Austria is definitely lagging behind in terms of Fiber-to-the-Home (FTTH) penetration: According to recent data of the FTTH Council Europe, only one country worldwide has a worse penetration rate than Austria, while other sources suggest there are two countries below Austria. For this reason many initiatives have been implemented on municipal and provincial levels to provide Austrian households and undertakings with high-speed Internet access in parts of the country where a purely commercial assessment would not justify such investments. Obviously this is not yet enough.
Many CEE jurisdictions, including Serbia, Croatia, the Czech Republic, Poland, Ukraine, and Macedonia, are not much better than Austria at keeping their citizens waiting for up-to-date FTTH connections. Perhaps some of the points discussed below also apply to these countries.
An example how to be succesful in comparable circumstances can be found in three recent French projects involving a total of almost 2.2 million households which will be connected by 2024. Each of the three projects was implemented by means of a concession contract. A major portion of the equity capital is going to be provided by investment funds, not by the state. The largest part of the gap between commercially viable investments and total investment costs is financed by state subsidies under a national broadband plan. This plan has been notified under the EU state aid regime, in particular the EU Guidelines for the application of state aid rules in relation to the rapid deployment of broadband networks. The Commission decided not to raise objections against the French plan. The same result has already been achieved for the Austrian subside scheme – the “Breitbandmilliarde“ – as well as for Bulgarian, Croatian, Polish, Romanian, and Slovak broadband subsidy schemes. Additional subsidy schemes may be possible too.
Although EU law does not provide a comprehensive legal framework for PPP laws in general, or concession laws in particular, Directive 2014/23/EU at least provides clearer rules for the award procedure of concession contracts. Almost all EU member states have already transposed the concession directive; Austria is (hopefully) going to catch up with the compliant member states in 2018.
However, the EU concession directive is inapplicable to most broadband projects because it specifically excludes concessions made for the principal purpose of permitting the contracting authorities to provide or exploit public communications networks. However, the very purpose of the kinds of broadband infrastructure projects described in this article is to enable a state/province/municipality/public entity to provide a network (i.e. wholesale services) to Internet service providers or to hire an active network operator to do this for the state. So broadband concessions fall outside the scope of the concession directive.
This does not mean that concessions are not allowed; but it does mean that legal uncertainties may exist.
Concessions have important advantages for broadband projects. The (private) concessionaire accepts the operating risk in exploiting the broadband network. This means that the concessionaire operating such a network will try to contract as many ISPs as possible in order to generate more income. For the public side this means that the network will be open to all service providers and will therefore have a stimulating effect on the entire economy.
Secondly, a concession contract is an effective way of requiring the active network operator to maintain high quality levels and a high level of availability of the network. Sometimes such quality levels can be achieved solely via the demand of the service providers. If they are not strong enough or have no alternative network to which they can switch, the public concession contract must provide for quality and availability requirements.
In short, a private concessionaire is more likely to permanently improve the public network or to maintain the intended level of service over the whole concession period. Austria lacks a statutory basis for such concessions, so only good contract drafting will help.
A broadband project must be feasible and bankable. Without a PPP or concession law that requires this, however, awarding authorities have to tackle these issues in their project preparation and contract drafting. Although Austria has no PPP law and (currently) no concession law, its budgeting rules contain standards of project preparation. These include the requirement that estimates be made prior to project realization of financial and economic consequences and the affordability and long term consequences for public finances, and the approval of these estimates by the Minister of Finance. Necessary securities on project assets or direct agreements providing lenders with cure rights and/or step in rights must be based on contractual provisions and civil law.
In Austria internationally accepted standards or acknowledged best practices give further guidance. Albania, Bulgaria, Croatia, Latvia, Montenegro, Russia, Serbia, Slovenia, and Ukraine have PPP and/or concession laws which provide binding guidance.
By Thomas Hamerl, Partner, CMS
This Article was originally published in Issue 5.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.