1. 1 European sector regulation and investment incentives for NGA to meet objectives for Digital Agenda Harald Gruber Project Directorate, European Investment Bank AGCOM Seminar Rome 26 May 2011

2. Outline Europe’s position in broadband deployment Sector regulation Investment incentives Investment requirments Financing challenges for NGA investment Conclusions

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4. 4 Fixed line broadband regulation Bottleneck in local loop access Regulatory remedy: open access at cost based prices Asymmetric access regulation of DSL (unbundling) vs. cable modem Did ladder of investment concept (short term service competition, long term platform competition) work?

5. 5 Ladder of investment theory Short term goal of service based competition –Resale –Bitstream Long term goal of facility based competition –Shared access –Full local loop unbundling

6. 6 EU is moving away from platform competition Shares of broadband access technologies in EU-25 2004200520062007 DSL77.8%80.4%81.8%81.5% Cable20.0%17.3%15.9%15.6% FTTH1.2%1.1%1.0%1.2% Satellite0.5%0.3%0.2%0.1% WLL0.1%0.5%0.7%1.1% Other0.3%0.5%0.4%0.5% Total100.0% Source: European Commission

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8. Outcomes in the market place Stronger emphasis on single platform for high speed broadband Slow development of competing platforms (except some countries with DOCSIS3 upgrades Research under way shows that unbundling leads to increased broadband penetration, but effects dissipates after 4 years 8

9. Europe 2020 - Digital Agenda I.Broadband Infrastructure Development II. Application and Diffusion of ICT Across Sectors (Digital Single Market, Digital Inclusion, eGovernment) III. ICT R&D and ICT Applications for Low Carbon Economy * EIB Classification Digital Agenda Broadband Targets Broadband Category* Access Speed*Enabling Technologies* Target I: Basic Broadband for all by 2013 Basic Broadband150 kbps – 30 MbpsCopper (ADSL2, VDSL1, SDSLS), Cable (EuroDOCSIS 1.1/2), Mobile (EDGE, 3G, HSPA), Wireless (WiMax), Satellite Target II: High or very high speed access to all by 2020 (30 Mbps or above) High Speed30 Mbps – 50 MbpsCopper (VDSL2), Mobile (HSPA+, LTE) Very High Speed50 Mbps – 100 MbpsFTTH (GPON, PtP), Mobile (LTE advanced) Target III: 50% or more of EU households subscribe to Internet access above 100 Mbps by 2020 Ultra High Speed100 Mbps – 1 GbpsFTTH (NGA1, NGA2, PtP), Cable (EuroDOCSIS 3)

10. 10 Digital Agenda interpretations 1.It restated the objective to bring Broadband access for all Europeans by 2013 2.Seeks to ensure that all Europeans have access to much higher internet speeds of above 30 Mbps by 2020 3.Seeks to ensure that 50% or more of European households subscribe to internet connections above 100 Mbps by 2020. DIGITAL AGENDA BROADBAND TARGETS ISSUES OPEN FOR INTERPRETATION What is the definition of Broadband in target 1? Do the access speeds refer to upload, download, both? Are speeds guaranteed speeds, advertised, theoretical speeds? Meaning of “Have access to”: regulation in place, access at the workplace, village, building passed, home passed, etc? For target 3: Pan European average or 27x national average? The way the Digital Agenda targets are interpreted influences the scale and the type of available technologies to be deployed.

11. 11 Different interpretations lead to different scenarios for the Digital Agenda targets Four scenarios, with different interpretations of each target: Minimum: Theoretical speed, with internet centres in rural areas (ADSL2, Internet Centres, VDSL2, EuroDOCSIS 3.0, FTTB) Base: Theoretical speed, coverage to the household (HSPA, VDSL2, EuroDOCSIS 3.0, FTTB, FTTH) Advanced: Actual Speed, coverage to the household (ADSL2, LTE, VDSL2, EuroDOCSIS 3.0, FTTB, FTTH) Maximum: Actual symmetric speed, coverage to the household (G.SHDSL2 and Fiber) Every target in each scenario for each area leads to a range of technological solutions. Countries were further split into urban, suburban and rural areas, as the population density is the key determinant of technology deployment cost

12. 12 Capex for DA 2020 scenarios

13. 13 EIB Existing Instruments Projects must be: Technically sound Financially viable In compliance with regulation Show acceptable economic return Addressable Market Segments Black Areas Estimated total investments EUR in excess of 200bn until 2020 Black areas EUR 80-90bn** Grey + White Certain Grey Areas White & Certain Grey Areas Government funding plus “New risk-sharing instruments” or modified existing ones will be needed Source: EIB estimates

14. Investment requirements in excess of EUR 200 bn The heaviest investment need accumulates from the achievement of 30 Mbps for all, representing over 75% of the total cost in each scenarios. If considering cable infrastructure upgrades, a 25-35% decrease to the total need could be achieved Though economically justified, substantial part of total capex has questionable financial profitability, especially in non-urban areas Problem that there is no particularly compelling business case, except when there is competition between platforms (DSL vs. Cable) Scope for public sector in generating critical demand (e.g. e-government, e-health) and new instruments for procurement (pre-commercial procurement) Role of financial instruments, in particular widening of RSFF, but also PPP and equity instruments Financial considerations for Digital Agenda

15. 15 Regulatory challenges for NGA Encourage more investment When single network, open access. What to do with legacy copper network? How to regulate? Sunset for copper network? Utility regulation for NGA? Regulatory support for raise funding and/or optimise use of subsidies Role of regulation in credit enhancement

16. 16 Conclusion Regulation has been effective in increasing competition, but also increased role of single platform Regulation has strong effects on investment behaviour Stimulation of facility based competition appears expensive (duplication) Utility type regulation for NGA with subsidies to meet policy targets for roll-out could be one option, but are there more market based ones?

17. Backup slides 17

18. 18 Following sharp decline in broadband infrastructure financing after the dotcom bubble, EIB has been steadily expanding its lending with signatures for 2009 of EUR 2.3bn In 2009, loan approvals in the ICT sector reached EUR 3.9bn Approximately 40% of these were for ICT Research, Development and Innovation More than 50% of the approvals were for broadband projects including land, mobile and satellite Nearly 2/3 of the approved broadband projects were fixed solutions For an updated list of projects visit: http://www.eib.org/projects/loans/sectors/telecommunications.htm European Investment Bank Broadband Financing: direct loans to broadband infrastructure 2000 – 2010

19. 19 ZON Multimedia (Portugal) EUR 100m Project:EUR 307m (i.a. FTTH) 09-2009 ZON Multimedia (Portugal) EUR 100m Project:EUR 307m (i.a. FTTH) 09-2009 Reggefiber Group B.V. (The Netherlands) EUR 130m RSFF Project: EUR 290m (FTTH) 10-2010 Reggefiber Group B.V. (The Netherlands) EUR 130m RSFF Project: EUR 290m (FTTH) 10-2010 Fastweb S.p.A. (Italy) EUR 350m Project: EUR 850m (ADSL & FTTH) 02-2009 Fastweb S.p.A. (Italy) EUR 350m Project: EUR 850m (ADSL & FTTH) 02-2009 Iliad SA (France) EUR 150m Project: EUR 800m (FTTH & xDSL) 07-2009 Iliad SA (France) EUR 150m Project: EUR 800m (FTTH & xDSL) 07-2009 Portugal Telecom (Portugal) EUR 200m Project: EUR 750m (FTTH) 07-2009 Portugal Telecom (Portugal) EUR 200m Project: EUR 750m (FTTH) 07-2009 SONAECOM (Portugal) EUR 75m Project: EUR 152m (FTTH) 02-2010 SONAECOM (Portugal) EUR 75m Project: EUR 152m (FTTH) 02-2010 M-Net Breitband Munchen (Germany) EUR100m Project: EUR 205m (FTTH) 12-2009 M-Net Breitband Munchen (Germany) EUR100m Project: EUR 205m (FTTH) 12-2009 Türk Telekom (Turkey) EUR 250m RSFF Project: EUR 661m (FTTC & FTTB) 04-2010 Türk Telekom (Turkey) EUR 250m RSFF Project: EUR 661m (FTTC & FTTB) 04-2010 For an updated list of projects visit: http://www.eib.org/projects/loans/sectors/telecommunications.htm European Investment Bank Broadband Financing: FTTx examples (2009 – 2010)