The European Commission (the Commission) published draft guidelines on May 19, 2009 explaining its policy in assessing State aid measures which support the development of traditional broadband networks and next generation access networks (very high speed broadband). The guidelines are intended to improve certainty and transparency on the application of State aid rules to this sector.  

The Commission considers that broadband is of strategic importance in that it can help support the economy's recovery in the short and longer term and has set as a goal to achieve complete high-speed internet coverage in the EU by 2010. State aid has been identified as particularly helpful in reducing the "digital divide" between urban and rural areas. The Commission does not take such a favorable view where market operators would choose to invest in any event, or have already started investing.  

Deployment of traditional broadband networks  

Measures qualifying as State aid  

Broadly, the Commission is far more likely to approve State aid measures aimed at supporting broadband deployment for rural and under-served areas but will be more critical of aid measures in areas where broadband networks already exist. Aid measures for broadband projects mostly qualify as State aid within the meaning of Article 87(1) EC. However, the Commission has identified situations where this will not be the case such as:  

  • where the state support conforms with market terms, providing the state with an adequate return on investment (the so-called "market economy investor principle"). This could apply to aid in the form of a capital injection into the company that is leading the project;  
  • where the state support merely compensates for providing public services, by application of the conditions set out in the Altmark case. These conditions will not be satisfied where the provider does not have a clear mandate or is not under an obligation to provide broad band access to all citizens and businesses in an underserved area. In addition, this exception will not apply where private investors have already invested in the area and are providing competitive broadband services with adequate coverage.  

Application of State aid rules  

In applying the State aid rules the Commission will balance the positive impact of the aid measure by addressing a market failure, for instance, against its potential negative impact on trade and competition. The Commission makes a distinction between the types of areas where the broadband project will take place, depending on the level of broadband network already available, when assessing compatibility:  

  • White areas: no broadband infrastructure exists and none is likely to be developed in the near future. Support measures for broad band deployment are most likely to be considered compatible with State aid rules.  
  • Black areas: at least two or more broadband network providers are present and broadband services are provided under competitive conditions. Any state intervention will be viewed negatively as there is no need for intervention, unless the Member State is able to establish a clear market failure.  
  • Grey areas: only one broadband operator exists. Measures may be compatible provided (i) no affordable or adequate services are offered/ likely to be offered to satisfy the needs of citizens or busi ness users and (ii) no less distortive measure is available. The Commission accepts that State aid may be the only alternative where the area is underserved and the inherent profitability of investment is low.  
  • In relation to white and grey areas, the absence of the following con ditions is more likely to lead to a negative view being taken: a detailed analysis of the geographic area covered and market analy sis; an open tender process to select the investor; the contract being awarded to the bidder requiring the lowest amount of aid; techno logical neutrality; use of existing infrastructure; requiring third party wholesale access to the broadband infrastructure for at least 7 years; and regulation of pricing to avoid excessive wholesale prices, preda tory prices or margin squeezes by the bidder and claw back mecha nisms to avoid over-compensation.  

New generation access (NGA) networks  

NGA networks, which consist wholly or in part of optical elements, are capable of delivering broadband access services with higher throughput compared to those provided over traditional networks. The main issue affecting the generalization of NGA networks is the cost involved. The Commission recognizes that state intervention may be necessary to ensure that areas deemed by network operators to be unprofitable will also benefit from NGA networks. State aid will not be involved where Member States simply provide assistance for the acquisition of rights of way, undertake civil works or mandate the use of NGA networks in new constructions and require infrastructure sharing. The compatibility of State aid is assessed according to the type of area:  

  • NGA white areas: no NGA networks exist and are unlikely to be built by private investors and fully operational in the next five years. Measures to support such NGA projects will be compatible with State aid rules. Where a traditional broadband network already exists, the Member State must show the conditions applicable to traditional broadband grey areas are satisfied before they are able to give aid for NGA projects.  
  • NGA grey areas: one NGA network exists or is being deployed in the next five years and no other operator plans to invest in an NGA network in the next five years. The Commission requires that a Member State wishing to give aid establish that the existing/ planned NGA network is insufficient and there is no less distortive alternative.  
  • NGA black areas: more than one NGA network exists or are being deployed in the next five years. State support is unlikely to be com patible with State aid rules.  
  • In traditional broadband black areas, the Commission considers that existing network operators should be in a position to upgrade to NGA without the need for State aid. However, this may be dif ferent if the Member State can show that those operators have no plans to invest in NGA networks in the next five years.  

For all the above types of areas (other than white areas for both traditional broadband and NGA networks), some additional conditions must be met:  

  • the beneficiary of aid must provide third party wholesale access for at least 7 years;  
  • similar access conditions should apply throughout all broadband markets; and  
  • certain technical requirements must be complied with.

The Commission has invited comment on the draft guidelines by June 22, 2009. On the basis of comments received, the Commission proposes to adopt definitive broadband guidelines later in 2009.  

The stated objective of Neelie Kroes, EU Competition Commissioner, is "to provide a clear and predictable framework for the application of EU state aid rules in this strategic sector". The telecoms industry will now await what willingness there is for local authorities and national governments to subsidize the extension of their broadband networks