Transform Digital Conference 08-05-2014 broadband, technology, fibre, digital

1. EU Broadband Policy
Bartek Tokarz
DG CONNECT
Unit B5: Broadband
INCA Transform Digital Conference
London, 8 May 2014 1

2. Urban
(> 500 inhab.
Per km2)
Suburban
(500-100inhab.
Per km2)
Rural
(<100 inhab.
Per km2)
50%
20%
30% 30%
50%
20%
% of total EU population
% of total EU wide FTTH cost
ShareofinhabitantsandFTTHcost
• 50% of the European population
live in urban areas and additional
30% in suburbs
• Building a nation-wide NGN
network in Europe would cost
around EUR 200 bn*
• 20% of this cost is required to
cover 50% of European
population in urban areas
• 50% of this cost is required to
cover the 20% of European
population in rural areas
* Based on consultancy assignment commissioned by the EIB

3. NGN investment climate
Supply: market operators invest around EUR 15 bn annually for fixed BB:
cherry picking and parallel deployment in highly profitable areas
Demand: Market uptake and willingness to pay premium lower than
anticipated. As a result:
• Operators are scaling back their investment plans
• Change to lower cost technologies (VDSL, vectoring…)
State aid for rural BB roll-out:
• New member states are leapfrogging due to availability of structural funds
and high co-financing rate
• Apart from EU funds, only few national state aid programs are operational
Investors hesitant to finance FTTH projects:
• Long pay-back periods
• Uncertain regulation increasing the risk
• Small scale projects

4. The scale and risk of different broadband projects
– EIB experience
Incumbents and alternative operators present larger projects but mainly in
densely populated areas. Business risk mitigated by existing cash generation and
sound business case
Local-government supported projects: smaller in size, mainly covering grey and
some white areas . Business cases are not strong, thus the government support
Small private projects cover areas which are “overlooked” by incumbents, mainly in
grey and some urban areas. Business cases vary, risk is usually high.

5. EC strategy for NGA investment
• Focus: Incentivising private NGA infrastructure
investment by improving risk-return trade-off
Market framework:
recalibration of regulatory
instruments
Financing and funding
Increases private
investor returns
Reduce private
investor risk

6. 6
Financing
and funding
Market
framework
• Directive on cost reduction
• Recommendation on non-discrimination
and costing methodologies
• Proposal for Regulation on Telecom Single
market:
• European inputs: Spectrum
coordination, access to RLAN and European
standardised virtual access projdcts
• Single consumer space: Net
neutrality, harmonised end user
rights, roaming
• Single authorisation
• Upcoming review of recommendation on
relevant markets
• European Structural and
Investment Funds (ESIF)
• Connecting Europe Facility (CEF)
• Broadband state aid guidelines
Single
market for
telecoms

7. 7
• 2014 - 2020: ICT a priority in the European
Structural and Investment Funds
• Connecting Europe Facility (CEF): Some
complementary EU support by means of financial
instruments
• Possibly greater EIB lending activity in
ICT/broadband following capital increase
Public financing (1)
EU-level funding

8. EU/EIB support
Structure at project level (funded solution):
SPV
Project
Costs
Equity
Sub-debt
Bank/
Project
Bonds
Sub-
invest
ment
grade
debt
Invest
ment
grade
debt
EU partner
(e. g. EIB)
• Sufficient increase in
credit quality of senior
debt so as to attract
bank/ bond financing
• Sub-debt debt pricing
includes fair risk
margin, i. e. no
subsidy
• Sub-debt can be
combined with
different funding
sources (senior
loans, bonds)

9. EU/EIB impact – additional factors
• Project appraisal benefits from sector-specific expertise
• EU involvement has strong signalling effect for other
investors/lenders
• Although risk-based, pricing takes into account economic
benefits/ externalities
• More favourable pricing can give additional boost to project
viability

10. State aid: new guidelines
Achieving the right mix between public and private investment: public
interventions targeted at market failures; faster decisions.
Principles:
• Technological neutrality: Next Generation Access networks can be
based on different technological platforms.
• to protect private investors, publicly financed infrastructure can only be
allowed if it provides a substantial improvement ("step change") over
existing networks.
• public funding of ultra-fast broadband networks (of more than 100
Mbps) will be possible also in urban areas subject to very strict
conditions to ensure a pro-competitive outcome.
• when a network is realised with taxpayers' money, competitors will benefit
from a truly open network for the benefit of consumers.

11. Thank you
11