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State Aid, Open Access and Market Size: Two Cases of FTTH Network Implementation in Dutch Municipalities

The discussion on the EU regulatory framework of 2003 in particular on emerging markets provides for a new dynamic approach towards investment in next generation broadband infrastructure in municipalities. By using the criterion of non-replicable assets, FTTH networks in local municipalities can be characterized as a new infrastructure which is aimed at providing new services which should be exempted from ex ante regulation. However, to justify public investment in these networks in particular in 'black areas' their compatibility with Article 87 of the EC Treaty has to be guaranteed. In this context, the paper uses the examples of two FTTH networks in local communities in the Netherlands to show that (different) open access agreements are vital but not sufficient to guarantee service competition. We show that for small networks public investment in the start up phase of the network is required to facilitate a multiple supplier environment.