This article is part of our special report Broadband: driving recovery?.
The European Commission has agreed to co-finance Europe's long-awaited transition from copper to faster fibre-based telecom and internet networks while industry worries that EU funds could weaken investors' appetite for risk.
The European Commission yesterday (19 October) announced it would pour €9.2 billion into projects for the deployment of fibre optic cables to deliver faster internet, more jobs and more revenues.
The plan is one element of the Connecting Europe Facility, a €50 billion fund for EU infrastructure development unveiled the same day.
The European Commission has set ambitious targets (see 'Background') for faster internet in the EU but a lack of investment in fibre networks has cast doubt over the targets' realisation.
According to the Commissioner for the Digital Agenda, Neelie Kroes, a 10% boost in internet penetration could raise GDP levels by up to 1.5%. However some lobbyists argue the Commission's plan jars with companies' battle to get private sector investment into fibre.
Caroline Van Weede, Managing Director from Cable Europe warns that EU funding could "kill the will for private investment if the market figures that the state will just pour money in if you wait around long enough."
An estimated €270 billion is reportedly required for fibre in Europe. Big telcos like France Telecom have put forward plans for fibre networks but these reach densely populated areas with an obvious business case for faster internet.
"Public investment, just like aid in the developing world, should go where the need is most urgent," Van Weede continued.
Other telco lobbies gave the funds a cautious welcome, emphasisng that they should go to low populated areas where companies are afraid they will not turn a profit.
"Although public funding has a key role to play in those specific areas where commercial deployments are not viable, the Digital Agenda goals will only be achieved through massive private investment," said Luigi Gambardella from the European Telecoms and Network Operators association.
The Commission is taking heed of the effects of state funding in other regions which have made substantial investments in fibre. In Japan, 12% of citizens, consumers and companies have access to ultra-fast internet via fibre networks. In Korea, the figure is 15%. In the EU fibre penetartion ranges from 1 to 3%.
Sources from smaller operators complain that big telcos could easily make the costly investment in fibre networks but do not as they already turn substantial profits on the older copper infrastructure. In a recent interview, Kroes alluded to big telcos' reluctance in rolling out fibre because it entailed a business risk.
Kroes recently attempted to address the cumbersome transition from copper to fibre by announcing that the EU would make telcos lower access prices to copper, hurting profits on these networks.
The commissioner said she was interested in "exploring a new pricing model" to make the transition by upping regulation on incumbents who own the copper networks.
“By increasing significantly the funding for high speed broadband networks and services, the Commission demonstrates that it considers the ICT sector as a driver for growth. Although public funding has a key role to play in those specific areas where commercial deployments are not viable, the Digital Agenda goals will only be achieved through massive private investment”, said Luigi Gambardella, Executive Board Chair of ETNO, a trade group representing large telecom operators such as Belgacom, Telefonica and Deutsche Telekom.
Manuel Kohnstamm, the President of Cable Europe, a trade association that groups all leading broadband cable TV operators, also expressed ambivalence, asking "Is this investment likely to have a perverse effect on a market which is just waking up thanks to private funds or is this investment the only chance of getting service up and running here?"
Tom Ruhan, the Chairman of the European Competitive Telecoms Association welcomed the funding saying: “If properly targeted, we believe the Connecting Europe Facility could make a very valuable contribution to supporting open business models for fibre that will help Europe to achieve its ambitious broadband targets. What we would not want to see is public money supporting closed monopolies and legacy technologies.”
The Digital Agenda for Europe set targets for 2020 of broadband access for all at speeds of at least 30 Mbps, with at least 50% of households subscribing to speeds above 100Mbps.
Optical fibre backbones are considered the future of telecommunications infrastructure, because they allow for faster and wider transmission of data than current, largely copper-based networks. Fibre is at the core of so-called 'Next Generation Networks' (NGNs).
The debate on triggering fibre investment comes at a critical time as the Commission prepares to issue guidance on wholesale pricing and other key regulatory issues which will influence the business case for high-speed broadband in Europe.
In October 2011, the European Commission launched a public consultation on how companies should calculate fees for access to their network. It has also begun a consultation on non-discrimination to try and even out the gap between incumbents and their newer rivals.
- European Commission:Barroso speech on Connecting Europe Facility
- European Commission:Neelie Kroes speech on Connecting Europe Facility
- European Commission:Digital Agenda: Commission proposes over €9 billion for broadband investment(19 Oct. 2011)