The EU wants to invest in broadband, but will it?

European Commission vice president Neelie Kroes has long advocated faster broadband’s economic benefits. Now she is preparing to ask the EU to endorse a package that could free up to €100 billion ($128.65 billion) in broadband infrastructure investment.

A year ago, Kroes, who is also the EC’s digital agenda commissioner, outlined a plan under the Connecting Europe Facility fund that would offer roughly €9.2 billion from 2014 to 2020 in government loans, aimed at building out better broadband.One of the rationales for the investment was Europe’s young cloud computing industry would benefit, a conversation we’ll have at our Structure:Europe conference in Amsterdam on Oct. 16 and 17.

Voting on the proposal is due by the European Parliament and ministers of member states at the end of this month. On Tuesday, as part of a conference supporting the initiative, Kroes presented detailed plans to key industry stakeholders for the first time.

Her argument is that the fund’s €9.2 billion in government loans can unlock between €50 billion and €100 billion in actual broadband spending over the six years of the program. Kroes is selling it with strong language that paints broadband as the gateway for communities and organizations to the 21st century. From her post:

“Already today we see the havoc when broadband networks get congested. But with Internet use doubling every 2-3 years, those networks need a serious upgrade. Without investment, we condemn our citizens to slow connections with frequent blackouts; we make our businesses less competitive and less productive; we force our public authorities to meet 21st century expectations using 20th century systems.

“On 12 July I set out the regulatory framework to encourage private investment in broadband. But the fact is private money can’t do it all: broadband needs public support through financial instruments. If we fail to invest, millions in less populated areas will find themselves on the wrong side of the digital divide, cut off from tomorrow’s opportunities. That’s bad for our economy, and bad for our society.

This refrain should be familiar to U.S. citizens, or even those in Australia – countries that have recently proposed public money for faster broadband access. Ironically, the governments in places outside the U.S. seem to be more aware of the challenge in getting private companies to invest in rural areas where the cost of deploying fiber for a few homes doesn’t make economic sense — or would totally crush the business models of the incumbent providers.

Unlike Australia, the EU isn’t proposing that the government build out the infrastructure. Instead, it’s proposing a series of loans and grants to incentivize private-sector investment, similar to what the U.S. did with its broadband spending under the American Reinvestment and Recovery Act (ARRA) in 2009.

Unfortunately, building out broadband networks is a highly unique situation in rural areas, where the costs are high and the end-customer has to be willing to pay (maybe more than the going rate in a more densely populated area) for access. Getting connectivity all the way to the home may also require further municipal or taxpayer investment. As this example of a successful ARRA-backed broadband stimulus project indicates, success is possible, but it’s also highly specific. And while that is one success, other projects have so far failed, providing a fiber backbone to nowhere.

I’m beginning to think this half-in and half-out approach to giving loans for broadband funding is the worst of both worlds. Taxpayer dollars are spent building out infrastructure, but the private companies that those dollars go to don’t necessarily have the experience or willingness to create a viable business built on the loan. Sure, taxpayers spend less, but the net result is they end up with nothing. Hopefully if the EU goes ahead and approves this plan, it can learn from some of America’s mistakes.