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Communications and the crisis: regulatory and policy implications


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Discusses the credit crunch implications for the communications sector from the point of view of the European Investment Bank

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Communications and the crisis: regulatory and policy implications

  1. 1. Harald Gruber Presentation to International Institute for Communications Brussels, 24-25 March 2009 The Communications sector and the crisis: funding, competition and regulatory implications
  2. 2. Outline <ul><li>EIB and ICT </li></ul><ul><li>Overall relevance of ICT </li></ul><ul><li>ICT and economic crisis </li></ul><ul><li>Challenges for investment </li></ul><ul><li>Conclusions </li></ul>
  3. 3. European Investment Bank Objectives <ul><li>The EIB is owned by the 27 EU member states </li></ul><ul><li>The EIB has a subscribed capital of EUR 164 bn </li></ul><ul><li>The EIB raises its funds on the capital markets (2008: EUR 59 bn) </li></ul><ul><li>The EIB signed loans amounting to EUR 57 bn in 2008 </li></ul><ul><li>The EIB is a policy driven, non-profit institution following sound banking principles </li></ul><ul><li>The EIB has marked ICT infrastructure among priority policy objectives </li></ul>The European Investment Bank is the European Union‘s long-term financing institution. The Bank acts as an autonomous body set up to finance capital investment furthering European integration by promoting EU policies.
  4. 4. Policy Context <ul><li>ICT is a key sector of the EIB’s policy objectives in it’s implementation of the Lisbon Agenda through the Knowledge Economy objective. It comprises: </li></ul><ul><ul><li>R&D </li></ul></ul><ul><ul><li>Innovation, including innovation-enabling ICT infrastructure (in particular broadband) </li></ul></ul><ul><ul><li>Development of Human Capital </li></ul></ul>
  5. 5. EIB Lending to ICT sector <ul><ul><li>Lending to ICT sector in the EU: EUR 2.6 bn in 2008 </li></ul></ul><ul><ul><li>Lending to all types of project: fixed, mobile, satellite and equipment segments for R&D and infrastructure </li></ul></ul>
  6. 6. EIB Lending to ICT sector (cont.) <ul><li>The EIB’s aim is to support the European Telecommunications Sector in keeping its competitiveness, therefore the EIB’s financing strategy is to: </li></ul><ul><ul><li>Finance Research, Development & Demonstration in telecommunications technologies </li></ul></ul><ul><ul><li>Provide financing for the deployment of ICT infrastructure, in particular broadband </li></ul></ul><ul><ul><li>Focus on investments that contain innovation elements (e.g. energy efficiency, adoption of ICT in other sectors) </li></ul></ul><ul><ul><li>Collaborate with the ICT equipment manufacturing industry </li></ul></ul>
  7. 7. ICT sector <ul><ul><li>Sector characterised by rapid technological change and strong market growth </li></ul></ul><ul><ul><li>Important for productivity growth </li></ul></ul><ul><ul><li>High tech sector has seen huge swings in investor sentiments and underlying investments </li></ul></ul>
  8. 8. What is different with present crisis? <ul><li>Telecommunications has been shown to be remarkably resilient </li></ul><ul><ul><li>Revenues tend to be more affected by sector specific shocks (e.g. regulation, entry) than macroeconomic shocks </li></ul></ul><ul><ul><li>Companies are relatively well prepared as they were heavily affected by the 2000-01 crisis </li></ul></ul><ul><li>The continuing need for investment: </li></ul><ul><ul><li>Local access (broadband) </li></ul></ul><ul><ul><li>Backbone </li></ul></ul><ul><ul><li>New service development </li></ul></ul>
  9. 9. Demand for transmission capacity Source: Ericsson
  10. 10. Investment challenges <ul><li>Fixed broadband access </li></ul><ul><ul><li>Business model unclear for FTTH </li></ul></ul><ul><ul><li>Regulatory uncertainty, in particular with mandatory access </li></ul></ul><ul><ul><li>Role for public sector in generating demand for broadband connections </li></ul></ul><ul><li>Mobile broadband </li></ul><ul><ul><li>Migration towards 4G (uncertainties around LTE) </li></ul></ul><ul><ul><li>Additional spectrum </li></ul></ul><ul><li>Alternative technologies (WiMax, Satellite) </li></ul>
  11. 11. Sources for funding <ul><ul><li>Cash flow: Fixed line revenues declining, mobile squeezed (competition and regulatory pressure) </li></ul></ul><ul><ul><li>Equity (expensive in current environment) </li></ul></ul><ul><ul><li>Debt (European companies with annual refinancing need in excess of EUR 30 bn) </li></ul></ul><ul><ul><li>Subsidies (for targeted projects, e.g. rural broadband). </li></ul></ul>
  12. 12. Public expenditure packages <ul><li>European Economic Recovery Plan </li></ul><ul><ul><li>EUR 1 bn for rural broadband </li></ul></ul><ul><ul><li>Push for more public services </li></ul></ul><ul><ul><li>Pre-competitive procurement </li></ul></ul><ul><li>National expenditure plans </li></ul><ul><ul><li>Increase / enhance broadband coverage </li></ul></ul><ul><ul><li>e-government </li></ul></ul>
  13. 13. Conclusion <ul><ul><li>ICT sector has good chances to emerge reinforced from the crisis </li></ul></ul><ul><ul><li>Question of coordination of moves (public expenditure, regulation, private investment) </li></ul></ul><ul><ul><li>Make policymakers and wider public aware of the relevance of the sector for overall economic welfare </li></ul></ul>