Norbert GAÁLState aid policy and scrutinyDG Competition

State aid Modernisationand its impact on broadband

9 April 2013

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Agenda

State aid ModernizationImpact on broadbandMain trendsThe revised Guidelines

State Aid Modernisation: why?• Context: re-launching a sluggish economy, consolidating public budgets,

setting public budgets on a sustainable path, facilitating adjustment (avoid protectionism to slow down adjustment);

• Enforcement of State aid rules needs to be improved:– Deficiencies in the implementation highlighted by monitoring– Lack of proper evaluation of the impact of aid schemes– Opportunity for a more meaningful assessment of distortive schemes,

and a simpler assessment of standard cases

• The State aid framework has increased in complexity– Overlaps, differences in assessment criteria – Need for simplification

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State Aid Modernisation: EU context

• Europe 2020 strategy: smart, sustainable, inclusive growth

• New EU Multiannual Financial Framework• Prominence of State Aid in Structural Funds (see infrastructure)

• Increased use of Financial Instruments• Introduction of budgetary surveillance systems• Focus on quality of public finance (QPF)

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Key objectives of State aid modernisation1. Support growth: well-designed 'good aid'

– well-designed aid targeted on EU2020 objectives, for instance support to environment, R&D, Digital Agenda

– discourage wasteful and counterproductive subsidies in a context of tighter national budgets (quality and efficiency of public expenditure)

2. Better prioritised enforcement– keep ensuring a level playing field in the internal market and the

integrity of the internal market (avoiding subsidy races, "deep pockets" effects)

– proportionate and differentiated rules, enforcement at EU and national level (cf. GBER), reducing regulatory burden

3. Streamlined rules and faster decisions– turn State aid policy into a simpler, stronger and smarter instrument– well informed decisions within business-relevant timelines 5

Building-blocks of the SAM package

3. Reform of the Procedural Regulation

1. Coordinated approach for the review of major guidelines (‘common principles’): broadband, regional, environment, risk finance, R&D&I, etc.

2. New Enabling RegulationNew General Block Exemption Regulation [GBER]

2. Review of the ‘de minimis’ Regulation

3. Communication on the ‘notion of aid’

Main guiding principles: •clarification & simplification,

•consistency between instruments,

•increased commitment from Member States

3. Transparency and evaluation

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SAM – next steps - 2013• 2013: consultations

Spring/summer: •public consultations/multilaterals/advisory committees inter alia on: GBER, de minimis, RAG, EAG, RDI, risk capital and rescue and restructuring •Council negotiations on Procedural and Enabling Regulations

• End 2013: Main elements of the package in place•Adoption GBER and de minimis•Adoption guidelines (RDI, Risk capital, EAG, RAG, R&R)•Adoption Notion of aid Communication •Council adoption Procedural and Enabling Reg.

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Agenda

State aid ModernizationImpact on broadbandMain trendsThe revised Guidelines

Main changes for broadband1. Revised State aid Broadband Guidelines

• Alignment with the Digital Agenda targets• ‘Common principles’ for compatibility assessment• Transparency and evaluation requirements

2. Regional aid Guidelines• Replication of the main conditions of the BB GL to avoid ‘forum shopping’

(no comparable infrastructure, wholesale access, open tender + additional conditions of the RAG, including maximum aid intensity)

3. New possibility of block exempting broadband measures (GBER)• Passive infrastructure and civil engineering• Basic broadband projects• Small NGA projects

4. SGEI: no change

The scope of GBER in SA

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2/3 of aid measures - 1/3 of aid volumes approved under GBER

New tools in State aid enforcementTransparency•“full recipient disclosure”•MSs shall publish on a central website•Key information shall be available for the general public without restriction, inter alia on

• Text of the authorizing decision • Implementing provisions• Name of the beneficiary• Aid amount, aid intensity• Form of aid• Expected benefits

•Example: BDUK, Polish cases

Evaluation•Key to ensure efficiency/ effectiveness of the aid scheme•Focus on the largest, potentially most distortive aid schemes•Shall be undertaken by an independent expert•MSs and the EC shall agree on the modalities ex ante•Granting authorities shall define the aid objectives, quantitative indicators, expected timeframe, methodology, ....•Schemes’ duration are limited up to maximum 4 years•Example: BDUK 11

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Agenda

State aid ModernizationImpact on broadbandMain trendsThe revised Guidelines

Economics of broadband networks

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Decreasing population density1

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“Market optimum”

“Societal optimum”

€200 billion 1. Profitable areas• High population density areas• Infrastructure based competition

2. Area of co-investments• Medium population density areas• Competition on ‘co-invested

infrastructures’

3. Area of public intervention• Low population density, rural areas• Mix of technologies for coverage• How to ensure coverage and

competition?

Policy answers to accelerate broadband deployment

Public intervention: Asia - “Statist approach”: Australia, New Zealand- “Soft loans”: Japan, South Korea

Regulatory tools: USA- “Regulatory holidays"

Policy mix: EU- Sectoral regulation, administrative measures, soft policy

measures, …- Targeted State aid measures

State aid to broadband• Exponential increase in the

approved aid amount (2012 increase: Bavaria, UK, IT)

• National, multi-annual framework schemes, ‘keynesian measures’, growing amount of EU Structural funding channeled for broadband

• But actual investments are much lower (multiannual schemes , overstated budgets, change of government priorities, …)

• 120 Commission decisions (increasing number of simple amendments and prolongations)

• Nearly all MSs have an existing aid scheme

Crisis time

Aid to broadband per MS

SGEI

Aid to broadband /GDP per MSs

Rural fixed broadband coverage

R2 = 85%

Impact of State aid control‘What has State aid control ever done for us?’

Limited number of “formal investigation” procedures, but strong policy enforcement in the notification phase. Examples:-“no mapping information is available for the whole country”-“cable networks are available, but since they do not give open access, they should not be counted for mapping purposes"-“all operators were consulted” (besides the incumbent and the cable or consultation was done via phone)-“wholesale access is not necessary, it will only make investment costs (and the amount of aid needed) higher”-“wholesale access is granted, but someone has to compensate the aid beneficiary for the lost revenues caused by its competitors“-“wholesale access granted, but beneficiary shall have full freedom in setting the prices”-“open tender” – but only one operator is allowed to participate

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Agenda

State aid ModernizationImpact on broadbandMain trendsThe revised Guidelines

The revised Broadband Guidelines

Broadband Guidelines 2009

Broadband Guidelines 2012

Stakeholders' requests:•More explanation•More clarity •More details•....

• Growth above all (i.e. to boost the EU2020 growth strategy)

• No ‘crowding out’ of private initiatives • No ‘free lunch’

• Retain incentives for commercial investments (i.e. incentive effect)

• No overcompensation• Don’t make more harm than good (i.e. limited

negative effects)

Some core principles

Main changes of the new GL• Main principles unchanged (w/g/b areas)• Aligned with the DAE targets (3 layers)• Strengthened technology neutrality for NGA (FWA)• Refined access conditions (more leniency in rural areas,

strict conditions in urban areas)• Increased role for the NRAs • Increased transparency (central webpage, publication of

beneficiary information, …)• Concept of ‘step change’ to avoid crowding out• Can be read together with the BDUK decision

Main changes for cable operators

Mapping•Fn130: in case of cable and (at least) FTTC presence, the market is considered sufficiently competitive (thus no aid possible)•DA objectives are enshrined (100 Mbps)

Beneficiary of aid•Refined access conditions in rural areas•BDUK: cable shall provide ducts and bitstream access to benefit from aid

Main critiques• Too complex, too many conditions to comply with• No definition of ‘markets’ (vs. regulation – overspill to eg.

leased lines market) • Access conditions are not identical with regulatory access

conditions• Too much focus on infrastructure-based competition (rather on

service-based competition)• Does not incentivize investments sufficiently (too many

conditions to comply with, too strict conditions)• NRAs should have stronger/ more instrumental role vs. NRAs do

not have any administrative capacity to deal with SA schemes

• Amount of State aid flowing to this area will stay relatively high (but not as high as in 2012)

• Learning process for the involvement of independent bodies (NRAs, NCAs)

• Increased focus of MSs on (short-term) cost efficiency • LTE advanced: "game changer"? (regulation, coverage, public funding

need..)• Increased bargaining power of a few large operators• More coordinated approach and design for MSs for (framework

schemes) • Ongoing Court appeals (Cornwall, HdS and Birmingham, 3 cases before

the GC out of 120)

Main expected developments

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Thank you