Commission warns against slow take up of ultra-fast Internet

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The European Commission renewed its warning against the “moderate” migration from copper to fibre in telecoms networks, as markets expect EU long-awaited guidelines on how to foster investment in so-called Next Generation Access to ultra-fast Internet. 

“In general, migration to NGA is taking place at a moderate pace,” reads a Commission working document circulated among experts last week.

Brussels underlines that most main telecoms operators are simply upgrading their copper networks, if they are doing any investment at all, to increase Internet speed across Europe. “Only a minority have sizeable fibre investments at this stage or plan a complete copper switch-off,” adds the document.

This is in stark contradiction with EU’s 2020 targets to have 100% coverage for high-speed connections (30 Megabytes per second) and at least 50% penetration of super-fast internet, which goes at a minimum speed of 100 Mbps.

Indeed, currently only 6.5% of broadband connections work on 30 Mbps speed, and just 0.9% of them rely on 100 Mbps.

Fibre is considered the technology capable to narrow this gap and provide Europe with a state-of-the-art infrastructure for future decades, but not many operators and public authorities seem to be willing to make an effort in this direction. Only 2% of internet connections in Europe are currently based on fibre.

Public funding vs creative financing

Brussels estimates that relying on the upgrading of existing copper networks to achieve the 30 Mbps coverage for all by 2020 would cost between €38 billion and €58 billion.

The more ambitious and long-lasting solution, which implies deploying fibre to at least half of the EU population, has instead a cost “between €181 billion and €268 billion,” according to the Commission’s estimates.

It is unlikely that this money can come from public authorities. “At a time of public spending austerity, a near-term structural overhaul of positions on public broadband funding is not in sight,” acknowledges the Commission in its working document.

A few original solutions are suggested in the EU executive report. For instance, their are proposals to use project bonds, credit enhancements or other innovative financial instruments. “These instruments improve the risk-return trade-off of private investors associated with a given NGA investment, making projects commercially more attractive,” Brussels reckons.

The proposed EU long-term budget includes such measures, although the backing of member states on the overall figures available for EU spending is still subject to protracted negotiations.

Another alternative source of financing could involve the final users in areas where the building of networks cannot be justified by commercial reasons. This happens for example in wealthy but low-densely populated Finland, where end-users pay to build the last-mile to connect backbone NGA networks to their homes.

They obtain in exchange important tax deductions. Though this model seem to have been attracting some interest, it is unlikely to be extended to other member states.

The urge of private investment

Large operators such as Deutsche Telekom in Germany or Telefónica in Spain are widely considered to be those who should carry the heaviest financial burden in the transition from copper to fibre.

The most radical views see this move as an obligation. It is indeed regarded as a compensation for companies, which have inherited existing networks built with public money and they should be urged to build new networks with their money, goes the radical argument.

More moderate opinions suggest that incumbents should do these investments on pure commercial grounds. Fibre is indeed a new market with an enormous potential, especially for those who will enter it first and soundly.

But telecoms operators are dragging their feet in deploying fibre networks as they fear losing customers in the transition from copper. They have called on regulators to allow charging higher prices for granting competitors’ access to their networks, saying higher margins will facilitate investment in fibre.

The Commission is however expected to take the opposite view. The EU commissioner in charge of telecoms, Neelie Kroes, made no secret in the past months that she is considering an approach based on incentives for those who invest and penalties for those who don't invest in NGA.

An EU recommendation on access pricing is expected in the coming weeks, spelling out the methodology to calculate access pricing, and likely including measures to bring down prices to access telecoms networks where no investment is made. Companies are expected to react furiously at such a proposal.

A technical study should back the Commission’s line, making it less vulnerable to critics.

Hard lobbying is however going on these days and the final outcome is far from certain. Kroes has a reputation for often changing her mind. The recent departure of an influential member of her cabinet, who has been a strong supporter of a tough line to spur NGA investment, may be a signal that the commissioner is considering backtracking.

EU Commissioner for the Digital Agenda Neelie Kroes said in a speech delivered to European telecoms companies: “I have the impression that, as it stands, it would indeed be difficult to build new fibre networks competing with cheap parallel copper networks,” although she made overtures to incentives for investment in fibre.

Responding to the public consultation on access pricing launched by the Commission in October, the body of European telecoms regulators, BEREC, clarified: “that any recommendation on wholesale access costing methodologies should focus on the promotion of competition, safeguard the interests of consumers of existing (as well as future) services, encourage efficient investment by providing regulatory predictability to all market players and seeking to maintain a level-playing field between incumbents and entrants (including those using competing platforms).”

The organisation of European telecoms incumbents ETNO “is concerned with the ‘incentive’ mechanism linked to the copper access price,” reads a public note.

“It appears to rely on a threat to lower revenues on the copper network, except in those areas where the regulated operator commits to invest in very high-speed broadband. Such mechanism would lead to highly unwelcome results. It would undermine investment incentives both for the regulated operator and for alternative infrastructure providers,” it concludes.

Tele2, one of the biggest alternative fixed operators in Europe, commented: “The higher the price for copper, the less incentive to offer fibre based services.”

Fast internet, or broadband, is available to almost all EU citizens although it is used only by a quarter of them.

Super high-speed broadband, on the other hand is still marginal, accounting for only 2% of total connections. In this field, Europe lags behind international leaders, notably the USA, Japan and South Korea.

Fibre is at the core of the so-called ‘Next Generation Access’ (NGA), the super-fast internet network on which new services – and growth – are expected to rely.

Optical fibre backbones allow for faster and wider transmission of data than copper-based or cable networks. In its 'Europe 2020' strategy, the European Union set ambitious targets to boost the use of the internet within the bloc.

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