Nicole Lieb, Ludwig Maximilian University of Munich
Relevance of the Practice
Broadband supply is key in a way as it offers the opportunity to mitigate other supply shortages. Fast and stable internet connections are one of the most elementary living, working and production conditions. The development and maintenance of road and rail, but also digital and educational infrastructures is essential for a sustainable development. Some may even go so far as to raise access to broadband networks as a human rights issue, because many other social rights (like education, information, employment or health care) are linked to the access to a reliable, high-quality and affordable broadband connection.[1] One focus of the ‘Plan for Germany – Equivalent Living Conditions’[2] is clearly the expansion of broadband infrastructure. Especially in the provision of broadband internet connections, there are serious differences between urban and rural areas in Germany which at the same time has fatal effects on the participation in the digitization process of the economy and society. Broadband expansion is of particular importance because rural areas would lose access to conurbations without it and this would have serious disadvantages as a competitor location. The ‘constant dead spot’ costs Germany a top place in the latest location ranking of the World Economic Forum (WEF). Because the Federal Republic of Germany is ranked 72nd of all nations worldwide in terms of internet connections and fiber optic cables, Germany is falling from third to seventh place in the Global Competitiveness Report.[3]
Description of the Practice
In the field of telecommunications as part of services of general interest, the state withdrew from the provision of services and limited itself to a mere warranty function which was even elevated to the status of a constitutional norm with Article 87(f) BL. The model of Article 87(f) BL relies on the provision of services by the private sector under state guarantee responsibility for a minimum offer. Although this transfer of responsibility to the private market has led to a more efficient and faster provision of services, this has not been achieved across the board. One legislative instrument to make private sector involvement more attractive is to establish more and more investment incentives under regulatory law. Investment incentives are to be created – in simplified terms – to the extent that companies willing to invest as a reward can obtain facilitations and exemptions with regard to regulatory measures, in particular with regard to access and tariff regulation.
But the main focus in the future to fill the current supply gaps in rural areas will lay on taking action by local authorities themselves. This requires the provision and deployment of considerable financial resources which must ultimately reach local authorities in need of support.[4] Broadband expansion in rural areas is primarily being driven by counties as they have a better overview of current coverage than individual municipalities. Individual municipalities hardly take on this task on their own (it would be possible for ULGs like county-free cities, but they mostly don’t lack broadband infrastructure), but work together with other municipalities under the umbrella of inter-municipal cooperation. If even individual counties are too small for this task, amalgamations may come into consideration. However, these are part of general, long-term territorial reforms and not tailored to individual areas of responsibility. On the contrary (or in the short term) counties are as well able to cooperate with each other inter-municipally.
As far as broadband expansion is concerned, three different stages must be distinguished: At first, the passive infrastructure has to be installed (typically empty pipes, 70 – 80 per cent of the total costs, but no revenue yet). The second stage is the network operation (active infrastructure) and the third stage is the provision of the actual telecommunications service. With regard to the organizational structure the local authorities can choose from various options. In the so-called ‘profitability gap model’ (Wirtschaftlichkeitslückenmodell) a network is built and operated by a private provider (stage 1 + 2). The instrument used hereby are state subsidies where this process is financially supported by the local authority which forwards subsidies from state funding programs. The federal and Länder governments provide considerable amounts of financial support while the EU has also set up a broadband infrastructure fund.[5] This must of course be done in accordance with European state aid law. With the so-called ‘operator model’ (Betreibermodell) a local authority builds the network (up to the financially weaker parts of the region) and remains the owner, but transfers the network operation to a private actor. The local authority can also decide not only to set up the broadband infrastructure on its own, but also to provide active technology and telecommunications services within the so-called ‘full-service provider model’ (Komplettanbietermodell). In this case the local authority often makes use of the local utilities by extending their offer to include telecommunications services. Of course it has to observe the limits of municipal commercial law, in particular the subsidiarity of local authorities’ economic activity anchored in numerous Länder as well as public procurement law. Local authorities have two options when choosing the right legal form: it can organize the broadband expansion as part of its general administrative activities or it can outsource it to an independent organization. In turn, it has both public law (e.g. inter-municipal cooperation) and private law legal forms (esp. GmbH) at its disposal. Within the existing models outlined above municipal enterprises are already subsidy recipients or operators if they have been successful in the respective award procedures. This could involve cooperation between several local authorities but also with private companies within the framework of a public-private partnership. Nevertheless, the state itself must become active and in general the trend must go from pure warranty back to (partial) fulfillment.
In summary, there are three different instruments to advance broadband expansion: Regulation, funding and self-economic action by local authorities.[6] As it is not only a task which can be solved within the local community of one individual municipality, umbrella entities like counties (or even districts) or inter-municipal cooperation must take action.
Assessment of the Practice
A nationwide expansion in rural areas cannot be achieved through private sector involvement alone because the expensive investment is not worthwhile with only a low customer density. Therefore, sovereign support is necessary and the federal state, the Länder and the local governments as counties and municipalities must take action.
In order to give a preliminary evaluation of the above-mentioned instruments: Within the profitability gap model the local government has hardly any scope of action and once the network has been set up, the money is lost because the network belongs to the private actor. The operator model offers more scope of action and more financial advantages for the local government. However, disadvantages can also arise here because network operators can only be found for economically interesting parts of the area. As a solution to this dilemma, a more recent consideration is to license the construction and also the network operation in the form of a potential network formed according to objective criteria across several municipal areas within the framework of a concession model (Konzessionsmodell).[7] This model needs to be further developed and the current rules on rights-of-way in the telecommunications sector amended. Nevertheless, it offers an opportunity to change the role of local governments and at the same time avoid the disadvantages of existing models.
Broadband expansion raises many different and complex legal issues in the areas of regulation, public procurement and state aid. Although the local governments need considerable financial support, they are also confronted with important issues regarding technical, organizational and legal options. It is a complex field that requires constant development and adaptation in every respect.
References to Scientific and Non-Scientific Publications
—— ‘Interkommunale Zusammenarbeit. Definition und Hinweise für die Praxis‘ (Bayerisches Breitbandzentrum and Bavarian State Ministry of Finance 2014) <https://www.schnelles-internet-in-bayern.de/file/pdf/50/Interkommunale_Zusammenarbeit_-_Definition_und_Hinweise.pdf>
—— ‘Land fördert interkommunale Zusammenarbeit für flächendeckenden Internet-Ausbau‘ (Baden-Württemberg.de, 16 October 2015) <https://www.baden-wuerttemberg.de/de/service/presse/pressemitteilung/pid/land-foerdert-interkommunale-zusammenarbeit-fuer-flaechendeckenden-internet-ausbau-zu-90-prozent/>
Burgi M, ‘Wirtschaftsverwaltungsrechtliche Instrumente zur Sicherstellung der Versorgung in ländlichen Räumen?‘ in Hans-Günter Henneke (ed), Rechtliche Herausforderungen bei der Entwicklung ländlicher Räume (Boorberg 2017)
Council of European Municipalities and Regions (CEMR), EUROPE 2030 (Éditions Autrement Paris 2018)
Cornils M, ‘Sicherstellung der technischen Infrastruktur durch Markt und Staat‘ in Hans-Günter Henneke (ed), Gleichwertige Lebensverhältnisse bei veränderter Statik des Bundesstaates? (Boorberg 2019)
Kiefer A, ‘2050: Europe Grows through Migration: Are we Prepared?’ in ÖCV und ÖAHB (eds), Academia Nr. 2/2018: Where we live tomorrow. Save education and broadband the rural area? <https://academia.or.at/s/Ac_WT_18-2_v3_komprimiert.pdf>
Sonder N and Hübner J, ‘Rechtliche Herausforderungen für Kommunen beim Breitbandausbau‘ (2015) KommJur 441
[1] See Andreas Kiefer, ‘2050: Europe grows through migration: Are we prepared?’ in ÖCV und ÖAHB (eds), Academia Nr. 2/2018: Where we live tomorrow. Save education and broadband the rural area? <https://academia.or.at/s/Ac_WT_18-2_v3_komprimiert.pdf> 6.
[2] See report section 2.3. on Public Health Care.
[3] ‘Global Competitiveness Report 2019: How to End a Lost Decade of Productivity Growth’ (World Economic Forum 2019) <https://www.weforum.org/reports/global-competitiveness-report-2019-searching-for-the-win-win-policy-space>, where Hong Kong, the Netherlands, Switzerland and Japan passed by.
[4] A clear distinction cannot be made between urban and rural areas, but rather between structurally weak and structurally strong municipalities. Of course, there are mainly structurally weak municipalities in rural areas, although there may still be exceptions.
[5] Connecting Europe Broadband Fund (CEBF).
[6] See Matthias Cornils, ‘Sicherstellung der technischen Infrastruktur durch Markt und Staat‘ in Hans-Günter Henneke (ed), Gleichwertige Lebensverhältnisse bei veränderter Statik des Bundesstaates? (Boorberg 2019) 181ff.
[7] This proposal comes from Martin Burgi, ‘Wirtschaftsverwaltungsrechtliche Instrumente zur Sicherstellung der Versorgung in ländlichen Räumen?‘ in Hans-Günter Henneke (ed), Rechtliche Herausforderungen bei der Entwicklung ländlicher Räume (Boorberg 2017) 217, where he also gives initial consideration to compatibility with European and constitutional law.