Will the EC Continue to fund Broadband Infrastructure?

A policy statement in mid-2012 by Neelie Kroes, vice president of the European Commission responsible for the Digital Agenda, emphasized the need to fund high-speed broadband infrastructures known as Next-Generation Access (NGA). Yet, a vote two weeks ago by EU member countries calls the EC's investment intent into question.

According to presenter Anna Krzyzanowska, whose "EU Policy for NGA Investment" presentation was a highlight of the "Investors' Day" workshop at the 2013 Fibre to the Home (FTTH) Council Europe event, a recent set-back at the EC level  has created an potential roadblock to funding infrastructure.

"We hope to enable the 'digital single market' that all countries have agreed to," said Krzyzanowska, "The objective of the new framework is to enable investment, not create an obstacle, and to increase both competition and returns."

Krzyzanowska is in a good position to know the details around the investment landscape. As head of unit for "Evaluation and Monitoring" at the Directorate-General Information Society (DG INFSO) of the EC, Krzyzanowska joined the EC in 2005 to implement the Risk-Sharing Finance Facility, a €10 billion loan facility for highly research-intensive companies, developed jointly by DG and the European Investment Bank (EIB).

"We feel this may stimulate high-speed services," she said, noting that Kroes and the entire DG group feels strongly that additional funding is needed, especially after new investment funding was slashed to €1 billion in the current budget vote earlier this month.

"It is clear that there can be no support for broadband with a pot of only €1 billion," Neelie Kroes stated on February 9, the day after an EC vote trimmed the budget for infrastructure funding by 90 per cent.

Krzyzanowska, whose Twitter description (@AKrzyzanowska) notes that she is a "consultant, turned banker, turned public official, curious observer of the current paradigm shift (or shifts)" replaced the intended EC representative, Anthony Whelan, Kroes' head of cabinet, to better speak to the financial implications of the recent EC vote. Whelan will speak at tomorrow's delegate opening session.

She noted that the EC will continue to espouse "technology neutrality" between various types of infrastructure technology, adding that "the question between fibre and copper is not one for us to answer" when it comes to the proper type of broadband connectivity.

Krzyzanowska coordinates the DG efforts related to the Connecting Europe Facility in the area of broadband and digital service infrastructures. She said a recent learning was that the forced lowering of copper pricing—with the idea of driving down the cost of implementing broadband over copper—hasn't been conclusively beneficial.

"We recognize that investment incentives closely intertwined with relationship between copper and NGA access prices has been unconvincing," said Krzyzanowska, "as in the case of a phased decrease in copper prices to spur NGA investment."

A primary emphasis within all EC countries should be the accessibility of infrastructure pathways for private, public, and incumbent providers, she adds.

"Every time a road is dug up, there should be transparent access for all infrastructure providers," she said. "There is a written policy that provides opportunity to each utility, coordinated with civil engineering, to provide upgrades to sub-terra  technologies. Yet the written policy is often not followed."

The EC is also preparing a number of initiatives, with a view to introduce legal certainty, when it comes to cloud computing and broadband projects. To that end, Krzyzanowska highlighted ongoing work with the EIB, noting that direct lending of €10.2 billion for infrastructure between 2007-2012 is increasing annually.

"The next steps include the goal of 'durable regulatory guidance' until at least 2020," she said. "We will recommend on non-discrimination and costing methodologies for regulated access prices and the Commission is now exploring alternative ways of using the EU budget to share the risk of broadband investment.

"Still there is a disconnect between NGA access and the funding of broadband innovations," she said. "Methods to enhance credit have not been enhanced, and we understand it is incredibly inefficient to fund telecommunications and NGA infrastructures with the current 7-year maturity models."

As for the recent vote that limits new funding, Krzyzanowska said the DG expect to "see several commercially viable projects fail due to lack of access for capital."

"Projects paying an adequate risk compensation have no access to suitable debt financing," she continued. "As such, the senior lenders face strict limits on lending for higher risks, with limited ability to fund on long-term maturities."

One solution that Krzyzanowska put forward as a "Plan B" to the current funding shortfall, as well as a way to enhance funding opportunities, is a proposal that the EC/EIB take part of the risk.

"We feel we can move the smaller projects from 'sub prime' credit risk and short maturities to a better financial footing," she said, "One way to do this is by bundling or grouping together these smaller projects, sufficiently increasing the quality of lending for senior lenders.

We expect to attempt a number of these things within the 2017-2018 budget cycles, but until then we will put use the tools we currently have at our disposal.

One potential investor asked about the rumor that even the new €1 billion in structured funds is closed when it comes to using these funds to finance infrastructure plays.

"This is a difficult answer to give as it is just being argued," said Krzyzanowska, referring to ongoing discussions by EU Parliament members, "regarding whether ICT would become a concentration priority. Research, SME, and renewable technologies are the currently recommended areas, and we feel infrastructure is  a prerequisite for the these three. We feel language can be drafted that is simple enough not to cause legal issues that will allow infrastructure financing via structured funds."

The 2013 Fibre to the Home Council Europe event continues 20-21 February at the ExCel Convention Centre in London.

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