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Broadband: State aid

State aid for broadband may be necessary in some places where the market does not provide the necessary infrastructure investment.

The Catalan Gigabit Society plan, Spain
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In the broadband market, investment should generally come from private operators. So, state aid, or support from national, regional, and local authorities, is in principle prohibited. However, it can be permissible if certain conditions are met, such as the market not providing the necessary infrastructure. 

The relevant conditions for the assessment of state aid are laid down in general state aid provisions of the Treaty on the Functioning of the European Union (TFEU).

According to Article 107(1) TFEU, 'any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market'.

For a support measure to be qualified as state aid, it has to be granted out of state resources, confer a selective economic advantage to undertakings, and be capable of distorting competition and affecting trade between Member States.

If state aid is involved, the European Commission will assess whether it can approve the support measure through a compatibility assessment. In most cases, the European Commission will conduct the compatibility assessment according to Article 107(3)(c) TFEU and in the light of relevant EU Guidelines. For the broadband sector, the European Commission will apply the EU guidelines for the application of state aid rules in relation to the rapid deployment of broadband networks.

Public support for investments in broadband networks is in principle possible. State aid rules allow the use of public funding for broadband networks, when a substantial improvement takes place — the so-called 'step change'. 

For grey next generation broadband areas the Commission has to be notified and it will carry out a more detailed analysis in order to verify whether state intervention really is needed. Grey next generation areas refer to those where only one next generation network is currently in place or is being deployed in the coming three years and there are no plans by any operator to deploy a further next generation network in the coming three years. To avoid notifying about single projects, the notification should be carried out, when possible, regionally or nationally.

The 'step change' is present if the following 2 conditions are met:

  1. significant new investments in the broadband networks are implemented;
  2. the subsidised infrastructure brings significant new capabilities to the market in terms of broadband service availability and capacity, speeds and competition.

To avoid crowding out private investments, the Commission’s assessment of state aid has to ensure that public investment is correcting a market failure. Therefore, public investment should only take place where the market is not providing the desired connectivity and if the publicly funded network offers connectivity significantly beyond the commercial offer.

The European Commission has already approved, under EU State aid rules, projects to invest in very high capacity broadband networks in grey areas. One example is Germany, where support to 6 Bavarian municipalities already supplied with 30 Mbps connectivity will lead to a 'step change' in connectivity. Yet, those implementing support measures have to take care that the private investments should not be prevented or devalued.

State aid for broadband projects can be provided by national funds and by European funds under the European Structural and Investment Funds (ESIF). With a total budget of over €638 billion for 2014-2020, the ESIF supports the following ICT related themes in the EU:

  • competitiveness of SMEs with ~  94 billion
  • research and innovation with ~ €65 billion
  • information and communication Technologies with ~ €20 billion

More information on European Funds.

Handbook for decision makers

handbook for all stakeholders investing in broadband with public support explains how to design a good project from the start and whom to contact at regional and EU level to obtain advice. It also outlines the minimum conditions for state aid approval.

State aid training sessions for BCOs

  • The state aid training session in June 2018 addressed the crucial issue of how state aid can be planned in areas where 30 Mbps is already available. A report from the session summarises presentations and case studies.
  • A report from the state aid training session in 2017 summarises the planning aspects, procedures and approval process, monitoring and reporting and discussions from the event.

The reports and presentations from these BCO Network training sessions are available to BCOs through the dedicated forum.

Grants

A grant will always be considered as state aid. Private investors may regard the provision of state aid as recognition that a market failure exists. This reduces confidence in the returns private investors could expect from the market in comparison with other opportunities.

The public authorities can attach a range of conditions and requirements to the provision of the grant, including, but not limited to:

  • achieving defined socio-economic outputs that the entity can take responsibility for;
  • returning part of the grant, if the entity achieves greater than anticipated benefits from the project (such as excessive turnover or profits), known as 'claw back';
  • transparency of accounts and performance of the entity in relation to the objective the grant is provided for.

Measures not constituting state aid

Measures to support broadband deployment without constituting state aid include:

  • The rollout of a next-generation-access (NGA) network for non-commercial purposes, i.e. only for the use of the public administration. However, it may become very tricky to use the network to connect to the citizens, as this may entail certain commercial elements.
  • Placing capital, directly or indirectly, at the disposal of an undertaking and such support corresponds to “normal” market conditions (Market Economy Investor Principle, MEIP).
  • Self-assessment and a proper business plan helps to ensure that the equity participation or capital injection presents sufficient prospects of long-term profitability.

Deployment can be viewed as a Service of General Economic Interest (SGEI) and which fulfills the four "Altmark criteria".

Measures constituting state aid but for which no notification is required

Even when the financing of the project constitutes state aid, it will still not require notification if:

  • the project fits into a state aid scheme which is already approved;
  • the total amount of grants (cash and in-kind)for the same eligible costs over any period of three fiscal years does not exceed €200 000 ('de minimis' rule);
  • the total amount of loans is up to €1 million, depending on collateral and duration of the loan (the 'de minimis' rule), or
  • the guarantee does not exceed 80 % of the underlying loan and either the amount guaranteed is €1.5 million and the duration of the guarantee is five years or the amount guaranteed is €750 000 and the duration of the guarantee is 10 years (the 'de minimis' rule).

The revised General Block Exemption Regulation (GBER) exempts from state aid notification aid for broadband infrastructures up to €70 million per project (i.e. passive broadband infrastructure, broadband-related civil engineering works, deployment of basic broadband networks and deployment of NGA networks) if:

  • the investment takes place in white areas;
  • the aid is allocated on the basis of a competitive selection process and the network operator offers the widest possible active and passive wholesale access, including physical unbundling for NGA networks.

The GBER also provides for the possibility of regional aid for broadband network development if the following conditions are met:

  • the aid must be granted only in areas where there is no network of the same category (either basic broadband or NGA) and where no such network is likely to be developed on commercial terms within three years from the decision to grant the aid;
  • the subsidised network operator must offer active and passive wholesale access under fair and non-discriminatory conditions including physical unbundling in the case of NGA networks; and
  • aid shall be allocated on the basis of a competitive selection process.

For further information on state aid also see: EC blueprint for ICT innovation VouchersICT Innovation Vouchers BrochureGuide to the implementation of a satellite vouchers scheme.

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