Broadband Investment And State Aid PDF

65 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 8 Broadband investment and State aid This chapter gives an overview of State aid rules applied to broadband investment. It builds on the 8.1 General principle...

65 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 8 Broadband investment and State aid This chapter gives an overview of State aid rules applied to broadband investment. It builds on the 8.1 General principles 2022 Broadband Guidelines and is structured as Any use of public funds to support the follows: development of an economic activity, in this case investment in broadband, needs to comply with 1. Section 8.1: the general principles of State the EU’s State aid rules. aid; In the context of a broadband investment project, 2. Section 8.2: cases in which a broadband public funds can be used if the project complies intervention can be considered not to with the State aid rules, which aim to limit as constitute State aid; much as possible distortion of competition, 3. Sections 8.3 and 8.4: cases in which an for example, by limiting the risk of crowding intervention does constitute State aid, but out private investments by disincentivising, its compatibility with State aid rules can be preventing or even discontinuing them. self-assessed; Under certain conditions, the use of public funds 4. Sections 8.5 to 8.13: cases in which to support broadband investments must be the intervention constitutes State aid and notified to the Commission ahead of granting needs to be notified to the Commission State aid: ahead of tendering out the project and for assessment of its compatibility before before signing the contract with the beneficiary. proceeding. However, a wide range of uses of State funds do not require notification and their compliance with State aid rules can be self-assessed by the relevant public authorities. This may be because the use of public funds does not amount to State aid and so does not require notification (Section 66 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 8.2 discusses the conditions under which this Compatibility with State aid rules can be holds), or because they are considered as not assessed under various articles of the Treaty on having a significant distorting impact on the the Functioning of the European Union (TFEU), market, while the benefits largely outweigh any including: possible distortions of competition (see Section 8.3), or because the intervention is necessary for 107(3)(c) TFEU: aid for the deployment the provision of an SGEI and its market impact is of broadband networks and for deemed limited (see Section 8.4). connectivity vouchers schemes; 107(2)(a) TFEU: aid for social voucher In all other cases, the measure must be notified schemes; to the Commission for the assessment of compatibility with the EU’s internal market. 106(2) TFEU: aid for SGEIs. Figure 8 illustrates the different categories of intervention from a State aid perspective. Public Funds State aid No State aid: EU-level allocation of funding Admin. and regulatory measures MEOP Notification Self-assessment SGEI + Altmark De minimis BBGLs GBER SGEI SGEI Decision No notification Figure 8 - The assessment of public funds 8.2 Public funds that do not EU-level allocation of the funding amount to State aid In this case, the funds are EU-level resources which are not channelled through public There are various situations where the use of authorities at Member State level: the national public funds does not constitute State aid. The authorities have no discretion over the use of the main ones are: funds nor over the choice of the beneficiaries). EU-level allocation of the funding; Consistency with principles such as those Administrative and regulatory underlying State aid rules is verified at EU level, measures; not at Member State level. Measures fulfilling the Market Administrative and regulatory Economy Operator Principle (MEOP); measures Measures designed as SGEIs meeting the four Altmark criteria; Public authorities can have an important role in creating conditions to facilitate broadband De minimis. investments such as by facilitating rights of way, Each of the above situations are discussed in enabling the coordination of civil engineering more details in the following paragraphs. works, and promoting the sharing of the  67 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 infrastructure. Such measures do not constitute Examples include82: 79 See the table of references at the end of this handbook: DE State aid to the extent that: 2018 BBB Measuring potential demand through They are transparent and non- the use of surveys or systems of 80 See the table of references discriminatory; online registration; at the end of this handbook: EU 2018 BCO They are open to all potential users: Encourage and involve users in they are not limited to the broadband becoming stakeholders of a project 81 While such measures are generally not State aid, this or telecommunication sector (they are through bottom-up models of cannot always be ruled out. open to other utilities, for example, investment, for example in the form Some forms of training aid to such as infrastructure operators for of a cooperative; firms may be State aid, which electricity, gas, water etc.). may nonetheless be exempted Pre-contractual agreements with from notification under GBER. Some demand-side measures can also be households and businesses that can 82 See the table of references categorised under administrative measures, reduce investment risks by increasing at the end of this handbook: EU particularly when they are non-monetary predictability. 2018 BCO measures, as these are generally unlikely to It is to be noted that demand-side measures 83 See the table of references have a distortive effect on competition. This in the form of broadband vouchers typically at the end of this handbook: is the case for measures aiming to increase KLIEMANN 2013 entitle State aid to service providers even if the perceived value of broadband access by vouchers are to be used by end users. These are 84 The MEOP assessment addressing aspects linked to broadband demand, discussed in section 8.3, if they are exempted must be carefully documented other than price. and reliance on suitable from notification as they fall under the GBER, specialist advice is A good practice example of a non-monetary or in section 8.11, if they must be notified recommended. The public demand-side measure is an awareness to the Commission for assessment of their authority should be aware that campaign from 2018 by the German Ministry compatibility. non-notified investments under MEOP can face legal challenges. of Transport and Digital Infrastructure in collaboration with the Chamber of Commerce Market Economy Operator and the German Broadband Competence Office Principle (MEOP) (BCO), on the benefits of technology among citizens. Such measures stimulate broadband Broadly speaking, the Market Economy demand and the development of digital skills, Operator Principle (MEOP) states that if the and can be targeted to areas where demand is conditions associated with the public financing weakest, such as certain rural areas79. of a particular project would be acceptable to a private investor operating in normal market Other examples80 of measures to promote economy conditions, such use of public funds demand include increasing the quality and is not considered State aid. This implies that no reach of the available content and services advantage is given to any undertaking. and equipping consumers with the necessary information and tools: The MEOP analysis for the State’s participation must be completed prior to the project but it can Promotion of e-government be self-assessed. However, past Commission programmes, telemedicine, e-health, decision practice has made clear that the distance education, ICT in schools; conformity of a State investment to MEOP must be Promotion of local and sectoral digital demonstrated thoroughly and comprehensively, content, for example in the fields of either by means of a significant participation of cultural heritage, tourism, education, private investors in conditions at least equal to local agriculture and food products, the State, or the existence of a sound business etc; plan and associated risk-corrected rate of return calculations83 (see INFOBOX 26). The notification Government-led information exemption under MEOP only applies to well- campaigns to increase consumers’ substantiated cases84. awareness; The MEOP framework is quite different from the Addressing lack of IT skills through ‘market failure’ framework under which State aid specific digital literacy or inclusion is generally understood. For the State to invest programmes; as a market investor, it must be the case that Training and assistance to introduce the investment is attractive to the private sector. and exploit ICT in SMEs and micro- This may pose the question of the motivation enterprises81. for State intervention in the first place. In fact, the Commission has been quite strict in the Certain demand-side measures, such as demand evaluation of MEOP investments (see INFOBOX aggregation, fall outside the scope of State aid 26). In another example, the Commission was rules as long as the resulting information is not convinced that the conditions for MEOP had made publicly available to all stakeholders in been adequately assessed (see INFOBOX 26). an open, transparent, non-discriminatory way.  68 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 85 See the table of references at the end of this handbook: EU SGEIs meeting the four Altmark services and therefore are not considered State aid.87 Such additional conditions have become 2022 BB-SA-GL criteria known as the Altmark criteria88. If these are not 86 See all the relevant SGEIs are economic activities which deliver strictly adhered to, SGEI-related payments will provisions from the SGEI be considered State aid. package here: https:// outcomes in the public interest that would not competition-policy.ec.europa.eu/ be commercially supplied, or would be supplied state-aid/legislation/sgei_en The four cumulative Altmark criteria are the inadequately or inequitably, without public following: 87 Payment for the pure intervention. recovery of the undertaking’s The project is necessary for the net costs (including a reasonable Public authorities have a broad discretion provision of services that can be profit) for the delivery of a SGEI in defining what they regard as SGEIs. The is to be regarded as merely considered as genuine SGEIs for Commission would only question such definitions compensatory and not as State which the public service obligations aid. Such a payment would be in case of manifest error, such as public authorities have been clearly defined; compatible with the internal attaching specific public service obligations to market without recourse to the an activity which is already provided or can be The parameters of compensation public interest exceptions nor the derogation under Article 106(2). adequately provided by companies operating have been established in advance in Further, as it is not regarded as under normal commercial conditions. an objective and transparent manner; State aid, a prior assessment by the Commission is not necessary. The Broadband Guidelines85 have clarified in There is no compensation paid beyond recital 29 what specific elements the Commission the net costs of providing the public 88 See the table of references service and a reasonable profit; at the end of this handbook: ECJ considers when assessing the absence of 2003 manifest error in the field of broadband: The SGEI has been either assigned through a public procurement The project is addressed only to areas procedure that ensures the provision in which private investors are not of the service at the least cost, or the in the position to provide adequate compensation is determined in such broadband services; a manner as to ensure that it does The project deploys a network not exceed what an efficient company providing universal and affordable would require. broadband services to all premises in the target area (residential and business); The project ensures open wholesale access to the network on a non- discriminatory basis; The project is technologically neutral; Where the provider of the SGEI is also a vertically integrated operator, the public authorities should implement adequate safeguards (for example, limiting the operation of the network at wholesale-only level, imposing accounting separation, etc.) to avoid any conflict of interest, undue discrimination, and any other hidden indirect advantages. On compensation for SGEI, which must follow the principles of the SGEI package86: Any compensation granted should only cover the net costs of rolling out a network in the non-profitable areas, taking into account relevant revenue and a reasonable profit; Adequate review and claw-back mechanisms should be put in place to prevent the SGEI provider from obtaining an undue advantage. Under additional conditions, payment with State funds for the provision of SGEIs can be regarded merely as compensation for discharging those  69 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 89 See the table of references at the end of this handbook: EU INFOBOX 25 2007 BB-SA-NL The Citynet Amsterdam project, Case C53/2006 The case concerned the construction of an FTTH broadband access network connecting 37,000 households in Amsterdam, which were already served by several competing broadband networks. The Amsterdam municipality invested in the passive layer of the network along with two private investors and five housing corporations. The total equity investment in the project amounted to €18 million. In December 2006, the Commission initiated a formal investigation as it did not consider that the Dutch authorities had provided sufficient evidence of the MEOP character of the investment and so the Commission was not able to exclude the presence of State aid. In particular, the Commission checked the following four conditions: Whether the participating investors were market investors and whether the investments by the private investors had real economic significance; Whether the investment by all parties concerned took place at the same time (concomitance); Whether the terms and conditions of the investment were identical for all shareholders; Whether other agreements or relationships between the public and private investors distorted their valuations of the current investment. The Commission furthermore made a detailed analysis of the business plan including whether: a. The underlying assumptions were unduly optimistic; b. The success of the project was highly sensitive to targets (such as penetration rate) that may have been difficult to materialise; c. Whether the investors have a track record of successful comparable investments. Ultimately the Commission was satisfied that any remaining methodological concerns were minor relative to the overall project and that the assumptions and models underlying the projections had been endorsed by the significant private investors and a reputed external auditor. Having therefore concluded that the public authority had invested in conditions that were in accordance with the MEOP, the Commission concluded that the use of public funds in question did not constitute State aid89.  70 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 90 See the table of references at the end of this handbook: EU 2012 BB-SA-IT INFOBOX 26 The Trentino NGN project, Case C53/06 The Trentino NGN project was notified to the Commission in 2012 as a PPP between the Province of Trento and Telecom Italia for the roll-out of an NGN including FTTH in remote areas of the province90. This case is an important example where the Commission had doubts that the case constituted a genuine MEOP. In particular, the Commission doubted whether: The evaluation of the in-kind contributions made by Telecom Italia was done on market terms and did not contain any hidden advantage for Telecom Italia. In particular, the doubt concerned the value of the copper network to be switched off; There were any hidden advantages from the separate contracts appointing Telecom Italia as supplier of services to Trentino NGN and connectivity services to end users; The project was effectively profitable taking the perspective of an investor acting under normal market terms; The call option recognised to Telecom Italia did not limit the return on investment of the public authority to a level which a private investor would not have accepted, given the level of risk taken by the public authority as financial investor to the project. The Commission opened a full investigation of the measure. The public authority eventually withdrew the notification.  71 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 91 See the table of references at the end of this handbook: EU 2013 BB-SA-GLa INFOBOX 27 SA.37183 (2015 / NN) – France Très Haut Débit scheme, and three other French SGEI measures For one of the components of the 2016 Très Haut Débit scheme, the Commission verified that the measure complied with the four conditions of the Altmark judgment as well as the relevant provisions of the 2013 Broadband Guidelines91 illustrating the application of the principles of the SGEI package in the context specific to the provision of a broadband network as an SGEI. The latter included the verification, for the areas concerned, of the absence of credible plans to deploy very high-speed networks and that the operator will ensure: Universal connectivity in the areas concerned: more specifically, the infrastructure will be made available to all operators, under objective, transparent and non- discriminatory conditions; Non-discriminatory pricing and operational conditions favouring competition: the operator of the modernised network is required to offer tariffs set by the regulator, ensuring the homogeneity of the access conditions; A step change: the modernisation allows significantly improved speeds and services; France had three earlier measures declared free of State aid in conformity with the Altmark criteria: two for basic broadband investments, Pyrénées-Atlantiques (N381/2004) and Limousin (N382/2004), and one for Next-Generation Access (NGA) broadband, Réseau à Très Haut Debit en Hauts-de-Seine (N331/2008). In these cases, subsidies financing broadband infrastructure in France were not deemed to be State aid because: France designed an SGEI and set up specific public service obligations, adequately entrusted to the SGEI provider; Specific parameters predefined the amount of compensation in the concession contract; There was no risk of overcompensation as the parameters for calculating compensation were precisely defined in the operators’ business plans, which were based on the specific data provided by the public authority itself. Another reason why there was no risk of overcompensation was the fact that the public authority had required the operators who were to provide the service to set up a company specifically for that purpose, which would guarantee the neutrality of the service provider concerned; moreover, there were claw-back clauses in case profits were to rise above a given level; The needs of the project and what the candidates had to offer were analysed in depth and in detail. Moreover, the procedure chosen enabled the most efficient candidate offering the service at the lowest cost to the community to be selected.  72 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 92 See the table of references at the end of this handbook: EU The measure falls under the de 52(b), 52(c) and 52(d) deal with projects for the deployment of fixed broadband networks and 2022 DEMINIMIS minimis criterion their take-up93, and are discussed below. 93 Article 52(a) deals with aid If the amounts in question are low enough that for 4G and 5G mobile networks. Article 52(a) is not discussed as they cannot be expected to distort competition Article 52 – Aid for fixed this handbook only deals with and/or cross-border trade in the EU, the use of broadband networks fixed broadband networks. State funds is not State aid within the meaning of Article 107(1) and is allowed under the de Article 52 concerns projects for the deployment 94 ‘Socio-economic drivers’ refers to entities which, by their minimis criterion. of fixed broadband networks whose budget mission, nature or location, can does not exceed a threshold of €100 million directly or indirectly generate There are two different thresholds – a larger one (€150 million for aid in the form of financial important socio-economic for SGEI aid and a smaller one that applies in all instruments) in areas where: benefits to citizens, business and local communities located in other cases: their surrounding territory or in There is no ultra-fast network (i.e. a their area of influence, including, Up to €500,000 over three years for network providing more than 100 among others, public authorities, SGEI (Regulation No 360/2012); public or private entities Mbps download speed under peak- entrusted with the operation of Up to €200,000 over three years to a time conditions) present or credibly services of general interest or single undertaking; planned. In these areas, fixed access of services of general economic networks can be deployed to connect interest as set out in Article 106(2) of the TFEU, and digitally Loans can be given under the De households and socio-economic intensive enterprises. Minimis Regulation if they are at least drivers94; 50% secured and the loan is no more than €1 million over five years or There is already one ultra-fast €500,000 over 10 years. network in place, but there is no network present or credibly planned To assess the compliance with the above that can provide more than 300 Mbps thresholds, any aid received within the relevant download under peak-time conditions. period under different aid measures must be In these areas, only socio-economic taken into account. Beneficiaries must keep drivers can be connected by fixed records of the de minimis aid for three years and access networks. records must be kept to show that all conditions of the De Minimis Regulation are met. There is no possibility of investing in such areas if there is at least one network that Aid provided under the De Minimis Regulation can be upgraded to provide 1 Gbps download is furthermore required to be transparent. speed under peak-time conditions. A network This means that it must be straightforward is considered to be upgradable to provide 1 to calculate precisely what the gross grant Gbps if such an upgrade involves only marginal equivalent of the aid actually is. investments and, in any case, only minor investments in passive infrastructure. Please note that the above-mentioned rules were set to expire on 31 December The public authorities must carry out a mapping 2023. On 15 November 2022, the Commission exercise and a public consultation to determine launched a public consultation on a revised draft the types of areas and to establish the existence regulation which, among others, proposes to of market failure that would justify the revise the de minimis threshold92. intervention. The aid must be allocated based on a competitive selection procedure respecting the principle of 8.3 Aid exempted from technological neutrality and based on the most notification under GBER economically advantageous offer. Aid to broadband investments can be provided The network operator must offer open wholesale under the GBER, introduced in 2014 and access to the subsidised network under fair and amended in July 2021 and in June 2023. The non-discriminatory conditions. The duration of GBER exempts certain categories of State aid the wholesale access obligations is 10 years for from prior notification to the Commission since active elements and the lifespan of the concerned they are considered as not having a significant infrastructure for the passive elements. The type distorting impact on the market, while the of wholesale obligations is aligned to the ones benefits largely outweigh any possible distortions described in the 2022 Broadband Guidelines (see of competition. In that case, the public authority 8.9) including concerning the wholesale prices is only required to inform the Commission that which must be based on the regulated prices or it intends to implement a project under GBER. pricing principles set by the NRA or on benchmark. In this way, the Commission will be in the The NRA or other competent authorities should position to check the compliance with the GBER be involved in the determination of the access conditions after the fact. In particular, articles 52, products and associated prices.  73 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 The new network must ensure a step change: it least 30 Mbps download speed under must bring a significant improvement in terms of peak-time conditions. In such case, broadband availability, speed, competition and all operators providing services of at overall performance. A step change exists if the least 30 Mbps download speed under new network at least triples the download speed peak-time conditions must be eligible compared to the existing networks. In addition, in to participate in the voucher scheme; the case of investments in areas where there is They are used only by SMEs to already one ultra-fast network in place, the new subscribe to a new service or to network must provide at least 1 Gbps download upgrade the existing subscription to a speed under peak-time conditions. The project service providing at least 100 Mbps must include at least 70% investment in physical download speed under peak-time infrastructure. conditions. In such case, all operators The public authorities must set up a monitoring providing at least 100 Mbps download and claw-back mechanism if the amount of aid speed under peak-time condition granted to the project exceeds €10 million. A must be eligible under the scheme; proper accounting separation must also be put It is not allowed to use connectivity in place. vouchers to switch between operators providing the same speeds, or to Article 52(b) – Aid for projects upgrade to a new subscription if the of common interest in the beneficiary already has a subscription providing at least 30 Mbps and 100 area of trans-European digital Mbps download speeds; connectivity infrastructure A public consultation lasting at least This article deals with the following types of 30 days must be carried out to projects which are exempted from notification present the main characteristics of under certain conditions (not further detailed the scheme and offer the possibility here): to all stakeholders to comment; Cross-border sections of a 5G corridor A market assessment must be carried along Trans-European Transport out in order to identify the service Network (TEN-T) corridors (total providers active on the market and cross-border sections in a Member calculate their market share. If a State ≤ 15% of the total length of the provider is vertically integrated and 5G corridors in that Member State); has a retail market share larger than 25%, wholesale access obligations Cross-border sections of 1 Tbps must be imposed on such a provider, backbone networks interconnecting ensuring that any access seeker can certain computing facilities, use its network to provide the eligible supercomputing facilities and data services under the connectivity infrastructures; voucher scheme; Cross-border sections of backbone Connectivity voucher schemes can networks interconnecting have a maximum duration of three cloud infrastructures of public years (the validity of vouchers should administrations or SGEI providers; not go beyond two years); Submarine cables. Connectivity vouchers cannot cover more than 50% of the eligible costs. For these types of projects, the threshold is These can be a monthly fee, standard €100 million total costs (€150 million for aid in set-up costs and necessary terminal the form of financial instruments). equipment. It can also cover in-house wiring and limited deployment in the Article 52(c) – Connectivity end users’ private properties or in the vouchers public property in close proximity, if necessary and ancillary to the This article exempts from notification connectivity provision of the service; voucher schemes within the limit of €50 million over a period of 24 months under the following Vouchers should be technologically conditions: neutral and non-discriminatory, and available for the widest possible They are used by consumers or choice of service providers; SMEs to subscribe to new broadband services or to upgrade the existing An online registry, or any alternative subscriptions to a service providing at location chosen by the Member State, which consists of a list of all available  74 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 95 See the table of references service providers should be set up in The SGEI obligation is defined by an at the end of this handbook: EU an open and transparent way so that entrustment act; 2012 SGEI consumers and SMEs can access it to Compensation is limited to SGEI- choose their service provider. related costs plus a reasonable profit; Note: GBER cannot be used for broadband A mechanism for monitoring and voucher schemes with a social character. claw-back of over-compensation is Such schemes will have to be notified and the established; Commission will assess their compatibility according to article 107(2)(a) of the TFEU (see The Member State discharges 8.11). certain reporting and transparency obligations, as prescribed by the Article 52(d) - Aid for backhaul Decision. networks Article 52(d) concerns backhaul network projects 8.5 Broadband Guidelines whose budget does not exceed a threshold of The Broadband Guidelines detail the application €100 million (€150 million for aid in the form of of Article 107(3)(c) to the deployment or take-up financial instruments). of broadband networks or services, and of Article The projects concern the deployment of 107(2)(a) to social vouchers. They indicate under backhaul networks where there is no backhaul which conditions State aid is deemed compatible based on fibre or on any other technologies that with the internal market. Such conditions are can provide a similar level of performance and known as the ‘compatibility conditions’: reliability as fibre. The aid must have an incentive effect: The public authorities must carry out a mapping private investors have not invested exercise and a public consultation to establish and do not intend to invest; the existence of a market failure that would The design of the measure does justify the intervention. not breach any provision or general principle of EU law; The subsidised backhaul network must offer open wholesale access under fair and non- The aid is necessary and targets discriminatory conditions. The type of wholesale a market failure or important obligations is aligned to the ones described inequalities or cohesion concerns. in the Broadband Guidelines (see 8.9). The The existence of a market failure is duration of the wholesale access obligations is established through mapping and 10 years for active elements and the lifespan public consultation; of the concerned infrastructure for the passive The aid is an appropriate policy elements. The new backhaul network should instrument to meet its objective: cater for all fixed and mobile networks in the the measure ensures a step change, target areas and at least 50% of the network and other less distortive measures, capacity should be available for access seekers. such as administrative or regulatory Competitive selection procedures, claw-back measures, would not result in the and wholesale access prices are the same as same outcome; described for art. 52 (see above). The aid is proportionate and limited to the minimum necessary: the measure ensures effective wholesale access 8.4 Aid exempted from to the subsidised network and the aid is granted through a competitive notification under the SGEI selection procedure; the measure Decision respects the principle of technology neutrality, fosters the reuse of existing If the deployment and the operation of a infrastructure, and provides for an broadband infrastructure is necessary for appropriate claw-back mechanism; the provision of an SGEI, State aid for the compensation of such an SGEI up to €15 million The aid is transparent and the per year, on average over the whole duration authority meets its reporting and of the entrustment, may be exempted from monitoring obligations; notification on the basis of the SGEI Decision95, The positive effects of the measure provided that the criteria of that Decision are outweigh its possible negative met, namely: effects (balancing exercise): the authority must demonstrate, based on a counterfactual analysis, that  75 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 the measure has positive effects It is also necessary to assess the technologies compared to what would have that have been used to deploy the current happened without the aid, and that networks. This is needed to assess whether the its negative effects are limited to the networks are upgradeable to provide 1 Gbps minimum necessary. download and 150 Mbps upload speeds under peak-time conditions. 8.6 Market failure for fixed Second test access networks In order to allow a State aid intervention, it is One of the most important steps in designing the necessary to assess the likelihood that the measure is for the public authority to establish market will evolve toward providing 1 Gbps the existence of a market failure, through download and 150 Mbps upload speeds without mapping and public consultation. the public intervention. This mainly depends on two factors: The Broadband Guidelines address the concept The competitive pressure in the area, of market failure for fixed access networks and which has a positive impact on the for backhaul networks. dynamic of evolution of the market Two tests must be applied to establish the toward addressing the market failure: existence of a market failure in the case of fixed if there are many competitors in the access networks: intervention area, this will constitute an incentive to upgrade the network in order to address end users’ needs; First test The level of investment needed to No market failure exists if at least one network is upgrade the network, which has in place or is credibly planned providing at least a negative impact on the market 1 Gbps download and 150 Mbps upload speeds evolution: there may be situations under peak-time conditions. The performance where there are many networks in the of the networks must be assessed on the basis area, but because all of them need of what the networks actually provide, not what significant investment to be upgraded they can provide, in order to address end users’ to meet end users’ needs, the positive needs. dynamic described above will not take place. Similarly, a market failure does not exist if a network can be upgraded to provide the above- The competitive pressure is assessed based on mentioned speeds. A network is considered the number of operators that are present in the upgradeable if it can provide the target speeds intervention area with networks that have been by simply, for example, changing the active already built or are credibly planned in a relevant equipment or undergoing marginal investment. time horizon to provide 100 Mbps download The intention is not to overbuild a performing speed under peak-time conditions (ultra-fast network by another performing network. For networks). instance, in the case of a network based on fibre that does not currently provide the The number and relevant type of available required speeds, it is not possible to overbuild networks is used to qualify the areas as: this network because it can be upgraded. The White areas: areas with no ultra- underlining idea is that if upgrading the network fast network present or credibly requires only marginal investment, operators planned for the relevant time horizon; will likely undergo such marginal investment to address end users’ needs, therefore the market Grey areas: areas where there is failure does not exist. only one ultra-fast network present or credibly planned for the relevant Whenever the market failure thresholds are time horizon; assessed, there is a need to assess at least Black areas: areas where there the download speed (unless the existence of are at least two ultra-fast networks the market failure is based on the absence present or credibly planned for the of adequate upload speed), which is always relevant time horizon. assessed under peak-time conditions. ‘Peak- time conditions’ refers the conditions under In white and grey areas (with proven step which the network is expected to operate at change, as explained in Section 8.7), the public ‘peak time’: when the network load is usually at intervention can take place, because there is no its maximum. positive impact from any competitive pressure: in those areas, either there is no ultra-fast network (white areas) or there is only one ultra- fast network (grey areas). 76 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 In black areas, the assessment on whether technological development, networks based on the public intervention can take place is more fibre are best placed to cope with this increase nuanced. In this case, the level of investment in demand. A market failure may therefore exist needed to provide 1 Gbps download and 150 where there is no existing or credibly planned Mbps upload speeds plays an important role in backhaul network based on fibre or on other possibly counter-balancing the positive impact technologies with performances and reliability of the competition existing in the area (there are comparable to or better than fibre. at least two ultra-fast networks). Several possibilities occur: 8.7 Step change When there is no network providing If, based on the market failure assessment at least 300 Mbps download speed, described in Section 8.6, the public authority the intervention can take place. In concludes that an intervention can take place, this case, the amount of investment the new network must provide a step change. to address end users’ needs (i.e. This means that it must provide substantial providing 1 Gbps download speed additional performance in comparison with the and 150 Mbps upload) is substantial existing ones. and therefore it is unlikely that the investment would take place without public funds. Step change for fixed access networks Where there is at least one network providing more than 500 Mbps In white and grey ultra-fast areas, the new download speed, it is likely that network must at least triple the download the competition will boost network speed of the most performing network already investments towards meeting end deployed (not planned to be deployed) in the users’ needs. No intervention is intervention area. In addition, the subsidised possible in this case. network must represent a significant new infrastructure investment, not a mere upgrade In a situation where at least one of active equipment. existing or credibly planned network can provide between 300 Mbps In black ultra-fast areas, the new network must and 500 Mbps download speeds, a fulfil the same conditions as in the case of white more in-depth analysis is needed and grey areas, additionally providing at least to conclude whether the networks 1 Gbps download and 150 Mbps upload speeds are likely to evolve toward 1 Gbps under peak-time conditions. download and 150 Mbps upload speeds, or whether the State This means that, in white and grey areas, a intervention can take place. In this step change can be demonstrated even without case, the public authorities should completely removing the market failure (i.e. demonstrate to the Commission that without providing at least 1 Gbps download and all existing operating networks will 150 Mbps upload speeds) while in black areas, not evolve in terms of higher speed the intervention needs to remove the market (market failure), establishing this failure. based on the mapping of the area and on public consultations, verifying The Broadband Guidelines also introduce the the results of mapping and the lack concept of mixed white-grey ultra-fast areas. of future investments for the relevant These are areas which are predominantly white time horizon. but with grey spots amounting to less than 10%. In this situation, subject to the result of a The Broadband Guidelines elaborate on the public consultation confirming that overbuilding existence of market failure in the case of of the grey spots does not constitute an undue backhaul networks. The objective is to avoid distortion of competition, the overall area can situations where backhaul networks become a be treated as white, and the subsidised network bottleneck for the access networks. This could must at least triple the download speed of the be the case where the backhaul network is not most performing network deployed in the white capable of handling the expected development part of the intervention area, irrespective of of the corresponding fixed and mobile access the performance of the network deployed in networks. In this case, an intervention would be the grey spots. Therefore, in the grey spots, the considered justified with a view to addressing new network may not triple the speeds of the end users’ needs. network deployed there, as it has as reference In view of the expected increase in the the speed in the white area. performance at access level, the Broadband Guidelines consider that, at the current stage of  77 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 Irrespective of its performance, the new network user, the end user can be connected to the network 96 See ‘Guidelines on State aid for broadband networks 2023/C must represent a significant new infrastructure within four weeks from the date of the request, 36/01’, paragraph 5.2.2.4.1: investment. at a price that must not exceed the normal Detailed mapping and analysis connection fees in the country. The normal price of coverage, and paragraph Step change for backhaul must be determined by the competent national 5.2.2.4.2: Public consultation: https://eur-lex.europa.eu/legal- authority. Thus, if an operator reports a premise networks as passed, it must actually be able to provide the content/EN/TXT In view of the previous consideration about services if requested by the end user. 97 C(2022) 9343 final ANNEXES 1 to 4 the existence of a market failure for backhaul The Broadband Guidelines also introduce the networks and in view of the expected evolution 98 Referred to in section notion of peak-time conditions (speed is now 5.2.2.4.1 of the main Guidelines. of the access networks that the backhaul referred to under peak-time conditions). Peak- networks serve, a step change exists if, contrary time conditions are the conditions experienced to the existing or planned backhaul networks, the by the network during the peak time: when the new backhaul network is based on fibre. network’s use is at its highest load. According to this notion, if a network is supposed to provide a certain performance, it must provide this 8.8 Determining the market performance at peak time. failure: mapping and public It is necessary to define the peak-time conditions consultation upfront to have an objective representation of the performance of the networks through The Broadband Guidelines further elaborate on mapping, and compare the performance declared what must be done when mapping and public by various operators, both for existing networks consultation are carried out to determine market and planned networks. It also allows to compare failure. the performance of existing and planned networks with the performance of the subsidised Mapping network, to ensure it provides an adequate step change. Finally, upfront definition of peak-time A detailed mapping of the existing and planned conditions allows to check the performance of networks and their performance is a fundamental the subsidised network after the fact. step to ensure that broadband investments comply with State aid rules. Annex I of the Broadband Guidelines97 provide a set of best practices98 on how to carry out The Broadband Guidelines96 provide a limited the mapping exercise to support State aid number of mandatory criteria for mapping, interventions for the deployment of fixed access including: and mobile access networks. The Annex builds The performances must be expressed on and complements, for the purposes of State at least in terms of download speeds aid, the BEREC Guidelines for Article 22 of the and, where relevant for determining EU CODE for electronic communications on market failure and step change, geographical surveys of network deployments. upload speeds that are or will be Irrespective of the mapping methodology used, available to end users under peak- Member States must make the methodology and time conditions. When assessing the underlying technical criteria used to map the the speeds, any bottleneck that target area publicly available, through public could prevent achievement of those consultation. It is recommended that the NRA is performances must be duly taken into also consulted on the mapping methodology and account (for example, if a backhaul process. network will prevent the provision of the target speed); Irrespective of the methodology chosen, In terms of granularity, mapping must the existence of an appropriate mapping be carried out: methodology is fundamental for various reasons: For fixed wired networks at It is needed to provide an objective address level on the basis of representation of the expected premises passed; performance of the networks. Only by defining the technical criteria in For FWA networks at address advance will it be possible to have level on the basis of premises an objective representation of the passed or on the basis of a performance of each network and to maximum 100m2 grids. compare the performance declared The Broadband Guidelines further elaborate on by various operators, on an objective the concept of premises passed: a premise is basis; considered passed if, upon request from an end 78 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 The performance of existing networks The relevant time horizon must take into account must also be compared with the all aspects that could impact the duration of performance of the planned networks the deployment of the new network, such as: (assessment of the existence of a the time required for the selection procedure, step change). Therefore, the criteria possible legal actions and challenges, time to to assess the performance of the obtain rights of ways and permits, availability existing networks can be checked of civil works capacity, etc. Therefore, whenever against the design criteria of the the State considers that the deployment of planned networks. Such criteria will be a network will take a certain time, this is the used, among others, by the tendering timeframe that should include everything, up authority to assess the bids received to the bringing of the network to the market. in an objective and transparent way; If the deployment of the planned State-funded network (until its entry into operation) takes Finally, the mapping methodology longer than estimated, a new mapping and allows to check the performance of public consultation are necessary. the subsidised network after the fact. By assessing the design criteria of the The Broadband Guidelines provide a series of subsidised network, Member States best practices that do not constitute mandatory can predict the performance that end criteria. users can expect to experience when the network will run under normal One of these best practices concerns the conditions (i.e. whether the end users’ assessment of the credibility of planned private needs will actually be addressed). investments. An assessment of the credibility This is because the subsidised of the private investment plan is necessary to network could initially provide good reduce the risk that the State intervention is performance due to the low level of prevented based on future investment plans that utilisation, and such performance eventually do not materialise, thus having an may then deteriorate as the network impact on end users that are not able to benefit use increases. The design criteria of from new performing networks. the subsidised network will provide for the possibility to predict the Member States can request detailed deployment expected behaviour of the network plans with milestones (for example, every six under normal conditions. months) demonstrating that the investment will be completed within the declared time Public consultation horizon and will provide similar performance as the network planned by the State. These In the public consultation, Member States commitments can also be recorded in an must publish the main characteristics of the agreement, against which the Member State planned intervention and the list of target areas. can check if the private operator is performing Member States must invite interested parties to and deploying its network as declared during the comment on the planned State intervention, its public consultation. design and main characteristics; and to submit substantiated information about the existing or Some of the criteria that can be used to assess credibly planned networks within the relevant the credibility of the investment plans may time horizon. The public consultation must last include: for at least 30 days and must be published at least on a national website. A project-related business plan factoring in suitable criteria to The Broadband Guidelines clarify that Member assess the credibility of the project States must launch the competitive selection (appropriate timeframe, proper procedure or start the implementation of the budget, location of targeted premises, project within one year from the start of the quality of services to be provided, public consultation, otherwise a new public etc.); consultation is necessary. A high-level project plan; The relevant time horizon is defined as the The size of the company in comparison time horizon used to verify the planned private to the size of the investment; investments and corresponds to the timeframe that the Member State estimates for deploying The track record of the company for the planned State-funded network, starting similar projects. from the moment of publication of the public Member States also have the possibility to check consultation until the entry into operation of the how the implementation of the new network network. This relevant time horizon cannot be takes place, after the fact, by, for example, shorter than two years. asking the operators to report regularly on the compliance with the agreed milestones.  79 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 If the Member State identifies deviations to the In grey and black areas, on top of the wholesale agreed milestones, they may request further access products that are foreseen for white information demonstrating the continued areas, physical unbundling must in principle be credibility of the declared investment. If there are provided. significant doubts as to whether the investment will be completed as declared, the Member State However, there is the possibility to derogate from may decide to launch a new mapping and public the obligation to provide physical unbundling in consultation exercise to verify the potential favour of VULA, subject to certain safeguards: eligibility under State aid of the areas concerned. The reason for derogating must be clearly expressed in the public consultation; 8.9 Wholesale access The public authority must As a general principle, wholesale access is needed demonstrate that there is no risk of to increase end users’ choice and competition in an undue distortion of competition, the area concerned by the public intervention. considering the characteristics of the project and other information such as The State-funded network must offer effective the existing regulation in place in the access under fair and non-discriminatory country, the business model of the conditions to all operators who request it. It is beneficiary (for example, wholesale important to highlight that wholesale access only or vertical integrated), the size of must be effective; this is why particular attention the project, etc. must be paid in designing the wholesale access obligations to ensure that it is actually useful It is important to note that a derogation from for access-seekers. The requirement of being providing physical unbundling must be approved effective implies that, in certain circumstances, by the Commission based on the results of the there may be a need to increase the capacity of public consultation and the reasoning provided existing infrastructure to handle the envisaged by the Member State. future demand and its possible evolution. For backhaul networks, the publicly financed In view of the complexity of defining the network must grant access to passive appropriate wholesale access products, together infrastructure and provide at least one active with their terms, conditions and pricing, it is service. It is to be noted that, for backhaul fundamental to consult the NRA. The NRA should networks, the public authority must envisage the be consulted well in advance to be able to provide deployment of sufficient capacity for the new the most accurate feedback on this matter, infrastructure (for example, ducts large enough also considering that, in certain cases, it may to cater for deployment of fibre to accommodate decide to carry out its own public consultation the expected needs of all possible operators). on the wholesale access obligations to provide Any possible constraint to the provision of a substantiated opinion to the consulting public effective wholesale access must be removed. authority. Wholesale access terms and It is to be noted that the consultation of the NRA on the overall design of the project is advised conditions even if, contrary to the consultation on the Active wholesale access (for example, bitstream) wholesale access obligations, it is not mandatory must be provided for at least 10 years. The under the Broadband Guidelines. only exception concerns VULA, for which access must be granted for the lifespan of the product Wholesale access products for which VULA is a substitution. As VULA is a substitution for unbundling, depending on the For fixed access networks, the Broadband type of network that is unbundled, the timeframe Guidelines identify different sets of wholesale for giving access via VULA can change (for access products depending on the competitive example, if unbundling of fibre is concerned, situation of the intervention areas. this will be much longer than for unbundling of In white areas, where there is no ultra-fast copper-based networks). network, the publicly financed network must For new passive infrastructure, access must be provide at least bitstream and access to passive granted for the lifespan of the network element infrastructure, including dark fibre. Furthermore, that has been financed. the public authority is free to decide whether it is more appropriate to mandate the provision of Access must also be granted to the existing physical unbundling or VULA. infrastructure that has been re-used in the project. 80 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 Any access obligations must be enforced Cost orientation or any methodology irrespective of any change in the ownership of mandated in accordance with the the network. sectorial regulatory framework. Member States are free to decide which Wholesale access pricing approach to use to set the prices. The NRA must There are three different approaches to set the always be consulted on the prices of wholesale prices of wholesale access products: access products. Benchmarking: average published It is to be noted that the wholesale products, wholesale prices that prevail in other as well as their terms, conditions and prices, comparable, more competitive areas must be included in the tender documents to of the Member State; put the bidders in the condition to know exactly what wholesale access products they will have The regulated prices already set or to provide and at what price. In this way, they approved by the NRA for the markets can use this information to prepare an informed and services concerned; business plan. INFOBOX 28 Wholesale access based on reasonable demand Access based on reasonable demand applies to situations in which the provision of all possible wholesale access products as described above may not be appropriate, as this would result in a disproportionate increase of the cost of the project without bringing significant benefit in terms of additional competition and services. The derogation from the provision of all mandated wholesale access products must be approved by the Commission in advance for each product for which such derogation is requested. Such derogation must be clearly justified by the Member State by explaining what the increase in the investment cost is and the reasons why it is considered appropriate to derogate from its provision. It is for the Commission to eventually approve such derogation and include it in the decision. In this way, all operators participating in the tender know exactly which products they have to provide and at what price. When the Commission agrees that a derogation from the provision of a certain product is possible, this product will have to be provided only in case of reasonable demand, i.e., in case there is a business plan that shows that there is a need to provide this service and there is no comparable access product already available on the market. The burden of proof is on the access seeker. In case it is proved that reasonable demand exists, the owner of the subsidised network (the beneficiary) will have to bear the cost of providing the relevant wholesale access service.  81 B R O A D B A N D I N V E S T M E N T H A N D B O O K 2 0 2 4 INFOBOX 29 Private expansion As a general remark, a State aid decision assesses an intervention in a specific area. However, the Broadband Guidelines clarify regarding situations where the network extends outside the intervention area using the operator’s own financial resources. Whenever this extension in the adjacent area is done by operators that are not linked to the beneficiary of the aid and are only using the wholesale access to extend outside the intervention area, this is allowed. If the public authority is of the view that private extension should be allowed for the beneficiary as well, or for an operator linked to the beneficiary, such possibility must be clarified during the public consultation. In this case, the public authority must indicate that private extensions are permitted at a later stage and must provide all the information about the characteristics of the adjacent area where these expansions could take place in order to trigger comments during the public consultation that may point to possible issues. Furthermore, the expansion can only take place two years after the publicly financed network enters into operation, in the following cases: If in the adjacent area there are at least two independent networks providing speeds comparable to those of the publicly financed network; If there is at least one network in the adjacent area providing speeds comparable to those of the publicly financed network which entered into operation less than five years before the publicly financed network enters into operation.