State aid policy in the broadband sector: public announcements, investments and crowding out

Next Generation Networks (NGNs) in telecommunications and banking have been the two main battlefields that have concretely challenged and tested the State Aid Modernization exercise undertaken by the European Commission in the past few years. In this paper, we address the first of the two areas, concentrating on the interaction between announced public intervention, effective State Aid engagement, and private investment on the deployment of NGNs in member states. Mostly driven by a firm belief in the growth-enhancing effects of broadband technologies, due to their perceived important economic externalities, in Europe, public interest in a rapid NGNs’ deployment has been channelled in the indication of high digital targets in terms of ultra-fast broadband coverage and adoption by the Digital Agenda for Europe (DAE) 2020, and further strengthened in the even more ambitious Connectivity Package. Very high digital targets and consequent State intervention, backed by the commitment of a significant amount of public resources, unless rigorously limited in the application to areas of market failure, clearly challenge State Aid rules and carry a concrete risk of distorting or fully crowding out private investments. This risk is magnified when targets – an industrial policy instrument – are somehow “recognized”, through ad hoc guidelines, by the very competition policy tool that is meant to avoid distortionary effects – State Aid legislation. In this case the standard antidotes to distortionary public investment provided by the EU competition framework do not operate as effectively as normal. Moreover, European digital targets in the sector have the nature of soft law instruments, being voluntary and non-binding. Therefore, in the frequent instances when they do not find the support of significant amounts of public investment by member States, beside being unrealistic, they appear even more damaging. Indeed, investment by private operators is unlikely to be enhanced by far-reaching public targets per se, as they do not change the cost-benefit evaluation of investment and/or of alternative technological solutions. All to the contrary, private operators’ expectation that actual public investments might, at some later point in time, effectively back up public targets may actually decrease, or at least delay private investment, turning private operators’ choices in a waiting game. Given the current overall EU legal framework, whereby investment in telecommunications infrastructures should take place essentially through private capital, the higher the public targets, the lower the probability that these ambitious targets will be met. More specifically, the apparently innocuous choice to translate political desiderata into explicit targets in terms of coverage and adoption of broadband technologies, so as to pursue the efficiency, equity, industrial policy and integration objectives specified in the Digital Agenda for Europe, may jeopardize these very same objectives while weakening the coherence of competition policy in the EU and particularly of State Aid policy.