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Brussels, 11 December 2007

State aid: Commission concludes City of Amsterdam investment in fibre network is not state aid

The European Commission has approved the investment by the municipality of Amsterdam and other shareholders in a glass fibre telecommunications network in the Dutch city. After an in-depth investigation, launched in December 2006 (see IP/06/1872), the Commission concluded that the municipality participates in the project on the same terms as would a market investor. Therefore the Commission has concluded that no state aid is involved.

Competition Commissioner Neelie Kroes commented: “Business activities of public authorities in the liberalised electronic communications sector have to be analysed carefully because of the potentially distortive effect of any state aid on the business of private operators, especially in metropolitan areas. However, in this particular case, our investigation found that the municipality of Amsterdam invests on market terms and that several private parties make significant investments in the project."

Together with other shareholders, Amsterdam is investing in a company building a "fibre-to-the-home" broadband access network connecting 37,000 households in Amsterdam. The total equity investment in the project is €18 million. The Amsterdam municipality owns one third of the shares, two private investors, ING Real Estate and Reggefiber together another third, while five housing corporations own the remaining third. The wholesale operator of the new fibre network was selected through a tender procedure and will provide open, non-discriminatory access to retail operators which offer TV, broadband and telephony services.

Under EU state aid rules, investments by public authorities in companies carrying out economic activities can be considered free of aid, if they are made on terms that a private investor operating under market conditions would have accepted (the market economy investor principle).

In view of preliminary doubts stemming from the viability of the business plan and certain pre-investments carried out by the municipality of Amsterdam, the Commission opened a formal investigation in December 2006 (see IP/06/1872).

Following observations from third parties and further clarifications from the Dutch authorities, the Commission concluded that the two private companies active in the sector, invested on equal terms with the municipality. In particular, all investing parties would have to support any losses in the event of an underperforming business. The structure of the new company ensures that the private investors have significant stakes in the project in a setup where no single shareholder can exert sole control over the company. Together with the detailed analysis of the business plan, these elements provided sufficient evidence for the Commission to conclude that the investment is conform to the market economy investor principle and therefore does not involve state aid.

The Commission has assessed over 30 public support measures for broadband services and networks under the state aid rules. If public intervention is well-justified because the market alone would not have provided the subsidised service, such as in rural areas with a low population density and no broadband coverage, state aid is generally considered to be compatible. The Commission is more cautious when public authorities grant support in metropolitan areas, such as Amsterdam, where commercial broadband services are already available at competitive conditions. Such aid may crowd out existing and future investments by market players. However, in the case at hand, no state aid is involved, as the municipality acts like a market investor.

The Commission also highlights that this decision does not mean that public authorities can engage in projects merely by claiming that they participate in a project like a normal market investor. The market conformity of a public investment has to be demonstrated thoroughly, in general by a sound business plan and significant private investment in a project. In addition, the private parties would have to assume the commercial risk linked to the investment under the same terms and conditions as the public investor.

The non-confidential version of the decision will be made available under the case number C 53 / 2006 in the State aid Register on DG Competition's website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State aid Weekly e-News.

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