Kabel Deutschland Vertrieb und Service GmbH Betastr. 6-8 85774 Unterföhring European Commission Directorate-General for Competition State Aid Registry, Unit C 4 1049 Brussels, Belgium E-Mail: comp-broadband-guidelines@ec.europa.eu Kontakt: Christopher Hasenkamp, LL.M. Telefon: 089/96010-181 Fax: 089/96010-870 E-Mail: christopher.hasenkamp1@kabeldeutschland.de Datum: 3. September 2012 Public Consultation (HT. 3095) Revision of the Guidelines on public funding to broadband networks Dear Sir or Madam, We thank the Commission for the opportunity to comment on the draft of the revised EU Guidelines for the application of state aid rules in relation to the rapid deployment of broadband networks ( the Guidelines ). Kabel Deutschland is Germany s largest cable operator and offers its customers inter alia digital, high definition (HD) and analog TV, Pay TV and DVR offerings, Video on Demand, as well as broadband Internet (currently up to 100 Mbps and more in the future) and fixed-line Phone services via cable. The publicly listed company (MDAX, MSCI Europe, Stoxx 600 Europe) operates cable networks in 13 German federal states and supplies its services to approximately 8.5 million households. Kabel Deutschland Vertrieb und Service GmbH Hausanschrift Betastr. 6-8, 85774 Unterföhring Bankverbindung Deutsche Bank, Bankleitzahl 380 700 59, Kontonummer 044 577 500 Handelsregister Amtsgericht München, HRB 145 837, Sitz der Gesellschaft Unterföhring, Steuernummer 143/153/10114, USt.-IdNr. DE813702351 Geschäftsführer Dr. Adrian v. Hammerstein, Dr. Manuel Cubero del Castillo-Olivares, Erik Adams, Dr. Andreas Siemen
1. General Remarks Kabel Deutschland shares the European Commission s view that in order to ensure access to high-speed Internet all across Europe in the context of the Digital Agenda for Europe (DAE) targets, public funding is necessary. High-speed Internet access is becoming increasingly important for every aspect of life and for the future competitiveness of Europe and its citizens. European Cable operators like Kabel Deutschland already promote the implementation of the DAE targets extensively and will continue to play an important role in the on-going development of upgrading existing infrastructure. However, in some cases the rollout of broadband infrastructures or the upgrade of existing infrastructures is economically feasible with state intervention only, due to profitability gaps preventing broadband projects to be funded entirely by private investment. Kabel Deutschland therefore welcomes the Commission s intention to modernize the Guidelines and to adapt them to the objectives of the DAE. However, the funding of broadband infrastructures requires a coherent approach that follows the principle of technology neutrality and thus neither crowds out existing private investment nor de facto favors one specific technology. Therefore, Kabel Deutschland would like to draw the attention of the Commission to the following aspects which in particular give rise to concern. 2. Differentiation between interim and future-proof NGA networks Paragraph 54 of the draft Guidelines introduces a differentiation between interim and futureproof NGA networks. The latter are understood to have at least also the following characteristics: (i) provide enhanced connectivity (ii) provide the possibility of symmetric speeds and (iii) represent a sustainable and non-temporary technological advancement by extending fibre until the customer premises (iv) supports infrastructure-based competition. Kabel Deutschland sharply rejects this differentiation between interim and future-proof NGA networks: The wording chosen in the Guidelines would favor one technology i.e. FTTP/FTTH by requiring the extension of fibre until the customer premises. Likewise, the Blatt 2 von 7
required possibility for symmetric up- and download speeds implies that only FTTP/FTTH would be considered to be future-proof NGA networks. For good reasons, the differentiation between interim and future-proof NGA networks has not been made before. The Digital Agenda only uses the term NGA networks. The Commission s NGA recommendation (point 11) defines NGA networks as follows: Next generation access (NGA) networks means wired access networks which consist wholly or in part of optical elements and which are capable of delivering broadband access services with enhanced characteristics (such as higher throughput) as compared to those provided over already existing copper networks. In most cases NGAs are the result of an upgrade of an already existing copper or co-axial access network. This definition is explicitly referred to in paragraph 53 of the draft Guidelines, and does, in Kabel Deutschland s view, not require any alterations or differentiations. As the European Commission is neither able to forecast the changes on the demand side nor the technological developments on the supply side, the Guidelines should not differentiate between the NGA technologies employed and not favor FTTP/FTTH over other technologies. Such an approach would not only violate the principle of technological neutrality. It would also ignore technological and economic facts: Already today symmetry is becoming less important as download and upload bandwidths increase. As studies show, neither actual nor expected consumer demand justifies the requirement of symmetric up- and download speeds. Moreover, cable is well prepared to cope with evolving consumer needs and therefore should not be placed at a disadvantage by the introduction of new differentiating categories for NGA networks. Modern Hybrid Fibre Coax (HFC) networks already consist to 98% of fibre, only the last 2% (on average the last 300 meters) consist of coaxial cables. Even with the hardware in use today, DOCSIS 3.0 technology can offer speeds up to 400 Mbps. And even the demand for highest speeds can be met with cable, as a recent speed test by Kabel Deutschland has shown which reached 4.7 Gbps (that is 4,700 Mbps) in download speed using DOCSIS 3.0 technology. As the demand for higher down- and upload speeds evolves, cable operators can gradually upgrade their networks by relying on different strategies such as reallocating the cable spectrum, implementing efficiency improvements for broadcast services and pulling fibre closer to the home. Blatt 3 von 7
A general definition of future-proof NGA networks as the Commission intends to introduce in the Guidelines would neglect these realities. Therefore, the European Commission should not only refrain from using the term symmetric speeds when referring to NGA networks. The Guidelines should also not differentiate between technologies employed as long as they can contribute towards reaching the DAE targets. 3. Aid to ultra-fast broadband networks in areas with existing or planned NGA networks Likewise, Kabel Deutschland recommends abandoning section 3.3.3. of the draft Guidelines. Kabel Deutschland is especially concerned with paragraph 77 which states: In light of the Digital Agenda objectives, in particular achieving 50 % penetration to internet connection above 100 Mbps, public intervention would still be possible in areas where existing or planned NGA networks do not reach the end user premises with fibre networks. This provision suggests that only fibre networks with fibre until the customer premises (FTTP/FTTH) are able to implement the DAE targets, namely speeds of 100 Mbps and higher. As outlined above, this assumption is simply wrong from a technical point of view. Moreover, the provision (in combination with the all too vague conditions set out in paragraph 78) bears a high risk of crowding out private investments in NGA technologies that are capable of delivering speeds as required by the DAE targets. Any aid granted under the conditions of section 3.3.3. of the draft Guidelines could cause a significant distortion of competition. Moreover, this provision would also send a fatal message to market players, making it very likely for them to refrain from investing in NGA infrastructure. The possibility for funding of so-called ultra-fast broadband networks in areas where NGA networks are planned or already exist should thus be abandoned. Blatt 4 von 7
4. Conditions for funding of (NGA) broadband infrastructures Kabel Deutschland would like to reiterate that it is of crucial importance to design the Guidelines in a technologically neutral manner. This applies, in particular, to the preconditions for the funding of NGA networks. Thus, the Commission should refrain from prescribing a compulsory obligation for the funded NGA network infrastructure to offer a universal set of open access models and a specific design and topology, as the draft Guidelines provide for. Paragraph 76 of the draft contains inter alia the following conditions to be fulfilled for state aid for NGA network deployment: Funding limited to passive and neutral infrastructure; possibility of effective and full unbundling (point-to-point topology); open topology network architecture supporting different topologies. Such a comprehensive, single approach will not fit all technologies employed in NGA networks and therefore be in breach of the principle of technology neutrality. Depending on the network technology, the technical and economic efforts to provide specific types of open access may vary significantly. Kabel Deutschland does not argue the importance and necessity of granting open access where public funds are used to build broadband networks. Therefore, we welcome that according to the draft Guidelines third party operators shall have access to passive and not only active infrastructure. However, Kabel Deutschland expects the conditions for funding laid down in the draft Guidelines most likely to become prohibitive, i.e. they will per se exclude some NGA technologies, including cable. Rather, eligibility for funding should not be ruled out as long as the network technology employed does offer possibilities of open access and hence the provision of services at retail level by competing operators. In addition, in the individual case the funding of e.g. the buildup of a parallel open network infrastructure should be possible as an option to meet the open-access requirement. Moreover, the limitation of funding to passive and neutral network infrastructure would imply the need for additional investment in active components. Since in some cases the network deployment is already not economically feasible without state aid, Kabel Deutschland doubts that funding measures on the condition to be restricted to passive and neutral network infrastructure will in practice have much of an effect. The same applies to the condition of Blatt 5 von 7
subsidized networks to allow for effective and full unbundling. Completely or widely unbundled access products regularly require investments by the access-seeking competitor in the possibly extensive necessary expansion of its network. Therefore, there would typically be very little or no demand for access products based on such an access obligation, as the deployment of the subsidized network is already economically feasible with state aid only. The access obligation would in those cases only increase the cost for the deployment and lead to an inefficient use of public funds. Besides, an open topology network architecture supporting a point-to-point topology could in view of Kabel Deutschland only be realized by means of a multiple-fibre network. This condition would thereby again not only favor FTTH and de facto exclude other network technologies; it would also extensively increase the investment and worsen the business case of the network deployment, especially in rural areas. Therefore, the revised Guidelines should follow the principle of technology neutrality and leave room for economic and technical considerations with regard to access models and network topology. Competitive services to end-users by competing operators do not require the funded NGA networks to fulfill a compulsory set of access models or network topology. In the end, the Digital Agenda targets are reached best if the guidelines follow a technology neutral approach. 5. No preemption of the draft Guidelines Kabel Deutschland would also like to stress its rejection of the recent Commission practice to already apply the provisions of the draft of the revised Guidelines when assessing the compatibility of aid measures notified to the Commission lately. The revised Guidelines are currently just subject to public consultation and may, therefore, not constitute the basis for ongoing evaluation processes. Blatt 6 von 7
6. Concluding remarks In summary, the draft Guidelines as they stand would in view of Kabel Deutschland be in breach of the principle of technology neutrality and most importantly favor FTTH/FTTP (and former incumbents) while excluding other NGA technologies, including cable. We therefore ask the Commission to take into consideration the concerns expressed above and to change the revised Guidelines accordingly. The Commission s technological strategy should not be confined to one or several stipulated features that a funded network has to support. Also, the Guidelines should not set disincentives for private investments in NGA networks. As the Commission s objective is to adapt the Guidelines to the DAE, they should consider all NGA technologies capable of contributing to the EU s broadband coverage targets more thoroughly, especially cable. In many cases, to rely on NGA cable networks will be the most efficient way to use public funds in order to reach a comprehensive high-speed broadband coverage. Therefore, the Guidelines should not de facto exclude funding for cable networks which are already today proving to be future-proof. Sincerely yours, Christopher Hasenkamp, LL.M. Manager Telecommunications Regulation Blatt 7 von 7