New guidelines in place for assessing State aid for the deployment of broadband

06 February 2013

Victoria Moorcroft

On 19 December, the European Commission published new guidelines setting out how the EU State aid rules apply to public funding for the rollout of broadband networks. Although the amendments were initially intended to reflect the Commission’s experiences under the previous guidelines (issued in 2009), the review was ultimately widened, to reflect the priorities in the Digital Agenda for Europe (DAE). The guidelines set out the principles that the European Commission will use both to identify when a measure to aid the rollout of broadband will involve State aid, and to assess a measure’s compatibility with the Treaty on the Functioning of the European Union (TFEU) when it does involve State aid.

Article 107 TFEU prohibits any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods, in so far as it affects trade between Member States. However, Member States may notify aid that would otherwise be illegal to the European Commission, which must decide whether the positive effects of the aid outweigh its negative effects, such that it can be declared compatible with the common market.

The existence of aid

The guidelines set out the circumstances in which measures to support the rollout of broadband may not be State aid within the meaning of the TFEU. These include, for example, measures to support the rollout of broadband for non-commercial purposes, measures provided on normal market terms and transparent and non-discriminatory assistance to all interested operators to facilitate the acquisition of rights of way. 

The guidelines also cover the situation in which the Member State designate the provision of a broadband network a service of general economic interest (SGEI), in which case the payments will not constitute State aid, but must be limited to reasonable compensation being costs plus a reasonable profit. The designation of provision of a broadband network as an SGEI is possible only where private investors are not in the near future able to provide adequate broadband coverage to all users, thus leaving a significant part of the population unconnected.  The guidelines confirm that the principles for calculating SGEI compensation, set out in the SGEI package, apply.


The compatibility of the aid with the common market  
   
In order to demonstrate that a measure to assist the rollout of broadband is compatible with the common market, the Member State must show that it meets the following conditions:

• contribution to the achievement of objectives of common interest – the Commission will assess whether the measure will contribute to the achievement of the objectives in the DAE (being by 2020: all Europeans having access to internet speeds above 30 Mbps; and 50% of European households subscribing to internet connections about 100 Mbps). 

• absence of market delivery due to market failures or important inequalities – the Member State must show that the market would not without intervention provide broadband networks. This is often the case in less densely populated areas.

• appropriateness of State aid as a policy instrument and the design of the measure – the Commission stresses the importance of ensuring there are not duplications or incoherence between different schemes.  It stresses the importance of the role of national regulators, such as Ofcom, in supporting public authorities both in relation to target areas, determining wholesale access prices and conditions and solving disputes over wholesale access.  It also adds that National Competition Authorities may be able to assist in relation to ensuring proper competition on large framework schemes;

• existence of incentive effect – the Member State must show that the broadband network investment concerned would not have been undertaken within the same timeframe without State aid;

• aid limited to the minimum necessary – the Commission will assess the proportionality of the measure;

• limited negative effects – the measure may have negative effects on competition and trade, but these should be limited.  For example, measures should seek to avoid a situation where a competitor decides to reduce future investment or withdraw from the market.  Similarly, a measure may increase or create a dominant position, weakening the competitive constraint a competitor can exert;

• transparency – a number of details of the measures should be published; and

• the overall balancing exercise and the compatibility conditions to limit the distortion of competition – the measure must result in a ‘step change’ in terms of broadband availability, resulting in the selected bidder making significant new investments in the broadband network; and the subsidised infrastructure bringing significant new capabilities to the market in terms of broadband service availability and capacity, speeds and competition. If the negative effects outweigh the benefits, the Commission may not approve it, or may ask for remedial action.
I
n terms of the geographic areas into which investments may be made, the guidelines distinguish between basic broadband, and NGA networks (which it defines to include both wired and wireless technologies). Provided the relevant conditions are met, aid is likely to be compatible where it is to be made into ‘white’ areas, i.e., areas with no existing or planned basic broadband, whether basic broadband or NGA networks. Aid to ‘grey areas’, i.e., areas with only one relevant network, will need to be assessed more closely, and aid to ‘black’ areas, which have more than one relevant network will be declared incompatible with the internal market. 

The guidelines then set out the key points in respect of the design of the State aid measure to ensure that any distortion of competition is limited to the greatest extent possible. These include:

• ensuring a competitive selection process in line with the spirit and principles of the Public Procurement Directives. 

• the tender should be technology neutral and should not favour or exclude any particular technology or network platform. 

• bidders who have existing infrastructure should be required to declare the infrastructure and provide all relevant information to other bidders sufficiently early to allow them to include such infrastructure in their bid. 

• extensive rules in relation to wholesale access, which must be available without the need for any prior market analysis under the Framework Directive, and which should be aligned with the portfolio of access obligations that apply under the national e-communications sectoral regulation, including for physical infrastructure such as ducts and poles. The guidelines point out that wholesale access to subsidised infrastructure should in theory be wider than those mandated by NRAs, should be granted for at least seven years (and without limit in time for physical infrastructure). Access should be available on pricing following the principles of cost orientation. The Commission encourages NRAs to provide guidance on cost-orientated pricing. 

The guidelines set out additional obligations which will apply when granting state aid for NGA networks. The competitive position prior to intervention must be preserved and the subsidised network must offer access on fair and non-discriminatory conditions to all operators. Again, access must be for at least seven years, and unlimited in time for physical infrastructure. 

The guidelines also cover the exceptional circumstances in which State aid to ultra-fast broadband networks might be permitted.

Conclusion

There are some key changes from the previous guidelines. The wholesale access requirements are more extensive and Member States will be required to publish many of the documents relating to the aid measures.  The new guidelines also emphasise the importance of the requirement for a ‘step-change’ in the availability or quality of the broadband as a result of the aid measure. Also, national regulators and competition authorities look likely to play a much greater role in subsidised projects. 

The new guidelines apply not only to future projects but also to projects that have already been approved under the previous guidelines, which will in some cases, need to be amended or updated to reflect changes.  

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