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October 17, 2011

European Commission Seeks $13 Billion in Broadband and Related Investments
By Gary Kim
Contributing Editor

The European Commission will propose investing €9.2 billion ($12.8 billion) in faster broadband infrastructure and services across the European Union.

But keep in mind that the EU itself estimates the cost to do so across the EU at about €270 billion ($375 billion). McKinsey, the consulting firm, has estimated it could cost €300 billion ($421 billion) across the EU.

The proposed spending, even if the cost of rural infrastructure were identical to urban infrastructure, would affect no more than two percent to three percent of the region.

The plan is “partly” aimed at stimulating further investment in rural broadband, which would then put pressure on service providers to match those speeds in urban areas. In some ways, the effort can be compared to the “broadband stimulus” funding in the U.S. market, possibly similar in some ways to the GigU initiative. GigU will attempt to build 1-Gbps networks around universities, and then hopefully stimulate new applications that can create consumer demand and revenue for new applications.

In the “chicken and egg” debate about which has to come first, the access or the applications, GigU is betting on the access. The EU broadband initiative is more a “pump priming” exercise or a “demonstration project” than anything else. That isn’t to diminish its possible importance. But it is not enough money to do anything significant.

Possibly more important are new proposed rules that would provide revenue incentives for major tier-one telcos to build new fiber-to-home networks by further extending wholesale discounts for competitors buying capacity on copper access networks.

Under plans put forward by EU telecoms commissioner Neelie Kroes, tier-one operators would be able to charge unregulated rates for access on all new optical access infrastructure, while facing diminishing revenue from wholesale services sold over copper access plant. New wholesale rules

The EU Commission wants broadband connections of 30 megabits a second to be available to all 500 million EU residents by 2020. However, many major operators have been reluctant to shoulder the risk and cost of building such a huge network without a guaranteed return on investment. Telco execs asked for less regulation

Telecom operators would prefer the freedom to build up scale with cross-border deals and provide differentiated pricing for both business partners and end users. Basically, the idea is to create quality-based access features, with higher quality for latency-sensitive voice, video and gaming, for example.

The proposed broadband spending would occur between 2014 and 2020.

The hope is that giving infrastructure projects credibility in this way would encourage the private sector, as well as local and national governments, to invest at least a further €50 billion more.

But some of the EU money would be spent on e-health, cybersecurity and intelligent energy networks, rather than faster access infrastructure.

The money would come from a new fund called the Connecting Europe Facility (CEF), which also would fund transport and energy projects, with the Commission and the European Investment Bank absorbing risk and boosting the projects' credit ratings.

Part of the plan is for the CEF to pressure established telecommunications companies into investing more in their own networks.  New EU Broadband Push?

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves


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