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Summary

On December 12, 2016, the European Commission (EC) and the European Investment Bank (EIB) launched the Connecting Europe Broadband Fund to finance broadband network infrastructure projects in underserved areas. It initially aims to raise €500m ($520m) from private investors and public institutions such as the EIB and the EC. Three national lenders – KfW Bankengruppefrom Germany,Cassa Depositi e Prestitifrom Italy, andCaisse des Dépôts et Consignationsfrom France – have already expressed interest in being anchor investors in the fund. The operational launch of the fund is expected to happen in mid-2017.

Increased public investment should reduce the digital divide across Europe

Under the EC's new connectivity targets announced in September 2016, by 2025, all schools, transport hubs, main public service providers, and digitally intensive enterprises will need to access 1Gbps connections and all European households should have access to download speeds of 100Mbps. To achieve these ambitious targets, there needs to be a significant amount of investment in high-capacity broadband networks. However, many underserved areas and smaller-scaled projects have so far proved financially unviable for private investment, and up until now no public funding mechanism existed. This has led to the EC launching the new Connecting Europe Broadband Fund, which solely focuses on financing broadband network investment in underserved areas.

The Connecting Europe Broadband Fund builds on the existing European Fund for Strategic Investment(EFSI) and the Connecting Europe Facility (CEF). It will be managed by Cube Infrastructure Managers, an independent Luxembourg-based company. Initially, the fund will raise around €500m in public and private investment, of which the EC has promised to contribute €100m from its Connecting Europe Facility. By the endof the fund's five-year term, it should have raised between €1bn and €1.7bn to cover between seven and 12 broadband projects per year. Each investment will be in the region of €1–30m for projects representing total costs of no more than €150m. It is expected that by the end of 2021, 20 countries will have benefitted from the scheme.

In May 2016, the EC released its annual European Digital Progress Report, which shows that there continues to be a rural-urban digital divide across the EU. Only 28% of rural households in Europe have fast broadband connections, and for fixed broadband, the EU average is only 90.6%. The intention is for this new investment fund to go some way in incentivizing the rollout of high-speed networks to plug this gap and reduce the divide. While the new fund will ensure that many financially unviable areas will receive funding for broadband networks, there still remains a considerable hole in private investment facilities for the remaining areas. Based on current investment trends in the private sector, the EC predicts private investment to reach €360bn by 2025. However, the EC's connectivity objectives for 2025 are likely to require around €515bn in investment in total, leaving an investment shortfall of approximately €155bn. If the EC's connectivity targets are to be achieved, encouraging greater private investment and competition to make up the deficit will need to become a priority.

Appendix

Further reading

"The EC outlines an ambitious connectivity package as part of regulatory reform," TE0007-001064 (September 2016)

"EU member states are at very different stages of digital economy development," TE0007-001034 (June 2016)

Author

Sarah McBride, Analyst, Regulation

sarah.mcbride@ovum.com

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