The decision by European heads of state to slash the budget for EU-wide roll out of fast broadband internet will stifle Europe’s innovation agenda, the European Commission warned, leaving telecom firms and member states to stump up the cash.

Under its Digital Agenda strategy, the European Commission wants Europeans to have access to fast broadband by 2013 and make sure at least 50% of households are able to subscribe to internet access above 100 megabits per second (Mbps) by 2020.

To reach that goal, the Commission proposed a €50-billion "Connecting Europe Facility" (CEF) for cross-border infrastructure projects under the EU's 2014-2020 budget.

Of this, €9.2 billion was earmarked to expand broadband and digital networks, amid concerns Europe is falling behind Asia and the United States.

But last week’s deal on the long-term budget, struck be heads of states and government, saw the broadband element of the CEF slashed by €8.2 billion to just €1 billion.

Missed opportunity

“It is clear that there can be no support for broadband with a pot of only €1 billion, so this funding will be exclusively for digital services,” said Neelie Kroes, the EU's Commissioner for the Digital Agenda. She described the cut as “a missed opportunity.”

The Commission estimates that up to €200 billion is required to meet the 2020 digital broadband targets in full.

An industry source, speaking on condition of anonymity, said the result would add €70 billion to Europe's broadband bill, explaining that the €8- billion cut represented “seed money for loans that now can't happen”, leaving the private sector and member states to stump up the cash.

The additional cost calculation arises from the fact that the loss of seed funding would deprive industry and member states of cheaper European Investment Bank-backed AAA-rated finance instruments, the source said.

“Cutting the broadband out of the CEF proposal is penny-wise but pound-foolish,”said Ryan Heath, Kroes’ spokesman. Heath said the fast broadband networks would eventually be built, and the EU would help drive demand for them by using the remaining €1 billion to develop cross-border digital services like eProcurement.

But he added: “They will cost more in the end and arrive later because they are riskier in the absence of EIB backing.”

Industry finding Digital Agenda hard to fund

Industry lobby group ETNO – whose members include Deutsche Telekom, Telecom Italia, Dutch provider KPN, France Telecom's Orange unit, Telefónica, Telekom Austria, Telenor and TeliaSonera – also slammed the decision and claimed it would impact on competitiveness and innovation.

“Given the key importance of high-speed broadband networks and the potential leverage effect on private network investments of the CEF, this budget cut is a missed opportunity for Europe's economic recovery,” said Luigi Gambardella, the chair of ETNO’s executive board.

Gambardella said investments in wireline networks in Europe in 2011 amounted to €24.8 billion, with ETNO members accounting for 67% of this expenditure. “Industry is finding it increasingly difficult to sustain this level of investment in order to meet the goals of the Digital Agenda,” he added.