European financial instruments and regulatory initiatives in support of digital infrastructure


Financier Worldwide Magazine

April 2019 Issue

The need to ‘do more with less’ has led the European Union (EU), and the European Commission (EC) in particular, to find innovative solutions to mobilise additional sources of capital to complement those available from the European budget, while striving to increase the impact of European-led initiatives. These additional sources of capital, whether public or private, can be mobilised – and have indeed been already successfully mobilised – in the field of digital infrastructure, primarily supported by the Connecting Europe Facility (CEF).

This relatively new paradigm has led to the development of various financial instruments and initiatives, among which is the Connecting Europe Broadband Fund (CEBF). The CEBF was successfully launched in June 2018 with €420m of assets at first closing, including the participation of a private investor for €25m; the EC (via CEF) for €100m; the European Fund for Strategic Investments (EFSI, also known as the ‘Juncker Plan’) for €100m; three national promotional banks (NPBIs) for €50m each; and the European Investment Bank (EIB) for €40m. The fund is managed by an independent investment manager, Cube Infrastructure Managers (Cube IM), which has been selected as per an open and competitive selection process carried out by the EIB.

While fundraising is still being organised by the fund manager, a first project has been signed on the 25 January 2019, aiming to deploy high-quality fibre-to-the-home (FTTH), open-access network for residential, business and public administration in the rural areas of the Primorje-Gorski Kotar and Istria regions – the two North-Western counties in Croatia – and to cover over 135,000 locations.

The CEBF’s investment guidelines are dictated by both policy and financial considerations. The main eligibility criteria for projects can be summarised as outlined below.

First, eligible projects (whether fixed line or mobile) should make a significant contribution to the achievement of the targets of the Digital Agenda for Europe (DAE), which means, at a minimum, the connectivity necessary to achieve the DAE Target 2 (30 Mbps for all) and/or Target 3 (100 Mpbs). Furthermore, in case of fixed line networks, minimum speed levels in line with DAE Target 3 (100 Mbps) should be permanently available for at least one or several retail products out of the operator’s commercial product offerings. Priority should be given to projects that facilitate the transition toward a European Gigabit Society by the deployment of networks upgradable to 1 Gigabits as well as to projects based on wholesale-only models.

Second, the CEBF will only invest in ‘greenfield’ projects.

Third, eligible projects will deploy ‘state of the art technology’ which means a technology, or a mix of technologies, with performance features comparable to the best-performing commercially available technologies.

Fourth, the projects will be deployed predominantly in underserved areas, which would be typically classified as grey next generation access (NGA) (i.e., only one NGA network exists or is planned) and white NGA areas (no NGA network exists) for state aid purposes.

Finally, an investment by the CEBF will not exceed €30m per project.

From a financial perspective, the EC is providing a first-loss piece, financed by CEF, to the other investors. The European Fund for Strategic Investments provides the second tranche. Finally, the three NPBIs, the EIB and the private Limited Partner (LP) invest in the most senior share class, benefiting from the protection offered by the other two, as well as from a preferred dividend of 2 percent during the fund’s initial years. This downside risk protection is one illustration of the so-called ‘preferential treatment’ of private investors, well known to European Institutions (cf. European Court of Auditors’ Special Report No 19/2016, Points 73-91). It has been formally reiterated in several legislation proposals made by the EC for the next programming period, including the new Common Provisions Regulation (CPR) (cf. Art. 55) of the European Structural and Investment Funds (ESIF).

The second characteristic element of the CEBF lies in its governance structure, which ensures that private investors receive rights equal to those of public investors, irrespective of the amount of capital they have invested in the CEBF. In particular, the adoption of shareholders resolutions must reach the required voting quorums from both the public investors and the private investors, considered separately; in other terms, a resolution which might reach the required quorum by the public investors would fail to be adopted if the required quorum is not also reached by the private investors. Additionally, the public investors and the private investors are each represented by their own director at the board of the CEBF, here again, irrespective of the number of investors in each group, or the cumulative amount committed by each group of investors to the fund.

The new CEF, with a proposed budget of €3bn for digital infrastructure for the next Multi-annual Financial Framework (MFF) 2021-2027, will continue to optimise the EU’s budgetary resources while building on the successes and experience gained from the previous programming period, in particular with the continuation of the so-called ‘blending calls’ (Art. 16 of the Regulation proposal). In such calls, the attribution of a grant component from CEF will be conditional upon additional capital being provided to the project promoter (thus ensuring a less intensive use of grants), which will be particularly relevant in addressing mild market failures in semi-dense/peri-urban areas. The EC proposed the new CEF Regulation in June 2018, and it is now subject to the so-called trilogue negotiations between the EC, the European Parliament and the Council of the EU. The final adoption of the Regulation is expected to follow the agreement on the MFF before the end of the year.

Being more efficient with public resources also translates into an increased use of budgetary guarantees which, by their multiplier effect, make it possible to mobilise third-party resources with a minimum use of European resources (i.e., at the level of the applicable provisioning rate). By extension, budgetary guarantees also allow the EIB to inject capital in projects characterised by a higher-risk profile, and which consequently might not have received EIB financing otherwise. As of February 2019, 19 broadband projects have been approved (among which 16 are already signed) under EFSI, expecting to mobilise more than €10.6bn of total investments in digital infrastructure with committed resources (EU and EIB) of just under €3.2bn. Its successor instrument, InvestEU, will certainly amplify those possibilities with the proposed ‘blending facilities’, which would allow the combination of various sources of funding (EU and non-EU) under one single set of harmonised rules, ensuring one unique ‘implementing partner’ and cash flow stream to the final recipient. In addition, and at the time of writing, two distinct ‘thematic products’ are being specifically developed for digital infrastructure, to take place under InvestEU’s new ‘Sustainable Infrastructure Window’.

All those mechanisms, existing as well as proposed, imply an increased cooperation between the EU and national players – such as the NPBIs – whose intervention can perfectly complement some of the actions supported by the EU. For example, the NPBIs could provide financial support to build or extend the connectivity infrastructure around the active equipment financed with the ‘vouchers’ won by the participating municipalities under the WiFi4EU initiative.

Besides direct financial interventions, market failures can also be tackled, and corrected, via bespoke regulations; in particular, the new European Electronic Communications Code (EECC) entered into force on 20 December 2018, after more than two years of negotiations.

The objective of the EECC is to increase investment in very high capacity networks and, at the same time, to preserve competition in the market. To that end, the EECC provides incentives for different business models that are fit for this purpose.

Wholesale-only is one of these models. The EECC foresees a lighter regulatory treatment for this model because it poses fewer risks for anti-competitive behaviour compared to vertical integration. In particular, wholesale-only operators do not compete against access seekers. On the contrary, they have strong incentives to conclude commercial agreements with as many of them as possible. By creating a thriving wholesale market, these operators can have a positive effect on competition also at the retail level. We are starting to see this happening already in a number of markets.

For this reason, where wholesale-only operators hold Significant Market Power (SMP), the relevant regulatory obligations that may be imposed on them are commensurately reduced. They are limited to non-discrimination, access to specific network facilities and fair and reasonable pricing, if justified by the market analysis.

Note also that wholesale-only operators are exempted from the possible imposition of certain far-reaching obligations (‘beyond the first concentration or distribution point’), provided they offer access on FRAND (‘fair, non-discriminatory and reasonable’) terms.

The lighter regulatory treatment foreseen for wholesale-only operators should reduce the risk of investing in such business models and increase their appeal to investors with a long-term horizon in their investment strategy. This could in particular benefit less densely populated areas in which the business case for deploying competing infrastructures is not realistic.

Note also that a wholesale-only operator with SMP may benefit from additional regulatory relief if it decides to co-invest with smaller operators.

It is important to clarify that in order to benefit from this treatment, a mere legal separation of activities is not sufficient. For these provisions to apply, wholesale-only operators should not be controlled by owners that also have interests in the retail market. Nor should they be bound to deal with a single retailer, by means of an exclusive agreement. In other words, the wholesale-only business model has to be genuine.


Anthony Whelan is the director for Electronic Communications Networks & Services and Sébastien Martin is as an economic analyst within the Directorate General for Communications Networks, Content and Technology (DG CONNECT) at the European Commission. Mr Whelan can be contacted on +32 2 295 09 41 or by email: Mr Martin can be contacted on +32 2 296 49 55 or by email:

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