State aid: Commission finds aid to BT partially unlawful and orders recovery
European Commission - IP/09/243 11/02/2009
Brussels, 11th February 2009
The European Commission has concluded that a UK Crown guarantee covering the pension liabilities of British Telecom plc on the EU telecommunications markets is partially unlawful under EC Treaty state aid rules. The Commission does not call into question the safeguards for BT's employees at the time of privatisation, introduced by the guarantee. However, as a consequence of the guarantee, BT is partially exempted from certain common law financial obligations, such as the payment of a levy to the Pension Protection Fund since 2005. Following an in-depth investigation, opened in November 2007 (see IP/07/1802), the Commission concluded that this exemption conferred an unfair competitive advantage to BT that constitutes state aid. Such aid cannot be justified under EU rules because it merely dispenses BT from charges that its competitors have to pay. The UK must therefore recover the aid by ensuring that a full levy is paid to the Fund.
Competition Commissioner Neelie Kroes commented: "In the liberalised market of electronic communications, it is important to ensure that BT is subject to the same rules and obligations as its competitors to guarantee a level playing field and fair competition, so that consumers can benefit from high-quality services and competitive prices."
In November 2007, following a complaint, the Commission initiated a formal investigation on the Crown guarantee for BT's pension liabilities, granted by the UK Government in 1984, at the time of BT's privatisation (see IP/07/1802). The aim of the measure was to guarantee the pension rights of the employees working at BT's at the time of privatisation. The guarantee can only be called upon if BT goes bankrupt and if there are not enough assets in its pension fund to finance the covered employees' pension rights. The Commission's investigation found that the guarantee benefits directly and exclusively the relevant employees and not BT itself and does therefore not constitute state aid to BT.
However, subsequent UK legislation imposed obligations on pension funds, from which funds with a Crown guarantee were exempted. In particular, as concern's pre-privatisation employees, BT's pension fund is exempted from the payment of a levy to the Pension Protection Fund, a safety net created in 2004 to guarantee pensions when sponsor companies go bankrupt and financed by their contributions. A levy is however paid for BT post-privatisation employees who are not covered by the Crown guarantee.
In that respect, the Commission concluded that the exemption from the application of the payment confers a financial advantage to BT and constitutes state aid. Such aid cannot be justified under EU rules because it merely dispenses BT from charges that its competitors have to pay. Therefore, the UK must recover the aid by ensuring that a full levy, corresponding to what would have been due since 2005 by BT without a Crown guarantee, is paid to the Pension Protection Fund plus interest. BT has already blocked an amount of GBP 16.6 million in an escrow account corresponding to the levies payable until 2008, which should accrue to the Pension Protection Fund following the Commission decision.
The non-confidential version of the decision will be made available under the case number C 55/2007 in the State Aid Register on the DG Competition 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