The European Commission’s Competition Directorate has opened a formal investigation, to assess whether public funding for a new fibre-to-the-home (FttH) network in the municipality of Appingedam, located in The Netherlands, complies with EC Treaty State Aid rules.

This is the first time that the European Commission is opening (’has had to open’ - as it is expressed in the terminology of the European Commisssion’s press release) a formal inquiry into State Aid for the development of broadband telecommunications networks.

The (presumed) specificity of the Appingedam case is that publicly funded fibre access infrastructure is being rolled-out in direct competition with pre-existing multiple commercially available broadband access infrastructures (cable, xDSL, 3G), whereas previous cases examined by the European Commission (since the time that the Commission took an interest in this field, and made clear that notifications were expected from Member States - Sweden has been a precursor in this field for many years) concerned State Aid for the development of broadband infrastructure in underserved remote areas.

Commissioner for Competition Policy Neelie Kroes commented in a press release as follows:

�Public support for broadband communications can bring benefits to citizens and businesses and improve economic competitiveness. The Commission has already approved several such schemes. However, on the basis of the information currently available, I am not convinced that the Appingedam project is either necessary or proportionate given the existing infrastructure for the delivery of broadband services.�

Background

The municipality of Appingedam intends to finance part of the deployment of a FttH network on its territory. Following (successful) local court action by the cable operator/electricity utility Essent at the end of 2004, the Dutch authorities notified the proposed financing to the European Commission for approval under EC Treaty state aid rules.

As the European Commission’s press release emphasises, the Commission (after having conducted a preliminary assessment) has doubts about the compatibility of the project with EU State Aid rules given that the public funding

[...] “might distort competition in the market for electronic communications and have a negative impact on existing private infrastructure investment. In view of these doubts and the implications of the case for similar projects all over Europe, the Commission has decided that an in-depth inquiry is necessary to analyse the conditions for granting state support for the roll-out of the fibre access (or fibre to the home - FttH) network in Appingedam under EC Treaty state aid rules.”

In all previous cases which were notified to the European Commission, state financing was targeted at areas where broadband was not available at all or only provided in densely populated areas by the incumbent operators, but not in rural and remote areas. The state support to these projects in the rural and remote areas was found to constitute either compatible aid under Article 87(3)(c) of the EC Treaty in the case of public funding for broadband support measures in the UK and Spain, or not to constitute State Aid in two cases in France.

For a good overview of the current interpretative practice of the European Commission, which covers the precedents outlined above, see the article entitled ‘State Aid rules and public funding of broadband’, published in DG COMP’s Competition Policy Newsletter, Spring 2005.

A notice containing details of the Appingedam case will be published in the EU�s Official Journal in about 4 to 6 weeks, and will invite interested parties to provide their comments to the European Commission.

The Appingedam State Aid inquiry undoubtedly constitutes, even before its final conclusion, a major precedent to be taken into account by much larger projects in The Netherlands such as CityNet Amsterdam, projects of the Dutch G4 (also involving Rotterdam, The Hague and Utrecht), and similar projects in other major cities and areas in other EU Member States.

Needless to say, the European Commission’s announcement, and the notice, will be without prejudice to the final decision about the compatibility of funding with Article 87 of the EC Treaty.

The full text of the European Commission press release, dated 24 October 2005, concerning the Appingedam case, and which contains references to previous decisions, can be accessed by clicking here.