(15)

In the opening decision, the Commission expressed its concern that the Province's involvement in Trentino NGN had several features which made it doubtful whether it complied with the market economy investor principle and whether the Province's participation was indeed equivalent to that of its private partners. The Commission's doubts related in particular to the following: — The timing of the project. The Commission doubted that the Province had acted since the beginning as a market economy investor, guided not by public policy objectives but by economic and profitability considerations. It appeared that the Province had initiated the project in the public interest, and then designed it as a joint venture with the incumbent Telecom Italia, and had attempted to render the project compliant with the market economy investor principle only ex post, making changes, inter alia, following discussions with the Commission, while keeping the structure of the initiative unaltered. — The participation of private parties. The participation of McLink and Finanziaria Trentina was negligible, while Telecom Italia's was significant, but spread over time. — Concomitance of the investment. The Province was to act immediately, while Telecom Italia's contribution was spread over time and conditional upon certain events and decision-making processes. — Same terms and conditions. It was not clear that the terms and conditions on which the Province was investing in the joint venture were the same as those of the private partners, and more specifically Telecom Italia. The Commission noted several discrepancies regarding the timing and conditionality of Telecom Italia's contributions, and the possibility for Telecom Italia to acquire the Province's shares and gain full control of Trentino NGN via the call option. — Telecom Italia's initial contribution (8). The value of Telecom Italia's initial contribution appeared to be calculated on the basis of documents, assumptions, forecasts and financial analyses made by the parties which had not been verified by an independent expert. It was doubtful whether a private investor would be prepared to accept a significant equity participation in a joint venture in return for access to a regulated asset which could be obtained by contractual means at regulated prices. It was not clear that a market economy investor would accept that a lease of infrastructure, to be acquired outright at a later date, was adequate participation in the equity. The Commission doubted whether a market economy investor would acquire infrastructure that was not necessary, since the indefeasible rights of use would apply to Telecom Italia's ducts and poles throughout the Province and not just in the areas in which Trentino NGN was to deploy its network. — Telecom Italia's second contribution (9). There were doubts regarding the future valuation of Telecom Italia's second contribution, which at the time was based on a negotiated methodology, without an expert opinion. It was not clear that the preliminary valuation of the conversion to ownership of the indefeasible rights of use was in line with market terms, and in particular that there was no overlap between the valuation of the initial contribution (a lease) and the second one (ownership), given that, for the most part, the rights conferred covered the same infrastructure. The Commission had doubts about the appropriateness of the methodology for the evaluation of the transfer of ownership of all the components of the copper network (10), given its high maintenance costs, given that the main objective was to switch it off once the fibre network had become operational, and given the potential alternatives to the methodology proposed. — The business plan and the parties' levels of risk. There were significant differences between the risk profiles of the public authority and the private investors, given the different nature and timing of their contributions, the different rights and obligations of the parties — prima facie low risks for Telecom Italia, low opportunity costs for Telecom Italia, low risks to existing business as Telecom Italia would retain control over the copper network even after contributing it to the joint venture by simultaneously acquiring control of the joint venture, and acquisition of full control and internalisation of profits through exercise of the call option if the joint venture were to prove profitable; whereas the Province seemed to be acting as a financial investor in an infrastructure upgrade project, expecting at most a return of 7,75 % and EUR 6,5 million if the call option was exercised (11). The calculations in the business plan might not have been entirely accurate, owing to optimistic assumptions regarding actual demand by end-users and revenues from alternative operators activating all the GPON lines available (12). There were other similar risks: Telecom Italia might decide to postpone the switch-off of the legacy copper network, in the absence of any contractual provision obliging it to do so, and this might delay the breakeven point for Trentino NGN. There was incertitude regarding the total financial resources necessary to complete the network rollout, quantified at EUR 150 million. — Other concerns. The choice of Telecom Italia without public tender, and its remuneration as a provider of services to Trentino NGN; Telecom Italia's dual position as shareholder and supplier.