Abstract
The deployment, operation and management of fast and ultrafast broadband networks is crucial for the development of the digital economy as well as the objective of smart, sustainable and inclusive growth. On the one hand, the financing of such infrastructures primarily comes from commercial investors, providing most of the funds for the realization of broadband connectivity projects in urban and highly populated areas. On the other hand, the goals of coverage and penetration of broadband network will not be fully achieved in the absence of appropriate and proportionate State intervention: public support is needed particularly as concerns rural or less populated areas that are unattractive to private investors.
According to one of the basic principles of EU State aid law, the risk of excluding private financing initiatives, of altering commercial investment incentives and, ultimately, of distorting competition must be limited as much as possible. Accordingly, public support measures must address market failures, the risk of crowding out private investments must be minimized, and the positive effects of State intervention must outweigh its negative impact on unfettered competition in the internal market. As discussed in this article, the European Commission successfully developed a stable and consistently applied analytical framework in this area.
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Notes
- 1.
Communication from the Commission “Europe 2020: A strategy for smart, sustainable and inclusive growth” (COM(2010) 2020 final, 3 March 2010), http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52010DC2020&from=en.
- 2.
Access to the Internet via broadband (so-called basic access) can be provided through: existing copper networks (mainly telephone networks, in which case it is called a Digital Subscriber Line, DSL), coaxial networks (cable television) or wireless access networks. The access speed using this type of “traditional” network does not exceed 2 Mbps. The expression “next generation access networks” (NGA networks) refers to all fixed networks that provide access to the Internet at a higher speed than basic broadband. This includes: modernized coaxial networks (DOCSIS 3.0 standard), VDSL technology (Very High Speed DSL, which uses copper networks such as ADSL), and fibre (which reaches the end user’s premises: so-called Fibre-to-the-home (FTTH); which reaches the end user’s building: so-called Fibre-to-the-building (FTTB); or which reaches a street cabinet: so-called Fibre-to-the-nodes (FTTN) or Fibre-to-the-cabinet (FTTC)). With regard to broadband or NGA network infrastructure it is usual to distinguish between the backhaul, which constitutes the part of the network that goes from the backbone to the access network, and the access segment (or “last mile”), which constitutes the final part of the network connecting the backhaul with the end-user premises. Because of the high costs of roll-out, fibre networks are almost always a “hybrid”: in fibre in the backhaul segment and in copper (DSL) in the access segment.
- 3.
Communication from the Commission, European Broadband: investing in digitally driven growth, COM (2010) 472 final, para. 1.
- 4.
Communication from the Commission, A Digital Agenda for Europe, COM (2010) 245 final/2, 26 August 2010.
- 5.
The public consultation took place from 11 September to 7 December 2015. See: https://ec.europa.eu/digital-single-market/en/news/full-synopsis-report-public-consultation-needs-internet-speed-and-quality-beyond-2020.
- 6.
Communication from the Commission, Connectivity for a Competitive Digital Single Market—Towards a European Gigabit Society, COM (2016) 587 final, the “EGS Communication”.
- 7.
In the broadband sector in question, three types of competitive dynamics can be identified: (i) infrastructure competition, which implies the existence of more than a passive network infrastructure—such as civil engineering infrastructure, ducts, “dark” fibre (unlit, without transmission systems connected) and street cabinets—branching out in parallel in the same catchment area; (ii) competition between network operators within a single passive network infrastructure when, on the basis of obligatory wholesale access to passive components required by the competent regulatory authority, the owner operator of the duct (normally the incumbent operator of electronic communications) is required to allow access and cables roll-out to any competing operator, at its request; and (iii) competition in the downstream market for the provision of services in the sector of television, telephony and broadband or very high-speed broadband access to the Internet, in the presence of bitstream access (i.e., where the duct owner and provider of wholesale access up to the customer’s home network makes available to interested third parties the high-speed access link installed by it): Kliemann and Stehmann (2013), pp. 497 and 498.
- 8.
The Commission estimated that reaching the abovementioned objectives for 2025 will require an overall investment of c. €500 billion over the coming decade, representing an additional €155 billion over and above a simple continuation of the current trend of investments necessary to achieve the objectives for 2020: EGS Communication, para. 4.
- 9.
Member States shall review and update National Broadband Plans with a time horizon to 2025, in line with the strategic objectives set in the EGS Communication: EGS Communication, para. 4.5.
- 10.
This term refers to the unequal situations of those who have access to certain technologies compared to those who do not. The main cause of digital divide is the lack of adequate infrastructure in the area, often linked to the territory’s morphological characteristics and the resulting degree of urbanization.
- 11.
Communication from the Commission, European Broadband: investing in digitally driven growth, COM (2010) 472 final, para. 3. See also https://ec.europa.eu/digital-agenda/high-speed-broadband.
- 12.
See generally Quigley (2015), p. 53 (notion of State aid) and p. 442 (aid to broadband and telecommunications connectivity).
- 13.
OJ 2009, C 235/7 (the “2009 Guidelines”).
- 14.
OJ 2013, C 25/01 (the “2013 Guidelines”).
- 15.
According to the latest available data, (http://ec.europa.eu/competition/sectors/telecommunications/broadband_decisions.pdf), the number of decisions adopted was 152 on 5 September 2017.
- 16.
See 2013 Guidelines, Annex I (Typical interventions for broadband support).
- 17.
Decision of 8 February 2010 (C(2010)888), State aid N 596/2009 – Italy, Bridging the digital divide in Lombardy, http://ec.europa.eu/competition/state_aid/cases/233680/233680_1105731_34_1.pdf. The scheme in question aimed to bring broadband connectivity of at least 2 Mbps to at least 90% of the population in unserved areas of Lombardy, where the existing infrastructure was inadequate or non-existent. Through a public tender procedure respecting access obligations and the principle of technological neutrality, the Italian authorities expected to receive an offer combining different technological platforms that would be able to deliver broadband coverage to almost 100% of the population in the remote areas. The Commission also assessed positively that public funding would be available only for multi-fibre ducts and that access to these ducts would be open to all interested operators, without any time limit, so as to foster infrastructure competition for future investment in NGA networks. In accordance with the 2009 Guidelines, the public funding under examination would only be used where no private operator would invest on market terms, and would only be handed out after a public tender. Moreover, thanks to open wholesale access respecting the principle of non-discrimination, several providers would offer competitive services on the new networks. See also Commission press release IP/10/140, State aid: Commission approves Italian scheme to bridge digital divide in Lombardy.
- 18.
Decision of 4 July 2017 (C(2017)4530 final), State Aid N 46372/2017—Support for broadband infrastructure (Stage II), http://ec.europa.eu/competition/state_aid/cases/269367/269367_1921788_100_4.pdf.
- 19.
Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, OJ 2016, C 262/1, § 60; and Decision of 22 November 2006 (C(2006)5492 final), State Aid N 157/2006—United Kingdom South Yorkshire Digital Region Broadband Project, http://ec.europa.eu/competition/state_aid/cases/204313/204313_655838_46_2.pdf, paras. 21 and 29.
- 20.
Founded on the principles of neutrality with regard to the systems of property ownership enshrined in Article 345 TFEU and of the equal treatment of public and private undertakings—from which it follows, in particular, that the Commission’s action may neither penalize nor favour public authorities that provide capital injections—the MEIP qualifies as normal commercial transactions, rather than as aid measures, financial transactions that involve public authorities or public undertakings. The MEIP was originally developed by the Commission with regard to company capital interventions, and subsequently was validated by the Court and gradually extended to various other types of measures. See Commission Communications “Application of Articles 92 and 93 of the EEC Treaty to public authorities’ holdings in company capital” (1984), Bulletin EC 9-1984, §§ 3.2 and 3.3; “Application of Articles 92 and 93 of the EEC Treaty and of Article 5 of Commission Directive 80/723/EEC to public undertakings in the manufacturing sector”, OJ 1993, 307/3, § 29; “Application of Articles 92 and 93 of the EC Treaty and Article 61 of the EEA Agreement to State aids in the aviation sector”, OJ 1994, C 350/5, part IV; and Commission Notice on the notion of State aid, paras. 89–96.
- 21.
See, e.g., Case C-124/10 P, Commission/EDF, ECLI:EU:C:2012:318, paras. 82–85, esp. para. 84. The applicability of the MEIP depends, in short, on the Member State concerned having conferred—in its capacity as shareholder, as opposed to its capacity as the State exercising its public authority—an economic advantage on an undertaking belonging to it. In this case, the economic benefit must be assessed on the basis of the MEIP even if it is granted by the use of resources related to public authority, which a private operator, by definition, cannot have (in casu, a waiver of a tax claim), given that the measure must be assessed not only in the light of its form, but also in terms of its nature, its object and its objectives. It follows that a Member State that invokes the MEIP in the course of the administrative procedure must prove in objective and verifiable terms that, before or at the same time as conferring the economic advantage, it took the decision to make an investment, by means of the measure actually implemented, in the public undertaking. In this case, the Commission must make a global assessment, taking into consideration, in addition to the information provided by the Member State, any other relevant factors in the case that enable it to determine whether the measure in question is attributable to the quality of shareholder or that of public power of the Member State.
- 22.
The characteristic feature of the behaviour of a market economy investor is the central focus on the purely economic return on the investment that it intends to make, whereas any considerations of general interest on which the investment decision of the public authorities is based remain irrelevant. This seems entirely consistent and rational, as it is highly unlikely in principle that the hypothetical prudent private investor could be induced to put its resources at the disposal of an intervention project, bearing the related risk, based only on industrial policy, economic (regional and/or sectoral), social or employment reasons: established case-law from Case 40/85, Belgium/Commission (Boch), ECLI:EU:C:1986:305, para. 13. As stated more clearly by the General Court: “nothing precludes public undertakings from taking into consideration social, regional or sectoral policies. However, a subscription of capital by public authorities must be assessed in the light of the private investor test, leaving aside all social, regional policy and sectoral policy considerations”: see, e.g., Case T-20/03, Kahla/Thüringen Porzellan/Commission, ECLI:EU:T:2008:395, para. 242. In other words, for the applicability of the MEIP to be excluded, the intervention of the State must be entirely devoid of an economic nature: “In such situations, the intervention by the State cannot be adopted by a private operator acting with a view to profit but falls within the exercise of public powers of the State, such as tax policy or social policy. The MEIP is therefore not material, since, by definition, there cannot be any breach of equal treatment as between the public and private sectors”: Opinion of Advocate General Mazák delivered on 20 October 2011 in EDF (Case C-124/10 P), ECLI:EU:C:2012:318, para. 82 (discussing the Opinion of Advocate General Léger delivered on 14 January 2003 in Case C-280/00, Altmark Trans, ECLI:EU:C:2003:415, paras. 20–27).
- 23.
See, e.g., Case C-42/93, Spain/Commission (Merco), ECLI:EU:C:1994:326, paras. 12–14.
- 24.
Decision of 11 December 2007, 2008/729/EC, on the State aid case C 53/06, Investment by the city of Amsterdam in a fibre-to-the-home (FttH) network (OJ 2008, L 247/27).
- 25.
As observed in the literature, it is only in exceptional circumstances that a measure in support of the deployment of broadband or NGA networks can satisfy the MEIP test, given that public investment in this sector is usually aimed at correcting market failures in geographic areas where private investors are not inclined to invest: Gaál et al. (2008), p. 82 and Chirico and Gaál (2014), pp. 32 and 33 (adding that, on the procedural level, the Commission has invariably opened an in-depth formal investigation procedure when notified of measures that are allegedly compatible with the MEIP, while the measures notified as compatible aid under the 2009 or the 2013 Guidelines have, in most cases, been declared compatible upon completion of the preliminary examination).
- 26.
The Municipality owned a third of the share capital of GNA, and ING Real Estate and Reggefiber (the two private investors) jointly owned another third, whereas five commercial subsidiaries of housing corporations held the remaining third.
- 27.
Although the Municipality had made certain limited preliminary investments before the formal establishment of GNA, this was not considered sufficient to exclude the concurrence of public and private interventions, given that there was a consensus among all of the shareholders that the Municipality would later be reimbursed for these investments. In addition, it was agreed that, in the event of the project’s failure, losses from bad corporate results or from even the bankruptcy of GNA would fall proportionately on all of the investors.
- 28.
Ibid., paras. 91 and 97: “In absolute terms, the two private investors both invest a substantial amount (€3 million, respectively) in the partnership GNA. If an investment of €3 million, compared to the financial strength of both ING RE and Reggefiber, could be considered in relative terms to the size of the investors to be a small investment, such an investment is certainly significant in relative terms to the overall capitalisation of GNA [€18 million] and the capital contribution of the municipality of Amsterdam [€6 million]”.
- 29.
In the Citynet Amsterdam decision as per note 24 above, paras. 128 and 129, the Commission—without disclosing the internal rate of return in the business plan of GNA, and having correctly observed that, “[g]iven the novelty of the project and the dynamic nature of the broadband telecommunication markets, it is difficult to carry out a benchmarking exercise”—observed that it was within an acceptable range, between the maximum and minimum values of the industry figures for the WACC of other companies in the broadband telecommunications sector (8.1% to 10.6%).
- 30.
2013 Guidelines, para. 12 (recalling that, besides the direct beneficiary of the aid, third-party operators receiving wholesale access to the subsidized infrastructure can be indirect beneficiaries thereof). As highlighted in the literature, the Commission’s approach concerning the existence of the element of advantage in the presence of a public tender in the broadband sector is different, perhaps inconsistently, to its approach to the construction of public infrastructure in other sectors, where the Commission typically considers that a public procedure is sufficient to rule out the existence of an advantage for the successful tenderer on the ground that the latter’s offer coincides with the best price found on the market: see Kliemann and Stehmann (2013), pp. 507 and 508. See also Commission Notice on the notion of State aid, paras. 84–86, 89–95.
- 31.
2013 Guidelines, para. 13.
- 32.
Decision of 28 June 2010 (C(2010)4473), State aid N 626/2009—Italy, NGA for industrial districts in Lucca, http://ec.europa.eu/competition/state_aid/cases/233841/233841_1221847_50_2.pdf.
- 33.
2013 Guidelines, para. 15.
- 34.
Decision of 5 November 2008 (C(2008) 6705), State aid N 237/08—Germany, Broadband support in Niedersachsen http://ec.europa.eu/competition/state_aid/cases/225613/225613_885452_25_1.pdf, para. 32.
- 35.
See Decision of 30 May 2007 (C(2007)2200), State aid N 24/2007—Czech Republic Prague Municipal Wireless Network (http://ec.europa.eu/competition/state_aid/cases/219861/219861_688145_7_1.pdf; network to be used only by the public administration for the provision of free public access strictly limited to non-commercial public services and content (public-sector Internet websites, including e-Government services and tourism information)), and Decision of 30 May 2007 (C(2007) 2212 final), State aid N 46/2007—United Kingdom Welsh Public Sector Network Scheme (http://ec.europa.eu/competition/state_aid/cases/218491/218491_683319_19_2.pdf; the end users of the network would be organizations receiving funding from, delivering services on behalf of, or forming a constituent part of, the National Assembly for Wales (such as National Health Service Wales, local authorities, fire services, police, national parks authorities, Welsh Assembly Government and National Assembly for Wales, higher and further education, and assembly sponsored public bodies)). See generally Commission Notice on the notion of State aid, para. 203.
- 36.
Cf. Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 140/1), as amended by Commission Regulation (EU) of 27 November 2015, No 2015/2282, as regards the notification forms and information sheets (OJ L 325/1), see Annexes, http://ec.europa.eu/competition/state_aid/legislation/forms_docs/file_annexe_en.pdf, Annex I, Part III.1.B—Supplementary Information Sheet on regional investment aid schemes, para. 1.2.3; and Annex II, Part III.5—Supplementary Information Sheet on State aid to broadband.
- 37.
Projects that provide for the granting of State aid to develop broadband in so-called assisted areas are governed by the Regional Aid specific rules applicable ratione temporis. This type of intervention is, however, outside the scope of the present analysis.
- 38.
See 2013 Guidelines, para. 30 et seq.
- 39.
Commission Regulation (EU) of 17 June 2014, No. 651/2014, declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ L 187/1), as amended, Articles 14(10) (Regional aid for broadband network development) and 52 (Aid for broadband infrastructures).
- 40.
See Decision of 8 February 2010, Amendment of State aid N 150/08—Germany, Broadband in the rural areas of Saxony (see Commission press release IP/10/141, State aid: Commission approves broadband support for rural areas in Saxony; the Commission decided that the measures notified by the German authorities were intended for general civil engineering works, such as road maintenance, that did not involve State aid, given that they would have been carried out by the State in any event for maintenance purposes. The ability to place ducts and other infrastructure for broadband on the occasion of road maintenance, and at the expense of the operators, had been announced publicly, and was not limited to or mainly oriented towards the broadband sector). However, it cannot be ruled out that the public funding of such work may fall within the notion of aid if it is limited to or clearly oriented towards the broadband sector.
- 41.
- 42.
See Chirico and Gaál (2014), p. 36: “[M]ost national measures are ‘umbrella’ aid schemes, under which individual broadband projects can be implemented. These framework schemes, in most cases, work according to a logic similar to that of a block-exemption: if the rules and conditions of the general framework scheme are complied with, individual projects can be implemented without individual notifications to the Commission”.
- 43.
Commission Regulation (EU) of 18 December 2013, No 1407/2013, on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid (L 352/1). An aid is “de minimis” if its maximum amount is €200,000 to an undertaking over a period of 3 years.
- 44.
2013 Guidelines, para. 18. See Communication from the Commission on the application of the European Union state aid rules to compensation granted for the provision of services of general economic interest (OJ 2012, C 8/4); Commission Decision of 20 December 2011 on the application of Article 106(2) of the Treaty on the Functioning of the European Union to state aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest (OJ 2012, L7/3); Communication from the Commission, European Union framework for state aid in the form of public service compensation (OJ 2012, C 8/15); and Commission Regulation (EU) No 360/2012 of 25 April 2012 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest (OJ 2012, L 114/8).
- 45.
As clarified by the Commission, in general terms Member States cannot attach specific public service obligations to services that are already provided by undertakings operating under normal market conditions, in satisfactory terms and under conditions (such as price, objective quality characteristics, continuity and access to the service) consistent with the public interest, as defined by the State. Therefore, in areas where private investors have already invested in broadband network infrastructure (or are in the process of expanding that infrastructure further) and are already providing competitive broadband services with adequate coverage, the setting up, with public funds, of a competing broadband infrastructure should not be considered as an SGEI (see Communication on compensation granted for the provision of SGEIs, paras. 48 and 49).
The General Court provided some guidance on the relevance of the market failure test—i.e., whether or not competing services similar to those provided by the undertaking entrusted with an SGEI exist—for the purposes of characterizing the establishment and use of a very high-speed broadband network as an SGEI in Cases T-79/10, Colt Télécommunications France/Commission, ECLI:EU:T:2013:463, para. 158 et seq.; T-258/10, Orange/Commission, ECLI:EU:T:2013:471, para. 148 et seq.; and T-325/10, Iliad a.o./Commission, ECLI:EU:T:2013:472, para. 149 et seq. It defined market failure as an objective concept, the appraisal of which is based on an analysis of the actual situation of the market. It follows from the objective nature of the assessment of the existence of market failure that the reasons for the absence of a private initiative have no relevance for the purposes of that assessment. The Court concluded that it cannot be inferred from a particular cause of the failure found that the creation of an SGEI was precluded. The Court also pointed out that the market-failure test is not only taken into account in assessing the compatibility of aid with the internal market, but also plays a part in the determination of the actual existence of aid or, to the contrary, of an SGEI. It took the view that, as it follows from the relevant rules, assessment of the existence of a market failure constitutes a precondition for classification of an activity as an SGEI and thus for finding that there is no State aid. Moreover, that assessment must be carried out at the time when the service intended to compensate for the failure found is put in place. The assessment must also include a prospective analysis of the market situation for the entire duration of the SGEI, during which the market failure must also be established.
- 46.
OJ 2012, C 8/15. In the Colt, Orange and Iliad cases as per note 45 above, the General Court also examined the problem of compensation for the costs incurred in discharging the public service obligations. Recalling that such compensation cannot exceed what is necessary to cover all or part of those costs, taking into account the associated revenues and a reasonable profit for discharging the obligations in question, the Court held that, while the compensation must cover only the costs of using the infrastructure in unprofitable areas, the revenues generated by the commercial use of the infrastructure in profitable areas may be assigned to the financing of the SGEI in the unprofitable areas. Accordingly, the coverage of the profitable areas does not necessarily mean that the subsidy granted is excessive, since it is the source of revenues that may serve to finance the coverage of unprofitable areas and, thus, allow for a reduction of the amount of the subsidy granted.
- 47.
See Decision of 10 July 2007 (C(2007) 3235 final), State aid N 890/2006—France, Aid to Sicoval for a broadband network http://ec.europa.eu/competition/state_aid/cases/218142/218142_723454_30_2.pdf (the Commission emphasized that the notified measure concerned support for the provision of broadband connections solely for business parks and public sector organizations in a part of the city of Toulouse and that the residential sector remained excluded. The project also concerned only a part of the region. The Commission therefore ruled out that the measure could be assessed on the basis of the SGEI rules).
- 48.
2013 Guidelines, paras. 19–25.
- 49.
Ibid., para. 6.
- 50.
Ibid., paras. 32–34.
- 51.
Decision of 10 October 2007 (C(2007) 4538 final), State aid N 473/2007—Italy, Broadband connections for Alto Adige, http://ec.europa.eu/competition/state_aid/cases/221635/221635_736768_23_2.pdf.
- 52.
The aid described in the text, in the amount of €6.9 million, was completed by a second grant (€7 million) the following year: Decision of 2 July 2008 (C(2008)3176 final), http://ec.europa.eu/competition/state_aid/cases/225725/225725_879230_19_1.pdf.
- 53.
Resolution of 7 April 2016, No. 120/16/CONS, http://www.agcom.it/documents/10179/4364847/Delibera+120-16-CONS/1dbb2af3-b4ea-4cbb-b833-686dc801ac33?version=1.2. See infra, note 90.
- 54.
Based on the rules in force concerning the obligations of the operator with significant market power, prices for access services to active and passive fibre infrastructure must be related to the cost and established on the basis of a bottom-up type Long Run Incremental Cost methodology (LRIC).
- 55.
The notion of “step change”—which the Commission first elaborated in its decision of 20 November 2012 (C(2012) 8223 final), SA.33671—United Kingdom, National Broadband scheme for the UK – Broadband delivery UK (http://ec.europa.eu/competition/state_aid/cases/243212/243212_1387832_172_1.pdf)—was later enshrined in the 2013 Guidelines, §§ 49–51. A “step change” can be demonstrated if, as a result of the public intervention, the selected bidder makes significant new investments in the broadband network and the subsidized infrastructure brings significant new capabilities to the market in terms of service availability and capacity, speed and competition. The step change shall be compared to that of existing as well as concretely planned network roll-outs.
- 56.
Similarly, although certain technologies enhancing copper components (e.g., vectoring) may increase the capabilities of the existing networks, they do not require significant investment in new infrastructure and, therefore, should not be eligible for State aid. See note 78 below for further information related to Commission assessment of vectoring.
- 57.
Also, certain upgrades of an NGA network (such as the extension of fibre connections brought nearer to the end user) may constitute a step change.
- 58.
See note 8.
- 59.
2013 Guidelines, para. 66. But see Koenig and Bache (2012), p. 261 (arguing that “the lack of infrastructure investment is not a market failure, but the result of a perfectly functioning market. The market is transparently indicating the limits of an efficient allocation of societies’ resources for broadband infrastructure, and at the same time warning the potential investors that the return on investment would fall short of (at least full) cost coverage. The provision of public funding is not aimed at remedying a market failure, but to furthering a political goal, that is the provision of broadband services as a universal service policy in disguise without fulfilling the appropriate – especially legislative (Art. 114 TFEU) – requirements. … The political promise of broadband service provision in lightly populated rural areas can only be kept by subsidizing the service providers with public funds. In essence, the public funds compensate undertakings for making non-viable economic decisions, a mechanism commonly associated with compensation for the provision of services of general economic interest. This means either the Altmark-criteria as defined by the ECJ have to be met for the measure to be excluded from the scope of Art. 107 (1) TFEU or the prerequisites of Art. 106 (2) TFEU have to be fulfilled in order for the measure to be deemed compatible with the common market”).
- 60.
Ibid., para. 72. See Commission Decision of 19 July 2006 on measure No C 35/2005, which the Netherlands are planning to implement concerning a broadband infrastructure in Appingedam (OJ 2007, L 86/1). The Commission declared a public financing measure for a new broadband FTTH network in the Dutch town of Appingedam incompatible with the internal market pursuant to Article 107(3)(c) TFEU (before initiation of the infrastructure’s construction). Appingedam is in a black area already served by competing networks at prices similar to those of other regions, and therefore there is no evidence of market failure or of unaffordable prices of the related services. The Commission noted that the competitive forces of the specific market were not duly taken into account and, in particular, that the Dutch broadband market was one of the most advanced in Europe in terms of coverage, innovation and competition. In addition, providers of electronic communications services, including cable operators and Internet service providers, were in the process of introducing very high-capacity broadband services to the national market without any State support. According to the Commission, the proposed aid would distort competition and negatively affect private investment to an extent exceeding the benefits of the project.
- 61.
The competitive situation is assessed according to the number of existing infrastructure operators. See Commission Decision of 19 October 2011, State aid N 330/10 – France, Programme national Très Haut Débit, http://ec.europa.eu/competition/state_aid/cases/237100/237100_1268935_107_2.pdf (the existence of several retail providers on one network (including an unbundled local network: Local Loop Unbundling, LLU) does not turn the area into a black area; the territory remains a “grey area” as only one infrastructure exists. At the same time, the existence of competing operators (at the retail level) will be considered an indication that, albeit grey, the area in question may not be problematic in terms of presence of a market failure. Convincing proof of access problems or poor quality of service will have to be supplied).
- 62.
2013 Guidelines, paras. 67–71.
- 63.
Ibid., paras. 63–65.
- 64.
Ibid., para. 78 et seq.
- 65.
Directive of the European Parliament and of the Council of 26 February 2014, 2014/24/EU, on public procurement and repealing Directive 2004/18/EC (OJ L 94/65) and 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC (OJ L 94/243).
- 66.
The situation is different where the public authority decides to deploy and manage the network directly (or through a wholly owned entity), like in the case of State Aid N 330/10 (see note 59 or in case SA.46731/16, Austria—Aid to fast broadband infrastructure in rural areas in Lower Austria, Decision of 3 April 2017). In the case of publicly subsidized networks, the operators of publicly owned networks must confine their activity to the predefined areas and shall not expand to other commercially attractive regions. This is in order to safeguard the level of competition that has been achieved since the liberalization of the electronic communications sector in the EU, in particular the competition that exists today in the retail broadband market. Furthermore, the public authority must limit its activity to maintaining the passive infrastructure and granting access to it, and cannot engage in competition with retail commercial operators. Finally, it must put in place an accounting system that separates the funds used for the operation of the networks and the other funds at its disposal. See also decision of 6 June 2017, State aid SA.41065/2016, Croatia—National Programme for broadband aggregation infrastructure, http://ec.europa.eu/competition/state_aid/cases/267611/267611_1911559_256_2.pdf, paras. 29–31.
- 67.
2013 Guidelines, paras. 53 and 78(k). The latter provision was introduced ex novo.
- 68.
Chirico and Gaál (2014), p. 37.
- 69.
Ibid., p. 32.
- 70.
Kliemann and Stehmann (2013), p. 495.
- 71.
2013 Guidelines, para. 78(e). Please note that in older cases the Commission did not interpret technological neutrality as an imperative: see decision of 22 November 2006, State aid N 222/2006—Italy, Aid to bridge the digital divide in Sardinia (C(2006)5480 final), (http://ec.europa.eu/competition/state_aid/cases/204665/204665_652791_31_1.pdf). In this Decision the Commission accepted an exception to technological neutrality on a purely economic basis, i.e., the fact that alternative solutions would entail higher costs, and held that the public funding of an ADSL network, albeit inconsistent with technological neutrality, was nonetheless compatible with the internal market (paras. 14 and 45).
- 72.
Ibid., para. 78(g).
- 73.
Ibid., para. 78(i).
- 74.
See note 70.
- 75.
And in compliance with the requirements of para. 83(a) to (c) of the 2013 Guidelines.
- 76.
Decision of 12 June 2012 (C(2012) 3763 final), SA.33540—United Kingdom, City of Birmingham/Digital District NGA Network. See also Commission press release IP/12/596, State aid: Commission clears state aid to an ultra-fast broadband network in Birmingham.
- 77.
See Case T-456/12 British Telecommunications/Commission (OJ 2012, C 379/27); the applicant criticized, in particular: the Commission’s failure to examine whether the objective of the aid was clearly defined and the proportionality of the proposed measure; its failure to initiate the formal investigation procedure even though the proposed aid would produce effects on markets other than the NGA, in which there was no market failure, effects that the Commission did not analyse; the Commission’s removal of the incentive effect, by requiring that the selected operator would have to allow all of the different types of network access that might be requested by the operators; and its approval of the use of the aid for the duplication of networks of leased lines existing in the target area. See also pending case T-460/12, Virgin Media/Commission (OJ 2012, C 379/28); the applicant criticized, in particular: the Commission’s failure to rebut the presumption against the lawfulness of the aid in an area of residential broadband services in competitive conditions; its failure to identify a market failure (in particular, the Commission’s failure to define the allegedly failed reference market, and to adduce meaningful evidence to find a failure on the basis of price alone); its failure to carry out an adequate market consultation as well as to assess the aid’s impact on competition in the relevant markets. In both cases proceedings were later discontinued at the applicants’ request following the Municipality of Birmingham’s decision not to implement the project (see President of the Fourth Chamber of the General Court, orders of removal from the register of 10 June 2016).
- 78.
Kliemann and Stehmann (2013), p. 500.
- 79.
Chirico and Gaál (2014), pp. 35 and 36.
- 80.
2013 Guidelines, para. 80. See Decision of 15 June 2015 (C(2015) 4116 final), SA.38348—Germany, NGA Germany, http://ec.europa.eu/competition/state_aid/cases/251861/251861_1670916_80_2.pdf, paras. 31, 32 and 74. The national support scheme for the deployment of NGA infrastructures notified to the Commission included among its elements the vectoring technology (see supra, note 58), which is applied over the existing copper network and allows the connection speed to be increased further with a modest additional investment. However, as a side effect of the scheme, a large number of households had to be aggregated to be served from a single provider, with the result that competitors could not gain physical access to individual subscribers. The Commission was concerned by the potential anticompetitive effects of vectoring in so far as it did not ensure open access to the infrastructure as prescribed in the 2013 Guidelines and thus authorized the scheme at issue on condition that an adequate virtual unbundled local access (VULA) product able to replace the physical access lost due to the use of vectoring was made available. In September 2016, the German authorities notified to the Commission three VULA products proposed by three network operators for the respective broadband roll-out projects under the abovementioned scheme. The Commission thoroughly examined the notified VULA products and found that they complied with the open access conditions of the 2013 Guidelines since they provided data traffic at similar conditions to those that competitors would have enjoyed with physical access to copper lines (decision of 11 August 2017, SA.38438, VULA Product (Follow up NGA Germany), http://ec.europa.eu/competition/state_aid/cases/270346/270346_1923571_208_6.pdf See also Decision of 26 May 2016, SA.40720—United Kingdom, National Broadband Scheme for the UK for 2016-2020, as reported in Commission press release IP/16/1904, State aid: Commission endorses UK National Broadband Scheme for 2016-2020, http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_SA_40720.
- 81.
Commission staff working document, Implementation of the EU regulatory framework for electronic communication—2015, SWD(2015) 126 final, 19 June 2015, http://ec.europa.eu/transparency/regdoc/rep/10102/2015/EN/10102-2015-126-EN-F1-1.PDF, p. 169. The percentage of NGA networks’ penetration indicated in the main text placed Italy in the second last position in the ranking of the 28 Member States, followed by Greece.
- 82.
2013 Guidelines, para. 41.
- 83.
See the report on the National Broadband Plan’s features and modes of implementation (Oct. 2011), http://www.sviluppoeconomico.gov.it/images/stories/documenti/adi/TESTO-INTEGRALE-PIANO-NAZIONALE-BANDA-LARGA.pdf.
- 84.
Decision of 24 May 2012 (C(2012) 3488 final), State aid SA.33807 (2011/N)—Italy, Piano nazionale banda larga Italia, http://ec.europa.eu/competition/state_aid/cases/242381/242381_1352102_93_2.pdf.
- 85.
Laying down urgent measures for financial stabilization; converted into law, with amendments, by Law No. 111 of 15 July 2011. See Decision of 18 December 2012 (C(2012) 9833 final), State aid SA.34199—Italy, Piano digitale – Banda ultra larga, http://ec.europa.eu/competition/state_aid/cases/244965/244965_1400328_95_2.pdf.
- 86.
Strategia Italiana per la banda ultralarga (Strategic plan for very high-speed broadband; the “Strategic Plan”), http://www.infratelitalia.it/wp-content/uploads/2015/03/bul_4_marzodef_0.pdf.
- 87.
Note, however, that neither the Strategic Plan nor the CIPE Resolution No. 65 of 6 August 2015 (Development and Cohesion Fund 2014–2020: investment plan for the spreading of very high-speed broadband) characterize the interventions they respectively set out as aimed at the provision of an SGEI. The abovementioned CIPE resolution—which approved the plan’s operational program and allocated €2.2 billion in funds from the resources of the Fund for development and cohesion (FSC) 2014–2020 to interventions to be implemented immediately—was registered by the Court of Auditors on 2 October 2015. Further resources of €4.9 billion may be made available by virtue of future regulatory measures: http://www.governo.it/approfondimento/banda-ultralarga-e-crescita-digitale-approvati-i-piani-nazionali/2860 (7 October 2015). Please note that CIPE is the acronym for Comitato interministeriale per la programmazione economica (Interministerial Committee for Economic Planning).
- 88.
Strategic Plan, p. 9.
- 89.
I.e., the European Regional Development Fund and the European Agricultural Fund for Rural Development, respectively. See notes 16 and 82 and accompanying text.
- 90.
Directive 2014/61/EU of the European Parliament and of the Council of 15 May 2014 on measures to reduce the cost of deploying high-speed electronic communications networks (OJ L 155/1). The directive, implemented in Italy through Legislative Decree No. 33 of 15 February 2016, obliges “every network operator” (including undertakings providing or authorized to provide public communications networks or undertakings that provide a physical infrastructure intended to provide electricity) to “meet all reasonable requests for access to its physical infrastructure under fair and reasonable terms and conditions, including price, with a view to deploying elements of high-speed electronic communications networks”. This obligation is triggered “upon written request of an undertaking providing or authorized to provide public communications networks” (Article 3(2)).
- 91.
Cf. 2013 Guidelines, para. 78.f: “Since the reusability of existing infrastructure is one of the main determinants for the cost of broadband roll-out, Member States should encourage bidders to have recourse to any available existing infrastructure so as to avoid unnecessary and wasteful duplication of resources and to reduce the amount of public funding. Any operator which owns or controls infrastructure (irrespective of whether it is actually used) in the target area and which wishes to participate in the tender, should fulfil the following conditions: (i) to inform the aid granting authority and the NRA about that infrastructure during the public consultation; (ii) to provide all relevant information to other bidders at a point in time which would allow the latter to include such infrastructure in their bid. Member States should setup a national database on the availability of existing infrastructures that could be reused for broadband roll-out”. See, with regard to Italy, Decree Law No. 133 of 12 September 2014, converted into law, with amendments, by Law No. 164 of 11 November 2014 (laying down urgent measures for the opening of the work sites, the construction of public works, the digitization of the country, bureaucratic simplification, the hydrogeological disruption emergency, and the resumption of production), Article 6-bis, concerning the planned establishment by the MISE of a federated national information system on infrastructure; as well as the MISE press release of 5 November 2015, concerning the (then expected as forthcoming) ministerial decree implementing the relevant provisions of said Decree Law No. 133/2014 (http://www.sviluppoeconomico.gov.it/index.php/it/per-i-media/comunicati-stampa/2033577-nasce-il-catasto-nazionale-delle-infrastrutture-giacomelli-se-ne-parla-da-molto-anni-ora-si-fa). See also Decree Law No. 145 of 23 December 2013 converted into law, with amendments, by Law No. 9 of 21 February 2014, Article 6(5bis) concerning the implementation by AgCom of a database of all the existing (public and private) internet access networks in the national territory. This database, available online since July 2017 (https://agcom.maps.arcgis.com/apps/MapSeries/index.html?appid=91d590dbb3fb4993934f26460c8d3265), is complementary and interoperable with the above mentioned federated national information system on infrastructure.
- 92.
See note 80. Please note that the first and the third model of public intervention envisaged in the Plan are very similar, respectively, to the second and the first model of public intervention envisaged in the 2016 AgCom Guidelines concerning the conditions for wholesale access to very high-speed broadband networks that receive public funds (see supra, note 48 and accompanying text).
- 93.
In areas falling within the D cluster, with 4,300 municipalities and 15% of the Italian population.
- 94.
The successful tenderers entrusted with the operation of the broadband or very high-speed broadband networks will be subject to several specific obligations regarding the technical and economic conditions of supply, also pursuant to the relevant EU rules, with which tender notices should comply, as well as the so-called symmetrical sectoral regulation, which is imposed on all providers of electronic communications networks regardless of whether they are found to hold significant market power. In particular, under Commission Regulation (EU) No. 651/2014 as per note 39 above (and within the time limits set out in the CIPE Resolution No. 65/2015 as per note 87 above), operators of networks subsidized by State aid must offer active and passive wholesale access to the largest extent possible, under fair and non-discriminatory conditions to be established by the AgCom. Under Article 52(1) of the said Regulation, investment aid to the deployment of broadband networks shall be compatible with the internal market and exempted from the obligation of prior notification, provided that certain requirements are met, including regarding the conditions for the provision of network access services. First, the operator of the subsidized network must offer the widest possible “active and passive wholesale access … under fair and non-discriminatory conditions, including physical unbundling in the case of NGA networks. Such wholesale access shall be granted for at least seven years and the right of access to ducts or poles shall not be limited in time. In the case of aid for the construction of ducts, the ducts shall be large enough to cater for several cable networks and different network topologies” (Article 52(5)). Furthermore, wholesale access prices must be based on the pricing principles set by the national regulatory authorities and on benchmarks prevailing in other comparable, more competitive areas of the Member State concerned or the EU, taking into account the aid received by the network operator (Article 52(6)). To this end, the said CIPE Resolution designates the AgCom as the body in charge of regulating the economic and technical conditions of supply (Articles 1.2 and 1.3.v). The 2013 Guidelines add that, in the absence of published prices, or of prices already set or approved by the AgCom for the markets and services concerned to be benchmarked against, the economic conditions of supply must be established otherwise, in accordance with the principles of cost orientation and following the methodology established in the sectoral regulation (2013 Guidelines, Article 78(h)).
- 95.
Ibid., Annex I, nos. 2 (support in kind) and 4 (broadband network, managed by a concessionary).
- 96.
In areas falling within the B or the C cluster, with 3800 municipalities and 68% of the Italian population.
- 97.
See Commission Notice on the notion of State aid, paras. 89–96; Decision of 25 July 2012 (to initiate the formal investigation procedure; C(2012) 5051 final), State Aid 33063, Italy – Trentino NGA, http://ec.europa.eu/competition/state_aid/cases/245530/245530_1361493_35_5.pdf, para. 73; and Joined Cases C-214/12 P, C-215/12 P and C-223/12 P, Land Burgenland a.o./Commission, ECLI:EU:C:2013:682, para. 93. Moreover, in the absence of a competitive tendering procedure and depending on the context, there are also other ways of proving that a public investment was made under market conditions, i.e., on conditions sufficiently profitable, for example (in order of importance): (i) proving that the transaction was carried out on the same terms and conditions (pari passu) and, therefore, with the same level of risk and remuneration for public bodies and private operators that were in a comparable situation; (ii) providing contemporaneous economic expert reports on the transaction adequate to convince a rational private operator (with similar characteristics to the public investor) of the investment’s profitability and its related economic advantages; and/or (iii) by benchmarking or other commonly accepted evaluation methods.
- 98.
2013 Guidelines, Annex. I, No.1 (Monetary allocation (gap funding)).
- 99.
Further support measures are envisaged in the form of tax credits for structural interventions, State guarantees on loans, or bonds issued to finance the Strategic Plan’s projects or incentives to demand, according to procedures to be defined by subsequent regulatory measures (areas within cluster A, with the 15 main Italian cities and 15% of the Italian population). It should be noted that the Plan approved in 2012 was implemented exclusively through direct interventions and incentives.
- 100.
Decision of 30 June 2016, SA.41647, Italy—Strategia Banda Ultralarga, http://ec.europa.eu/competition/state_aid/cases/264095/264095_1764969_101_2.pdf.
- 101.
In 2016 only 40% of rural areas were covered by NGA networks, compared to 76% EU wide: see Commission staff working document accompanying the Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the Mid-Term Review on the implementation of the Digital Single Market Strategy: A Connected Digital Single Market for All (COM(2017)228 final, May 10, 2017; http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017SC0155&from=EN).
- 102.
Commission staff working document accompanying the Commission’s Report on Competition Policy 2016 (SWD(2017) 175 final, May 31, 2017; http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017SC0175&from=EN), p. 49.
- 103.
In particular, €6 billion will come from the European Structural and Investment Funds, and approx. €3.2 billion from the European Fund for Strategic Investments and the Connecting Europe Facility. Moreover, in December 2016 the Commission and the European Investment Bank launched the Connecting Europe Broadband Fund, i.e., a fund for broadband infrastructure across underserved areas of Europe: see Commission press release IP/16/4351, Commission and European Investment Bank announce a fund for broadband infrastructure open to participation of National Promotional Banks and Institutions and of private investors. See also A Connected Digital Single Market for All, p. 5.
- 104.
All Member States have adopted national or regional broadband strategies, which in most cases include the use of public funds (see Commission staff working document accompanying the Report on Competition Policy 2016, p. 49.
- 105.
Stehman and Hobbelen (2017), pp. 552 and 553, stating that key issues in the Commission’s analysis “have included, and will likely continue to include, whether the public aid is targeted at areas with a genuine market failure (requiring a detailed mapping and coverage analysis); the acceptance that certain broadband products can be an SGEI; consistent compatibility criteria such as the need in principle for open tenders, access conditions, technological neutrality (with some exceptions like in Sardinia), and, since 2013, the ‘step change’ requirement”. However, the authors also note that “[a] continued mix of technological, legal and economic expertise in the future is clearly vital to ensure high-quality State aid control,” and emphasize that an in-depth understanding of the available technological options, the economic plans of operators, as well as the social and economic needs of the population is crucial to the successful use of the detailed mapping and coverage analysis. Hence the necessity and the ensuing challenge for Member State authorities to fully grasp the technology involved and its complexities.
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The authors thank their colleague Giovanna Ciccioli for her invaluable assistance.
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Siragusa, M., Cesare Rizza, G. (2018). Public Policies for Financing the Deployment of Broadband and Very High-Speed Broadband Networks and EU Rules on State Aid Control. In: Nascimbene, B., Di Pascale, A. (eds) The Modernisation of State Aid for Economic and Social Development. Studies in European Economic Law and Regulation, vol 14. Springer, Cham. https://doi.org/10.1007/978-3-319-99226-6_10
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