific objectives, and Objective 6: Ensure user choice; thus indirectly the general objectives are attained. Objective 7: Ensure legal certainty and transparency.Figure 2: Illustration of how the impacts directly relate to the specific and indirectly relate to the general objectivesAssessment of appropriateness of universal service for advancing basic broadband development 99Final report
  • 100. VAN • DIJKMANAGEMENT CONSULTANTSList of impactsThe following main qualitative impacts per specific objective have been identified: Specific objectives Impacts ECONOMIC IMPACTS Increased EU competitiveness; Increased development of a European single (online) market; SOCIAL IMPACTS Social inclusion Increased affordability of a minimum level ofOBJECTIVE 1: broadband services for all social groups;Ensure a minimum level of Increased accessibility of a minimum level of broadbandbroadband service at the EU services for disabled users.level Territorial cohesion Increased availability of a minimum level of broadband services of a sufficient speed and quality across the EU territory (and especially in the underserved areas). ENVIRONMENTAL IMPACTS Reduced CO2 emissions because of less travel 179 Diminution of exodus from rural areas because of higher attractiveness of these areas. ECONOMIC IMPACTS Increased flexibility for Member States to define additional universal service levels.OBJECTIVE 2:Respect the heterogeneity of Better reflection of national preferences in the decision onpreferences among Member who will bear the cost of services of general interest.States SOCIAL IMPACTS Better matching of national preferences regarding the level of social inclusion and territorial cohesion. ECONOMIC IMPACTSOBJECTIVE 3: Better level playing field for electronic communicationsAlleviate distortions between operators across the EU;Member States Increased development of a European single (online) market.OBJECTIVE 4: ECONOMIC IMPACTSEnsure that there is nodistortion or restriction of Increased probability that all efficient providers will becompetition considered during the designation process;179 Please note that the availability of broadband is only one explaining factor in the take-up oftelework. These factors include e.g. organisational considerations.Assessment of appropriateness of universal service for advancing basic broadband development 100Final report
  • 101. VAN • DIJKMANAGEMENT CONSULTANTS Specific objectives Impacts Reduced uncertainty regarding the compensation of investment in non-profitable areas; Reduced uncertainty regarding the compensation of the costs related to ensuring affordability and accessibility. ECONOMIC IMPACTS Decreased overall effect of the burden of financial compensation;OBJECTIVE 5:Ensure that market distortions Increased probability that the most efficient USP will beare minimized designated taking into account the national or local circumstances; Increased promotion of market driven investments Reduced disincentives for market driven investments. ECONOMIC IMPACTS Increased user choice between service providers, independent of location and of social group;OBJECTIVE 6: Increased user choice for separation between the providerEnsure user choice of the connection (infrastructure) and the provider of services; Increased user choice between services in terms of single versus bundled services. ECONOMIC IMPACTS Reduced uncertainty regarding the possibility of and amount of compensation for investment in non-profitable areas;OBJECTIVE 7: Increased transparency of mechanisms for designation;Ensure legal certainty andtransparency Increased transparency of mechanisms for compensation; Increased transparency of minimum level of services that will be made available to all social groups; Reduced barriers for obtaining discounts, tax breaks and other (financial) support.The determination of the expected impacts per policy option, as presented in theimpact matrix at the end of this section, is executed through a data analysis exercisewhich consisted of desk research, discussions with experts as well as internalbrainstorming. These impacts were furthermore cross-checked with the contributionsto the public consultation of the Commission 180 and elements related to theassessment by the different stakeholders were added.It should be noted that the ‘BASELINE SCENARIO’ against which the impacts of alloptions will be assessed, consists of a situation in which the current state of affairs ismaintained, thus corresponding to “OPTION 1: No policy change”. This is done toimprove the comprehensibility of the impact assessment. Also, as the objective of the180 See :http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_service_2010/index_en.htmAssessment of appropriateness of universal service for advancing basic broadband development 101Final report
  • 102. VAN • DIJKMANAGEMENT CONSULTANTSimpact assessment is to make a comparison between options and not within oneoption, the scores should also mainly be compared between options. After all, even ifthe scores given to the different impacts identified provide a general indication ofwhat impact could be more important than another, it remains very difficult tocompare between impacts as the nature of the impacts as well as the stakeholdersconcerned can be very different and thus by definition not comparable.The assessment of all of the impacts under each of the options will be done byanalysing the magnitude of the expected impact, as well as the likelihood that theimpact will actually occur as a result of the proposed policy option.The notation used to express the magnitude (compared to the baseline scenario) isthe following:--- very negative impact-- negative impact- slightly negative impact0 no impact+ slightly positive impact++ positive impact+++ very positive impactThe likelihood will be expressed as follows:0 no likelihood1 low likelihood2 medium likelihood3 high likelihoodThese scores give an additional weight to the score expressing the magnitude of theimpact. As such and in contrast to the score for the magnitude, the value given forthe likelihood is an absolute score, i.e. not relative to the score of the baselinescenario.5.1.2.b QUALITATIVE ASSESSMENT OF OPTION 1: NO POLICY CHANGE (2009 REGIME)The removal of the limitation in the USD of functional Internet access to56 kbps provides the Member States since 2009 the flexibility to upgrade theprovision of USO to broadband services. The provisions regarding the selection anddesignation as well as for the financing of the cost of USO however remainedunchanged.In parallel, a number of other instruments also are available for advancingbroadband development (see 2.2.5).When assessing the baseline scenario of ‘POLICY OPTION 1: NO POLICY CHANGE’, itcan first of all be concluded that this option leaves some flexibility to the MemberStates, at the detriment of harmonization at the EU level (cf. GENERAL OBJECTIVE 1:Achieve an optimal balance between harmonization and flexibility). Indeed, it is leftAssessment of appropriateness of universal service for advancing basic broadband development 102Final report
  • 103. VAN • DIJKMANAGEMENT CONSULTANTSto the discretion of Member States to include broadband of a specific speed in USOor not (and thus introducing financing based on sector specific funding or not),taking due account of specific circumstances in national markets (for instance theprevailing bandwidth used by the majority of subscribers in that Member State), andtechnological feasibility, or to use other instruments to stimulate broadbanddevelopment or not. Even though each Member State is requested to set up aNational Broadband Plan under the Digital Agenda for Europe, no minimalrequirements are imposed by the EU.In the public consultation, some stakeholders considered the national flexibilityconcerning the definition of functional internet access, as well as the possibility ofdetermining broadband strategies at the national level, as an important strength ofthe current system. Since no minimal requirements are imposed, the ‘NO POLICYCHANGE’ OPTION, does however not ensure a minimum broadband speed at the EUlevel (cf. SPECIFIC OBJECTIVE 1). This in turn may prevent increasing overall EUcompetitiveness and the development of a European single (online) market, as wellas stimulation of EU wide social inclusion and territorial cohesion.The efficiency and cost-effectiveness of the public intervention (cf. GENERALOBJECTIVE 2) is also not certain and will vary significantly between Member Statesdepending on the choices made by each individual country. Differences in theefficiency of the public intervention between Member States could become significantif they opt for strongly diverging implementations of the universal service tool. Thedegree to which competition is distorted by this intervention could also varybetween Member States, but within limits of what is allowed based on the generalEU law principles and the principle of minimization of market distortion provided inthe Universal Service Directive (e.g. for choosing the most efficient universal serviceprovider 181 ). Finally, the flexibility for Member States may lead to legal uncertaintyand lack of transparency for both service providers and end users. Especiallyconsultation contributions from the professional users expressed concern that thecurrent uncertainty could negatively impact investment in broadband networks.The detailed assessment of ‘POLICY OPTION 1: NO POLICY CHANGE’, based on the listof impacts per specific objective as identified in section 5.1.2.a is presented in Annex2.5.1.2.c QUALITATIVE ASSESSMENT OF OPTION 2: NO EU REGULATION RELATED TO USOThe removal of all EU Regulation related to USO would increase the flexibility of theMember States. Under Option 2, it would be more difficult to achieve an optimalbalance between harmonization and flexibility (cf. GENERAL OBJECTIVE 1). Referringto the detailed qualitative impact assessment in Annex 2, it would become moredifficult to ensure a minimum level of broadband services across the EU (cf. SPECIFICOBJECTIVE 1) and to alleviate distortions between MS (cf. SPECIFIC OBJECTIVE 3).181 To guarantee the principles of non-discrimination and the minimising of marketdistortions, national law may not require that the provider of the universal service should beable to cover the entire national territory: Case C-220/07 Commission v France [2008] ECR I-95,para.34Assessment of appropriateness of universal service for advancing basic broadband development 103Final report
  • 104. VAN • DIJKMANAGEMENT CONSULTANTSOn the contrary, OPTION 2 would fully respect the heterogeneity of preferencesamong Member States (cf. SPECIFIC OBJECTIVE 2), since they would obtain flexibility todetermine the scope and the means of provision of the USO (within the limits ofcourse of EU law, in particular the internal market law and competition law).The extent to which efficiency and cost-effectiveness of public intervention would beensured (cf. GENERAL OBJECTIVE 2) depends fully on the choices made by theindividual Member States. As Member States would have flexibility for designatinguniversal service providers and for assessing the need for compensation of the netcost of USO, fewer guarantees can be given that the public intervention does notdistort or restrict competition (cf. Specific objective 4). Also, it is to be expected that,under OPTION 2, Member States would make use of their increased flexibility totransfer part or all of the costs for advancing broadband development to theelectronic communications sector, with as a consequence a more importantprobability of negative impacts on SPECIFIC OBJECTIVE 5: Ensure that marketdistortions are minimized.As the Member States would also be defining the exact services to be provided underUSO, it is less certain that sufficient user choice would be ensured between serviceproviders, between the providers of the connection and the provider of services andbetween services in terms of single versus bundled services (cf. SPECIFIC OBJECTIVE 6).Finally, regarding SPECIFIC OBJECTIVE 7, the removal of all EU Regulation would havea negative impact on ensuring legal certainty and transparency for both serviceproviders and end-users.5.1.2.d QUALITATIVE ASSESSMENT OF OPTION 3: MANDATING 2 MBPS ACCESS FOR ALL EUCITIZENSThe main difference between OPTION 3 and the baseline scenario consists of thedefinition of the universal service level for broadband at the EU level. Under Option3, access to the Internet at a speed of 2 Mbps would be mandated at the EU level,independently of the penetration and take-up of broadband in each individualMember State. As explained in section 4.3, this option could be considered as anindustrial policy tool. The other provisions in the USD (e.g. related to designationand funding) would however not change.Compared to the baseline scenario, OPTION 3 would thus have a very differentimpact on ‘Achieving an optimal balance between harmonization andflexibility‘(GENERAL OBJECTIVE 1). First of all, regarding the SPECIFIC OBJECTIVE 1, apositive impact is to be expected on the EU competitiveness and the development ofthe European single (online) market. These impacts could however remain limited ascurrently much higher speeds are already being deployed to stimulate EUcompetitiveness and develop the European single (online) market. OPTION 3 wouldfurthermore stimulate territorial cohesion as the obligation to provide 2 Mbps wouldalso apply to e.g. rural areas. Finally, some positive environmental impacts could beobtained indirectly since the availability of overall 2 Mbps broadband would allowfor more teleworking (reducing travelling) or increase the attractiveness of ruralareas and reduce the exodus from rural areas.Assessment of appropriateness of universal service for advancing basic broadband development 104Final report
  • 105. VAN • DIJKMANAGEMENT CONSULTANTSAn important disadvantage of OPTION 3 is that is does not respect fully theheterogeneity of preferences among Member States (cf. SPECIFIC OBJECTIVES 2). Forthe definition of USOs, this implies that some Member States will have to bear a veryhigh burden for providing the 2 Mbps whereas other countries might be refrainedfrom going beyond the minimum EU requirement (since these additional servicelevels cannot be financed by the sector). In the public consultation, some operatorspointed out that a commonly defined and mandatory universal regime to includebroadband services could not only result in making void the scope of existinginstruments, but could also result in a non efficient allocation of resources to thedetriment of citizens’ welfare.Imposing a uniform obligation would of course – at least after a first transitionperiod - reduce to a certain extent distortions between Member States (cf. SPECIFICOBJECTIVE 3), create a better level playing field for electronic communicationsoperators across the EU and stimulate the development of a European single (online)market.Regarding GENERAL OBJECTIVE 2: Ensure the efficiency and cost-effectiveness ofpublic intervention; the impact of OPTION 3 would not be much different than for thebaseline scenario. Indeed, since the USD provisions would be the same – with theexception of the definition of the universal broadband service – the possible impactof the choices made by the Member States and the likelihood that a specific choicewould be made, remain unchanged under OPTION 3. Nevertheless, since 2Mbpswould be mandated as part of USO in all Member States, a positive impact is to beexpected on the user choice between services in terms of single versus bundledservices. Also, since all Member States would have the same minimum level ofservice, OPTION 3 would have a positive impact on the transparency of the servicesthat would be made available to all user groups.5.1.2.e QUALITATIVE ASSESSMENT OF OPTION 4: REFINEMENT OF THE 2009 REGIMEOPTION 4 consists of a refinement of the 2009 Regime (i.e. the baseline scenario) andaims at adapting the current USO provisions to the specific characteristics of thebroadband sector (cf. section 2.1.3). In paragraph 4.4, the three amendmentsconsisting of the introduction of an ex ante impact analysis regarding the scope andfinancing of broadband services in USO, the abolishment of the principle ofestablishing that the burden is unfair and the encouragement of a system of a VATlike tax for raising the USO fund were presented in detail.Each of the three amendments were inspired by specific issues raised during theproblem definition and would thus only apply to the broadband services. Thecombination of these amendments in the ‘Refinement of the 2009 Regime’ has nowbeen assessed against the general and specific objectives that were identified inChapter 3 for assessing the appropriateness of USO for advancing broadbanddeveloped in Europe. The individual scores for all of the impacts per specificobjective are presented in Annex 2.First of all, regarding the GENERAL OBJECTIVE 1: ‘Achieve an optimal balance betweenharmonisation and flexibility’, it can be concluded that OPTION 4 stimulates a higherAssessment of appropriateness of universal service for advancing basic broadband development 105Final report
  • 106. VAN • DIJKMANAGEMENT CONSULTANTSdegree of harmonisation while leaving flexibility to MS to adapt US obligations tonational circumstances.The elements made available through the ex ante analysis would first of all have apositive impact on ensuring a minimum level of broadband service at the EU level(i.e. SPECIFIC OBJECTIVE 1). Indeed, knowing the precise market failures as well as thereasons behind it is an important condition for taking the appropriate measures foreffectively increasing broadband penetration. Moreover, providing EU Guidelinesfor the analysis per Member State and imposing the notification of the outcome tothe European Commission would stimulate harmonised efforts across the EU. Thispositive impact compared to the baseline scenario is however limited to ensuring theavailability of broadband services since the level of discretion for ensuring theaffordability and accessibility of broadband services would not be changed in therefined 2009 Regime.The introduction of the ex ante analysis does however reduce the flexibility atnational level as the final provisions for USO envisaged by each Member State willneed to be motivated. SPECIFIC OBJECTIVE 2: ‘Respect the heterogeneity of preferencesamong Member States’ therefore has a slightly more negative impact than for thebaseline scenario. This score mainly reflects that Member States will be requested tobetter reflect why a specific approach is indeed better provided specific nationalcircumstances, or to demonstrate that a given (political) preference is indeedresponding to real market failures.The notification of the ex ante analysis to the European Commission furthermoreenables, at least to certain extent and mainly by creating a better level playing fieldfor electronic communications operators across the EU, to alleviate distortionsbetween MS (cf. SPECIFIC OBJECTIVE 3).The most important advantages of OPTION 4 lie however in the way it helpsachieving GENERAL OBJECTIVE 2: ‘Ensure the efficiency and cost-effectiveness ofpublic intervention’. Referring to the different steps in the ex ante impact analysis (cf.paragraph 4.4), OPTION 4 would first of all better ensure that there is no distortion orrestriction of competition caused by the introduction of universal service obligationsfor broadband (cf. SPECIFIC OBJECTIVE 4). This element is of particular importancesince the broadband sector is typically a multi-player sector with competition both atthe infrastructure and service level (cf. section 2.1.1.b). Any measure for stimulatingthe market development in uneconomic areas should thus try to minimise as muchas possible its impact on the ongoing market developments. In the case of USO, thiscan be done by ensuring that all efficient providers can participate to the designationprocess and by reducing uncertainty related to the compensation for investments innon-profitable areas. For obtaining this latter, OPTION 4 foresees omitting theevaluation of the USO burden being unfair for the universal service provider.Investments made in uneconomic areas would thus automatically give right tocompensation.Any public intervention will in one way or another lead to market distortions. Therefinement of the 2009 Regime however aims at further minimising this effect atdifferent levels (cf. SPECIFIC OBJECTIVE 5). The detailed ex ante (market) analysis willAssessment of appropriateness of universal service for advancing basic broadband development 106Final report
  • 107. VAN • DIJKMANAGEMENT CONSULTANTSallow for the identification of the most efficient universal service provider, i.e.leading to the least cost for the defined minimum level of service given the nationalcircumstances. At the level of fund raising, the encouragement of a VAT like taxsystem for raising the USO fund, which is proven to be the second least distortive(i.e. after general taxation), would provide for a best possible option if generaltaxation is politically not acceptable. Finally, since the analysis would also beforward looking, the risk of taking a decision that discourages market driveninvestments is also reduced.In terms of user chose (cf. SPECIFIC OBJECTIVE 6), the refinement of the 2009 Regimewould foresee the same separation between the provider of the connection and theprovider of the service as well as the same right to have a choice between services interms of single versus bundled services. Under option 4, the analysis of theappropriateness of imposing an open access network obligation to universal serviceproviders would also be encouraged, so that choice between service providers canbetter be ensured for all users.A last important advantage of OPTION 4 compared to the baseline scenario relates tothe extent to which legal certainty and transparency is provided regarding the publicintervention (i.e. SPECIFIC OBJECTIVE 7). Indeed, the fully-fledged analysis would bemade before making any intervention to the market and would define all essentialelements of this intervention. This approach allows providers to obtain in advance aglobal view of what is going to be done in what way and why, allowing them todefine their position, prepare for participation to designation mechanisms ormanifest possible points of disagreement.5.1.2.f QUALITATIVE ASSESSMENT OF OPTION 5: A REFORMED AND FOCUSED USOThe last option consists of a reform of the current USO regime in order to putemphasis on take-up by focusing on those really in need.The main difference with the 2009 Regime consists of the fact that ensuringavailability would not be part of the universal service obligations. USO would thusmainly focus on affordability and accessibility, but without however imposingminimum requirements at the EU level.In terms of achieving an optimal balance between harmonisation and flexibility (cf.GENERAL OBJECTIVE 1), OPTION 5 has a slightly more positive impact than thebaseline scenario. This is the result of the combined effect of an assumed higherfulfilment of SPECIFIC OBJECTIVE 1: Ensure a minimum level of broadband service atthe EU level and a slightly more negative impact on alleviating distortions betweenMember States (cf. SPECIFIC OBJECTIVE 3). Regarding the first objective, it can beassumed that the USO instrument, defined as a focused social safety net for those withproblems related to affordability and accessibility would more efficiently increase thetake-up of available broadband services, while the availability of broadband servicewould still be ensured at a comparable level as under the baseline scenario.The efficiency and cost-effectiveness of the public intervention under OPTION 5 (cf.GENERAL OBJECTIVE 2) is assumed to be much higher than for the baseline scenario,Assessment of appropriateness of universal service for advancing basic broadband development 107Final report
  • 108. VAN • DIJKMANAGEMENT CONSULTANTSbut lower than compared to the refinement of the 2009 Regime (cf. OPTION 4). Theincrease in efficiency is first of all caused by better ensuring that there is no distortionor restriction of competition (cf. SPECIFIC OBJECTIVE 4). Indeed, instruments used forensuring availability could only be state financed and thus need to respect the well-known and transparent State Aid rules. This positive effect is however to a certainextent neutralised by the fact that having a lower net cost for USO compared to thebaseline scenario (i.e. only relating to the cost of ensuring affordability andaccessibility) would make it less certain that this cost would be assessed as being anunfair burden by the NRAs, and thus reducing the certainty of receivingcompensation of this cost.Also, OPTION 5 would better ensure that market distortions, following the publicintervention, are minimised (cf. SPECIFIC OBJECTIVE 5). First of all, any instrument forincreasing availability would be financed by general taxation, i.e. optimallydecreasing the overall effect of the burden of financial compensation. Secondly,compliance with the State Aid rules also implies that the approved subsidies will notprovide disincentives for market driven investment.OPTION 5 is also expected to have a very positive impact on ensuring user choice (cf.SPECIFIC OBJECTIVE 6) compared to the baseline scenario. This is mainly due to thefact that State Aid rules may require open access obligations to the providersobtaining subsidies based on public funding. Furthermore, when defining theminimum level of service for which affordability and accessibility will be ensured, itis to be expected that full consideration will be given to differentiating the provisionof the infrastructure from the provision of services and differentiating betweenservices in terms of single versus bundled services.Finally, implementing OPTION 5 would imply an important simplification in terms ofdesignating universal service providers and of determining the net cost of USO, as allproviders would be required to provide discounts and the net cost would be equal tothe total cost of discounts. By consequence, legal certainty and transparency wouldbe positively impacted (i.e. SPECIFIC OBJECTIVE 7). In addition, since the user in needwould be the focal point of the universal service provisions under OPTION 5, it is alsoassumed that MS using USOs for increasing the take-up of broadband serviceswould take measures for increasing the transparency of the minimum level ofservices that will be available to all social groups as well as for reducing barriers forobtaining support.Assessment of appropriateness of universal service for advancing basic broadband development 108Final report
  • 109. VAN • DIJK MANAGEMENT CONSULTANTS 5.1.2.g COMPARISON OF THE OPTIONS Finally, the options can be compared based on the assessment of the economic, social and environmental impacts per specific objective, as presented in the following impact matrix. To facilitate comparison, per specific objective a total score is calculated. However, since the number of impacts identified per objective differs, these totals cannot simply be compared between different specific objectives. Taking the hypothesis that all seven specific objectives would be equally important, a rescaling of the total score per specific objective was also made in the following table (on a scale of 0 to 10). OPTION 3 OPTION 1 OPTION 2 Mandating OPTION 4 OPTION 5 No policy No EU 2Mbps Refinement A reformed change USO access of the and focused (2009 Regulation for all EU 2009 Regime USO regime) citizens Magnitude Magnitude Magnitude Magnitude Magnitude Likelihood Likelihood Likelihood Likelihood Likelihood Total Total Total Total Total IMPACTSACHIEVE AN OPTIMAL BALANCE BETWEEN HARMONISATION AND FLEXIBILITYOBJECTIVE 1: ENSURE A MINIMUM LEVEL OF BROADBAND SERVICE AT THE EU LEVELECONOMIC IMPACTSIncreased EU competitiveness 0 2 0 - 1 -1 ++ 2 +4 + 2 +2 - 1 -1Increased development of a 0 2 0 -- 1 -2 ++ 2 +4 + 1 +1 -- 1 -2European single (online) marketSOCIAL IMPACTSIncreased affordability of aminimum level of broadband 0 2 0 -- 2 -4 0 2 0 0 2 0 ++ 2 +4services for all social groupsIncreased accessibility of aminimum level of broadband 0 2 0 -- 2 -4 0 2 0 0 2 0 ++ 2 +4services for disabled usersIncreased availability of aminimum level of broadbandservices of a sufficient speed ++ 0 2 0 - 1 -1 3 +9 ++ 2 +4 0 2 0and quality across the EU +territory (and especially in theunderserved areas)ENVIRONMENTAL IMPACTSReduced CO2 emissions because 0 1 0 0 1 0 ++ 2 +4 + 1 +1 0 1 0of less travelDiminution of exodus fromrural areas because of higher 0 1 0 0 1 0 ++ 2 +4 + 1 +1 0 1 0attractiveness of rural areasTOTAL OBJECTIVE 1 0 -13 + 25 +9 +5TOTAL OBJECTIVE 1 0 -2,06 + 3,97 + 1,43 +0,79RESCALED Assessment of appropriateness of universal service for advancing basic broadband development 109 Final report
  • 110. VAN • DIJK MANAGEMENT CONSULTANTS OPTION 3 OPTION 1 OPTION 2 Mandating OPTION 4 OPTION 5 No policy No EU 2Mbps Refinement A reformed change USO access of the and focused (2009 Regulation for all EU 2009 Regime USO regime) citizens Magnitude Magnitude Magnitude Magnitude Magnitude Likelihood Likelihood Likelihood Likelihood Likelihood Total Total Total Total Total IMPACTSOBJECTIVE 2: RESPECT THE HETEROGENEITY OF PREFERENCES AMONG MEMBER STATESECONOMIC IMPACTSIncreased flexibility for Member ++ --States to define additional 0 3 0 3 +9 3 -9 - 3 -3 0 3 0 + -universal service levelsBetter reflection of nationalpreferences in the decision on ++ 0 3 0 3 +9 -- 3 -6 - 3 -3 0 3 0who will bear the cost of +services of general interestSOCIAL IMPACTSBetter matching of nationalpreferences regarding the level ++ -- 0 3 0 3 +9 3 -9 0 2 0 0 3 0of social inclusion and + -territorial cohesionTOTAL OBJECTIVE 2 0 + 27 - 27 -6 0TOTAL OBJECTIVE 2 0 + 10 - 10 - 2,22 0RESCALEDOBJECTIVE 3: ALLEVIATE DISTORTIONS BETWEEN MEMBER STATESECONOMIC IMPACTSBetter level playing field forelectronic communications 0 1 0 - 2 -2 ++ 2 +4 + 1 +1 0 1 0operators across the EUIncreased development of a 0 2 0 -- 1 -2 ++ 2 +4 + 1 +1 - 2 -2European single (online) marketTOTAL OBJECTIVE 3 0 -4 +8 +2 -2TOTAL OBJECTIVE 3 0 - 2,22 + 4,44 + 1,11 - 1,11RESCALEDENSURE THE EFFICIENCY AND COST-EFFECTIVENESS OF PUBLIC INTERVENTIONOBJECTIVE 4: ENSURE THAT THERE IS NO DISTORTION OR RESTRICTION OF COMPETITIONECONOMIC IMPACTSIncreased probability that allefficient providers will be -- ++ 0 2 0 1 -3 0 2 0 3 +9 0 0 0considered during the - +designation processReduced uncertainty regarding ++ +the compensation of investment 0 1 0 -- 2 -4 0 1 0 3 +9 3 +6 + +in non-profitable areasReduced uncertainty regardingthe compensation of costs 0 1 0 -- 2 -4 0 1 0 0 1 0 - 2 -2related to ensuring affordabilityand accessibility.TOTAL OBJECTIVE 4 0 - 11 0 + 18 +4TOTAL OBJECTIVE 4 0 - 4,07 0 + 6,67 + 1,48RESCALEDOBJECTIVE 5: ENSURE THAT MARKET DISTORTIONS ARE MINIMIZEDECONOMIC IMPACTSDecreased overall effect of the 0 2 0 -- 2 -4 0 2 0 + 2 +2 ++ 2 +4burden of financial Assessment of appropriateness of universal service for advancing basic broadband development 110 Final report
  • 111. VAN • DIJK MANAGEMENT CONSULTANTS OPTION 3 OPTION 1 OPTION 2 Mandating OPTION 4 OPTION 5 No policy No EU 2Mbps Refinement A reformed change USO access of the and focused (2009 Regulation for all EU 2009 Regime USO regime) citizens Magnitude Magnitude Magnitude Magnitude Magnitude Likelihood Likelihood Likelihood Likelihood Likelihood Total Total Total Total Total IMPACTScompensationIncreased probability that themost efficient USP will be ++designated taking into account 0 2 0 -- 2 -4 0 2 0 2 +6 0 0 0 +the national or localcircumstancesIncreased promotion of market ++ 0 3 0 0 1 0 0 3 0 2 +6 + 3 +3driven investments +TOTAL OBJECTIVE 5 0 -8 0 + 14 +7TOTAL OBJECTIVE 5 0 - 2,96 0 + 5,19 + 2,59RESCALEDOBJECTIVE 6: ENSURE USER CHOICEECONOMIC IMPACTSIncreased user choice between + ++service providers, independent 0 1 0 0 1 0 0 1 0 2 +4 3 +9 + +of location and of social group;Increased user choice forseparation between the providerof the connection 0 3 0 - 2 -2 0 3 0 + 2 +2 + 2 +2(infrastructure) and theprovider of servicesIncreased user choice betweenservices in terms of single 0 1 0 + 1 1 + 1 1 0 1 0 ++ 1 +2versus bundled servicesTOTAL OBJECTIVE 6 0 -1 +1 +6 + 13TOTAL OBJECTIVE 6 0 - 0,37 + 0,37 + 2,22 + 4,81RESCALEDOBJECTIVE 7: ENSURE LEGAL CERTAINTY AND TRANSPARENCYECONOMIC IMPACTSReduced uncertainty regardingthe possibility of and amount of ++ 0 1 0 - 2 -2 0 1 0 1 +3 0 0 0compensation for investment in +non-profitable areasIncreased transparency of ++ 0 2 0 -- 2 -4 0 2 0 ++ 2 +4 2 +6mechanisms for designation +Increased transparency of ++ 0 2 0 -- 2 -4 0 2 0 ++ 2 +4 3 +9mechanisms for compensation +Increased transparency ofminimum level of services that 0 1 0 0 1 0 ++ 1 +2 0 1 0 + 2 +2will be made available to allsocial groupsReduced barriers for obtainingdiscounts, tax breaks and other 0 1 0 0 1 0 0 1 0 + 2 +2 + 2 +2(financial) supportTOTAL OBJECTIVE 7 0 - 10 +2 + 13 + 19TOTAL OBJECTIVE 7 0 - 2,22 + 0,44 + 2,89 + 4,22RESCALED Assessment of appropriateness of universal service for advancing basic broadband development 111 Final report
  • 112. VAN • DIJK MANAGEMENT CONSULTANTS When globally comparing the results across options, it becomes apparent that Options 4 and 5 appear to have the most positive impact, and this positive result can be found across all specific objectives in a rather balanced way. The only exceptions are that OPTION 4 would leave less room for respecting the heterogeneity of preferences of Member States (SPECIFIC OBJECTIVE 2), while OPTION 5 would poorly alleviate distortions between Member States (SPECIFIC OBJECTIVE 3). While OPTION 3 would have problems in respecting the heterogeneity of preferences of Member States (SPECIFIC OBJECTIVE 2), but would positively contribute to ensuring a minimum level of broadband service at the EU level (SPECIFIC OBJECTIVE 1), the exact opposite would be true for OPTION 2. OPTION 2 would moreover negatively impact all other objectives. To calculate a total score per option based on the assessment of the different impacts, it would also not be correct to simply sum up the basic total results of the options per objective, since the number of impacts identified per objective, and thus the maximal score per objective, differs per objective. A suchlike approach would thus give more relative weight to objectives for which more impacts were defined, whereas the number of impacts is in no way correlated with the relative importance of the objective. Therefore, the rescaled scores per objective (which take as a hypothesis that each objective would equally contribute to the total result) are taken into account. The results (on a scale of 0 to 10) are presented in the following table, which in the last row also presents an overall ranking of the different options (from 1 to 5), based on the rescaled results: OPTION 3 OPTION 1 OPTION 2 Mandating OPTION 4 OPTION 5 No policy No EU 2Mbps Refinement A reformedQUALITATIVE ASSESSMENT change USO access of the and focused (2009 Regulation for all EU 2009 Regime USO Regime) citizensOverall score on the qualitativeassessment of impacts 5.00 4.72 4.94 6.23 5.91(on a scale of 0 to 10)Comparative ranking of options 3 5 4 1 2 Conclusions run rather parallel with the global comparison across objectives discussed above: OPTIONS 4 and 5 appear to most positively contribute to attaining the objectives, while OPTIONS 3 and, even more so, 2, appear the least promising, and are ranked even below the baseline scenario of ‘no policy change’. 5.2. QUANTITATIVE ASSESSMENT For the quantitative assessment of the policy options, a distinction is made between the cost of providing full coverage or ensuring availability, the cost of affordability and the cost of managing the universal service system 182 ”. Estimates for these costs are presented in detail in the following sections. 182 This cost component both refers to the cost of being compliant e.g. with the US Directive (i.e. ‘compliance costs’) as well as the administrative costs related to collecting and providing information in order to demonstrate that the regulations have indeed been respected. Assessment of appropriateness of universal service for advancing basic broadband development 112 Final report
  • 113. VAN • DIJKMANAGEMENT CONSULTANTSCosts related to ensuring accessibility are not considered as initiatives taken can verystrongly across Member States and the cost per project is very difficult to estimate.Referring to section 2.2.3, it can be concluded that the costs related to advancingbroadband development can have an important impact on the EU Budget. Byconsequence and referring to section 9.1 of the 2009 Impact Assessment Guidelines, itcould be useful considering the EU budgetary cost-effectiveness of each policy option.However, since the EU funding of instruments for stimulating broadbanddevelopment would not differ significantly under the different options, nocomparison has been developed. After all, even if broadband services would beadded to the scope of universal services in some or all Member States, public fundingwould remain possible and could continue to be partly financed by EU funding.5.2.1 ASSESSMENT OF THE COST OF ENSURING FULL COVERAGE (AVAILABILITY)For the assessment of the cost of ensuring full coverage, a detailed cost model hasbeen developed (cf. description in Annex 3). The calculations in this model areconsidered to be ‘generic’ in the sense that they can relate to any possible policyoption defining the precise instruments that will be chosen to obtain a full coverage.Indeed, referring to the Digital Agenda for Europe, which aims to reach 100%coverage of high speed Internet by 2013, it can be assumed that the cost of fullcoverage will be incurred in any case. Depending on the instrument chosen forstimulating the investments, the financing of these investments could however differsignificantly. More precisely for the purpose of our study, it can be assumed that thehigher the level of broadband services included in the US obligations, the higher thepart of the funding by the sector will be.The paragraphs below first present the results of the cost model estimating the costof ensuring full broadband coverage in the EU. Secondly, this cost is assessed againsttotal sector turnover and gross operating surplus 183 . Finally, the estimateddistribution of this cost under each of the five policy options defined in Chapter 4will be discussed.5.2.1.a COST OF ENSURING FULL COVERAGE IN THE EU 27A bottom-up cost model has been developed for estimating the net cost of providingfull coverage of broadband services for every citizen in the EU 27. This net cost canvery briefly be described as the difference between the incremental cost related to therequired investments in upgrade as well as additional roll-out of network and theincremental revenues obtained in areas previously not covered:183Cf. Code 12 170 of Commission Regulation (EC) N° 2007/98 of 17 December 1998concerning the definitions of characteristics for structural business statistics.Assessment of appropriateness of universal service for advancing basic broadband development 113Final report
  • 114. VAN • DIJKMANAGEMENT CONSULTANTS EUR ---, : , NET COST I of ensuring : , full coverage , , : -~--~-~--: Figure 3: Illustration of how the cost of ensuring full coverage has been determinedThe basic scenario of the model assumes that broadband services with a speed of2Mbps are made available to all EU citizens. Calculations are made for each country,with the exception of Bulgaria, Cyprus, the Czech Republic and Latvia 184 .STEP 1: Identification of the number of households for which no broadbandinternet access is currently availableIn a first step, the areas not providing 2Mbps to all households have been identified.A distinction was made between three type of zones:- Type A refers to households that have access to a traditional telephony wireline network which is not capable of offering broadband service. This will typically refer to households connected to a local exchange which is not DSL enabled;- Type B refers to households that have broadband access via a traditional wireline network, but this access is not technically capable of reaching bandwidth of 2Mbps or higher capacity. Grey Spots typically refer to households located to a local exchange that have a copper line of excessive length that does not allow the xDSL technology to synchronize at 2Mbps. It is assumed that a 2Mbps broadband connection can be provided on copper lengths up to 4,5km; for 1Mbps broadband connections, a maximum length of 5,25 km was assumed;- Type C refers to households that do not have access to a traditional wireline network, neither for telephony nor for broadband service. These will typically correspond to households located in isolated rural areas.For each individual Member State and for each type of zone, the number ofhouseholds concerned has been estimated, leading to the following results:184 For these countries, insufficient information was available for making the calculations.Assessment of appropriateness of universal service for advancing basic broadband development 114Final report
  • 115. VAN • DIJKMANAGEMENT CONSULTANTS ,. ,. : ,. . • ~ Hauseha/ds in % af ~ Hauseha/ds in % af ~ Hauseha/ds in % af ~ Hauseha/ds in %af (HH) tata/ HH (HH) tata/ HH (HH) tata/ HH (HH) tata/ HHAustria 248.905 7,5 % 299.928 9 0% 1 31.538 0,9% 580.371 17,4%Belgium 0 0,0 % 187.528 4 6% 1 14.743 0,4% 202.272 5,0%Denmark 0 0,0 0/0 27.594 1,1 0/ 0 140 0,0 % 27.733 1,1 0/ 0Estonia 35.624 6,1 0/0 9.394 1,6% 71 0,0 0/0 45.089 7,7 %Finland 99.551 4,3% 247.379 10,8% 29.659 1,3 0/0 376.589 16,4%France 0 0,0% 1.091.505 4,6 % 100.980 0,4% 1.192.485 5,0%Germany 1.296.727 3,4 % 2.760.614 7 3% 1 253.065 0,7 0/0 4.310.406 11,4%Greece 437.528 11,9 0/0 358.805 9 8% 1 40.035 1,1 0/ 0 836.369 22,8%Hungary 255.276 6,6 % 383.030 9,9 % 35.000 0,9 0/0 673.305 17,4 %Ire/and 119.316 9,3% 108.931 8,5% 12.271 1,0% 240.518 18,7%ltaly 1.077.420 4,9% 521.895 2,4% 7.994 0,0% 1.607.308 7,4 %Lithuania 154.298 11,4% 0 0,0 % 0 0,0% 154.298 11,4%luxembourg 0 0,0 % 13.747 8,0 % 831 0,5 % 14.578 8,5%Halta 1.654 1,0 % 2.237 1 4% 1 146 0,1% 4.037 2,4 %Netherlands 68.663 1,0 % 348.916 5,1 0/ 0 44.968 0,7 0/0 462.547 6,7 %Po/and 4.044.457 30,3% 66.827 0,5 0/0 96 0,0 % 4.111.381 30,8%Portugal 175.601 4,8% 228.516 6,3% 25.839 0,7 0/0 429.956 11,8%Romania 2.370.940 32,4% 1.077.221 14,7% 231.328 3,2% 3.679.489 50,3%Slovakia 364.332 22,1% 0 0,0 % 0 0,0 0/0 364.332 22,1%Slovenia 51.514 7,5 % 20.696 3 0% 1 246 0,0% 72.456 10,6%Spain 951.250 6,7 % 1.032.804 7,3 % 211.869 1,5% 2.195.924 15,5%Sweden 79.060 2,1 0/0 352.431 9,4 % 31.410 0,8 % 462.900 12,4 %United Kinodom 25.214 0,1 0/0 949.025 3,9% 61.846 0,3 0/0 1.036.086 4,2 %TOTAl 11.857.330 65 % 10.089.023 5 5% 1.134.077 06 % 23.080.430 12 6 %Table 13: Overview of number of households not served with a 2Mbps connection (End of2008 – Based on IDATE Study published by the European Commission 185 and RayleighDistribution)Based on this total number of households and depending on their location (i.e. in anurban, sub-urban or rural area 186 ), assumptions have furthermore been made on theactual take-up of the broadband services that will be available. These assumptionsare based on information on the current take-up of broadband service in the areaswhere broadband is already available.STEP 2: Estimation of the cost related to the required network upgrade andadditional network roll-outIn a second step, the network costs for each zone (type A, B and C) are estimated,based on a further roll-out of DSL technology in the type A spots and the selection ofthe most efficient technology for the type B and C areas (FTTC, WiMAX or satellitetechnology).The incremental cost of the investments has been depreciated and cost of capital wasadded so that a fixed annual capital expenditure (CAPEX) over a five year periodwas obtained. Annual operating costs (OPEX) have also been added related tonetwork repair and maintenance, energy costs, etc., to internet connectivity, and toretail activities including customer care, billing and invoicing, etc.185http://ec.europa.eu/information_society/eeurope/i2010/docs/future_internet/method_2008_survey_idate.pdf186 The breakdown in urban, sub-urban and rural areas is consistent with the EUROSTAT, ICTSurvey. Urban areas have at least 500 inhabitants per km²; sub-urban areas have between 100and 499 inhabitants per km² and rural areas have less than 100 inhabitants.Assessment of appropriateness of universal service for advancing basic broadband development 115Final report
  • 116. VAN • DIJKMANAGEMENT CONSULTANTSThis leads to the following total annual cost per MS and per zone: .. . .. ~ ,. . • • Annual Annual Total Annual Annual Total Annual Annual Total Annual Annual Total 5year CAPEX OPEX CAPEX OPEX CAPEX OPEX CAPEX OPEXAustria 11 9 20 30 20 50 3 2 6 44 31 76 378Belgium 0 0 0 13 8 21 1 1 2 14 9 23 113Denmark 0 0 0 2 2 4 0 0 0 2 2 4 19Estonia 6 6 12 1 1 1 0 0 0 7 6 13 67Finland 19 17 36 21 17 38 1 35 36 41 69 110 550France 0 0 0 88 73 160 2 119 121 90 192 282 1.408Germany 37 31 68 215 115 329 20 11 31 272 157 429 2.144Greece 20 17 36 38 29 67 4 3 8 62 49 110 552Hungary 10 8 18 34 24 58 3 2 5 47 34 82 408lre/and 9 8 17 9 7 16 0 14 15 18 30 48 239ltaly 45 38 83 29 24 53 0 10 10 74 72 146 729Lithuania 1 1 2 0 0 0 0 0 0 1 1 2 10Luxembourg 0 0 0 1 1 2 0 0 0 1 1 2 9Halta 0 0 0 0 0 0 0 0 0 0 0 0 2Netheriands 1 1 3 26 14 40 3 1 4 30 16 46 232Po/and 136 116 251 5 4 9 0 0 0 141 120 261 1.304Portugal 9 8 17 26 19 45 3 2 5 38 30 68 340Iloman;a 47 40 87 87 57 144 18 12 30 152 109 261 1.306S10vakia 2 2 4 0 0 0 0 0 0 2 2 4 18Slovenia 3 3 6 1 1 3 0 0 0 5 4 9 43Spain 43 36 79 148 110 258 27 22 49 218 169 386 1.932Sweden 13 11 24 30 25 55 1 37 38 44 73 117 585United ICinqdom 2 1 3 85 60 145 6 4 10 92 66 158 791TOTAL 419 357 776 888 610 1.499 93 278 371 1.400 1.246 2.646 13.231Table 14: Overview of total network cost for ensuring overall 2 Mbps broadband serviceavailability (in million EUR) – Based on calculations in bottom-up cost modelThe total cost over a period of 5 years has also been presented in the last columnsince 5 years is the reference period taken for examining the net cost of ensuringoverall broadband availability.Comparing these total costs to the number of additional households that will take-upbroadband services, provides and indication of what this total cost represents peradditional household that will take up broadband services:Assessment of appropriateness of universal service for advancing basic broadband development 116Final report
  • 117. VAN • DIJKMANAGEMENT CONSULTANTS TOTAl 5 year cost per additional Cost I month per • COUNTRY household ad d iti on al covered or household served upgraded Austria 378 689 11 Belgium 113 601 10 Denmark 19 705 12 Estonia 67 1.494 25 Finland 550 1_584 26 France 1.408 1290 22 Germany 2.144 528 9 Greece 552 693 12 Hungary 408 640 11 Ireland 239 1_046 17 Haly 729 456 8 Lithuania 10 68 1 Luxembourg 9 659 11 Halta 2 473 8 Netherlands 232 555 9 Po/and 1.304 317 5 Portugal 340 840 14 Romania 1.306 379 6 Slovakia 18 50 1 Slovenia 43 596 10 Spain 1.932 974 16 Sweden 585 1_356 23 United Kingdom 791 812 14 Table 15: Overview of total network cost for ensuring overall 2 Mbps broadband service availability (in million EUR) – expressed in a 5 year and a monthly cost per additional household taking up the serviceAs stated above, the basic scenario assumes that broadband services with a speed of2Mbps would be made available to all citizens. Given the importance of the costrelated to the type B spots (i.e. households connected with a copper line that is toolong for enabling 2Mbps quality), a simulation was made of how the cost of ensuringavailability would be reduced if there would only be an obligation to provide 1Mbpsconnectivity.Assessment of appropriateness of universal service for advancing basic broadband development 117Final report
  • 118. VAN • DIJKMANAGEMENT CONSULTANTS .. . .. ~ ,. . • • Annual Annual Total Annual Annual Total Annual Annual Total Annual Annual Total 5year CAPEX OPEX CAPEX OPEX CAPEX OPEX CAPEX OPEXAustria 11 9 20 11 9 20 1 22 22 22 40 62 312Belgium 0 0 0 8 6 14 2 1 3 9 7 17 84Denmark 0 0 0 1 0 1 0 0 0 1 1 1 5Estonia 6 6 12 0 0 0 0 0 0 7 6 12 62Finland 19 17 36 11 9 20 1 20 21 31 46 77 383France 0 0 0 43 36 79 2 69 71 45 104 149 747Germany 37 31 68 130 82 212 25 17 42 192 130 322 1.610Greece 20 17 36 14 12 26 1 27 28 34 56 90 449Hungary 10 8 18 13 11 24 1 24 25 23 43 67 334Ire/and 9 8 17 4 4 8 0 8 9 14 20 34 169Italy 45 38 83 10 8 18 0 6 6 55 52 107 534Lithuania 1 1 2 0 0 0 0 0 0 1 1 2 10Luxembourg 0 0 0 0 0 1 0 1 1 0 1 1 6Halta 0 0 0 0 0 0 0 0 0 0 0 0 1Netherlands 1 1 3 16 10 26 2 1 4 20 12 32 162Po/and 136 116 251 1 1 2 0 0 0 137 117 253 1.266Portugal 9 8 17 8 7 15 1 18 18 18 32 50 252Romania 47 40 87 67 48 114 25 18 43 139 105 244 1.221Slovakia 2 2 4 0 0 0 0 0 0 2 2 4 18Slovenia 3 3 6 0 0 1 0 0 0 4 3 7 34Spain 43 36 79 44 37 80 4 144 149 91 217 308 1.540Sweden 13 11 24 15 12 27 1 21 22 28 45 73 365United Kinqdom 2 1 3 29 24 53 1 43 44 32 68 100 502TOTAL 419 357 776 425 315 740 66 441 507 910 1.113 2.024 10.118Table 16: Overview of total network cost for ensuring overall 1 Mbps broadband serviceavailability 187 (in million EUR) 188Note regarding the choice of technologiesWe observe that, in order to produce an estimate of the costs incurred for theprovision of broadband service at 2 Mbps, it is needed to make some assumptionsabout the technologies employed. In the context of this study, the range oftechnologies considered for the evaluation of the costs of network availabilityexplicitly includes ADSL, Fixed Wireless (WiMAX 189 ) and Satellite 190 .This implies that, by practical necessity, a range of other technologies that may alsobe capable of providing broadband connectivity at 2 Mbps or higher bandwidths187 These costs take into account that 2,7% of the households in type B spots are not having a 1Mbps connectivity (instead of 5,5% in case of 2 Mbps).188 For some countries, the cost associated to type C households rises when the 1Mbpsscenario is considered. Indeed, when WiMAX technology is considered, the fixed costs ofcoverage are distributed among Type B and Type C households on proportional basis to theirnumber (this split is just made for presentation purposes). Given that the type B householdsget reduced when ensuring 1 Mbps connectivity, the share of costs going to type C spots goesup.189 Within the range of existing 4G technologies, WiMAX has been chosen as a referencetechnology for the study because, at the time of the start of the study (end 2009), it was a moreproven alternative and was commercially more widespread than LTE, even though LTE isnow (end 2010) forecasted to be the technology of choice for the provision of mobilebroadband services in the EU.190 For satellite, it has been considered that the fact that the transmission of the signal to thegeostationary route and back to Earth introduces an additional delay typically in the range of0,5 to 0,6 seconds, does not exclude this technology as a candidate for the provision ofuniversal broadband access. Since we are especially considering basic broadband services,abstraction was made of possible reduced attractiveness of satellite for more advancedservices such as real-time interactive applications.Assessment of appropriateness of universal service for advancing basic broadband development 118Final report
  • 119. VAN • DIJKMANAGEMENT CONSULTANTShave been left out of the modeling exercise. The list of technologies that have notbeen considered in the model include coaxial cable, optical fiber, Wi-Fi and mobilebroadband, among others.Regarding cable and optical fiber, these technologies are not particularly well suitedfor the provision of broadband services of 2 Mbps in a cost-effective way in sparselypopulated areas. It is highly likely that in these areas, one of the alternativesconsidered would represent a more cost-effective alternative. Therefore, we considerthat their exclusion should not have any relevant impact in the validity of the modelresults.Regarding Wi-Fi, in our view this technology is not well suited for a mass roll-out ofbroadband services in rural areas. Even though this technology may have itsparticular applications in rural broadband deployments (for example, by facilitatingthe sharing of some capacity among small clusters of households), overall weconsider that its relevance is not sufficient to justify its inclusion in the modelingexercise. In our view, the non-consideration of Wi-Fi in the model should not resultin a material effect in the model results.Finally, the use of HSDPA and other existing mobile broadband technologies havenot been considered in the model, given that they have not been considered anadequate solution to provide 2Mbps broadband service at quality levels sufficientlysimilar to that of ADSL at mass scale:- Firstly, the technical features of broadband services provided using HSDPA and similar technologies can be quite dissimilar to those of services offered using xDSL, WiMAX or Satellite. In this sense, even though mobile broadband technologies are capable of reaching nominal transmission bandwidths of 2 Mbps or higher, the transmission rate is highly sensible to the number of simultaneous users, with the result that high transmission rates may not be sustainable in practice for a long period of time 191 ;- As a consequence, broadband connections employing mobile technologies may not be valid alternatives for certain real-time broadband services such as video streaming;- In the case of mobile broadband, these technical issues are further complicated by the fact that users themselves change location, so that mobile operator cannot guarantee an acceptable quality of service through proper dimensioning. The fact that much of the mobile broadband demand may come from smart handsets and other similar devices, complicates further the problem.191 For the quality criterion in terms of effective bandwidth, the typical effective bandwidthprovided to each individual user when the DSL technology is used as a benchmark since thisis currently the most widely employed broadband technology in Europe (over 79% ofbroadband lines were provided using this technology in the EU in July 2009 according to the15th Implementation report). In the techno-economic model, we have assumed a contentionratio (ration between the average bandwidth provided per user and the nominal peakbandwidth of 40, as this has been considered a typical industry benchmark for the provisionof residential ADSL services).Assessment of appropriateness of universal service for advancing basic broadband development 119Final report
  • 120. VAN • DIJKMANAGEMENT CONSULTANTSWe observe however that the possibility of reusing existing mobile masts (2G and 3Gtowers) to lower the costs of rolling-out a WiMAX network has been considered inthe model 192 .STEP 3: Estimation of the incremental revenues related to additional take-up innewly covered areasFor the estimation of the incremental revenues, it is assumed that only the newclients (in the type A and type C spots) will indeed generate additional revenues. Forthe clients in the type B areas, the conservative assumption is taken that they willobtain an upgraded service at the same price of their current service. In general, thepossible impact on revenues for other services (e.g. a decrease of revenues because ofthe replacement of traditional voice telephony by voice over IP) is however not takeninto account.More precisely, the number of additional households taking up broadband 193 in thetype A and type C spots are first of all multiplied by the median values as well asleast expensive offers per MS for the basket 1 to 2Mbps included, which areconsistent with the values obtained in the Broadband Internet Access Cost Study(BIAC) of October 2009 194 . From these revenues, a retail costs is deducted forcustomer acquisition and retention and billing.The following incremental revenues are obtained:192 The same approach would have been taken in case LTE technology was chosen initially; assuch the incremental cost estimates for WiMAX should represent a reasonable proxy for thecosts that would be incurred using LTE equipment, even though some variations may bereasonably expected to exist.193 For estimating the take-up of broadband services in the new areas covered with broadbandservices, the same percentages have been used as for the areas that are currently alreadyserved.194 Seehttp://ec.europa.eu/information_society/newsroom/cf/document.cfm?actions=display&doc_id=675Assessment of appropriateness of universal service for advancing basic broadband development 120Final report
  • 121. VAN • DIJKMANAGEMENT CONSULTANTS in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EURAU5tria 53.788 268.942 60.209 301.046Belgium 5.430 27.149 5.551 27.753Denmar/c 15 74 16 82E5tonia 3.017 15.083 3.017 15.083Finland 24.000 120.001 35.377 176.884France 16.545 82.726 18.192 90.962Germany 309.179 1.545.896 341. 790 1.708.948Greece 26.885 134.423 29.898 149.492Hungary 7.243 36.213 16.939 84.696lre/and 15.591 77.956 27.755 138.776Ita/y 178.762 893.810 178.762 893.810Lithuania 8.101 40.503 17.150 85.749Luxembourg 123 614 123 615Halta 151 755 151 755Netherland5 12.421 62.107 15.676 78.380Po/and 340.810 1. 704.048 1.231.475 6.157.376Portugal 50.970 254.852 50.970 254.852Romania 22.524 112.619 37.119 185.595Slovakia 19.284 96.422 44.297 221.483Slovenia 4.990 24.949 5.389 26.943Spain 236.548 1.182.740 298.166 1.490.830Sweden 13.609 68.045 21.289 106.445United Kin dom 6.576 32.881 6.576 32.881TOTAL 1.426.505 7.132.526 2.530.143 12.650.716 Table 17: Overview of incremental revenues less retail costs based on least expensive and median offers per MS (in 1000 EUR) (Based on Broadband Internet Access Cost Study (BIAC) of October 2009)STEP 4: Estimation of the net cost of ensuring full coverageIn a final step, the incremental revenues are subtracted from the cost of ensuringoverall availability. This can first of all be done at the national level; i.e. for each MSthe total incremental revenues for all types of areas are subtracted for the total costsfor all types of areas. An alternative approach consists of calculating a net cost perarea (urban, suburban or rural). Under this scenario, there is less room forcompensation between areas, which logically leads to a higher net cost 195 .195 Methodologies currently applied by MS for e.g. calculating the cost of the overallavailability of PSTN networks often take a lower level of aggregation than the nationalterritory for determining if a specific part of the network is profitable or not. Examples aree.g. aggregations of costs and revenues at the local exchange level.Assessment of appropriateness of universal service for advancing basic broadband development 121Final report
  • 122. VAN • DIJKMANAGEMENT CONSULTANTS Scenario with revenues based on least expensive offers Scenario with revenues based on median value offer Net cost calculated Net cost calculated Net cost calculated Net cost calculated COUNTRY at national level per type of area at national level per type of area cost per year 5 years cost per year 5 years cost per year 5 years cost per year 5 years in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EUR in 1000 EURAustria 21.821 109.104 21.927 109.633 15.400 77.000 15.537 77.685Be/gium 17.107 85.535 17.107 85.535 16.986 84.931 16.986 84.931Denmark 3.878 19.391 3.878 19.391 3.877 19.383 3.877 19.383Estonia 10.432 52.161 10.432 52.161 10.432 52.161 10.432 52.161Finland 85.923 429.615 87.456 437.278 74.546 372.732 77.161 385.806France 265.140 1.325.700 265.140 1.325.700 263.493 1.317.464 263.493 1.317.464Germany 119.665 598.323 147.536 737.679 87.054 435.271 119.765 598.824Greece 83.477 417.387 83.477 417.387 80.464 402.318 80.464 402.318Hungary 74.403 372.016 74.403 372.016 64.707 323.533 64.707 323.533lreland 32.170 160.849 32.170 160.849 20.006 100.028 20.006 100.028ltaly 0 0 11.341 56.705 0 0 11.341 56.705Lithuania 0 0 0 0 0 0 0 0Luxembourg 1.688 8.441 1.688 8.441 1.688 8.440 1.688 8.440Malta 217 1.085 302 1.509 217 1.085 302 1.509Netherlands 33.941 169.705 33.941 169.705 30.686 153.432 31.688 158.439Po/and 0 0 0 0 0 0 0 0Portugal 16.955 84.775 21.209 106.044 16.955 84.775 21.209 106.044Romania 238.688 1.193.439 238.688 1.193.439 224.093 1.120.463 224.093 1.120.463S/ovakia 0 0 0 0 0 0 0 0S/ovenia 3.623 18.116 3.725 18.624 3.224 16.121 3.337 16.684Spain 149.772 748.858 212.748 1.063.738 88.154 440.768 184.319 921.594Sweden 103.386 516.930 104.513 522.563 95.706 478.531 98.010 490.049United Kinadom 151.709 758.546 151. 709 758.546 151. 709 758.546 151.709 758.546TOTAL 1.413.995 7.069.976 1.523.388 7.616.941 1.249.397 6.246.983 1.400.121 7.000.607Table 18: Net cost of ensuring 2Mbps broadband availability with incremental revenuesbased on the least expensive and median offers per MS (in 1000 EUR) 196A breakdown of the net cost calculated for each type of area (urban, suburban orrural) is further presented in Annex 4.Sensitivity analysis – Net cost for ensuring 1 Mbps availability 197As stated above, the basic scenario assumes that broadband services with a speed of2Mbps would be made available to all citizens. Given the importance of the costrelated to the type B spots (i.e. households connected with a copper line that is toolong for enabling 2Mbps quality), a simulation was made of how the net cost ofensuring availability would be reduced if there would only be an obligation toprovide 1Mbps connectivity. Net cost at EU level Net cost at EU level calculated per type of area calculated per type of area (assuming revenues based on (assuming revenues based on least expensive offers) median value offers)Ensuring 2Mbps coverage for 7.616 million EUR 7.001 million EURall EU CitizensEnsuring 1Mbps coverage for 4.927 million EUR 4.391 million EURall EU CitizensTable 19: Sensitivity analysis for providing 1 Mbps coverage for all EU Citizens196 Please note that a net cost equal to 0 indicates that there is still room for competitivedevelopment of the broadband markets. After all, if incremental revenues exceed the cost ofproviding availability of broadband services, it is attractive to develop these undercompetitive market circumstances.197 This assumption implies that 2,7% of the households in type B spots are not having a 1Mbps connectivity (instead of 5,5% in case of 2 Mbps).Assessment of appropriateness of universal service for advancing basic broadband development 122Final report
  • 123. VAN • DIJKMANAGEMENT CONSULTANTSSensitivity analysis – WiMAX based on 800 MHzA second sensitivity analysis assumes general availability of 800 MHz spectrum,following the release of the digital dividend (cf. 790-862 MHz sub-band referredto in section 2.2.5.a). This would allow for the usage of more efficient WiMAXequipment, significantly reducing the net cost of ensuring overall 2Mbpsconnectivity. Net cost at EU level Net cost at EU level calculated per type of area calculated per type of area (assuming revenues based on (assuming revenues based on least expensive offers) median value offers)Ensuring 2Mbps coverage for 7.616 million EUR 7.001 million EURall EU CitizensEnsuring 2Mbps coverage forall EU Citizens, assuming 4.729 million EUR 4.114 million EURgeneral availability of the790-862 MHz sub-bandTable 20: Sensitivity analysis for providing 2 Mbps coverage, assuming generalavailability of the 790-862 MHz sub-band5.2.1.b ASSESSMENT OF THE COST OF ENSURING FULL COVERAGE WITH 2MBPSCONNECTIVITYThe net cost for ensuring availability of 2Mbps connectivity can be put in perspectiveby comparing the value per MS with the total turnover of the electroniccommunications sector or with the gross operating surplus 198 (as a measure forprofit). For this assessment, the net cost calculations per type of zone have been takeninto account since this scenario can be considered more realistic given e.g. thepossibility that different universal service providers will be serving different areas.198 See Code 12 170 of Commission Regulation (EC) N° 2007/98 of 17 December 1998concerning the definitions of characteristics for structural business statistics.Assessment of appropriateness of universal service for advancing basic broadband development 123Final report
  • 124. VAN • DIJKMANAGEMENT CONSULTANTS Net cost of providing 2Mbps Net cost compared to annual Net cost compared to gross Annual to every EU eitizen telecom turn over operating surplus Gross telecommu- operating Wlth revenues With revenues Wlth revenues nications Wlth revenues Wlth revenues based on least With revenues based on least based on least surplus based on least based on medlan basedon turnover expenslve expenslve expenslve expenslve offers offer medlanoffer offers offers offers in 1000EUR in 1000EUR inEUR inEUR:Austria 6.729.200 1.855.500 21.926.511 15.536.996 0,33% 0,23% 1,18% 0,84% Belgium 12.193.100 4.097.700 17.107.025 16.986.243 0,14% 0,14% 0,42% 0,41% Denmark 6.579.500 1.755.000 3.878.112 3.876.551 0,06% 0,06% 0,22% 0,22% Estonia 757.000 235.600 10.432.257 10.432.257 1,38% 1,38% 4,43% 4,43% Finland 5.013.900 1.278.300 87.455.530 77.161.234 1,74% 1,54% 6,84% 6,04% France 63.797.900 16.985.700 265.139.904 263.492.837 0,42% 0,41% 1,56% 1,55% Germany 71.232.100 21.087.300 147.535.760 119.764.801 0,21% 0,17% 0,70% 0,57% Greece 8.154.300 2.636.000 83.477.453 80.463.669 1,02% 0,99% 3,17% 3,05% Hungary 4.852.300 1.541.300 74.403.202 64.706.638 1,53% 1,33% 4,83% 4,20% Ireland 8.163.200 1.451.500 32.169.857 20.005.699 0,39% 0,25% 2,22% 1,38% Italy 42.606.000 16.594.000 11.340.933 11.340.933 0,03% 0,03% 0,07% 0,07% Lithuania 1.026.500 314.800 0 0 0,00% 0,00% 0,00% 0,00% Luxembourg 2.446.900 764.900 1.688.105 1.687.904 0,07% 0,07% 0,22% 0,22% Poland 13.257.600 0 0 0,00% 0,00% Portugal 7.783.600 2.484.800 21.208.759 21.208.759 0,27% 0,27% 0,85% 0,85%Romania 5.519.100 1.732.400 238.687.729 224.092.561 4,32% 4,06% 13,78% 12,94%Slovakia 2.241.800 718.500 0 0 0,00% 0,00% 0,00% 0,00%Slovenia 1.513.100 403.300 3.724.894 3.336.764 0,25% 0,22% 0,92% 0,83%Spain 39.521.100 15.081.800 212.747.507 184.318.764 0,54% 0,47% 1,41% 1,22%Sweden 10.379.300 2.376.700 104.512.520 98.009.708 1,01% 0,94% 4,40% 4,12%United Kinqdom 80.674.100 23.364.900 151.709.297 151.709.297 0,19% 0,19% 0,65% 0,65%llirn . cost of ..ensuring availability as a percentage of the total turnover andTable 21: Estimated : 11 .. 11 11 ~ ~ ~ Rw.>gross operating surplus of the electronic communications sectorThe cost of ensuring full availability of the 2Mbps broadband connectivity besituated around 0,35%-0,38% on average of the total turnover of the electroniccommunications sector in Europe. Important differences exist however betweencountries: Poland and Lithuania are not having a net cost (given the high volume ofestimated incremental revenues), Romania has a net cost that represents over 4% oftotal turnover, while other countries like Estonia, Finland, Greece, Hungary andSweden have a cost exceeding 1% of national turnover.Furthermore, the cost of availability for 2Mbps represents on average approximately1,2% of gross operating surplus. Variations between countries are very importantagain: for Romania, the net cost would represent approximately 13% of the grossoperating surplus. For Estonia, Finland, Greece, Hungary and Sweden, the weight issituated between 3% and 7%.In terms of cost of affordability per capita, the following values would be obtainedfor all EU countries:Assessment of appropriateness of universal service for advancing basic broadband development 124Final report
  • 125. VAN • DIJKMANAGEMENT CONSULTANTS per capita per capita Austria 21-926.511 15.536.996 2,76 1,96 Belgium 17.107.025 16.986.243 1,69 1,67 Denmark 3.878.112 3.876.551 0,73 0,73 Estonia 10.432.257 10.432257 7,70 7,70 Finland 87.455.530 77.161234 17,21 15,19 France 265.139.904 263.492.837 4,63 4,60 Germany 147.535.760 119.164.801 1,81 1,47 Greece 83.477.453 80.463.669 8,13 7,84 Hungary 74.403.202 64.706.638 7,48 6,51 Ireland 32.169.857 20.005.699 8,49 5,28 Italy 11.340.933 11.340.933 0,20 0,20 Lithuania 0 0 0,00 0,00 Luxembourg 1.688.105 1.687.904 3,36 3,36 Malta 301.889 301.889 0,73 0,73 Netherlands 33.940.910 31.687.816 2,15 2,01 Poland 0 0 0,00 0,00 Portugal 21.208.759 21208.759 2,07 2,07 Romania 238.687.729 224.092.561 11,18 10,49 Slovakia 0 0 0,00 0,00 Sloven ia 3.724.894 3.336.764 1,91 1,71 Spain 212.747.507 184.318.764 5,24 4,54 Sweden 104.512.520 98.009.708 11,19 10,49 United Kin dom 151.709.297 151.709.297 2,63 2,63 Table 22: Estimated cost of ensuring availability per capita (per year) 199Expressed in a net cost per capita, the highest values per capita would be obtainedfor Finland, Sweden, Romania, Ireland, Estonia and Hungary with costs per capita ofapproximately 7 to 17 EUR per capita.On average and in general, costs per capita would be much higher than is currentlythe case in countries where a universal service fund has been activated (cf. Table 3 onpage 23).It is also worth noting that the relative burden of ensuring availability could for someproviders further increase, because of a more restrictive definition of the contributorybase, e.g. by eliminating revenues of voice and other services and only taking intoaccount the revenues associated with broadband services.5.2.1.c ESTIMATION OF THE PART OF THE COST OF FULL COVERAGE TO BE FUNDED BY THESECTOR UNDER EACH OPTIONThe output of the model of which the results were presented in section 5.2.1.a,provides an estimate of the cost of ensuring full availability of 2Mbps broadbandconnectivity, independent of the policy option chosen for attaining this result. The199The fact that for some countries, the net cost is estimated at 0 EUR, indicates that in thesecountries, there is still room for market driven broadband development. The implicitassumption of the model that areas not covered today are unprofitable areas is thus not validfor these countries.Assessment of appropriateness of universal service for advancing basic broadband development 125Final report
  • 126. VAN • DIJKMANAGEMENT CONSULTANTSpart of the cost that is financed by the sector could however differ significantly,depending on : - the extent to which USOs are used to advance broadband developments; - the precise definition of the broadband services that are included in USOs in a specific Member State; - the extent to which sector funding is used under USOs.Since general taxation or state funding has the least distortive impact on theeconomic and society as a whole, options including a bigger contribution from StateFunding are considered to be preferable when comparing between options. Hence,they are given a more positive assessment.The first place in the ranking is therefore given to the option that is the lessdistortive: OPTION 1 OPTION 2 OPTION 3 OPTION 4 OPTION 5Estimatednet cost of 1.523 1.523 1.523 1.523 1.523ensuring Million EUR Million EUR Million EUR Million EUR Million EUR2 MbpsconnectivityState Funding Moderate % Minimal % Minimal % Moderate % 100% Part of these MS can All of these Part of these None of these costs, no ex impose on costs could be costs, after costs could beSector ante analysis sector to pay imposed on assessing per imposed onFinancing of impact on all of these the sector. MS the impact the sector sector. costs. on the sector.Ranking 3 4 5 2 1Table 23: Comparison between options of the distribution of the cost of ensuring 2 Mbpsavailability5.2.2 ASSESSMENT OF THE COST OF ENSURING AFFORDABILITYIt is left to the discretion of Member States to define affordability in the light ofspecific national conditions in particular in relation to national consumer prices andincome (cf. section 1.1.2.b). As part of the description of the broadband market, itwas indicated that an important market failure at the demand side is indeed relatedto affordability issues. It can thus be expected that Member States will (continue to)make efforts for increasing the affordability of broadband services.For the purpose of this study, only the initiatives related to the provision of thebroadband connection and broadband services will be considered. All possibledemand side instruments related to the provision of e.g. PCs at reduced prices willnot be considered here.5.2.2.a ESTIMATION OF THE COST OF AFFORDABILITY OF BROADBAND SERVICESAssessment of appropriateness of universal service for advancing basic broadband development 126Final report
  • 127. VAN • DIJKMANAGEMENT CONSULTANTSThe table below provides some indications per Member State of the order ofmagnitude of the costs of ensuring affordability. The starting point hereby is thenumber of households per country who do not have a broadband subscription athome and who have stated that the reason for this is that broadband is tooexpensive 200 . After all, public initiatives are developed with a goal to increase thebroadband penetration, and thus the focus is only on households currently nothaving a broadband subscription at home. In practice however, depending on theway eligibility rules for broadband access support will be defined in the differentMember States, it can not be excluded that a number of current broadbandsubscribers would also be able to benefit from the support measures. Since thisshould to a maximum extent be avoided by optimally defining eligibility criteria, theassumption of only taking into account households currently not having abroadband subscription at home can be taken.Since Member States have a large amount of discretion in choosing the degree ofsupport (in terms of number of households supported and magnitude of thesupport), different scenarios are developed, so that a general range of total costs canbe derived. The scenarios considered differ as follows: • Number of households supported: it could be considered to give support to all households stating they do not take up broadband because it is too expensive (Scenario 1); however, since it can be expected that not all of these are incapable of paying the market price for broadband (but rather are unwilling), and since for some of these households the affordability issue may coincide with other reasons for non-take-up or the discount provided would not be enough to solve the affordability issue, an alternative assumption of giving financial support to half of the households 201 stating they do not have broadband access because it is too expensive, is also considered (Scenario 2) 202 ; • Magnitude of the support/discount: it is assumed that the discounts would amount to 50% (Scenario A), resp. 30% (Scenario B) of the commercial price of a 2Mbps connection 203 .200 This is calculated by combining statistics on total number of households per country,percentage of households having broadband access at home and percentage of householdsnot having broadband access at home because it is too expensive. Sources are Eurostat andEurobarometer (cf. Chapter 2). Since some data is missing for Finland in the Eurostatstatistics, no further calculations can be made for Finland.201 Please note that this is a rather general and simplified assumption. A more detailedapproach would consist of assessing the elasticity of demand for low-income consumers, butno suchlike statistics are readily available. The results should therefore be regarded as generalestimates of the order of magnitude of the impact.202 It should be noted that in both scenarios the resulting numbers of households eligible forfinancial support appear to be rather conservative, since Eurostat figures show that about17% of EU citizens is at risk of poverty (defined as 60% of median equivalided income aftersocial transfers).203 Member States could of course also decide to grant a discount consisting of a fixed amountper month. Provided the important variation of the cost of broadband per month betweenMS, it was concluded that making assumptions on possible fixed discounts per MS wouldadd little value to the scenarios already envisaged based on a percentage discount.Assessment of appropriateness of universal service for advancing basic broadband development 127Final report
  • 128. VAN • DIJKMANAGEMENT CONSULTANTSAll four scenarios are moreover simulated with revenues per user that are equal tothe median value of the broadband offers in the basket 1-2 Mbps and the least expensiveoffer in the basket 1-2 Mbps (see assumptions in cost model on availability).Finally, the results for all scenarios are calculated with the aid of Eurostat as well asEurobarometer statistics with respect to broadband take-up and reasons for nottaking up broadband.The results at the EU 27 level can be summarized as follows: Scenario 1: Scenario 2: 100% of households currently not 50% of households currently not having broadband because it is having broadband because it is too expensive which would too expensive which would receive a social discount receive a social discount Scenario A: Scenario B: Scenario A: Scenario B: 50% discount 30% discount 50% discount 30% discount Number of households without BB access who do not have Total amount of discounts per Total amount of discounts per BB access because it is too expensive year (EU 27) year (EU 27) % oltotal # Total number of households in EUR in EUR householdsBased on EUROSTAT figures 16.372.737 8,59% Discounts based on median value ol offers ~er Member State 2.785.4 75.979 1.671.285.587 1.392.737.989 835.642.794 Discounts based on least ex ensive offers per Member State 2.272.891.101 1.363.734.661 1.136.445.551 681.867.330Based on EUROBAROMETER figures 9.520.851 4,99% er Member State 1.694.459.588 1.016.675.753 847.229.794 508.337.876 er Member State 1.389.700.822 833.820.493 694.850.411 416.910.246Table 24: Estimation of the order of magnitude of the cost of ensuring affordability of a 2Mbps broadband connection for four different scenarios (in EUR) – overview at the EU 27levelFor each of the scenarios presented above, the tables below present the underlyingresults at the Member State level:Assessment of appropriateness of universal service for advancing basic broadband development 128Final report
  • 129. VAN • DIJKMANAGEMENT CONSULTANTS Median offer Median offer Compared to tol al in basket 1- in basket 1- # households 100% 2Mbps 50% 30% 50% 2Mbps 50% 30%Auslria 197.294 5,91% 197.294 32,20 38.123.018 22.873.811 98.647 32,20 19.061.509 11.436.905Belgium 253.774 6,22% 253.774 61,23 93.235.865 55.941.519 126.887 61,23 46.617.933 27.970.760Bulgaria 561.283 19,21% 561.283 10,11 34.043.445 20.426.067 280.641 10,11 17.021.722 10.213.033Cyprus 24.674 11,03% 24.674 39,79 5.891.245 3.534,747 12.337 39,79 2.945,622 1.767,373Czech Republic 474.052 11,24% 474.052 25,52 72.576.724 43.546.034 237.026 25,52 36.288.362 21.773.017Denmark 29.088 1,20% 29.088 21,73 3.792.368 2.275.421 14.544 21,73 1.896.184 1.137.710Estonia 39.835 6,84% 39.835 13,05 3.118,714 1.871.229 19.917 13,05 1.559.351 935.614Finland 33,66 33,66France 1.012.107 4,25% 1.012.107 31,79 193.070.430 115.842.258 506.054 31,79 96.535.215 57.921.129Germany 2.670.760 7,08% 2.670.760 31,60 506.411.990 303.847.194 1.335.380 31,60 253.205.995 151.923.597Greece 587.988 16,05% 587.988 15,09 53.240.085 31.944.051 293.994 15,09 26.620.042 15.972.025Hungary 739.029 19,13% 739.029 11,33 50.236.017 30.141.610 369.515 11,33 25.118.009 15.070.805Ireland 65.568 5,09% 65.568 30,08 11.833.189 7.099.913 32.784 30,08 5.916.594 3.549.957Italy 1.463.396 6,71% 1.463.396 32,96 289.386.466 173.631.880 731.698 32,96 144.693.233 86.815.940Latvia 211.760 26,38% 211.760 17,47 22.201.981 13.321.189 105.880 17,47 11.100.991 6.660.594Lithuania 258.591 19,06% 258.591 17,51 27.164.654 16.298.792 129.296 17,51 13.582.327 8.149.396Luxembourg 2.984 1,74% 2.984 25,18 450.786 270.472 1.492 25,18 225.393 135.236Malta 3.066 1,85% 3.066 13,86 254.961 152.977 1.533 13,86 127.481 76.488Netherlands 63.241 0,92% 63.241 19,20 7.285.317 4.371.190 31.620 19,20 3.642.659 2,185.595Poland 1368.381 10,26% 1.368381 45,57 374.110.950 224.466.570 684.191 45,57 187.055.475 112.233.285Portugal 943.505 25,84% 943.505 43,04 243.627.046 146.176.227 471.753 43,04 121.813.523 73.088.114Romania 1.452.824 19,85% 1.452.824 6,57 57.271.147 34.362.688 726.412 6,57 28.635.574 17.181.344Slovakia 105.469 6,41% 105.469 23,95 15.157.373 9.094.424 52.734 23,95 7.578.687 4.547.212Slovenia 81.084 11,84% 81.084 16,67 8.108.423 4.865.054 40.542 16,67 4.054.212 2.432.527Spain 2140.052 15,08% 2.140052 41,40 531595.637 318.957.382 1070.026 41,40 265.797.819 159.478.691Sweden 130.043 3,48% 130.043 24,45 19.078.818 11.447.291 65.021 24,45 9.539.409 5.723.645Uniled Kin dom 1.492.887 6,10% 1.492.887 13,87 124.209.328 74.525.597 746.444 13,87 62.104.664 37.262.798Table 25: Estimation of the cost of ensuring affordability of a 2 Mbps broadband usingmedian value of the broadband offers in the basket 1-2 Mbps as revenue per user (Eurostat) Scenario 1 Scenario _____=S~Scenario_B:JI_____=S~Scenati.o_B Number of Number of households households currently not Revenues currently not Revenues Number of households without BB br::~~:ndper month access who do not have BB access because it is toD per user Total amOUR! of discounts per br~:~~;nd per month per user Total amount of discounts per year because it is year because it is too expensive {tuil price expensive (tuil price toD expensive excl VAT which would excl VAT) which would receive a social receive a social discount discount expensrve expensive Compared 10 lotal offer in offer in # households baskel1- basket 1- 100% 2Mbps 50% 30% 50% 2Mbps 50% 30%Auslria 197.294 5,91% 197.294 29,08 34.427.859 20.656.716 98.647 29,08 17.213.930 10.328.358Belgium 253.774 6,22% 253.774 59,96 91.304.244 54.782.546 126.887 59,96 45.652.122 27.391.273Bulgaria 561.283 19,21% 561.283 7,86 26.474.249 15.884.549 280.641 7,86 13.237.124 7.942.275Cyprus 24.674 11,03% 24.674 33,04 4.891.982 2.935.189 12.337 33,04 2.445.991 1.467.595Czech Republic 474.052 11,24% 474.052 25,52 72.576.724 43.546.034 237.026 25,52 36.288.362 21.773.017Denmark 29.088 1.20% 29.088 19,95 3.481.159 2.088.696 14.544 19,95 1.740.580 1.044.348Estonia 39.835 6,84% 39.835 13,05 3.118.714 1.871.229 19.917 13,05 1.559.357 935.614Finland 23,78 23,78France 1.012.107 4.25% 1.012.107 29,18 177.203.366 106.322.020 506.054 29,18 88.601.683 53.161.010Germany 2.670.760 7,08% 2.670.760 28,87 462.580.106 277.548.064 1.335.380 28,87 231.290.053 138.774.032Greece 587.988 16,05% 587.988 13,87 48.916.644 29.349.986 293.994 13,87 24,458,322 14,674,993Hungary 739.029 19,13% 739.029 6,52 28.925.119 17.355.071 369.515 6,52 14.462.559 8.677.536Ireland 65.568 5,09% 65.568 18,18 7.152.910 4.291.746 32.784 18,18 3.576.455 2.145.873Italy 1.463.396 6,71% 1.463.396 32,96 289.386.466 173.631.880 731.698 32,96 144.693.233 86.815.940LaMa 211.760 26,38% 211.760 7,17 9.108.246 5.464.947 105.880 7,17 4.554.123 2.732.474lithuania 258.591 19,06% 258.591 9,82 15.232.516 9.139.510 129.296 9,82 7.616.258 4.569.755Luxembourg 2.984 1,74% 2.984 25,14 450.138 270.083 1.492 25,14 225.069 135.041Malta 3.066 1,85% 3.066 13,86 254.961 152.977 1.533 13,86 127.481 76.488Netherlands 63.241 0,92% 63.241 15,82 6.003.893 3.602.336 31.620 15,82 3.001.947 1.801.168Poland 1368.381 10.26% 1.368381 14,73 120.954.246 72572.548 684.191 14,73 60.477.123 36.286.274Portugal 943.505 25,84% 943.505 43,04 243.627.046 146.176.227 471.753 43,04 121.813.523 73.088.114Romania 1.452.824 19.85% 1.452.824 5,14 44.806.730 26.884.038 726.412 5,14 22.403.365 13.442.019Slovakia 105.469 6,41% 105.469 12,08 7.646.931 4.588.159 52.734 12,08 3,823,466 2,294,079Slovenia 81.084 11,84% 81.084 15,65 7.613.810 4.568.286 40.542 15,65 3,806,905 2,284,143Spain 2.140.052 15,08% 2.140.052 33,45 429.521.783 257.713.070 1.070.026 33,45 214.760.892 128.856.535Sweden 130.043 3,48% 130.043 16,69 13.021.930 7.813.158 65.021 16,69 6.510.965 3.906.579United Kin dom 1.492.887 6,10% 1.492.887 13,87 124.209.328 74.525.597 746.444 13,87 62.104.664 37.262.798 • I ; " " " ITable 26: Estimation of the cost of ensuring affordability of a 2 Mbps broadbandconnection (in EUR), using the least expensive offer as revenue per user (Eurostat)Assessment of appropriateness of universal service for advancing basic broadband development 129Final report
  • 130. VAN • DIJKMANAGEMENT CONSULTANTS Scenario 1 Scenario 2 Scenario A Scenario B Scenario A Scenario B Number of Number of households households currently not currently not Revenues Revenues having having Number of households without BB per month per month broadband Total amount of discounts per broadband Total amount of discounts peraccess who do not have BB access per user per user because it is toD year because it is year because it is toD expensive (Iull price (Iull price expensive toD expensive excl VAT) exd VAT which would which would receive a social receive a social discount discount Total number Median offer Size of the discount Median offer Size of the discount Compared to total in basket 1· in basket 1· # households 100 2Mbps 50 30 50 2Mbps 50 30 206.423 6,18% 206.423 32,20 39.886.940 23.932.164 103.211 32,20 19,943,470 11,966,082 257.911 6,32% 257.911 61,23 94.755.521 56.853.313 128.955 61,23 47,377.760 28,426,656 95.081 3,25% 95.081 10,11 5.766.924 3.460.155 47.540 10,11 2.883.462 1.730.077 13.604 6,08% 13.604 39,79 3.248.140 1.948.884 6.802 39,79 1.624.070 974.442 385.339 9,14% 385.339 25,52 58.994.808 35.396.885 192.669 25,52 29,497,404 17,698,442 87.293 3,59% 87.293 21,73 11.380.930 6.828.558 43.646 21,73 5,690,465 3,414,279 34.166 5,87% 34.166 13,05 2.674.924 1.604.954 17.083 13,05 1.337.462 802.477 48.324 2,11% 48.324 14,05 4.073.308 2.443.985 24.162 14,05 2.036.654 1.221.993 813.442 3,42% 813.442 31,79 155.172.991 93.103.795 406.721 31,79 77.586,496 46,551,897 1.308.994 3,47% 1.308.994 31,60 248.202.903 148.921.742 654.497 31,60 124,101,451 74,460,871 139.393 3,80% 139.393 15,09 12.621.491 7.572.894 69.696 15,09 6.310.745 3.786.447 350.201 9,07% 350.201 11,33 23.805.138 14.283.083 175.100 11,33 11.902.569 7.141.541 66.123 5,13% 66.123 30,08 11.933.261 7.159.956 33.061 30,08 5,966,630 3,579,978 1.539.704 7,06% 1.539.704 32,96 304.476.497 182.685.898 769.852 32,96 152,238,249 91,342,949 65.039 8,10% 65.039 17,47 6.819.019 4.091.412 32.520 17,47 3.409.510 2.045.706 61.699 4,55% 61.699 17,51 6.481.399 3.888.840 30.850 17,51 3.240.700 1.944.420 2.250 1,31% 2.250 25,18 339.949 203.970 1.125 25,18 169,975 101,985 3.475 2,10% 3.475 13,86 288.987 173.392 1.738 13,86 144.493 86.696 175.031 2,55% 175.031 19,20 20.163.517 12.098.110 87.516 19,20 10.081.758 6.049.055 882.375 6,62% 882.375 45,57 241.238.257 144.742.954 441.187 45,57 120,619,128 ]2,371,477 222.713 6,10% 222.713 43,04 57.507.905 34.504.743 111.357 43,04 28,753,953 17,252,372 736.576 10,06% 736.576 6,57 29.036.252 17.421.751 368.288 6,57 14.518.126 8.710.876 170.764 10,38% 170.764 23,95 24.541.222 14.724.733 85.382 23,95 12.270.611 7.362.367 12.714 1,86% 12.714 16,67 1.271.420 762.852 6.357 16,67 635,710 381,426 1.028.825 7,25% 1.028.825 41,40 255.563.302 153.337.981 514.412 41,40 127,781,651 76,668,991 102.971 2,76% 102.971 24,45 15.107.069 9.064.241 51.485 24,45 7.553.534 4.532.121 . 710.421 ; 2,90% 710.421 I; 13,87 59.107.512 ,J .. 35.464.507 I. , .. 355.210 13,87 29.553.756 ;, 17.732.254 0: , .Table 27: Estimation of the cost of ensuring affordability of a 2 Mbps broadbandconnection (in EUR), using median value of the broadband offers as revenue per user(Eurobarometer)Assessment of appropriateness of universal service for advancing basic broadband development 130Final report
  • 131. VAN • DIJKMANAGEMENT CONSULTANTS Scenario 1 Scenario 2 Scenario A Scenario B Scenario A Scenario B Number of Number of households households currently not currently not Revenues Revenues having having Number of households without BB per month per month broadband Total amount of discounts per broadband Total amount of discounts peraccess who do not have BB access per user per user because it is toD year because it is year because it is toD expensive (Iull price (Iull price expensive toD expensive excl VAT) exd VAT which would which would receive asodal receive a social discount discount Total number Least Size of the discount Least Size of the discount expensive expensive Compared to tatal offer in offer in # households basket 1- basket 1- 100% 2Mbps 50% 30% 50% 2Mbps 50% 30% 206.423 6,18% 206.423 29,08 36.020.810 21.612.486 103.211 29,08 18.010.405 10.806.243 257.911 6,32% 257.911 59,96 92.792.416 55.675.449 128.955 59,96 46.396.208 27.837.725 95.081 3,25% 95.081 7,86 4.484.710 2.690.826 47.540 7,86 2,242,355 1,345,413 13.604 6,08% 13.604 33,04 2.697.196 1.618.318 6.802 33,04 1,348,598 809,159 385.339 9,14% 385.339 25,52 58.994.808 35.396.885 192.669 25,52 29.497.404 17.698.442 87.293 3,59% 87.293 19,95 10.446.990 6.268.194 43.646 19,95 5.223.495 3.134.097 34.166 5,87% 34.166 13,05 2.674.924 1.604.954 17.083 13,05 1,337,462 802,477 48.324 2,11% 48.324 14,05 4.073.308 2.443.985 24.162 14,05 2,036,654 1,221,993 813.442 3,42% 813.442 29,18 142.420.444 85.452.266 406.721 29,18 71.210.222 42.726.133 1.308.994 3,47% 1.308.994 28,87 226.719.998 136.031.999 654.497 28,87 113.359.999 68.015.999 139.393 3,80% 139.393 13,87 11.596.544 6.957.926 69.696 13,87 5,798,272 3,478,963 350.201 9,07% 350.201 6,52 13.706.629 8.223.977 175.100 6,52 6,853,314 4,111,989 66.123 5,13% 66.123 18,18 7.213.401 4.328.041 33.061 18,18 3.606.701 2.164.020 1.539.704 7,06% 1.539.704 32,96 304.476.497 182.685.898 769.852 32,96 152.238.249 91.342.949 65.039 8,10% 65.039 7,17 2.797.467 1.678.480 32.520 7,17 1,398,733 839,240 61.699 4,55% 61.699 9,82 3.634.430 2.180.658 30.850 9,82 1.817.215 1.090.329 2.250 1,31% 2.250 25,14 339.460 203.676 1.125 25,14 169.730 101.838 3.475 2,10% 3.475 13,86 288.987 173.392 1.738 13,86 144,493 86,696 175.031 2,55% 175.031 15,82 16.616.929 9.970.158 87.516 15,82 8,308,465 4,985,079 882.375 6,62% 882.375 14,73 77.995.021 46.797.013 441.187 14,73 38.997.511 23.398.506 222.713 6,10% 222.713 43,04 57.507.905 34.504.743 111.357 43,04 28.753.953 17.252.372 736.576 10,06% 736.576 5,14 22.716.840 13.630.104 368.288 5,14 11,358,420 6,815,052 170.764 10,38% 170.764 12,08 12.381.105 7.428.663 85.382 12,08 6,190,553 3,714,332 12.714 1,86% 12.714 15,65 1.193.863 716.318 6.357 15,65 596.932 358.159 1.028.825 7,25% 1.028.825 33,45 206.491.547 123.894.928 514.412 33,45 103.245.773 61.947.464 102.971 2,76% 102.971 16,69 10.311.079 6.186.647 51.485 16,69 5,155,539 3,093,324 710.421 I 2,90% 710.421 I: 13,87 ,. 59.107.512 " : 35.464.507 : 1+ 355.210 .1 13,87 29,553,756 . " : Ij 17,732,254 . I .Table 28: Estimation of the cost of ensuring affordability of a 2 Mbps broadbandconnection (in EUR), using the least expensive value of the broadband offers as revenueper user (Eurobarometer)On average, the calculations with Eurobarometer statistics show lower costs, and thisis due to the much lower percentage of households claiming they do not havebroadband access because it is too expensive. This effect plays an important role, andmore than neutralizes the effect of Eurobarometer household take-up percentagesbeing lower than for Eurostat.This cost of ensuring affordability is fully additional to the cost of ensuringavailability of broadband services (cf. section 5.2.1) as this latter takes into accountthe full price of the (median/least expensive) cost of providing 2Mbps whendetermining the net cost of availability.5.2.2.b ASSESSMENT OF THE ESTIMATED COST OF AFFORDABILITYTo put the figures presented above into perspective, the estimated total annualdiscounts granted under the different scenarios (for both the median and leastexpensive revenues per user) are compared to the total turnover of the electroniccommunications sector 204, as was done for the ‘costs of ensuring availability.’ Thisanalysis is done on a country-based level in the following table 205 :204Total turnover of the electronic communications sector is obtained from Eurostat StructuralBusiness Statistics: when available, the most recent figures, i.e. 2008 turnover for‘telecommunications’ (NACE code Rev 2: 61) are taken into account. In other cases, the mostAssessment of appropriateness of universal service for advancing basic broadband development 131Final report
  • 132. VAN • DIJKMANAGEMENT CONSULTANTSAustria 6.729.200 0,57% 0,34% 0,28% 0,17% 0,51% 0,31% 0,26% 0,15%Belgium 12.193.100 0,76% 0,46% 0,38% 0,23% 0,75% 0,45% 0,37% 0,22%Bulgaria 2.009.200 1,69% 1,02% 0,85% 0,51% 1,32% 0,79% 0,66% 0,40%Cyprus 592.000 1,00% 0,60% 0,50% 0,30% 0,83% 0,50% 0,41% 0,25%Czeeh Republie 3.924.200 1,85% 1,11% 0,92% 0,55% 1,85% 1,11% 0,92% 0,55%Denmark 6.579.500 0,06% 0,03% 0,03% 0,02% 0,05% 0,03% 0,03% 0,02%Estonia 757.000 0,41% 0,25% 0,21% 0,12% 0,41% 0,25% 0,21% 0,12%Finland 5.013.900France 63.797.900 0,30% 0,18% 0,15% 0,09% 0,28% 0,17% 0,14% 0,08%Germany 71.232.100 0,71% 0,43% 0,36% 0,21% 0,65% 0,39% 0,32% 0,19%Greece 8.154.300 0,65% 0,39% 0,33% 0,20% 0,60% 0,36% 0,30% 0,18%Hungary 4.852.300 1,04% 0,62% 0,52% 0,31% 0,60% 0,36% 0,30% 0,18%Ireland 8.163.200 0,14% 0,09% 0,07% 0,04% 0,09% 0,05% 0,04% 0,03%Italy 42.606.000 0,68% 0,41% 0,34% 0,20% 0,68% 0,41% 0,34% 0,20%Latvia 879.700 2,52% 1,51% 1,26% 0,76% 1,04% 0,62% 0,52% 0,31%Lithuania 1.026.500 2,65% 1,59% 1,32% 0,79% 1,48% 0,89% 0,74% 0,45%Luxembourg 2.446.900 0,02% 0,01% 0,01% 0,01% 0,02% 0,01% 0,01% 0,01%MaltaNetherlandsPoland 13.257.600 2,82% 1,69% 1,41% 0,85% 0,91% 0,55% 0,46% 0,27%Portugal 7.783.600 3,13% 1,88% 1,57% 0,94% 3,13% 1,88% 1,57% 0,94%Romania 5.519.100 1,04% 0,62% 0,52% 0,31% 0,81% 0,49% 0,41% 0,24%Slovakia 2.241.800 0,68% 0,41% 0,34% 0,20% 0,34% 0,20% 0,17% 0,10%SlovenÎa 1.513.100 0,54% 0,32% 0,27% 0,16% 0,50% 0,30% 0,25% 0,15%Spain 39.521.100 1,35% 0,81% 0,67% 0,40% 1,09% 0,65% 0,54% 0,33%Sweden 10.379.300 0,18% 0,11% 0,09% 0,06% 0,13% 0,08% 0,06% 0,04%United Kin dom • .. 80.674.100 :" 11 0,15% , . 0,09% , , 0,08% , 0,05% , 0,15% , 0,09% ,, 0,08% , 0,05%Table 29: Estimated cost of ensuring affordability as a percentage of the total turnover ofthe electronic communications sector (SOURCE for broadband take-up percentages andreasons for not taking up broadband: Eurostat) Md IJ b k 12Mb L ,. IJ b k 12Mb Annual Total discounts compared to annual telecom turnover Total discounts compared to annual telecom turn over telecommu- nkations Scenario lA Scenario 1B Scenario 2A Scenario 2B Scenario lA Scenario 1B Scenario 2A Scenario 2B turnover in 1000EURAustria 6.729.200 0,59% 0,36% 0,30% 0,18% 0,54% 0,32% 0,27% 0,16%Belgium 12.193.100 0,78% 0,47% 0,39% 0,23% 0,76% 0,46% 0,38% 0,23%Bulgaria 2.009.200 0,29% 0,17% 0,14% 0,09% 0,22% 0,13% 0,11% 0,07%Cyprus 592.000 0,55% 0,33% 0,27% 0,16% 0,46% 0,27% 0,23% 0,14%Czeeh Republie 3.924.200 1,50% 0,90% 0,75% 0,45% 1,50% 0,90% 0,75% 0,45%Denmark 6.579.500 0,17% 0,10% 0,09% 0,05% 0,16% 0,10% 0,08% 0,05%Estonia 757.000 0,35% 0,21% 0,18% 0,11% 0,35% 0,21% 0,18% 0,11%Finland 5.013.900France 63.797.900 0,24% 0,15% 0,12% 0,07% 0,22% 0,13% 0,11% 0,07%Germany 71.232.100 0,35% 0,21% 0,17% 0,10% 0,32% 0,19% 0,16% 0,10%Greece 8.154.300 0,15% 0,09% 0,08% 0,05% 0,14% 0,09% 0,07% 0,04%Hungary 4.852.300 0,49% 0,29% 0,25% 0,15% 0,28% 0,17% 0,14% 0,08%Ireland 8.163.200 0,15% 0,09% 0,07% 0,04% 0,09% 0,05% 0,04% 0,03%Italy 42.606.000 0,71% 0,43% 0,36% 0,21% 0,71% 0,43% 0,36% 0,21%Latvia 879.700 0,78% 0,47% 0,39% 0,23% 0,32% 0,19% 0,16% 0,10%Lîthuania 1.026.500 0,63% 0,38% 0,32% 0,19% 0,35% 0,21% 0,18% 0,11%Luxembourg 2.446.900 0,01% 0,01% 0,01% 0,00% 0,01% 0,01% 0,01% 0,00%MaltaNetherlandsPoland 13.257.600 1,82% 1,09% 0,91% 0,55% 0,59% 0,35% 0,29% 0,18%Portugal 7.783.600 0,74% 0,44% 0,37% 0,22% 0,74% 0,44% 0,37% 0,22%Romania 5.519.100 0,53% 0,32% 0,26% 0,16% 0,41% 0,25% 0,21% 0,12%Slovakia 2.241.800 1,09% 0,66% 0,55% 0,33% 0,55% 0,33% 0,28% 0,17%Slovenia 1.513.100 0,08% 0,05% 0,04% 0,03% 0,08% 0,05% 0,04% 0,02% Spain 39.521.100 0,65% 0,39% 0,32% 0,19% 0,52% 0,31% 0,26% 0,16% Sweden 10.379.300 0,15% 0,09% 0,07% 0,04% 0,10% 0,06% 0,05% 0,03%United KinQdom 80.674.100 0,07% 0,04% 0,04% 0,02% 0,07% 0,04% 0,04% 0,02%IlIJ.!1L -, :. 11 [IIl,.lI.Io [W.Io",1I [WU:" JIi.I.I ,,,~y.~ :W.ul,~ IJlir~1I [Jlillloi~recent available turnover for ‘telecommunications’ (which before 2008 was subject to NACEcode Rev 1.1: 642) is taken into account. In the telecommunications turnover figures noaccount is made of the extra revenues generated by the new broadband customers, since thissurplus is marginal compared to total turnover figures.205 Telecommunications sector turnover for the Netherlands and Malta is not publiclyavailable (data are considered to be confidential), so no calculation could be made for thesecountries (as for Finland, see above).Assessment of appropriateness of universal service for advancing basic broadband development 132Final report
  • 133. VAN • DIJKMANAGEMENT CONSULTANTSTable 30: Estimated cost of ensuring affordability as a percentage of the total turnover ofthe electronic communications sector (SOURCE for broadband take-up percentages andreasons for not taking up broadband: Eurobarometer)Under the different scenarios, the costs of ensuring affordability of broadband acrossthe EU would lie somewhere between 0,1%-0,7% of total turnover of thetelecommunications sector. This represents between 0,4% and 2,3% of telecom sectorgross operating surplus 206 (as a measure of profit). The impacts would howeverstrongly differ between countries, with Portugal, Poland, Latvia and Lithuania in aworst case scenario (and taking into account Eurostat data) having a cost ofaffordability of more than 2,5% of the total sector turnover, or between 6,7% and9,8% of sector profit. With Eurobarometer data, Poland and the Czech Republicwould be the countries with the highest relative cost of affordability. For both datasets, this is due to a combination of on the one hand many households findingbroadband access too expensive and on the other hand either a low turnover of thetelecom sector per capita or high revenues and thus discounts per user.In terms of cost of affordability per capita, the following values would be obtainedfor all EU countries: Median offer in basket 1-2Mb s Least ex ensive offer in basket 1-2Mb 5AustrÎa 7.943.705 4,80 2,88 2,40 1,44 4,33 2,60 2,17 1,30Belgium 10.152.016 9,18 5,51 4,59 2,76 8,99 5,40 4,50 2,70Bulgaria 7.848.395 4,34 2,60 2,17 1,30 3,37 2,02 1,69 1,01Cyprus 685.280 8,60 5,16 4,30 2,58 7,14 4,28 3,57 2,14Czeeh Republie 10.158.879 7,14 4,29 3,57 2,14 7,14 4,29 3,57 2,14Denmark 5.278.044 0,72 0,43 0,36 0,22 0,66 0,40 0,33 0,20Estonia 1.354.193 2,30 1,38 1,15 0,69 2,30 1,38 1,15 0,69Finland 5.081.354France 57.220.124 3,37 2,02 1,69 1,01 3,10 1,86 1,55 0,93Germany 81.465.300 6,22 3,73 3,11 1,86 5,68 3,41 2,84 1,70Greece 10.266.004 5,19 3,11 2,59 1,56 4,76 2,86 2,38 1,43Hungary 9.944.832 5,05 3,03 2,53 1,52 2,91 1,75 1,45 0,87Ireland 3.791.316 3,12 1,87 1,56 0,94 1,89 1,13 0,94 0,57Italy 56.594.021 5,11 3,07 2,56 1,53 5,11 3,07 2,56 1,53Lalvia 2.354.620 9,43 5,66 4,71 2,83 3,87 2,32 1,93 1,16Lithuania 3.459.655 7,85 4,71 3,93 2,36 4,40 2,64 2,20 1,32Luxembourg 502.202 0,90 0,54 0,45 0,27 0,90 0,54 0,45 0,27Malta 413.609 0,62 0,37 0,31 0,18 0,62 0,37 0,31 0,18Netherlands 15.766.606 0,46 0,28 0,23 0,14 0,38 0,23 0,19 0,11Poland 37.812.741 9,89 5,94 4,95 2,97 3,20 1,92 1,60 0,96Portugal 10.255.526 23,76 14,25 11,88 7,13 23,76 14,25 11,88 7,13Romania 21.358.796 2,68 1,61 1,34 0,80 2,10 1,26 1,05 0,63Slovakia 5.294.746 2,86 1,72 1,43 0,86 1,44 0,87 0,72 0,43Slovenia 1.949.614 4,16 2,50 2,08 1,25 3,91 2,34 1,95 1,17Spain 40.595.861 13,09 7,86 6,55 3,93 10,58 6,35 5,29 3,17Sweden 9.340.682 2,04 1,23 1,02 0,61 1,39 0,84 0,70 0,42 57.742.455 2,15 1,29 1,08 0,65 2,15 1,29 1,08 0,65Uniled Kin dom • . ITable 31: Estimated cost of ensuring affordability per capita (SOURCE for broadband take-up percentages and reasons for not taking up broadband: Eurostat)206See Code 12 170 of Commission Regulation (EC) N° 2007/98 of 17 December 1998concerning the definitions of characteristics for structural business statistics.Assessment of appropriateness of universal service for advancing basic broadband development 133Final report
  • 134. VAN • DIJKMANAGEMENT CONSULTANTS Md ft b k t 12Mb , L st ,. ft b k t 12Mb 0 Discount per capita Discount per capita Population Scenario lA Scenario 18 Scenario 2A Scenario 28 Scenario lA Scenario 18 Scenario 2A Scenario 28AustrÎa 7.943.705 5,02 3,01 2,51 1,51 4,53 2,72 2,27 1,36Belgium 10.152.016 9,33 5,60 4,67 2,80 9,14 5,48 4,57 2,74Bulgaria 7.848.395 0,73 0,44 0,37 0,22 0,57 0,34 0,29 0,17Cyprus 685.280 4,74 2,84 2,37 1,42 3,94 2,36 1,97 1,18Czeeh Republie 10.158.879 5,81 3,48 2,90 1,74 5,81 3,48 2,90 1,74Denmark 5.278.044 2,16 1,29 1,08 0,65 1,98 1,19 0,99 0,59Estonia 1.354.193 1,98 1,19 0,99 0,59 1,98 1,19 0,99 0,59Finland 5.081.354France 57.220.124 2,71 1,63 1,36 0,81 2,49 1,49 1,24 0,75Germany 81.465.300 3,05 1,83 1,52 0,91 2,78 1,67 1,39 0,83Greece 10.266.004 1,23 0,74 0,61 0,37 1,13 0,68 0,56 0,34Hungary 9.944.832 2,39 1,44 1,20 0,72 1,38 0,83 0,69 0,41Ireland 3.791.316 3,15 1,89 1,57 0,94 1,90 1,14 0,95 0,57Italy 56.594.021 5,38 3,23 2,69 1,61 5,38 3,23 2,69 1,61Latvia 2.354.620 2,90 1,74 1,45 0,87 1,19 0,71 0,59 0,36Lithuania 3.459.655 1,87 1,12 0,94 0,56 1,05 0,63 0,53 0,32Luxembourg 502.202 0,68 0,41 0,34 0,20 0,68 0,41 0,34 0,20Malta 413.609 0,70 0,42 0,35 0,21 0,70 0,42 0,35 0,21Netherlands 15.766.606 1,28 0,77 0,64 0,38 1,05 0,63 0,53 0,32Poland 37.812.741 6,38 3,83 3,19 1,91 2,06 1,24 1,03 0,62Portugal 10.255.526 5,61 3,36 2,80 1,68 5,61 3,36 2,80 1,68Romania 21.358.796 1,36 0,82 0,68 0,41 1,06 0,64 0,53 0,32Slovakia 5.294.746 4,64 2,78 2,32 1,39 2,34 1,40 1,17 0,70Slovenia 1.949.614 0,65 0,39 0,33 0,20 0,61 0,37 0,31 0,18Spain 40.595.861 6,30 3,78 3,15 1,89 5,09 3,05 2,54 1,53Sweden 9.340.682 1,62 0,97 0,81 0,49 1,10 0,66 0,55 0,33United Kinadom 57.742.455 1,02 0,61 0,51 0,31 1,02 0,61 0,51 0,31Wlfill, , , I MI!JA MfJ QJj(I iA! UOO UWl ~ !M!ITable 32: Estimated cost of ensuring affordability per capita (SOURCE for broadband take-up percentages and reasons for not taking up broadband: Eurobarometer)With Eurostat data, the highest values per capita would be obtained for Portugal,Spain, Poland, Latvia and Lithuania. With Eurobarometer data, high values are alsoobtained in Portugal, Spain and Poland, and other countries with a high cost percapita would be Belgium, Cyprus, Czech Republic and Slovakia. This is again oftenthe result of high proportions of households not having broadband access becausethey find it too expensive and/or of the high revenues per user and thus highdiscounts in these countries.In general, costs per capita would be much higher than is actually the case incountries where a universal service fund has been activated (cf. Table 3 on page 23).It is also worth noting that the relative burden of ensuring affordability could forsome providers further increase, because of a more restrictive definition of thecontributory base, e.g. by eliminating revenues of voice and other services and onlytaking into account the revenues associated with broadband services.Assessment of appropriateness of universal service for advancing basic broadband development 134Final report
  • 135. VAN • DIJKMANAGEMENT CONSULTANTS5.2.2.c COMPARISON OF THE COST OF AFFORDABILITY BETWEEN OPTIONSCompared to the net cost of availability, it is even more difficult to makeassumptions on how the cost of affordability will differ between options. After all,under each policy option, it is left to the discretion of Member States to decide ifmeasures for specific social groups are taken or not and what these measures include(number of households concerned, amount of discount, etc.).A priori, there is no reason to assume that Member States would be of a different(political) opinion regarding the choice of stimulating broadband affordability underthe different policy options. Moreover, each of the five policy options allow MemberStates to include more or less the same USOs for increasing the affordability ofbroadband costs, which would allow them to impose this cost of affordability on thesector. Also, the cost of increasing the affordability of broadband services is muchless speed dependent than the cost of ensuring availability. In other words, even ife.g. under OPTION 1 or OPTION 4, Member States would impose USOs for broadbandspeeds lower than 2Mbps (i.e. what is mandated under OPTION 3), these obligationscould still lead to a rather comparable burden for the sector. Finally however, sinceunder OPTION 5, it is assumed that availability is ensured by other instruments thanuniversal service obligations (and thus leading to no costs in the USO fund), it couldbe argued that OPTION 5 leaves more room for including costs related to affordabilityin the USO fund, leading to a higher probability that these costs will be imposed onthe sector.In conclusion, there are little objective elements based on which it could be arguedthat the distribution of costs of increasing affordability would be different betweenOptions; the main difference is to be expected between OPTIONS 1 to 4 and OPTION 5.The cost of affordability itself (in terms of discounts on the cost of the broadbandconnection of services) is not a differentiating factor when comparing between thepolicy options for universal service considered in this study. Regarding thedistribution of these costs, it will depend on the decision of the Member States ofwhat affordability stimuli are defined under universal service or what other (publicfunded) incentives are given for increasing the level of broadband take-up in specificsocial groups. For OPTION 5, it is considered that some more costs related toaffordability could be imposed on the sector since no sector funding would be usedfor ensuring the availability of broadband services.Since general taxation or state funding has the least distortive impact on theeconomic and society as a whole, options including a bigger contribution from StateFunding are considered to be preferable when comparing between options. Hence,they are given a more positive assessment.The first place in the ranking is therefore given to the options that are the lessdistortive. For the cost of affordability, only OPTION 5 is thus given a less favorableranking.Assessment of appropriateness of universal service for advancing basic broadband development 135Final report
  • 136. VAN • DIJKMANAGEMENT CONSULTANTS OPTION 1 OPTION 2 OPTION 3 OPTION 4 OPTION 5Estimated 417 – 2.785 417– 2.785 417– 2.785 417– 2.785 417 – 2.785cost of Million EUR Million EUR Million EUR Million EUR Million EURaffordabilityState Funding Average % Average % Average % Average % Lower % High degree More sector of discretion funding could for MS to be assumedSector decide what Idem Idem Idem since there isFinancing costs of Option 1 Option 1 Option 1 no sector affordability funding for are imposed ensuring on the sector availabilityRanking 1 1 1 1 2Table 33: Comparison between options of the distribution of the cost of ensuringbroadband affordability5.2.3 ASSESSMENT OF THE COSTS OF MANAGING THE UNIVERSAL SERVICESYSTEMIncluding broadband access in the list of universal services, be it at the national or EUlevel, would bring about a number of actions or activities for the different involvedactors for administering the universal service provisions and obligations andcomplying with these 207 . The costs associated with these activities should also betaken into account and compared between options when making an informeddecision on the different policy options.5.2.3.a IDENTIFICATION OF COST CATEGORIESThe main costs of managing the system identified and relevant for at least one of thepolicy options are:For the national regulatory authority: • Set up a universal service system for broadband services, which includes e.g. defining mechanisms for designation and compensation (i.e. method for net cost calculation); • Organization and management of the universal service system (recurring), including designation of universal service provider(s), calculation of net cost, management of the universal service fund, etc.For the universal service provider(s):207 These “costs of managing the system” comprise both administrative costs (i.e. related tocosts incurred by enterprises, the voluntary sector, public authorities and citizens in meeting legalobligations to provide information on their action or production, either to public authorities or toprivate parties(http://ec.europa.eu/governance/impact/docs/key_docs/sec_2005_0791_anx_en.pdf)) aswell as some substantive compliance costs, e.g. for the implementation of the organizationand management of the universal service system.Assessment of appropriateness of universal service for advancing basic broadband development 136Final report
  • 137. VAN • DIJKMANAGEMENT CONSULTANTS • Put the necessary information at the disposal of the public authorities for calculating net costs;For all electronic service providers, being part of the contributive basis: • Put the necessary information at the disposal of the public authorities for calculating the distribution of the compensation between providers ;For the European Commission: • Overall assessment of the national implementation of European universal service provisions; • Analysis of the impact analyses made by the NRAs with respect to the inclusion of broadband in the list of universal services at the national level;For the national regulatory authority, the universal service provider, public socialservices, etc. depending on the exact implementation in the Member State: • Set up of a system for verification of eligibility for universal broadband affordability measures; • Organization and management of the system for verification of eligibility for universal broadband affordability measures.It is clear that a number of cost categories will be present and that the associatedcosts will be more or less equal no matter which option will in fine be chosen. This isthe case for the costs of the universal service provider for complying with theinformation requirements of the NRAs. Some other categories are on the contrarynot relevant for all options, but limited to one or a few of them, e.g. the costs for theEC of analyzing the impact analyses made by the NRAs. Finally, there are a numberof categories for which the costs will greatly depend on the actual choice made byMember States under the option, i.e. whether or not broadband will be included asuniversal service at the national level. This choice can, as already mentioned, not beforeseen at this stage for Options 1, 2 and 4. However, since it is possible that allMember States would choose to include broadband under universal service, it isassumed that costs for these cost categories can possibly amount to the samemaximal values under all options.In view of the fact that a substantial part of administrative costs is common to alloptions, there would obviously not be much value added in analyzing andestimating these costs in great detail. Moreover, it should be stressed that, given thelow amounts of these administrative costs when compared with the overall costs ofavailability and affordability and given the fact that the administrative costs are oftenadded to these costs when calculating compensations, it would be disproportionateto meticulously determine the cost values, even for the types of administrative coststhat do differ per option. To illustrate this negligibility, the following paragraphsgive some rough estimates of the different cost categories. Where possible, the mostimportant differences between options in terms of administrative costs will beestimated in more detail.Assessment of appropriateness of universal service for advancing basic broadband development 137Final report
  • 138. VAN • DIJKMANAGEMENT CONSULTANTSCosts for set up & organization and management of a universal broadband servicesystemMuch like for the current universal service provisions for telephony services, theinclusion of broadband under universal service would bring about an extra workloadfor public authorities charged with implementation and follow-up of the US system(most often National Regulatory Authorities). It can be assumed that a number ofFTEs will need to be foreseen for defining the exact mechanics of the national system,such as the designation mechanism and the methodology for calculating the net cost.Annually assessing the unfair burden and possible net cost would then be one of therecurring tasks of the NRA, as would be the management of the actual transfers toand from the US fund. All of the options would possibly entail including broadbandin universal service for dealing with availability and/or affordability issues, so it canbe assumed that costs would not greatly differ between options. However, Option 4would be more burdensome for NRAs in a sense that the set up and organization ofthe US system would need to be preceded by an impact analysis of the need for andconsequences of the inclusion of broadband in US. To roughly estimate theassociated additional costs, it is assumed that the workload for an NRA for a suchlikeimpact assessment would more or less be comparable to its workload for an analysisof relevant markets (Art. 7 procedure). This cost can be estimated at 2,3 millionEUR 208 per year for the entire EU, or about 85.000 EUR per country (although figuresmay substantially differ according to the size of the country).Costs of US operators and of all electronic service providers to put the necessaryinformation at the disposal of the public authoritiesAs for the previous cost category, it can be concluded that all of the options wouldpossibly entail including broadband in universal service for dealing with availabilityand/or affordability issues, so that US (and, to a limited extent, all other) operatorswould under any option incur costs for handling information requests of the nationalauthorities. The main difference would lie with Option 4, under whichsupplementary information requests would be made during the impact analyses. Arough estimate can also be drawn from the costs estimated for operators for ananalysis of relevant markets (for treating information requests and providingcomments on draft measures), which amount to 6,7 million EUR per year 209 . Thisamount however represents a substantial overestimation, as it is calculated from theexample of the market of mobile termination, one of the most resource-intensivemarkets, and comprises costs for detailed information requests at over 350 networkoperators and service providers across the EU. The information requests associatedwith the impact analyses foreseen under Option 4 are not considered to be soextensive.208 See SEC(2007) 1472/3: Commission Staff Working Document – Impact Assessment –Accompanying document to the: Commission Proposal for a Directive of the EuropeanParliament and the Council amending European Parliament and Council Directives2002/19/EC, 2002/20/EC and 202/21/EC, Commission Proposal for a Directive of theEuropean Parliament and the Council amending European Parliament and Council Directives2002/22/EC and 2002/58/EC and Commission Proposal for a Regulation of the EuropeanParliament and the Council establishing the EECMA: amount is deducted from a survey ofNRAs and is based on the example of Market 16.209 Also see SEC(2007) 1472/3.Assessment of appropriateness of universal service for advancing basic broadband development 138Final report
  • 139. VAN • DIJKMANAGEMENT CONSULTANTSCosts for overall assessment of the national implementation of European universalservice provisionsA follow-up and verification of the way the EU provisions on universal service areimplemented and executed in the different Member States, will be a relevant taskunder all options except Option 2. To estimate the order of magnitude of this cost, itis assumed that about 2 to 3 FTEs of the Commission would be allocated to this task.This would result in an overall yearly cost of 143.317 to 214.976 EUR 210 , which againrepresents a marginal amount.Costs of EC for analysis of the impact analyses made by the NRAs with respect tothe inclusion of broadband in the list of universal services at the national levelThese costs will only be relevant under Option 4, but are considered to be negligible,since the costs for analyzing the impact analyses would logically even be morelimited than the actual drawing up of the impact analyses by the NRAs (cf. supra).Costs for set up & organization and management of a system for verification ofeligibility for universal broadband affordability measuresAs was the case for telephony social tariffs, measures to ensure affordability ofbroadband under the universal service provisions will necessitate the developmentof a system for managing eligibility for the measures. This includes e.g. the control offulfillment of eligibility criteria, checking that the discounts are granted only onetime per customer or per household, etc. Member States can implement such systemsas they prefer, and possibilities range from manual eligibility controls to fullyautomated databases directly accessible by all relevant parties, much like fortelephony social tariffs. For instance, in France beneficiaries of social tariffs fortelephony services receive a paper attestation from the social services, which theyshould then send to the administering body for manual verification of the eligibility.In Belgium, a so-called social database was implemented, which should be consultedby universal service operators at each customer application, to automatically verifywhether the customer is eligible, whether he or a family member does not yet enjoy asocial discount from another universal service operator, etc. Recurring controls areafterwards done to check if customers are still eligible.In case Member States would decide to use universal service provisions as a meansof ensuring affordability of users (e.g. by granting discounts), a similar system willthus need to be set up by the Member State. This decision will need to be takenregardless of the option chosen, so this type of administrative costs would notsubstantially differ between options. However, the likelihood of implementation inMember States would be higher under Option 5.As a rough estimate of the costs associated in setting up and managing such asystem, the costs associated with the above-mentioned manual and automated210Assuming the FTEs are on average Grade 5 (step 3) staff (see Council Regulation No1323/2008), and adding 5% to cover the different allowances that officials (or other servant ofthe EC) also receive and 25% to cover overhead costs.Assessment of appropriateness of universal service for advancing basic broadband development 139Final report
  • 140. VAN • DIJKMANAGEMENT CONSULTANTSsystems in France and Belgium for telephony social tariffs are shown in the followingtable:Country Type of cost Year Amount Management costs for social services and France 2007 2.602.000 EUR administering body Investment costs for setting up the Total 999.844 EUR automated social databaseBelgium Maintenance costs of automated social 2006 270.495 EUR database 2007 563.511 EURTable 34 Set up and maintenance costs of national systems for verification of eligibility fortelephony social tariffsYearly costs in the examples thus differ between 750.284 EUR 211 and 2.602.000 EUR,so that a cost of 1 to 3 million EUR per country or 27 to 81 million EUR for the EUwould be a yearly maximum.5.2.3.b CONCLUSIONBased on the above paragraphs, it can be concluded that the costs for managing theUS system are not significant compared to the cost of ensuring availability andaffordability of broadband services. Moreover, differences in costs between optionsare very difficult to estimate. By consequence, it was concluded that the comparisonof the costs for managing the US system between Options adds very little value,which justifies that these costs will not be included in the quantitative assessment ofthe options.5.2.4 OVERALL QUANTITATIVE ASSESSMENTTo get an overall view of the possible quantitative impact of the policy options, thedifferent elements of assessment in the previous paragraphs have been broughttogether in the following table, in which they are again assessed against the globalturnover of the telecom sector and the gross operating surplus of the sector (as ameasure of profit), and are also expressed as a cost per capita. As the costs foradministering the US system are excluded (see 5.2.3), account is only taken of theestimated costs for ensuring availability and affordability. The scenarios representedare the following: • For availability: net cost of providing availability of 2 Mbps to every EU citizen, calculated per type of zone; • For affordability: cost of providing a 50% discount to 50% of the households currently not having broadband access because they find it too expensive.For both types of costs, account is taken of broadband prices equal to the medianoffer and the least expensive offer in the basket 1-2 Mbps.211If investments are depreciated over 3 years, which is the period utilised by the BIPT for ITinvestments.Assessment of appropriateness of universal service for advancing basic broadband development 140Final report
  • 141. VAN • DIJKMANAGEMENT CONSULTANTS Tota I cost of Tota I cost of ensuring ensuring Cost of ensuring Total cost of ensuring availability and availability and availability and availability and affordability affordability affordability per affordability compared to Annual compared 10 gross capita Gross annual telecom telecommu operating surplus operating Population turnover nications surplus turnover With Wrth Wrth With With With With revenues With revenues revenues revenu es revenues revenues revenues revenues based on based on ~ea5t based on based on based on based on based on based on expenslve least least least median offer median median median offer expensive expensive expensÎve offer offer offer offer offer offerAustria 6.729.200 1.855.500 7.943.705 34.598.505 39.140.440 0,51% 0,58% 1,86% 2,11% 4,36 4,93Belgium 12.193.100 4.097.700 10.152.016 63.604.175 62.759.147 0,52% 0,51% 1,55% 1,53% 6,27 6,18Denmark 6.579.500 1.755.000 5.278.044 5.772.735 5.618.692 0,09% 0,09% 0,33% 0,32% 1,09 1,06Estonia 757.000 235.600 1.354.193 11.991.614 11.991.614 1,58% 1,58% 5,09% 5,09% 8,86 8,86Finland 5.013.900 1.278.300 5.081.354 77.161.234 87.455.530 1,54% 1,74% 6,04% 6,84% 15,19 17,21France 63.797.900 16.985.700 57.220.124 360.028.051 353.741.587 0,56% 0,55% 2,12% 2,08% 6,29 6,18Germany 71.232.100 21.087.300 81.465.300 372.970.796 378.825.813 0,52% 0,53% 1,77% 1,80% 4,58 4,65Greece 8.154.300 2.636.000 10.266.004 107.083.711 107.935.775 1,31% 1,32% 4,06% 4,09% 10,43 10,51Hungary 4.852.300 1.541.300 9.944.832 89.824.646 88.865.762 1,85% 1,83% 5,83% 5,77% 9,03 8,94Ireland 8.163.200 1.451.500 3.791.316 25.922.293 35.746.312 0,32% 0,44% 1,79% 2,46% 6,84 9,43Italy 42.606.000 16.594.000 56.594.021 156.034.166 156.034.166 0,37% 0,37% 0,94% 0,94% 2,76 2,76Lithuania 1.026.500 314.800 3.459.655 13.582.327 7.616.258 1,32% 0,74% 4,31% 2,42% 3,93 2,20Luxembourg 2.446.900 764.900 502.202 1.913.297 1.913.174 0,08% 0,08% 0,25% 0,25% 3,81 3,81Malta 413.609 429.370 429.370 no info no info no info no info 1,04 1,04Netherlands 15.766.606 35.330.475 36.942.856 no info no info no info no info 2,24 2,34Poland 13.257.600 37.812.741 187.055.475 60.477.123 1,41% 0,46% no;nfo no info 4,95 1,60Portugal 7.783.600 2.484.800 10.255.526 143.022.281 143.022.281 1,84% 1,84% 5,76% 5,76% 13,95 13,95Romania 5.519.100 1.732.400 21.358.796 252.728.134 261.091.094 4,58% 4,73% 14,59% 15,07% 11,83 12,22Slovakia 2.241.800 718.500 5.294.746 7.578.687 3.823.466 0,34% 0,17% 1,05% 0,53% 1,43 0,72Slovenia 1.513.100 403.300 1.949.614 7.390.975 7.531.799 0,49% 0,50% 1,83% 1,87% 3,79 3,86Spain 39.521.100 15.081.800 40.595.861 450.116.583 427.508.399 1,14% 1,08% 2,98% 2,83% 11,09 10,53Sweden 10.379.300 2.376.700 9.340.682 107.549.117 111.023.485 1,04% 1,07% 4,53% 4,67% 11,51 11,89 •.United Kin om ., " ,11 ..... 80.674.100 23.364.900 57.742.455 , 213.813.961 I .. 213.813.961 0: I 0,27% I, 0,27% I .. 0,92% 0,92% 3,70 3,70Table 35: Estimated cost of ensuring availability and affordability as a percentage of thetotal turnover of the electronic communications sector, the gross operating surplus of theelectronic communications sector and the total populationUnder the chosen scenarios, the cost of ensuring availability and affordability byincluding 2 Mbps broadband in universal service at the EU level would amount toabout 0,66-0,69% of total turnover of the sector in the EU and to 2,23-2,33% of grossoperating surplus of the sector. The national differences can be illustrated by theextreme case of Romania, where respective percentages of over 4,5% and near 15%can be observed. Together with Finland, Portugal, Sweden, Spain and Greece,Romania also has a cost per capita of over 10 EUR per year. The EU average liesaround 5,5-5,7 EUR per year.Assessment of appropriateness of universal service for advancing basic broadband development 141Final report
  • 142. VAN • DIJK MANAGEMENT CONSULTANTS 5.3. OVERALL COST-BENEFIT ASSESSMENT OF EACH POLICY OPTION As already indicated in the introduction of Chapter 5, the overall assessment of the different policy options that were identified to solve the problem of ‘whether universal service at EU level is an appropriate tool to advance broadband development and if so, when and how it should be used, or whether this should be left to other EU policy instruments or national measures’, can be done by combining all results of the qualitative and quantitative impact assessments. This can be done most consistently by bringing together the relative rankings of the different options for all of the assessment steps: OPTION 3 OPTION 1 OPTION 2 Mandating OPTION 4 OPTION 5 No policy OVERALL COST-BENEFIT No EU 2Mbps Refinement A reformed change ASSESSMENT USO access of the and focused (2009 Regulation for all EU 2009 Regime USO regime) citizens PRELIMINARY QUALITATIVE ASSESSMENTMechanisms available forproviding financial support to 2 1 2 2 2specific user groupsMechanisms and sources forraising the funding of the USO 2 2 2 1 2net cost QUALITATIVE ASSESSMENT OF IMPACTSOverall score on the qualitativeassessment of impacts 5.00 4.73 4.93 6.15 5.74(on a scale of 0 to 10)Comparative ranking of options 3 5 4 1 2 QUANTITATIVE ASSESSMENT OF THE COST OF ENSURING AVAILABILITYComparative ranking of options 3 4 5 2 1 QUANTITATIVE ASSESSMENT OF THE COST OF ENSURING AFFORDABILITYComparative ranking of options 1 1 1 1 2 It should be noted that a suchlike comparison of rankings should be looked at with caution, first and foremost since it does not give information on the degree of distinction between the options. To try to remedy this problem, the figures are completed with the overall score (on 10) of all options on the list of qualitative impacts. This is however only a partial solution, and a choice between options should always be made by combining the information in the table above with the detailed assessments made in the previous paragraphs of this chapter. For instance, to take into account possible differences in relevance of the different specific objectives, the detailed scores of the options on the different qualitative impacts should be taken into account. In conclusion however, it can be stated that OPTIONS 4 and 5 overall appear to be best ranked to solve the current problem. OPTION 5 however has the disadvantage that it makes the important assumption that overall availability of 2Mbps connectivity will be fully ensured by other policy instruments than US obligations, which cannot be Assessment of appropriateness of universal service for advancing basic broadband development 142 Final report
  • 143. VAN • DIJKMANAGEMENT CONSULTANTSguarantee, so that the positives impact of OPTION 5 could possibly be overestimated.Furthermore, the continuation of the current “2009 Regime” appears to be a moreadequate solution than the introduction of a 2Mbps US obligation at the EU level andthe abolishment of all EU US Regulation. Besides their negative effects on costdistribution (i.e. it is very likely that high costs will need to be borne by the electroniccommunications sector), these OPTIONS 2 and 3 also negatively come out of thequalitative assessment.Assessment of appropriateness of universal service for advancing basic broadband development 143Final report
  • 144. VAN • DIJKMANAGEMENT CONSULTANTSANNEX 1 : OVERVIEW OF NATIONAL BROADBAND PLANS (SITUATION AS OF DECEMBER 2009)Source: Cullen InternationalCountry Broadband Universal broadband availability requirement National / local funding “Open availability in access” Status As As extension to USO Minimum transmission rural areas requirements policy speed (% for publicly goal population funded on Dec. 31, schemes? 2007) AT 80.6% Under consideration 25 Mbps by 2013 Details not yet decided Not applicable Programme of the federal Details not yet decided government 2008–2013, p. 67 BE 100.0% - - - - - - DK 100.0% Under consideration - - - - Expert committee established in April 2009 on initiative from the ministry is expected to present draft proposals at the end of 2009. FI 91.0% Adopted by Decree ‘Functional internet National funding No 732/2009 of the Ministry access’ (art. 4 of the The reimbursement of the USO net cost, if an of Transport and Universal Service unfair burden, would be from the state funds Communications of Oct. Directive) set at 1 Mbps (i.e. no net cost sharing between the operators). 7, 2009. (in English) (download). Obligation applies from Technology neutral. July 1, 2010. The average download speed must be: ≥ 750 kbps during 24h ≥ 500 kbps during any
  • 145. VAN • DIJKMANAGEMENT CONSULTANTSCountry Broadband Universal broadband availability requirement National / local funding “Open availability in access” Status As As extension to USO Minimum transmission rural areas requirements policy speed (% for publicly goal population funded on Dec. 31, schemes? 2007) consecutive 4 hours during the day. Adopted government 100 Mbps by end 2015 for State and municipality funding Yes, during at broadband strategy of 99% of residencies and Max. state aid in 2010-15 expected to be €11m least 10 years Dec. 4, 2008. businesses. per year, covering also possible USO funding See ministry website (in Technology neutral. for 1 Mbps access. Finnish only). An area eligible for state aid should fulfil the criterion that max. 5.4% of population in mainland Finland lives in as or less sparsely populated area. In short, aid would be available as follows: • at least 34% to be financed by the applicant • at least 33% by the relevant municipality (but 8% allowed for financially weak municipalities) • max. 33% by the state (or max. 58% if state needs to cover financially weak municipalities). A bill (HE 176/2009) for a law that will govern state aid aspects was submitted to Parliament on Oct. 2, 2009. FR 96.7% Proposed 512 kbps (download) No Not applicable See Big Five Update 96 kbps (upload) January 2009. Technology neutral Max. €35 per month (19.6% VAT incl.), equipment includedAssessment of appropriateness of universal service for advancing basic broadband development 145Final report
  • 146. VAN • DIJKMANAGEMENT CONSULTANTSCountry Broadband Universal broadband availability requirement National / local funding “Open availability in access” Status As As extension to USO Minimum transmission rural areas requirements policy speed (% for publicly goal population funded on Dec. 31, schemes? 2007) DE 87.5% Adopted • 1 Mbps for all National and local funding Yes See Big Five Update households by end of Several state aid schemes support broadband February 2009. 2010, i.e. the current availability in rural areas, usually funded from minimum speed national, regional and local budgets and of“efficient” broadband. sometimes also from EU structural funds. All • 50 Mbps for 75% of schemes foresee that municipalities may apply households by 2014 and for state aid, but must cover parts of the costs for all households “as from their own budget. soon as possible”. • €141m national scheme, 2008– Technology neutral 2010,N115/2008 • regional schemes in three federal states (€45m total), 2009– 2015, N150/2008(Saxony), N237/2008 (Lower Saxony),N266/2008 (Bavaria) • €60m national scheme, 2008– 2013,N238/2008 • extension of the Bavarian scheme by about €22m, N153/2009 • additional €80m scheme in Lower Saxony, 2009–2011, N243/2009. Federal states and municipalities may also use money from the second recovery package, which was adopted in Feb. 2009 on national level. GR 50.0% Under consideration - - - EETT Action Plan for 2009 includes the project of the incorporation of broadband access asAssessment of appropriateness of universal service for advancing basic broadband development 146Final report
  • 147. VAN • DIJKMANAGEMENT CONSULTANTSCountry Broadband Universal broadband availability requirement National / local funding “Open availability in access” Status As As extension to USO Minimum transmission rural areas requirements policy speed (% for publicly goal population funded on Dec. 31, schemes? 2007) part of universal service. IE 73.3% Adopted 1.2 Mbps (download) National funding Yes 200 kbps (upload) Public money is earmarked for the National As a condition By Sep. 2010, using Broadband Scheme (NBS) with broadband of the mobile 3G. coverage delivered by the mobile operator ‘3 contract, 3 Ireland’. Ireland has to €19.99 per month (21.5% provide VAT incl.) with connection The NBS will deliver broadband to certain target areas in Ireland in which broadband services wholesale fee of €49 (VAT incl.) access in the including equipment are not available (approx. 223K buildings). NBS areas. The value of the investment required to implement the NBS is €223m. The government ‘Wholesale is contributing €79.8m over the 68-month data MVNO period. overview’ and ‘Wholesale The project is eligible for EU co-funding in 2007- end-user 2013. terms’ are provided as examples for potential access-