IP/04/981

Brussels, 20 July 2004

Commission rules that France Télécom received illicit aid and orders that it be paid back to the state

The exemption from business tax which the France Télécom group enjoyed up to the end of 2002 constituted aid that was incompatible with the EC Treaty. France Télécom has to pay back to the state an amount estimated at between €800 million and €1.1 billion plus interest. In addition the shareholder’s advance made available to the operator in December 2002 contains aid components.

“This decision shows that to be effective and fair the monitoring of state aid must cover all the different – and in some cases highly imaginative – arrangements used by states to support firms by providing aid that is incompatible with the European competition rules,” said Mario Monti, the Commissioner with responsibility for Competition.

Between 1994 and 2002, France Télécom enjoyed special conditions concerning local direct taxes. These conditions produced savings for France Télécom of between €800 million and €1.1 billion. Because the state did not levy the full amount of this tax, it waived state resources. The exact amount of the aid will be determined by the Commission during the recovery procedure.

In addition the shareholder’s advance which ERAP offered to France Télécom in December 2002 contains aid components.

The offer of the shareholder’s advance significantly improved the operator’s financial situation. This benefit was provided using state resources, as the shareholder’s advance was offered by a public entity, ERAP, and created a potential supplementary liability for state resources. The state made a firm offer and simply by signing, France Télécom could secure the right to payment of the €9 billion.

The offer of a shareholder’s advance should not be seen in isolation but against the backdrop of government statements from July to December 2002. The statements created expectations and confidence on the financial markets and helped maintain France Télécom’s investment rating. If the statements had not been made, no reasonable investor would have offered a shareholder’s advance in these circumstances and assumed alone a very large financial risk. The Commission does however recognise that it is the first time that it has had to examine this type of aid. It will therefore not order the recovery of this aid.

Finally, under Directive 97/13/EC, it is for the Member States alone to lay down the conditions for awarding UMTS licences. As the state did not discriminate between operators, Orange and SFR were not given any benefits, so there was no state aid. The Commission has thus rejected the complaint by Bouygues Telecom.