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CEF: Future proofing the EU economy ONIEB workshop High speed broaband – a platform for innovation Filippo Munisteri, DG CONNECT 19 September 2012 1 CEF: Policy rationale CEF: a common approach to growth… Europe’s economic future requires smart, sustainable and fully interconnected transport, energy and digital networks => key for the Europe 2020 Strategy. Effective interconnection of networks can only be achieved at the European level, guaranteeing minimum cost to all citizens. CEF aims at supporting infrastructures with a European and Single Market dimension, targeting EU support on priority networks to be implemented by 2020 where European action is most warranted. CEF aims at building an environment conducive to private investment and develop instruments that will be attractive vehicles for specialised infrastructure investors. CEF seeks to find common solutions for all sectors, wherever possible and practical. Smart performance indicators common to CEF aligned on Europe 2020 strategy and 20-20-20 energy and climate change objectives, as well as 2 specific sectoral objectives and indicators. CEF: Policy rationale …to specific political requests • Letter by 12 Prime Ministers (UK, NL, IT, EE, LV, FI, IE, CZ, SK, ES, SE, PL) 20 February 2012 (…) we must step up our efforts to create a truly digital single market by 2015. (…) We must (…) continue our efforts to build modern infrastructure to provide better broadband coverage and take-up and extend and promote e-government services to simplify the start up and running of businesses and aid the mobility of workers. • G8/G20 Deauville The global digital economy has served as a powerful economic driver and engine of growth and innovation. Broadband Internet access is an essential infrastructure for participation in today's economy • European Council 1-2 March 2012 In particular, efforts will continue in order to (…) complete the Digital Single Market by 2015, in particular by adopting measures to boost confidence in online trade and by providing better broadband coverage, including by reducing the cost of high-speed broadband infrastructure; • A. Merkel quote from BITKOM (5 March 2012) The best technical possibilities, (…) will remain hidden if the visible connections do not exist and data cannot get transferred. This is why infrastructure is bread and butter, to allow people access to these technical developments. 3 CEF digital networks: Policy rationale . . Broadband deployment: » » » Through a portfolio of projects enabling fast and ultra-fast internet access Europe 2020 broadband objectives (access: 100% of households at 30 Mbps; use: 50% of households at 100 Mbps) Market driven (i.e beyond the grants logic) through credit enhancement, involvement of private sector operators and institutional investors Cross-border ICT digital services » » » » Common digital service architectures in line with Digital Single Market logic Grants to project consortia and procurement of European platforms No changes required to existing national platforms Move on-line and render European key services of public interest such as: • High-speed backbone connections for public administrations (sTESTA..) • Cross-border delivery of e-Government services to European citizens (E-ID, eHealth) • Support the Digital Single Market by removing barriers to companies operating cross-border (e-Procurement, e-Invoicing, e-Signature) • Enabling open data access to public sector information and multilingual services • Internet Safety for Kids and security through coordination of European CERTs 4 Why CEF: Broadband drives competiveness Correlation Fixed Broadband Penetration and Competitiveness WEF's Global Competitive Index score 5.8 Sweden 5.6 Finland Japan 5.4 5.2 US UK Belgium Austria Germany 4.8 Netherlands France Luxembourg 5 Denmark Korea Ireland Estonia 4.6 Czech Rep. Poland 4.4 Portugal Lithuania Italy Hungary 4.2 Bulgaria Slovakia Spain Cyprus Slovenia Malta Latvia Romania 4 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 Fixed broadband lines per 100 population "An increase in the broadband penetration rate by 10 percentage points raises annual growth in per-capita GDP by 0.9 to 1.5 percentage points". Faster broadband = higher growth. (Czernich et al. - CESIFO WORKING PAPER NO. 2861, Ifo Institute for Economic Research, 2009) 5 Why CEF: Broadband creates jobs 2.6 jobs are created by the Internet for every job lost (McKinsey, 2011, SME survey) 6 …demand is soaring from citizens… Multiple application usage eHealth: Remote eHealth: Virtual Diagnostic Care Unit Examination HD education fast downloads Downstream bandwidth requirements 100Mbps 25Mbps HD telepresence HDTV 8Mbps 2Mbps VoIP Standard Standard def TV Fast def TV P2P file- MPEG2 internet MPEG4 sharing Online browsing radio Source: Analysis based on Broadband Stakeholder Group 7 …and business… Three applications for which SMEs will need high-speed broadband: - Cloud computing: separates IT resources from the devices used to access them. By 2015 it will be a $85 bn business, with market doubling every two years. Cloud-based solutions reduce costs and create new markets. - Internet of Things: sensors embedded in physical objects become linked and connected to the internet. This generates enormous volumes of data (remote health monitoring, smart grids). Connected IoT nodes grow at 35% annually. This creates new ways for companies to manage information and reduce costs. - Big data: as databases become massive and complexity increases, it creates new markets for companies to handle data, reducing search time for clients. The European public sector could witness annual productivity gains of €255 bn. in the next decade. Source McKinsey (2011) 8 …but supply is still lagging behind Is Europe investing enough? 9 …supply is still missing the EU scores against the Digital Agenda targets reflect supply gap 10 Making it happen EC strategy for NGA investment • Focus: Incentivising private NGA infrastructure investment by improving risk-return trade-off VP Kroes statement 12/7/12 Recalibrate regulatory instruments: • Cost reduction measures • Cost methodologies • Rec. on non-discrimination Increases private investor returns MFF proposal 2014-2020 EU enhanced project-financing facilities: • Connecting Europe Facility Reduce private investor risk 11 What we finance • For broadband: • Mapping, planning, feasibility studies => Grants • Broadband roll-out => Financial instruments • For digital services: • Promotion and policy support => grants Broadband (1) • Potential beneficiaries: • • • • Telecoms (incumbent or new entrant) Utilities Regional bodies, including municipalities New alliances and partnerships, including equipment providers • PPPs Broadband (2) No business case: => grants (Structural funds) Where strengthening of business case possible: through financial instruments Loans Guarantees Bonds (project bond pilot) Equity (infrastructure investment funds) Digital Service Infrastructures Smart energy services • Linking energy and telecoms infrastructure Safety and security • Safer internet for children online • Critical information infrastructures eGovernment • eHealth • eIdentification for secure transactions • Setting up a business across borders • eJustice (information on justice systems and improving access to justice throughout the EU) Access to public sector information, digitised cultural goods and to multilingual services An example: Europeana CEF: how does it work CEF: EC assumes project risk Broadband (2) Revenue potential, but risk of revenue stream (too) high: EC/EIB "underwrite" part of project risk through financial instruments (FIs) Debt-related: Loans, guarantees, project bonds Equity (infrastructure investment funds) Design of CEF FIs to be tested – Project Bonds pilot scheme Areas without viable business case: grants (direct EU contribution to costs) 17 Financial instruments under CEF • No risk for EU budget beyond commitment: no guarantee entered in EU budget. Residual risk stays with financial partner. • Financial partners to decide on projects to be supported, but the eligibility criteria determined by the Guidelines and WPs, on 1st come 1st served basis. • Blending of FI from CEF and grants from Structural funds and other EU/MS sources possible to optimise the impact of the project. • Flexibility: different project sizes to receive support through different financial instruments. • Project Bonds: projects requiring higher project size eg €50 million. • Smaller size PB projects (e.g. €10 million) can receive support if aggregated (eg “repackaged” by financial partner in a single instrument) • Use of other instruments dedicated to smaller size projects (e.g. equity, debt) Leverage effect • The leverage effect measures the capacity of mobilising private capital. It is higher for FI, than for grants (typically in 50% cofinancing); • In the on-going RSFF programme: leverage effect is 14x. LGTT (Loan Guarantee instrument for Trans-European Transport): leverage effect 40x; • CEF proposal: a conservative 6x estimate adopted. Some scenarios CEF funds, split leverage factor amount leveraged (bn.€) Additional households covered (mln.) 2 bn. Grants, 5 bn. Fis 6x 42 33.6 1 bn. Grants, 6 bn. Fis 6x 45.5 36.4 2 bn. Grants, 5 bn. Fis 8x 52 41.6 1 bn. Grants, 6 bn. Fis 8x 57.5 46 Based on a simplifying assumption of €1,250 of average cost per line for all households EC project-financing (1) - PBI Project bonds (PBI): The concept Designed to enhance the rating of senior debt of projects, ideally to single A Funded or unfunded subordinated tranche provided by EIB with the support of the EU budget Subordinated tranche maximum 20% of senior debt ▶ Cushion for senior debt service if project risks materialise For ICT: EC budget €20 million for 2013, pipeline building begins this autumn Intended to facilitate creation of liquid and mainstream infrastructure asset class 20 Project bonds Project bonds (PBI): The concept 21 Source: DG ECFIN Broadband impacts and spillovers Bb coverage accelerated the take-up of entrepreneurship in ICT by 54% (general 8%) +2.7 m. man-year jobs and €152 bn. of added value to the EU economy +10% bb penetration => +1.5% lab. prod growth Homeworkers took on average a 1/4 days sick leave a year than their office attending counterparts +5% bb => + $4.3 bn. GDP and +40,000 jobs in education in the US Direct job Indirect job creation creation Labour prod. GDP Tele ICT networks and digital services working deployment Education €27.89 bn. benefit from tele monitoring/e-health (0.299% of EU GDP) +10% in bb household penetration => +0.9-1.5% GDP Smart grids Savings for Gov’ts Tele Smart monitoring buildings Bb-enabled smart grid services =>€850 bn. in gross energy savings (US) 157 m€/year in ES from eCadastre. EU wide Eprocurement: €50 Bn. savings Up to -70% energy use in new 22 office buildings using broadband connections Thank you for your attention [email protected] European Commission, DG CONNECT, Unit B5 – Broadband BU33 2/38, Tel: +32 (2) 298 72 46