State Aid and Next Generation Broadband

By Rob Bratby, Partner at Olswang LLP

Note:  This information is provided by way of background information and is not legal advice.

What constitutes State Aid?

Any support granted to networks rolling out broadband by the state (including subsidies and tax rebates) can constitute state aid. If that state aid distorts competition or trade between member states it will be prohibited on the basis that it is not compatible with the EU internal market.[1]

Other non-economic measures won't constitute state aid provided they are available to all utility operators or do not involve any expenditure of state funds.[2] This includes measures to improve network infrastructure such as public-built ducts, new building regulations requiring fibre connections and OFCOM requirements for infrastructure sharing between network providers.

How do the State Aid rules apply to Next Generation Broadband Networks?

State aid is permitted in certain circumstances: the most relevant for these purposes being when the state aid is provided in relation to a service of general economic interest ("SGEI").[3] To fall within this category next generation broadband projects must meet certain criteria. Those criteria are:

·         The project must have a clearly defined public service mission, i.e. to rollout next generation broadband in non-profitable areas.

·         The aid itself must be objectively and transparently allocated through a non-discriminatory public tender and should only cover costs incurred plus a reasonable profit. If allocation is made outside of a public tender, compensation for costs will only cover those a typical, well-run organisation would have incurred.[4]

·         The network must provide universal connectivity to all local users and be technologically neutral to allow for all possible forms of network access and for effective competition at the retail level.

As a general rule, even if a scheme does not satisfy these strict criteria in their entirety, it may be approved on the basis that the positive effects of the aid outweigh the negative effects of competition distortion. Moreover, aid must be the most proportionate and least distortive policy instrument to achieve rapid rollout of superfast broadband. This will not be the case in areas where broadband investment is likely to occur within the same timeframe without aid.

The local existing level of infrastructure will be a good indication of compatibility. 'White' areas where there is no pre-existing or planned basic broadband infrastructure will qualify for aid. 'Grey' areas which have one NGA network already in place (or being deployed in the next three years) will only qualify for aid where the current service is insufficient for local businesses and consumers. 'Black' areas with more than one NGA network already in place will not qualify for state aid. Where there are many basic broadband networks in place operators should have the incentive to upgrade to NGA without aid.

If aid is granted, network providers must also follow OFCOM's access conditions. The networks should satisfy all different types of network access sought by third party operators and support effective and full unbundling.[5] Third parties must also have wholesale access (including rights to use ducts, cabinets and other passive and active infrastructure) for at least seven years following state support.

What is the procedure for notification of State Aid?

Unless a scheme falls outside the state aid regime entirely because it satisfies the strict Altmark criteria set out above, the EU Commission must authorise all plans to grant new aid before they are put into effect.[6] A standard notification of state aid might take 6-9 months to be approved. Notifications that present new issues, are contentious, or which do not fall under existing rules may take longer. Below are some examples of decisions where State Aid for broadband networks has been deemed compatible.

The Government has made proposals for a national framework notification procedure. If adopted, future uses of state funds to stimulate next generation broadband will be pre-approved under an umbrella scheme. In decentralising the funding process local bodies and network providers will have much more flexibility. Pending approval of this umbrella scheme, a state aid template notification is being developed to simplify and ease the procedural requirements of notification.[7]

 

North Yorkshire

http://ec.europa.eu/eu_law/state_aids/comp-2009/n559-09.pdf

Cornwall and the Isles of Scilly

http://ec.europa.eu/eu_law/state_aids/comp-2009/n461-09.pdf

Northern Ireland

http://ec.europa.eu/eu_law/state_aids/comp-2009/n418-09.pdf

Cumbria

http://ec.europa.eu/eu_law/state_aids/comp-2003/n282-03.pdf

 

This information was last updated in May 2011.