EU funds for the broadband investments in Lithuania · Giedrius P ūras III. Main EU legislation 1....

Giedrius Pūras

EU funds for the broadband investments in Lithuania

Giedrius P ūrasHead of Price control and Statistics division

Communications Regulatory authority of Lithuania

Giedrius P ūrasHead of Price control and Statistics division

Communications Regulatory authority of Lithuania

20 April 2011, WarsawNational Broadband Forum Conference 1 psl

Giedrius Pūras

Outline

I. Broadband (BB) market in Lithuania. General overview.– BB penetration, prevailing technologies, EU context

II. The need for intervention– Digital divide in Lithuania

III. Overview of Main EU legislation– EU policy towards BB promotion and securing the competition

IV. Current ICT Policies– RAIN – the major project to connect the rural areas (backhaul infrastructure)

– Municipalities’ projects - provision of broadband access infrastructure

– Alliance “Window to the future” – the project to increase computer literacy

V. The role of NRA in Broadband development– Symmetrical obligations

– Obligations for SMP operators


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I. Broadband market in Lithuania

20 April 2011, WarsawNational Broadband Forum Conference 3

General statistics

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I. Broadband penetration in Lithuania (2010 IVQ)

• BB penetration (fixed+mobile) is 27,1% (sbscr. per 100 residents)

• It is increasing constantly (+3,5-4% annually), despite 2009 economical downturn


Source: RRT report 2010 IVQ

2006 2007 2008 2009 2010 IQ 2010 IIQ 2010 IIIQ 2010 IVQ

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I. Fixed and Mobile BB penetration

~ +2%

~ +1,5%


FixedFixed

MobileMobile

2006 2007 2008 2009 2010 IQ 2010 IIQ 2010 IIIQ 2010 IVQ


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I. Rapidly increasing speeds

• Majority (83%) of subscriptions are > 2 Mb/s ;• No. of subscribers of >10 Mb/s increased 5,4 times during last 3 yrs

(2008-2010)


More than 2 Mbps

More than 10 Mbps

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I. Broadband providers (by No. of subscribers)

• Total – 108 ISPs (a lot of very small ISPs);

• Incumbent = 39 % BB market;• Mobile = 22 % BB market.



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I. Broadband by technologies (2010 IVQ)

~35% – FTTx subscribers~25% – xDSL broadband subscribers~22% – Mobile broadband subscribers



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I. Broadband revenues (2010 IVQ)

• Revenues from internet access and other data transmission services ~20%

• This revenue share is constantly increasing



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I. Lithuania in EU context

Fixed BB penetration in LT is below EU average ...

…but Lithuania shows more intensive infrastructure competition


Source: [European Commission]

Source: [Point Topic’s World]

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I. Lithuania – leader in FTTx

LT incumbent has only 1/3 of FTTx lines


Fibre broadband penetration in Europe (FTTH/FTTB subscribers per 100 households)


Source: FTTH Council Europe/IDATE (June 2010, Dec.2010)

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II. The need for a State aid

Why state aid is needed?

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II. The objectives of intervention – demand for more s peed

Main drivers of investments into fibre-based (NGA) broadband:– Broadband is considered the important driver of the whole economy ;

– Increasing demand for bandwidth - it is going to exceed the limits of the copper (VDSL only offers advantages of increased throughput up to several hundred meters);

– More efficient and convenient everyday life activities(e-government, e-commerce, socialising, etc.)

– Decreasing revenues from mature markets (like voice) + expected Innovations.


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II. The objectives of intervention – digital divide

Main problems:

• Cost gap - significant cost per user differences of deploying broadband networks in densely populated areas and rural areas;

• The knowledge gap (computer literacy between young and elder people);

• Income gap (rural areas = lower incomes);

Ex-ante regulation is not sufficient enough!


[Source: CSMG]

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II. Geographical segmentation (NGA example)

NRAs need to make decision on:

-Identify proper Geographical segments;

- calculate if there is a business case for infrastructure competition;

- decide on differentiated regulation (if needed).


Promote infrastructure competition

(e.g. duct, terminating segment access)

Promote efficient co-investment (no SMP), service competition

(VDSL?) .

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Rural vs. Urban internet penetration (households)

National Broadband Forum Conference 16

II. Digital divide – problems identified in Lithuania .

Source: Department of Statistics, 2010 IVQ www.stat.gov.lt

Main (typical) problems:

• Geographical gap - availability (infrastructure);

• Affordability (low income);

• Usability (knowledge).

GEO-Digital divide

Digital divide by income

Digital divide by age


III. Overview of EU legislation regarding state aid

Regulations from EU

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III. Main EU legislation

1. 19 May 2010. Digital Agenda for Europe:

Communication from the Commission (26/08/2010)

2. Article 87 (1) of the EC Treaty

3. 30 September 2009. Community Guidelines for the

application of State aid rules in relation to rapid

deployment of broadband networks (2009/C

235/04);


Main objective – to ensure the competition is not distorted by granting state aid

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III. The targets of Digital agenda

Broadband targets:

1) Basic broadband for all by 2013: basic broadband coverage for 100% of EU citizens. (Baseline: Total DSL coverage (as % of the total EU population) was at 93% in December 2008.)

2) Fast broadband by 2020: broadband coverage at 30 Mbps or more for 100% of EU citizens. (Baseline: 23% of broadband subscriptions were with at least 10 Mbps in January 2010.)

3) Ultra-fast broadband by 2020: 50% of European households should have subscriptions above 100Mbps. (No baseline)


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III. Requirements of EC Treaty

Art. 87 (ex-92) of EU TREATY: “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market”

The measures are qualified as state aid incompatible with Common market if it meets all these criteria:

1) granted out of (or through) State resources;

2) Implies an economic advantage to undertaking (-s);3) the advantage is selective and distorts or threatens to distort competition;

4) the measure affects intra-Community trade.

Such state aid measures are subject to the notification requirements of Article 88 (3) (formerly Article 93(3)) of the Treaty.


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III. EC guidelines on state aid

Main requirements for “universal service obligation” ins tead of “State aid” ( Altmark criteria) :

– The beneficiary of a State funding mechanism for a ‘Service of General Economic Interest’ (SGEI) must be formally obliged to ensure an SGEI;

– The parameters for calculating compensation must be established beforehand to avoid conferring an unfair economic advantage;

– The compensation cannot exceed the costs incurred from providing the SGEI.

– Where the beneficiary is not chosen through public procurement procedures, the level of compensation must be based on analysis ofcosts and revenues related to providing the service (non-profitable areas only).


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Characteristics of successful project:� Detailed mapping and coverage/market analysis to identify which geographic

areas will be covered by the support measure in question;

� Open tender process selecting the best economic offer

1) Minimum funds;

2) Equal treatment of candidates;

3) The market should offer the best solution;

� Technological neutrality – not to favour any technology or service provider;

� Use of existing infrastructure – to avoid duplication of resources;

� Wholesale access to enhance competition -> more choice for end-users;

� Benchmarking pricing to avoid excessive/ predatory pricing (coordination with

NRAs);

� Compensation mechanism in case of breach to avoid fraudulent practice;



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Yesterday (19th of April) EC announced the call for

revision on EC guidelines

The questionnaire to investigate the need for a change:

� the technological and market development of very high speed broadband

infrastructures,

� the best design of access conditions on subsidized next generation networks,

� enhancement of transparency of state aid broadband

� measures or the role of the NRAs in such projects




IV. Bridging the Digital Divide in Lithuania

What is being done?

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Administrations• Ministry of Transport and Communications - strategies,

legislation and execution, coordination of state aid for BB;

• Ministry of Interior – e-Government, IT security, regional policy.

• Communications Regulatory Authority – telecom industry regulation, terminal equipment inspection, management of radio spectrum, numbers and etc.

• Information Society Development Committee (under the Government) – coordinating the e-service provision (including digital signature).

Public initiatives:• InfoBalt association – ICT industry group initiative.

• Alliance “Window to the Future” – establishing Public Internet access points (PIAP), training Internet users, promoting usage of e-services.

IV. ICT regulatory and administrative institutions

20 April 2011, Warsaw


IV. Digital divide – solutions.

Bridging the Digital Divide

Problem Solution

1. Availability of broadband infrastructure in rural areas

1. State aid – Optical backhaul network (RAIN) construction (2 stages)

2. Stimulating Access infrastructure investment (Regulation, State aid)

2. Affordability (low income) 1. Introducing free Public Internet Access Points (PIAP)

2. Subsidizing PC/internet access acquisition (income tax exemption for 1 PC/3yrs.)

3. Usability (Knowledge gap)

1. Organizing PC literacy education courses

2. Ensuring content (e.gov, e.comm, etc.)

Giedrius PūrasNational Broadband Forum Conference 27 20 April 2011, Warsaw

Main objective – to offer broadband in rural areas on prices similar in urban areas

1st stage

2006-2009

Focus – connecting

remote areas to

Municipalities

22 mln. EUR

2nd stage

2009-2013

Focus – interconnecting

Municipalities,

extending network

50 mln. EUR

IV.1. RAIN project – an overview

Giedrius Pūras 20 April 2011, WarsawNational Broadband Forum Conference 28 psl

• Detailed mapping and coverage analysis (+consultation with stakeholders) – RAIN invests only in those areas where no fibre backhaul infrastructure is available and is not foreseen in the near future;

• To connect separate parts of RAIN network rented lines are used;• Open access enables competition in access part

IV.1. RAIN – the focus on backbone

perdavimas

Vartotojai

Beviel÷s prieigos linijos(2,4Ghz / 3,5Ghz / WiMAX ir kt.)

RAIN

Kabelin÷s prieigos linijos (varis, ŠKL)

Vartotojų prieigos įrenginiai

Šviesolaidinis

Internetas

RAIN statoma

Nuomojama

Prieigosmazgas

Magistralinis tinklas

Wireless access

End users

Wired access(copper, fibre, CTV cable)

Fibrebackhaul

Rentedinfrastructure

RAINinfrastructure

Core network

INTERNET

Competition

Giedrius Pūras 20 April 2011, WarsawNational Broadband Forum Conference 29

State-built infrastructure

Rented infrastructure

Operators,

infrastructure providers

Service providers…

(wired, wireless, etc.)

End users…(residents, business, schools, institutions,

etc.)

IV.1. RAIN – the scheme of service provision

• Infrastructure is owned by the state (Government);• Managed by public non-profit entity VŠĮ “Plačiajuostis internetas”:

– Public tenders for building the infrastructure;

– Public tenders for operating and maintaining the network;

– Surplus profits – reinvested.

• Infrastructure is offered only on wholesale basis for ISPs; • Non-discriminatory prices set by Ministry (allowing comparable retail prices);• OPEN ACCESS - infrastructure on technologically neutral basis


RAIN (1st stage):• Project was supported by EU* and the Republic of Lithuania ;• Duration: 36 moths (2005-2008);• What was done:

– 3357 km of optical backhaul network was built;– 509 network access points were set;– 51 separate networks created– 467 villages (75%) were connected to municipalities;– 330 schools (80%) were connected to optical infrastructure;– Overall coverage is 300.000 residents (26% of rural population)– More info: http://www.rain.lt/EN/index_1.php http://www.rain.lt/EN/index_1.php

* - European regional development fund (ERDF)

IV.1. RAIN-1: Main results.


Giedrius Pūras 20 April 2011, WarsawNational Broadband Forum Conference 31Druskininkai

Joniškis

Birštonas

Rietavas

Alytus

Raseiniai

K÷dainiai

Jonava

Kaunas

Prienai

Kaišiadorys

Skuodas

Kretinga

Vilkaviškis

Šakiai

Kazlų Rūda

Kalvarija

Pag÷giai

Pasvalys

Biržai

Rokiškis

Kupiškis

Taurag÷

Šilal÷

Jurbarkas

Mažeikiai

Telšiai

Kelm÷

Pakruojis

Radviliškis

Šiauliai

Utena

Mol÷tai

Zarasai

Ignalina

Anykščiai

Šalčininkai

Širvintos

Ukmerg÷

Trakai

Vilnius

Akmen÷

Gargždai

Šilut÷

Marijampol÷

LazdijaiVar÷na

Elektr÷nai

Švenčionys

Plung÷

Panev÷žys

RAIN šviesolaidin÷ infrastruktūra (apie 3000 km)

Nuomojama šviesolaidin÷ infrastruktūra

Į RAIN tinklą pajungtos savivaldyb÷s

Į RAIN tinklą pajungtos kaimiškosios seniūnijos

RAIN-1 network

Rented optical infrastructure (~3000km)

State-built optical infrastructure (RAIN) ~ 3350 km

Rural communities connected

Municipalities connected

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IV.1. RAIN-2: expected results.

RAIN (2nd stage) started:• To increase reach of RAIN network deeper into rural areas

(98% rural population coverage );• All (100%) schools, libraries, PIAPs connected ;• To interconnect separate parts (#51) of RAIN network;• Duration: 28 months (Dec. 2009 – March 2013)

• Value: 50 mln. EUR• 4500 km fibre (2300 already laid)


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RAIN-1 + RAIN-2network

National Broadband Forum Conference 20 April 2011, Warsaw 33


V. Potential joint project proposalsIV.1. State aid. Backhaul infrastructure (RAIN).

RAIN-2 project prospects


CategoryPopulation, thousands

Number of locations

ACCESS TO THE BROADBAND (possibility to connect)

Status 2006Planned afterRAIN-1 (2008)

Planned afterRAIN-2 (nuo 2010)

Population % Population % Population %

Urban 2.298 103 2293 99,8 % 2298 100% 2298 100%

Rural 1.148 21.826 182 16% 368 32% 1125 98%

Villages/small towns

>500 residents372 393 166 45% 301 81% 368 99%

Villages/small towns

<500 residents776 21.433 16 2% 68 9% 760 98%

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IV.1. State aid – Broadband access networks (in Lazdijai and Alytus districts)

State Aid N497 / 2007 – Lithuania. Broadband Infrastructure in Lazdijai and Alytus


InvestmentAccess network is built using EU and Municipalities’ funds:

• Public procurement• Technological neutrality• Owned by municipalities

Wholesale services

Operator selected using open tender:• Limited contract (2012/2015) • Wholesale services only• Tariffs set in procurement (85%)

Retail services Provided to residents by competing ISPs


IV.2. Digital divide – Public Internet Access Points (PIAP)

PIAP development

stages

Year Initiative Funded by Results

1 stage 2002 - 2004 Alliance “Window to the Future”

Alliance “Window to the Future”,

175 PIAPs

2 stage 2005 - 2006 Ministry of the Interior

PHARE 300 new PIAPs

3 stage 2007 - 2008 Ministry of the Interior, Alliance “Window to the Future”, Kaunas Technology University, S4ID

EU structural fund 400 new PIAPs83 PIAPs upgrade

After implementation:

1. United network of 800 PIAP;

2. PIAP in 5 km distance everywhere.


IV.3. PC literacy education

Stage Year Goal Results

1 stage 2003 To learn how to use Internet 20.000 people trained

2 stage 2006-2008 PC skills+ safe Internet usage

+ people with disabilities

50.000 people,

400 disabled people trained

3 stage 2008 Deeper knowledge of PC skillsFinanced by „Microsoft Unlimited Potential" program

4 stage 2010-2012 Information society, e-services

Plan – 16.000 people trained (unemployed, rural area and disabled)

• Courses are provided free of charge in PIAPs

• Coordinator – Alliance “Window to the future”

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V. The role of NRA

Main initiatives increasing availability of Broadband

infrastructure,other than state aid


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V. The objectives of regulatory intervention


Certain developments in fibre access can create SMP operators in future and prevent competition and therefore reduce benefit of consumers in the long-run:

– huge investments into FTTx are foreseen by incumbent operators;– Incumbents own the essential infrastructure (ducts) for FTTx roll-out, therefore might switch

from mainly DSL to FTTx relatively quickly;– NGA upgrade might eliminate the access points that alternative operators are using for their

business model currently.

Forecast investments into FTTx EU27

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V. The task of NRA


...Therefore NRAs have to deal with a challenging task to promote effective investment into NGA on the one side and avoid foreclosure of the market by promoting sustainable competition:

– For NRA it is crucial to identify the main drivers for investment into NGA and to select proper regulatory measures;

– Investors are interested in regulatory certainty , therefore NRAs are asked to define possible regulatory measures in advance

CompetitionInvestment

NRA

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V. The regulatory prospects

NRAs might use these tools to foster BB development and competition:

1.Symmetrical regulations:– civil works coordination, – opening up existing municipal ducts, – constructing new ducts for all network operators to use, – mandating sharing of infrastructure and fibre connectivity for new

builds etc.

2.Asymmetrical SMP regulations:– Access to the essential infrastructure of SMP operator;– Access to the local loop and other access products on cost based

prices (ladder of investment principle)


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V. RRT: Sharing of infrastructure

RRTs experience:• Symmetrical obligation to all communications

infrastructure (ducts, masts, poles, etc.) owners;– constructions stage – joint development– shared usage of existing infrastructure

• Terms of usage should be negotiated between parties, but...

...RRT might settle the prices in case of dispute


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V. The Ladder of investment

9 Dec 2010, PristinaWorkshop on EU Regulatory framework 43

Duct Access

Wholesale

access inputs

Own

infrastructure

All wiring

100% own

infrastructure

In house wiringBackhaul wiring

from the house

Sub-loop

unbundling

MDF/ODF

unbundling

Wholesale Broadband

access

Backhaul from

sub-loop

0% own access

infrastructure

Core routing,

Access to

internet

Physical Access

infrastructure Level

Broadband service

Level

Duct Access

Duct Access

+

+

+

+

+

+

Resale Marketing

Infrastructure competition

Extensively used for

market entry in Lithuania

No margin squeeze at all levels!!!

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Questions…


Thank You!

Giedrius Pūras_________________________________________________________________

Acting head of Price control and Statistics divisionElectronic communications department

Communications regulatory authority of LithuaniaTel. +370-5-210 56 68Fax. +370-5-216 15 64e-mail: [email protected]

EU funds for the broadband investments in Lithuania · Giedrius P ūras III. Main EU legislation 1....

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