State aid for broadband in 2010 was more than four times the amount in 2009 and comprised a record total of €1.8 billion in public funds. But scepticism remains as to whether EU funds will inject competition into the high-speed Internet market.
Though the flow of state aid into rolling out ultra-fast fibre networks is unprecedentedly high, some local authorities are reluctant to throw their money at incumbent firms for fear they could price competitors out of the market.
Projects in remote parts of the UK are a case in point. With the European Commission's blessing, the Shetland Islands Council is putting up £1.1 million (€1.3 million) in funding to line the region with fibre-optic cables.
The local council has had fraught talks with the local incumbent British Telecom to take over the project.
"BT wanted the money to install the cables, own the fibre and then sell us services on cables we had already paid for," a project manager from the council, Marvin Smith, said.
Smith said customers in the Shetlands already pay "obscenely high prices" because their nearest charging point is 180km away in Aberdeen.
BT has not been excluded from the running but the council would prefer to give its funding to a non-incumbent firm with more competitive prices.
BT already managed to clinch £53.5 million (€63.2 million) in EU state funding in May 2010 to roll out fibre in the largely rural area of Cornwall in the UK.
In a brochure on the project, the company claims, however, that it will offer "solutions that are open to all providers and that will encourage innovation in services, competitive pricing and customer choice".
Bidding for broadband
Experts on the broadband market lament that local projects are captured by dominant players because they posses the firepower to attract lucrative government bids. But at other times, there are simply no viable alternative operators.
"Incumbents hold much of the vital infrastructure such as ducts and poles that are needed to make a credible bid to serve rural communities," argues Ilsa Godlovitch from the European Competitive Telecoms Association (ECTA), a trade group representing new entrants on the market.
Incumbents counter that they are playing by the rules because they are part of an open and competitive tender.
"Whichever operator has been awarded, according to state aid guidelines, networks have to be open to competition and offer wholesale access," argues Thierry Dieu from the European Telecoms and Network Operators' association, ETNO.
"State aid is playing a role where private investment is not possible," Dieu added.
"Public authorities and regulators need to make a real effort to ensure they can receive competitive tenders. Otherwise taxpayers could end up being ripped off by a monopoly provider that knows it holds all the cards," ECTA's Godlovitch warned.
The European Commission claims that broadband networks are built in areas that did not previously have the Internet and that the new networks are open to other providers than incumbents.
However, figures last year indicate that incumbents' market share has been on the up.
"Many countries show high and stable or even increasing market shares for the incumbent," concludes a study conducted by Analysys Mason, a consultancy.
An official at the Commission said they did not know which companies had benefitted from broadband state aid.
The issue of broadband competition is set to dominate the agenda of EU Digital Agenda Commissioner Neelie Kroes, who is currently putting together a highly contentious recommendation on telecoms pricing methodologies.
In May 2009, the European Commission launched a public consultation on draft guidelines to determine when governments can grant public funds for rolling out high-speed broadband networks.
In September that year, the Commission adopted new state aid rules for broadband "to foster investment in this strategic sector without creating undue distortions of competition".
In 2010, the Commission adopted a record number of 20 decisions covering aid for broadband development in, among others, Catalonia, Finland and Bavaria, authorising the use of over €1.8 billion of public funds for broadband development (the complete list can be found here).
The state aid guidelines follow a colour-coded map of areas that should be awarded funds. Areas with no broadband infrastructure are considered white and are more likely to receive aid, while black areas, with at least two or more broadband network providers, and grey areas, with just one, may find it harder to pass a state aid market test.