EN Official Journal of the European Union L 257/11

COMMISSION DECISION

of 2 August 2004

on the State Aid implemented by France for France Télécom

(notified under document number C(2004) 3060)

(Only the French version is authentic)

(Text with EEA relevance)

(2006/621/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1) and having regard to those comments,

Whereas:

1. PROCEDURE

(1) By letter dated 31 January 2003, the Commission informed France of its decision to open the formal investigation procedure provided for in Article 88(2) of the EC Treaty (‘the opening decision’) in respect of financial measures introduced by the French authorities for France Télécom (‘France Télécom’, ‘FT’ or ‘the Company’) and in respect of the business tax scheme applicable to that operator. A description of the facts which led to the procedure being opened is not included in this Decision (2).

(2) The opening decision was notified to France on 31 January 2003. After a number of substantive errors had been corrected, a corrigendum was notified to France on 7 March 2003.

(3) France communicated additional information to the Commission by letters dated 4 April 2003, 15 May 2003 and 29 January 2004.

(4) The Commission's decision to open the procedure was published in the Official Journal of the European Union (3). The Commission invited interested third parties to submit their comments on the aid measures in question.

(5) The Commission received the following comments on the subject from interested third parties: — 21 March 2003: comments from Cable and Wireless plc and Cable and Wireless SA — 11 April 2003: comments from Cegetel — 10 April 2003: comments from AFORS Telecom — 11 April 2003: comments from LDCOM — 11 April 2003: comments from A (4) — 10 April 2003: comments from Tiscali — 11 April 2003: comments from WorldCom France (5) — 11 April 2003: comments from B (6) — 11 April 2003: comments from Bouygues ITS and Bouygues Telecom (7) — 14 April 2003: comments from Telecom Italia — 14 April 2003: comments from C (8) — 29 April 2003: comments from B — 30 April 2003: comments from LDCOM (9).

(6) The Commission transmitted the comments to France on 16 May 2003, giving it the opportunity of commenting on them. It received France's comments by letters dated 30 June and 29 July 2003 (10).

(7) On 30 May 2003, the Commission published an invitation to tender for a contract ‘for the provision of services to assist in assessing the compliance of the financial assistance granted to France Télécom with the principle of the private investor in a market economy and if necessary to analyse France Télécom's recovery plan’ (11). By letter dated 3 July 2003, the French authorities wrote to the Commission about the above-mentioned invitation to tender. The Commission replied by letter dated 24 September 2003. On 24 September 2003, the contract for the provision of services was awarded to the firm of consultants NERA (‘NERA’, or ‘the consultant’). The French authorities were informed of the expert's identity by fax dated 8 October 2003.

(8) The Commission received other information and documents from the third parties listed below: — 23 June 2003: letter from LDCOM — 25 June 2003: letter from D (12) — 27 October 2003: letter from MCI — 16 October 2003: letter from ECTA — 25 June 2003: letter from XXX — 7 January 2004: letter from Bouygues Telecom — 16 January 2004: letter from Bouygues Telecom (13) — 19 March 2004: letter from France Télécom (14) — 5 April 2004: letter from Tiscali — 17 May 2004: letter from LDCOM — 26 May 2004: letter from Bouygues Telecom (15) — 22 June 2004: letter from France Télécom (16) — 30 June 2004: fax from France Télécom — 2 July 2004: fax from France Télécom.

(9) The Commission requested additional explanations from the French authorities by the following letters: — 11 September 2003 (answer given by the French authorities on 20 October 2003) — 11 November 2003 (answer given by the French authorities on 4 December 2003) — 12 January 2004 (answer given by the French authorities on 21 January 2004) — 2 February 2004 (answer given by the French authorities on 16 February 2004) — 1 June 2004 (answer given by the French authorities at the meeting on 16 June 2004).

(10) The Commission forwarded to the French authorities on 3 May and 14 June 2004 the letters referred to in paragraph 8 and the NERA report of 28 April 2004 (‘the NERA report’). The report is in two separate parts: (i) a legal report by Professor Berlin; and (ii) an economic report.

(11) The Commission heard representatives of third parties at various meetings during the course of the proceeding.

(12) The Commission and the consultant met with the French authorities and France Télécom on 22 January and 16 and 23 June 2004.

(13) By letter dated 14 May 2004, which was confirmed on 3 June 2004, the French authorities stressed that the opening decision did not cover all the facts forming the subject-matter of the Commission's investigation. By email dated 9 June 2004, which was confirmed by letter dated 10 June 2004, the French authorities submitted comments on the NERA report, which were supplemented by letter dated 21 June 2004.

2. DESCRIPTION OF FRANCE TELECOM

(14) As indicated in the opening decision, the present proceeding concerns the France Télécom group as a single economic entity. Since the beginning of the proceeding, the Commission has referred to the Company's consolidated accounts. In adopting this approach, the Commission is taking a line which is consistent with economic reality as reflected by the market, which assesses France Télécom's performance and financial strength on the basis of its consolidated results. In the opening decision, the France Télécom group was described as follows (unofficial translation from the original French): ‘Originally part of the Ministry of Posts and Telecommunications, France Télécom was formed in 1991 as a public operator endowed with legal personality. Since 31 December 1996 the operator has had the status of a public limited company, and since October 1997 it has been listed on the First Market of Euronext Paris SA and on the New York Stock Exchange (NYSE). In 2002, the State held a majority stake in France Télécom of 56,45 %, the remainder being divided between the public (32,25 %), France Télécom itself (8,26 %) and employees of the Company (3,04 %) (17). France Télécom is an operator and a supplier of telecommunications services, active in France and throughout the world with a presence in the following markets: fixed telephony, mobile telephony, the Internet and other information services, services to business, TV broadcasting and cable TV. Following the reorganisation of Orange plc and the formation of Orange SA as France Télécom's main mobile telephony subsidiary, its placing on the stock exchange and the placing on the stock exchange of Wanadoo SA, France Télécom's activities are henceforth organised in four segments: (i) Orange; (ii) Wanadoo; (iii) fixed, voice and data services in France; and (iv) fixed, voice and data services outside France, mainly through its subsidiary Equant. At the end of 2001, France Télécom employed 211 554 people worldwide, including 146 882 in France’ (18).

(15) The above description remains valid for the period covered by this Decision. During that same period, the group's structure was characterised by ‘a policy of out-and-out subsidiarisation through the creation of four listed companies centred on France Télécom: Orange, Wanadoo, TPSA in Poland and Equant. The group thus took shape in a quite paradoxical and unbalanced manner, with the parent company France Télécom SA carrying all the debt while the subsidiaries concentrated on growth …’ (19).

3. CHRONOLOGICAL DESCRIPTION OF THE FACTS AND FINANCIAL SITUATION OF THE COMPANY

3.1. The data known during the first half of 2002 and events at that time

(16) The Commission would point out that the analysis under the state aid rules of a State's conduct must be carried out using the data and information available at the time of each state intervention. Given that the present case concerns events occurring in 2002 and early 2003, it is essential, in order to understand the facts on which the Commission has based its analysis of the State's conduct, to set out chronologically the evidence available from the time of publication of the results for the 2001 financial year. The financial results for the first half of 2002 were not made public until 13 September 2002. Before that date, the last financial results to have been published by France Télécom were those for the 2001 financial year. However, some additional data emanating from financial analysts were to be found in the latters' forecasts, opinions and recommendations.

(17) As is clear from the analysis below, France Télécom was, from June 2002 onwards, a company with serious structural problems and an unbalanced balance sheet. During the first quarter of 2002, the nature of these problems was revealed by the publication of the 2001 accounts. The publication of these accounts showed improved operating results and substantial cash flow generation. Nevertheless, it also pointed up the heavy weight of the past, which wiped out the net result before exceptional provisions of EUR 1,9 billion, turning it into a EUR 8,3 billion loss. While the provisions correct the value of France Télécom's assets to a more realistic level, the colossal size of the debt, at EUR 63 billion, persists. This context, together with the inadequacy of the expected cash flow, helps explain the serious structural problems. This is clearly demonstrated by the HSBC study submitted by France Télécom (see Section 4), which calculates a financing requirement of EUR 35 billion over the period 2002-05.

(18) On 31 December 2001, France Télécom's net debt came to EUR 63,5 billion, as can be seen from Tables 1 and 2. Table 1 Debt (leverage) ratios 1999 2000 2001 Debt ratio (20) 0,78 0,89 0,92 Debt/equity (21) 3,61 8,25 12,16 Times interest earned (22) 14,52 5,39 3,2 Source: NERA. Table 2 Bonds falling due from the third quarter (Q3) of 2002 to the fourth quarter of 2003 2002 2003 Q3 Q4 Q1 Q2 Q3 Q4 Total 2003 Amount in EUR billion (23) 3,89 3,61 8,86 4,08 4,09 2,23 19,26 Source: NERA.

(19) In the light of these data, the Commission would observe that, in view of the scale of its debt, France Télécom was forced to announce, on 21 March 2002, not only a major clean-up of its balance sheet through balance sheet provisions and asset disposals totalling EUR 27,2 billion (comprising disposals worth EUR 17 billion and exceptional provisions of EUR 10,2 billion), but also a substantial increase in the available cash flow to the tune of EUR 14 billion for the period 2002-05.

3.1.1. The downgrading of France Télécom's credit rating

(20) During the first half of 2002, France Télécom's situation worsened rapidly, as reflected in a series of downgrades in the Company's credit rating. Thus, on 27 March 2002, the Moody's credit rating agency announced a downgrading of France Télécom's rating for long-term debt (24)/ (25).

(21) On 28 March 2002, Standard & Poor's (‘S & P’) maintained France Télécom's rating but downgraded its prospects to negative (26) following news concerning Mobilcom.

(22) On 13 May 2002, Moody's, doubting the Company's capacity to implement its debt-reduction strategy, announced a possible downgrade of France Télécom's short-term debt rating (27).

(23) On 14 May 2002, Standard & Poor's maintained France Télécom's existing rating (28).

(24) On 24 June 2002, Moody's downgraded France Télécom's rating. The Company's prospective rating was maintained at a negative level (29). Moody's decision at that time was based on the fact that the agency did not expect France Télécom and Orange to be in a position to generate sufficient cash flow to reduce the group's consolidated debt. Although Moody's was not concerned about the likelihood of a liquidity crisis in the Company in the immediate future, it did point out that France Télécom was confronted with debts of about EUR 15 billion falling due in 2003.

(25) On 25 June 2002, Standard & Poor's downgraded France Télécom's short- and long-term debt rating (30), basing its decision on the difficulties concerning Mobilcom and the Company's inability to reduce its debt far and fast enough. S & P also mentions France Télécom's considerable financing requirements, referring also to the EUR 15 billion of debt coming due in 2003.

(26) This downward trend was confirmed several times (31) over the next few days. On 12 July 2002, Standard & Poor's even drew attention to a potential problem involving the refinancing of the debt coming due in 2003. The downgrading of France Télécom's rating clearly revealed the Company's debt problems (32), worsened by the uncertainty surrounding Mobilcom.

(27) Table 3 recapitulates the various positions of S & P, Moody's and Fitch regarding France Télécom's rating: Table 3 Events connected with credit ratings S & P Moody's Fitch Short term Long term Short term Long term Short term Long term Situation in May 2002 A2 BBB+ P2 Baa1 F2 BBB+ 24 June 2002 P3 Baa3 25 June 2002 A3 BBB 05 July 2002 F3 BBB- 12 July 2002 BBB- Source: NERA.

3.1.2. Analysis of credit spreads

(28) It is important that the behaviour of spreads in the financial markets be examined. The spreads relating to the debt of a company reflect the assessment, by the markets, of the risk linked to the capacity of the company to meet its obligations in respect of the payment of interest and the reimbursement of the debt upon maturity. Spreads influence the valuation, by the market, of bonds and the level of interest that may be required for the issue of new bonds. A widening of the spreads indicates an increase in the risk attributed to the issuer and/or the bond. The Commission has analysed France Télécom's spreads for the period covering the 2002 financial year and has established a relatively high assessment of the risk at the beginning of July.

(29) Normally, the spreads for long-term debt are greater than those for short-term debt, with several factors coming into play here: lack of visibility, uncertainty as to future prospects, macroeconomic parameters, and the trend in interest rates. However, an examination of Table 3 shows clearly that the problems encountered by France Télécom were particularly concentrated on short-term debt. The spreads study concerning France Télécom has thus demonstrated that the very short-term risks were higher than those in the medium and long term. This phenomenon is called a ‘spread inversion’. The frequency of these inversions, during which debt coming due in one year was considered by the market to be more risky than three-year debt, was particularly evident during the period July-September 2002.

(30) Table 4 provides a graphical representation of the behaviour of France Télécom's spreads. Table 4 Credit spreads for bonds with a 1- and 3-year maturity — France Télécom Source: Bloomberg.

(31) A different way of observing the increased risk associated with France Télécom's debt is to study the price of its bonds. Table 5 shows a subset of France Télécom's bonds. The fall in the price of the bonds in June/July 2002, which is a mirror image of the increase in the credit spreads, reflects a lesser value of France Télécom's debt due to the increased risk of default perceived by the market. Table 5: Price of France Télécom's bonds from 1 May 2002 to 24 July 2002 Source: Bloomberg.

(32) It is clear, moreover, that, despite the difficulties of a few other operators in the telecommunications sector in Europe, the difficult situation with which France Télécom was faced was a direct result of the state of its balance sheet and financial structure.

(33) This is highlighted by a study of the spreads of Deutsche Telekom and KPN, as shown in Tables 6 and 7. Table 6: Credit spreads for bonds with a 1- and 3-year maturity — KPN Source: Bloomberg. Table 7: Credit spreads for bonds with a 1- and 4-year maturity — Deutsche Telekom Source: Bloomberg.

(34) This study reveals that Deutsche Telekom also experienced spread inversions, but they were of short duration only and on a much smaller scale. The levels attained by France Télécom during the period June/July 2002 were much higher.

3.1.3. France Télécom's share price

(35) At the same time, France Télécom's share price fell significantly during the first half of 2002, reaching its lowest level first on 27 June 2002 (EUR 7,79), and then on 30 September 2002 (EUR 6,01), as can be seen from Table 8. Table 8: France Télécom's share price Source: Bloomberg.

3.1.4. The events of July 2002

(36) In an interview published in Les Échos on 12 July 2002, the French Minister for Economic Affairs, Finance and Industry (‘the Minister for Economic Affairs and Finance’) said that: ‘The State shareholder will behave like a prudent investor and would take appropriate steps if France Télécom were to face any difficulties … I repeat, if France Télécom were to face any financing problems, which is not the case today, the State would take whatever decisions were necessary to overcome them’ (33).

(37) On that same day, as indicated above, S & P downgraded France Télécom's rating to BBB-. This downgrade was nevertheless limited to a rating still qualifying as investment grade: any further downgrade would have led to the Company's debt being accorded junk-bond status, as being no longer of investment grade. The fact that France Télécom's rating was being kept at investment grade was commented on by Goldman Sachs in a report dated 22 July 2002, which states that France Télécom was about to be downgraded to junk-bond level by S & P and Moody's (34).

(38) In its press release of 12 July 2002, S & P states that the reason why it had decided to continue France Télécom at investment grade was to do with the State's indications as to its intentions towards the Company: ‘France Télécom could face certain difficulties refinancing its debt obligations coming due in 2003. Nevertheless, the State's indication underpins France Télécom's investment-grade credit quality’. This assurance had been provided, firstly, directly by the French Government to S & P: ‘the French State — which owns 55 % of France Télécom — has made clear to Standard & Poor's that it will behave as an aware investor and would take appropriate steps if France Télécom were to face any difficulties. France Télécom LT rating cut to BBB-’ (35).) and, secondly, publicly in the interview referred to in paragraph 36.

(39) In the light of the above, there is no question but that in July 2002 France Télécom was facing a crisis of confidence. Rating agencies and analysts alike were convinced that the Company risked not being able to implement the refinancing plan presented by the management in order to meet its maturities. The Company was therefore faced with an acute financing problem linked to its indebtedness (36). Nevertheless, the agencies had maintained the Company's rating at investment grade on the strength of the State's indications. A downgrading of the rating would have worsened the crisis and lessened the Company's ability to cope. In the words of the group's former CEO, Mr Michel Bon: ‘It will be in June 2003, therefore, that France Télécom's financing problems may become critical or even insurmountable. If, between now and then, France Télécom has not regained access to the market (owing to its penalising rating), the State will have to find ways of helping it to refinance itself’ (37).

3.2. The data published on 13 September 2002 and events at that time

3.2.1. The data published on 13 September 2002

(40) The conclusion set out in paragraph 39 was confirmed retroactively in September 2002 when France Télécom's half-yearly accounts were presented. From its scrutiny of the half-yearly accounts published on 13 September 2002, the Commission notes an improvement in France Télécom's figures for the first half of 2002 compared with the previous year: an increase of 10 % in turnover, 13,2 % in EBITDA and 17,3 % in the operating result. The Commission notes also the sustained growth in mobile telephony and the improved performance of the Internet business. However, the operating result of the fixed telephony segment in France, which accounted for 31 % of turnover for the same period, was down by 12,2 %.

(41) Alongside the good operating results described above, France Télécom confirmed the imbalance in its financial situation. The negative result of EUR 12,2 billion as at 30 June 2002 was primarily due to the substantial provisions made for investments. As a result of this half-year loss, from being positive overall France Télécom's consolidated own funds became negative as at 30 June 2002 to the tune of EUR 440 million.

(42) A simplified analysis of cash flow as at 30 June 2002 shows that net debt increased during the first half of 2002 by EUR 6,3 billion inasmuch as EBITDA, at EUR 6,870 billion, did not cover expenditure represented by: — debt interest (EUR 3 099 million), — investments (EUR 3 820 million), — the repurchase of France Télécom shares from Vodafone (EUR 4 973 million), — the repurchase of Orange shares from E.On (EUR 950 million), and — the payment of taxes (EUR 608 million).

(43) Of a net indebtedness of EUR 69,69 billion as at 30 June 2002, the bulk, or EUR 50,6 million worth, is made up of bonds. Table 9 gives a breakdown, by major category, of the various components of the debt. Table 9 EUR billion 30 June 2002 Exchangeable or convertible bonds 10,75 Bonds 39,85 Leasing operation 0,42 Bank loans 6,62 Other, non-bank loans 0,72 Drawings on syndicated loans of EUR 15 billion 8,15 Drawings on syndicated loans of USD 1,4 billion 1,48 Other bank overdrafts and other short-term borrowings 4,14 Total gross debt 72,13 Movable investments (0,15) Cash in hand (2,29) Net indebtedness 69,69 Source: France Télécom's consolidated accounts: half year ended 30 June 2002.

(44) The maturity schedule of this debt is characterised by its short duration. Thus, EUR 12,9 billion of debt comes due in 2003, including EUR 10,5 billion worth of bonds (38), EUR 1,0 billion worth of loans to subsidiaries, and EUR 1,4 billion worth of private investment.

(45) During the first half of 2004, EUR 5,5 billion worth of bonds and EUR 6,4 billion worth of credit lines (EUR 1,4 billion and EUR 5 billion of the EUR 15 billion back-up facility) came due, giving a total of EUR 11,9 billion. France Télécom was therefore faced with having to repay EUR 24,8 billion between 1 January 2003 and 30 June 2004.

(46) During the second half of 2004, EUR 2,8 billion worth of bonds and EUR 2,6 billion worth of loans to subsidiaries will come due, giving an amount of EUR 5,4 billion and a total amount of EUR 17,4 billion for 2004 as a whole.

(47) In 2005, lastly, EUR 8,5 billion worth of bonds, an amount of EUR 10 billion corresponding to the balance of the EUR 15 billion back-up facility, and an amount of EUR 0,1 billion relating to private investments will come due, giving a total of EUR 18,6 billion during the course of 2005.

(48) During the period 2003-05, France Télécom will be faced with a total repayable debt of EUR 48,9 billion.

(49) As was mentioned in the opening decision, the Commission would point out that France Télécom's debt stems mainly from the massive acquisitions engaged in by the Company as from 1999 (39), which were financed primarily out of cash (40). More than EUR 100 billion was thus spent by France Télécom in its quest for growth, 80 % of which was paid for in cash (41).

(50) The Commission would also point out that the Company's external growth was focused on the mobile telephony sector (42)(including the acquisition of Orange plc (43), which was the most costly, and the Mobilcom transaction (44), without forgetting the other transactions involving fixed telephony (e.g. TPSA (45), the Internet (Freeserver) or cable (NTL) (46).

3.2.2. September 2002

(51) On 12 September, the Government announced that it had accepted the resignation of France Télécom's CEO, Mr Michel Bon, but remained silent about the appointment of a new CEO (47). On 13 September, the Government reiterated in a press release its support for the Company and expressly indicated that it had decided to take part in a forthcoming operation aimed at increasing France Télécom's own funds: ‘… After the exceptional losses of the first six months, France Télécom is faced with a serious shortage of capital. This financial situation is weakening the company's potential. The Government is therefore determined to exercise its responsibilities to the full. … Taking note of the new situation brought about by the considerable deterioration in the accounts, Mr Bon has tendered his resignation to the Government, which has accepted it. The resignation will take effect at a board meeting to be held in the next few weeks, at which a new chairman will be presented … The new chairman will in a very short space of time propose to the board a plan for improving the company's accounts, enabling its debts to be reduced and its financial structure to be restored while maintaining its strategic advantages. The State will help France Télécom implement this plan and will contribute to a very substantial strengthening of the company's capital base, according to a timetable and in a manner to be determined in the light of market conditions. In the meantime, the State will, if necessary, take steps to prevent the company from being faced with any financing difficulties …’ (48).

(52) That same day, Moody's changed the outlook of France Télécom's debt from negative to stable owing to the restated commitment to support the Company (49).

3.2.3. October 2002

(53) On 2 October 2002, the Government appointed Mr Thierry Breton CEO of France Télécom. A press release of the Minister for Economic Affairs and Finance announced the appointment. In the same press release, the Government repeated its commitments: ‘On a proposal from the company's board of directors, the Council of Ministers has decided to appoint Thierry Breton chairman of France Télécom … To that end, the new chairman will immediately carry out an inventory of the company, the findings of which will be communicated to the board in the weeks ahead and which will form the basis for a financial recovery and strategic development plan enabling the company's debt to be reduced while building on its strengths. Within this framework, Thierry Breton will enjoy the support of the State in its capacity as shareholder, determined as it is to exercise its responsibilities to the full. The State will assist in implementing the recovery measures and will contribute, for its part, to the strengthening of the company's own capital base in a manner to be determined in close collaboration with the company's chairman and board. As already indicated, the State will, if necessary, take steps to prevent the company from being faced with any financing difficulties’ (50).

3.2.4. December 2002/January 2003

(54) On 4 December 2002, at a meeting of the Company's board, an action plan entitled Ambition FT 2005 (51)(‘the Ambition 2005 plan’) was presented by France Télécom's new management, being aimed, according to the French authorities (52), at bringing about a noticeable improvement in the Company's operational performance and offering the prospect of a satisfactory return on capital invested. Thus, the medium-term objectives were (i) to meet France Télécom's financing requirements; and (ii) to achieve a net reduction in debt and a reconstitution of capital, a sine qua non for the Company's rehabilitation in the long run in terms of borrowing on the stock market. In the HSBC report, it is stated that: ‘Assuming a business plan which incorporates the operational improvement in the TOP programme, we consider that France Télécom has a refinancing requirement over the period 2002-07 of approximately €22 billion ... [On the other hand], assuming a business plan which does not incorporate the operational improvement in the TOP programme, we estimate that France Télécom has a refinancing requirement over the period 2002-07 of approximately €35 billion’.

(55) The key elements of the plan in question and the measures which the French authorities envisaged adopting with regard to France Télécom were notified to the Commission by letter dated 3 December 2002 and additional information was submitted by letters dated 14 and 15 January 2003. A detailed description of the Ambition 2005 plan and its various aspects (operations, debt renegotiation and strengthening of the Company's capital base) as well as of the other measures envisaged by the French authorities is given in the opening decision and is not repeated in this Decision.

(56) The presentation of the Ambition 2005 plan was accompanied by a press release of the Minister for Economic Affairs and Finance in which the Government confirmed its support for the plan, its commitment to take part in the operation to strengthen the Company's capital base and the making-available of a shareholder loan in the form of a EUR 9 billion credit line. The parts of the press release that are relevant to this Decision are as follows: ‘Francis Mer, Minister for Economic Affairs, Finance and Industry, confirms the State's support for the action plan approved by France Télécom's board of directors on 4 December. 1/The France Télécom group is a coherent industrial entity with a remarkable track record. However, the company is now faced with an unbalanced financial structure and a need for capital and refinancing in the medium term. This state of affairs is due to the failure of past investments, which were carried out badly at the height of the financial “bubble” and, more generally, to the market downturn. The impossibility for France Télécom to finance its growth otherwise than through debt has made the situation worse. 2/The State, as majority shareholder, has asked the new management to restore the company's financial equilibrium while maintaining the group's integrity … 3/In the light of the action plan drawn up by management and the investment return prospects, the State will participate in the EUR 15 billion strengthening of the company's capital base in proportion to its share in the capital, giving an investment of EUR 9 billion. The State shareholder thus intends to act like a prudent investor. It will be for France Télécom to work out the detailed arrangements and precise timetable for the strengthening of its capital base. The Government wants the utmost account to be taken during the operation of the situation of individual shareholders and of employees with shares in the company. To enable the company to launch a market operation at the most opportune moment, the State is prepared to make an upfront prepayment towards the strengthening of the capital base in the form of a temporary shareholder loan, remunerated at market rates, placed at France Télécom's disposal. 4/The State's entire shareholding in France Télécom will be transferred to a public industrial and commercial entity, ERAP. The latter will borrow on the financial markets in order to finance the State's share in the strengthening of the company's capital base’ (53) .

(57) A few days after the presentation of the Ambition 2005 plan, France Télécom launched two successive bond issues on 11 and 12 December 2002 for a total amount of EUR 2,9 billion. The first bond issue was for a total amount of EUR 2,5 billion over seven years, at a fixed rate of 7 %, or Euribor + 290bp. For France Télécom, the cost of the fixed-rate tranche is 7,165 % (all-in). The second bond issue was placed on the pound sterling (GBP) market for an amount of GBP 250 million at a fixed rate of 8 % over 15 years, or LIBOR + 330bp (54). Other issues were made on 15 January 2003 for a total amount of EUR 5,5 billion (55). These were part of a three-tranche issue (EUR 1 billion at a fixed rate of 6 %, scheduled to mature in 4,7 years; EUR 3,5 billion at a fixed rate of 7,5 %, scheduled to mature in 10 years; and EUR 1 billion at a fixed rate of 8,125 %, scheduled to mature in 30 years). On 10 February 2003, that part of the EUR 15 billion syndicated loan which had matured, namely approximately EUR 5 billion over three years at the rate Euribor + 125bp, was renewed.

(58) On 17 December 2002, S & P indicated that, since July 2002, the Government's support had been a key factor in maintaining France Télécom's investment-grade status (56) and that its announcement concerning the shareholder loan and the commitment to subscribe, in proportion to its shareholding, to a EUR 15 billion recapitalisation operation had confirmed that support (57).

3.2.5. February/March 2003

(59) France Télécom ended the 2002 financial year with a loss of approximately EUR 21 billion and a net financial debt of almost EUR 68 billion.

(60) On 4 March 2003, the operation to strengthen the Company's capital base by EUR 15 billion as envisaged by the Ambition 2005 plan was launched. The operation was broadly successful and was terminated on 11 April. On 14 April 2003, the State held 58,9 % of France Télécom's capital, of which 28,6 % through ERAP.

(61) The Commission notes that the capital increase largely met the structural needs of France Télécom's financing. Thus, following the operation, France Télécom's credit rating began to improve: on 14 May 2003 S & P raised its rating to BBB, outlook stable (from A-3 to A-2 for its short-term rating) and on 8 August 2003 Fitch raised its rating from BBB- to BBB. The Commission would point out in this connection that the agencies thereupon ceased to consider the State's support to be a key factor in the Company's credit rating (58).

4. COMMENTS FROM THIRD PARTIES

(62) The Commission has received comments from a number of interested third parties. The essence of those comments is reproduced in this section.

4.1. Comments from Telecom Italia

(63) Telecom Italia stresses that any aid granted to France Télécom is likely to affect competition in the telecommunications markets, and in the French market in particular. It is therefore essential that the aid granted by the French authorities should be accompanied by compensatory measures aimed at reducing its impact on competition. In this context, it would be particularly appropriate to adopt regulatory measures making for easier and speedier access by new entrants and their use of France Télécom's infrastructures, particularly as regards access to the local loop and the length of time it takes to negotiate interconnection and provisioning agreements.

4.2. Comments from WorldCom

(64) WorldCom indicates that it shares the Commission's analysis as set out in the opening decision. It points out that the aid granted by the State to France Télécom enabled the latter to obtain the liquidity it needed to reimburse its debt without having to dispose of any strategic assets. It adds that the support of the State enabled France Télécom to ensure the continuance of its industrial strategy, that is to say, the creation of a series of vertically integrated operators of telecommunications networks and services. WorldCom concludes that this industrial strategy entails anticompetitive practices, including the existence of cross-subsidies and of a price squeeze between the price proposed by France Télécom to the final customer and the price of access proposed to competitors of the historical operator, and the possibility of making tailor-made bids that are impossible to match when public contracts are being awarded (the ‘Sipperec’ and ‘public assistance/Paris hospitals’ contracts being two such examples).

(65) In order to reduce the distortions of competition caused by the aid granted to France Télécom, WorldCom proposes compensatory measures of a structural nature, including the disposal of assets such as Global One/Equant, Orange, Wanadoo/Oléane and/or the local network in France, or else the effective and transparent separation of France Télécom from its commercial activities. Under the heading of behavioural quid pro quos, WorldCom mentions a to-be-wished-for accounting segregation between France Télécom's commercial and non-commercial activities, full publication of its accounts and a monitoring of its prices.

4.3. Comments from C

(66) C submits the following comments: (a) the measures at issue constitute state aid. C argues that, in accordance with the Guidelines on state aid for rescuing and restructuring firms in difficulty (59)(‘the Guidelines’), where public funding is provided to a firm which is in financial difficulties there is a presumption that state aid is involved. C states that the announcement of and terms governing the making available by the French State to France Télécom of the EUR 9 billion credit line and the participation by the French State in the recapitalisation of France Télécom involve aid elements. It points out that the prudent investor test is not satisfied as regards the arrangements for providing the credit line inter alia because of the interest rate proposed and the amount of the commitment fee. It also points out that the principle of concomitance has not been complied with in so far as the French authorities granted the credit line and announced their participation in the recapitalisation prior to the announcement of the Ambition 2005 plan and prior to the firm commitment of the investors. Inasmuch as France Télécom's competitors are not in a position to raise capital on these terms and on such a scale, France Télécom has received an advantage which it would not have obtained under market conditions. (b) the measures at issue cannot be considered compatible within the meaning of the Guidelines. Alternatively, C takes the view that the aid granted should be strictly limited to that which is necessary to ensure France Télécom's viability and that it must not help to finance France Télécom's aggressive expansion. C adds that France Télécom's privatisation would ensure compliance with the ‘one time last time’ principle applicable to restructuring aid. It draws the Commission's attention to the distortions of competition in the German telecommunications market caused by the aid measures and proposes, by way of compensatory measures within the meaning of the Guidelines, the sale of all or part of France Télécom's subsidiary Orange.

4.4. Comments from A

(67) A points out that, as indicated in the opening decision, the State's intention of restoring France Télécom's financial health by granting a EUR 9 billion shareholder loan and the provision by the State to France Télécom of an ‘intangible’ guarantee covering its bond issues are measures which do not satisfy the prudent private investor test and which contain aid elements. It adds that France Télécom's policy regarding the collection of royalties for its patents also contains aid elements.

4.5. Comments from Bouygues and Bouygues Télécom

(68) Bouygues and Bouygues Télécom submit the following comments: (a) Bouygues Telecom points out that the unfailing and irrevocable support of the State is the cornerstone of France Télécom's recapitalisation plan, which has led to the Company's recovery. Thus, according to Bouygues Telecom, only the French State could, in view of the Company's critical financial situation, restore the markets' confidence and create a virtuous circle enabling it to meet its short-term commitments and launch a huge recapitalisation operation under favourable economic conditions. In Bouygues Telecom's opinion, the following measures satisfy the requirements of Article 87(1) of the Treaty and hence constitute state aid: (i) the statements made by the Minister for Economic Affairs and Finance during the period from 12 July to 4 December 2002 constitute a state guarantee committing the State's resources; (ii) the shareholder loan and the operation to strengthen the Company's capital base commit state resources; (iii) the measures at issue confer advantages on France Télécom which it would not have obtained under normal market conditions; (iv) the measures at issue do not satisfy the test of a prudent private investor operating under normal market conditions; (v) the measures at issue affect competition; (vi) the measures at issue affect intra-Community trade. (b) the measures at issue cannot be considered compatible within the meaning of the Guidelines.

(69) As a preliminary remark, Bouygues Telecom observes that the policy of expansion carried out in 2000 in the mobile telephony sector with encouragement from the State led to a worsening of the operator's financial and economic situation, which an initial savings drive did not succeed in containing.

(70) As regards the statements by the Minister for Economic Affairs and Finance, the unfailing and repeated support of the State, expressed in a series of announcements from 12 July 2002 to 4 December 2002 and supplemented by a series of measures including the opening of the EUR 9 billion credit line and the irrevocable commitment by the State to participate in a capital increase in proportion to its shareholding in the Company, amounts to a commitment on its part, from which it cannot withdraw, to make good by all available means any failure by the Company to meet its financial commitments. Bouygues Telecom stresses here that this commitment constitutes a veritable state guarantee producing legal effects committing the State's resources. It adds that the State's guarantee is unlimited in amount and time.

(71) Bouygues Telecom refers in this connection to the Crédit Foncier de France (CFF) decision (60), in which the Commission found that the public declarations by the Government had the object and effect of reassuring the bank's creditors about the quality of their loans and could not be considered — as the French authorities maintained — to be a mere political commitment without any legal value. Bouygues Telecom thus states that, in that case, the declarations of support had the effect of reassuring those of CFF's creditors who had not yet demanded the immediate repayment of their loans, of avoiding the need for CFF to use the credit line opened by the State on its behalf and of enabling the latter to devise and implement a restructuring plan.

(72) Bouygues Telecom points out, furthermore, that the Community-law approach is borne out by an analysis of domestic law. Under French commercial law, such declarations of support may be likened to letters of intent, which, as can be seen from recent case law, the courts equate with actual guarantees (61). Bouygues Telecom adds that, even if the French Court of Cassation has not yet adopted a position in principle on the general value of a unilateral commitment as a source of obligation, it does recognise the value thereof on a case-by-case basis.

(73) In preparing its comments, Bouygues Telecom called on the services of an expert (62) who stated that it followed from a long line of judgments by the French administrative courts that the existence of a commitment entered into by an administrative authority must be assessed in the light, not of the commitment's form, but of its intrinsic characteristics. The expert remarked that that case law was expressly applied in the specific case of declarations: the administrative courts thus considered that, even where they were not accompanied by any specific legal act, the promises constituted commitments as they were the embodiment of the administrative authority's will. For there to be a commitment on the part of the State, it was sufficient for the authority to have behaved in such a way as to convince others that it would act in a certain manner. It mattered little, therefore, whether the commitment was written or verbal or whether it could simply be deduced from the authority's conduct, the only condition laid down by the administrative courts being that the promise in question must be firm and precise or sufficiently persuasive.

(74) Bouygues Telecom's expert stated that, in the present case, the declarations by the Minister for Economic Affairs and Finance satisfied all the criteria for being characterised as a commitment by the State. In each of his declarations, the Minister manifested his wish to lend France Télécom his unconditional support — in accordance with procedures which, moreover, were expressly specified: the strengthening of the Company's capital base, the taking of measures enabling the Company to avoid any financing problems, and the recourse to ERAP, to which would be transferred the State's entire shareholding. Inasmuch as those declarations were firm and precise and made without reservations, they could be construed as constituting commitments by the State. Furthermore, because the Minister had had his declarations published, they could not be mere declarations of intent.

(75) Bouygues Telecom's expert stressed that, since those promises could be construed as constituting commitments by the State, they had by their very nature legal value and were of such a character as to render the State liable, whether they were legal or not, vis-à-vis France Télécom, its creditors and its employees.

(76) Bouygues Telecom maintains that the declarations made by the French Government on and after 12 July 2002 are ‘administrative acts’ binding on the State which are of such a character as to render the State answerable before the administrative courts. The latter thus have to judge any conduct of the authorities through the resulting administrative acts, whatever their form, whether they cause damage or not, and the effects of which stem either from a modification of the regulatory set-up or from an effect on the personal situation of the plaintiff. Bouygues Telecom also submitted to the Commission on 26 May 2004 another study (63) which also comes to the conclusion that the declarations by the State constitute the expression of a formal, precise and irrevocable commitment by the State — legally sanctionable, where appropriate, via the incurment of the liability of the State should it be at fault in failing to respect its commitments towards France Télécom.

(77) Bouygues Telecom states that there is therefore no doubt that the measures at issue constitute, not psychological support as the French authorities have maintained, but a guarantee legally binding on their author.

(78) Bouygues Telecom states lastly on this point that the binding nature of the declarations made by the State by way of the guarantee is confirmed by a circular of the Ministry of Economic Affairs and Finance dated 22 July 2003 which expressly refers to the existence of implicit guarantees (64).

(79) With regard to the shareholder loan and the operation to strengthen the Company's capital base, Bouygues Telecom maintains that, firstly, the opening of a EUR 9 billion credit line for the benefit of France Télécom and, secondly, the irrevocable commitment by the State to participate in any future capital increase in proportion to its shareholding in the Company followed by the recapitalisation operation as such, are the implementation of the state guarantee and are financed by state resources. In this connection, Bouygues Telecom adds that the recourse to ERAP in the granting, by the French authorities, of a EUR 9 billion credit line for the benefit of France Télécom in no way alters the state origin of the funds. It points out that the recourse to ERAP means that France Télécom benefited, firstly, from an advantageous interest rate owing to its status as an industrial and commercial public establishment and, secondly, from the express guarantee provided by the State for an amount of EUR 10 billion (65). As a result, the measures at issue are financed by state resources, even if the credit line has ultimately not been used.

(80) In its additional comments of 11 April 2003, Bouygues Telecom maintains that, in view of the Company's financial situation, the recapitalisation operation carried out on 24 March 2003 was possible only because of the prior intervention of the other aid measures. Consequently, the recapitalisation constitutes per se state aid as it stems directly from prior state aid (66).

(81) As regards the condition relating to the advantage, Bouygues Telecom points out that the occurrence giving rise to the guarantee took place subsequently to the reduction in France Télécom's credit rating by the rating agencies with a view to restoring the market's confidence.

(82) Again on this point, Bouygues Telecom states that the guarantee had the effect of enabling France Télécom to gain renewed access to the financial markets. Thus, the guarantee improved the prospects attaching to France Télécom's credit rating and enabled it to avoid junk-bond classification. Bouygues Telecom observes next that the stock-exchange price of France Télécom's shares improved considerably. In addition, the spreads on the bond market narrowed after the month of June 2002 and France Télécom was able to stagger its debt maturities and face up to the liquidity wall. Bouygues Telecom stresses that, not only did the guarantee make possible France Télécom's very recourse to the financial market, but it also enabled the bond issues to be made at a rate which did not reflect France Télécom's true financial situation.

(83) Bouygues Telecom states more precisely, in its comments of 11 April 2003, that the announcement and implementation of the state support gave rise to aid at the origin of advantages linked to the shareholder loan and the recapitalisation. These advantages had the effect inter alia of moving the liquidity wall further away, that is to say, of increasing the amount of financing available for meeting debt repayments and of permitting an actual and potential postponement of payments and actual and potential cost savings.

(84) Concluding on this point, Bouygues Telecom maintains that the advantage gained by France Télécom amounts to more than EUR 40 billion (EUR 3 billion in respect of all the support measures taken by the French State on France Télécom's behalf and EUR 36,7 billion in respect of the State's participation in the Company's recapitalisation), which amount takes no account of the considerable latitude granted to France Télécom as a result of the removal of all financial concerns, the liquidity wall being shifted by almost EUR 43 billion.

(85) In its additional comments of 7 January 2004, Bouygues Telecom states that the advantage enjoyed by France Télécom as a result of the State's irrevocable commitment of support may be estimated at more than EUR 30 billion, while the advantage derived from the recapitalisation operation may be put at more than EUR 50 billion.

(86) As to the prudent private investor test, Bouygues Telecom argues that the support measures do not satisfy that test for the following reasons: a) Unconditional, unlimited commitment: Bouygues Telecom takes the view that the State's declarations constitute a firm and unconditional legal commitment which an investor would never have undertaken without entering the slightest reservation. It is therefore an unlimited guarantee granted to a company which is extraordinarily leveraged and fragile in the short term. In Bouygues Telecom's opinion, the measure at issue does not fulfil the criteria mentioned in the Commission Notice on the application of Articles 87 and 88 of the EC Treaty to state aid in the form of guarantees (67)(hereinafter called ‘the Notice on state aid in the form of guarantees’) in so far as, in particular, France Télécom was in financial difficulties at the time the guarantee was granted and in so far as the guarantee does not relate to any specific transaction and gives rise to no remuneration. France Télécom has therefore secured advantages which it would not have secured under normal market conditions. b) Terms governing the granting of the shareholder loan: Bouygues Telecom argues that the mechanism adopted by the State meets by and large a concern falling within the realm of public finances (compliance with the Maastricht criteria, notably), and is not in keeping with the principle of a prudent investor operating in a market economy. Repayment of the loan subscribed by ERAP on behalf of the State with a view to participating in the recapitalisation is not assured. The method of repayment first and foremost envisaged is linked to the sale of shares, the profit on which is potential and cannot for that reason confer on the investment in question the nature of a ‘prudent’ transaction. Bouygues Telecom points out that the guarantee granted by the French State to ERAP to the tune of EUR 10 billion enabled ERAP to gather together the funds needed to grant the credit line on advantageous terms, i.e. at a rate of 3,375 %. Any prudent private investor would have carried out such a transaction at a higher cost for which he would have demanded specific guarantees linked to the company's assets. c) Recapitalisation: In substance on the commitment by the French authorities to recapitalise France Télécom and the recapitalisation operation itself, Bouygues Telecom claims that the prudent private investor test is not satisfied in the present case as the State undertook to participate in France Télécom's recapitalisation on 12 July 2002, i.e. prior to the existence of the Ambition 2005 plan, without knowing France Télécom's exact economic situation, which had become much worse, and without the concomitant participation of private investors. In this connection, Bouygues Telecom stresses the following points: — The company's financial situation: Bouygues Telecom stresses that the historical operator's financial health at the time of the decision to invest prevented it from resorting to private investors without the State's support (EUR 70 billion of losses, EUR 8 billion of negative equity and debt maturities amounting to EUR 50 billion over the following three years). Moreover, the plan presented by Mr Bon at that time did not appear relevant in the eyes of the market and was followed by France Télécom's downgrading by the rating agencies. This situation was reflected by the statement by Thierry Breton before the Senate finance committee (68). — Return on the transaction: Bouygues Telecom indicates that the period for calculating the return on the investment begins at the earliest on 12 July 2002, the date of the first declaration by the State having the effect of binding it legally vis-à-vis France Télécom and its creditors, and ends at the latest on 4 and 5 December 2002, the dates on which the Ambition 2005 plan was made public and the EUR 9 billion credit line was opened. It argues that the reasonable return which a prudent private investor would have been entitled to expect in such circumstances cannot be reliably calculated. Thus, the recapitalisation of France Télécom cannot be compared to any other financial transaction in view of the scale of the liquidity crisis faced by the Company. As a result, the State was unable to assess its risk by making a probability calculation and was confronted with a radical uncertainty (that is to say, a non-probabilisable risk) when it decided to guarantee France Télécom: thus, both the level of risk and the return were not quantifiable. At all events, the investment could not be characterised as reasonable. In particular, a projection of France Télécom's stock-exchange valuation and of the return on investment expected by a private investor shows that the investment is unreasonable. In accordance with the method used by the Commission to assess the prudent nature of an investment, the return on investment which a prudent investor would have demanded, bearing in mind in particular the risks connected with the transaction, may be estimated at at least 30-40 %. This rate is the minimum required by the Commission in the Alitalia (69) and Iberia cases (70). According, however, to the methods used by Bouygues Telecom, that is to say, EPS (Enterprise value or Analysts target price 12 months), the return on investment in the transaction at issue is only 16 %. Nor can the State count on a remuneration in terms of dividends as France Télécom has announced that it will not be distributing any. Generally speaking, it is not appropriate to make an ex post analysis of France Télécom's positive results in the assessment of the prudent investor test. A private investor would never have committed himself financially without entering the slightest reservation at a time when the total amount of the France Télécom group's debts had not been established. Bouygues Telecom adds in this regard that, in accordance with the case law of the Court of Justice of the European Communities, it cannot be maintained that the commitments entered into by the State towards France Télécom are a reflection of the conduct of a prudent investor solely on the ground that France Télécom had become a profitable company. — Difference between the situation of a private investor and that of the State: Bouygues Telecom argues that, in view of the prolonged crisis in the world economy and more particularly in a telecommunications sector undergoing transition, and bearing in mind the size of the sum in question, no private investor could have envisaged a capital increase of that amount without conditions and only a State of the creditworthiness of France could have coped with such uncertainty. It thus points out that the financing of the strengthening of the Company's capital base, covered entirely by debt without any own funds, would have affected the credit rating of any private investor who behaved in a similar way, whereas a State, on the other hand, can be punished only by its electors, who do not have the same objectives. The creditors and shareholders of the private investor would have asked for the investment to be backed by a business plan containing precise commitments, including the disposal of assets. Bouygues Telecom concludes that, at all events, a prudent investor whose financial capacity was comparable to that of the French State and who issued such a guarantee would not have inspired much confidence in the markets and that it is clear that it was due to the qualification of ‘sovereign debt’ enjoyed by the State's commitments that confidence was restored. — Concomitance criterion: Bouygues Telecom argues that the concomitance principle has not been complied with. The French authorities' decision to invest dates from 12 July 2002 and France Télécom's financial difficulties on that date by themselves point to the recapitalisation being state aid, all the more so as the State took its investment decision in ignorance of the Company's exact economic and financial situation and prior to the drawing-up of the financing plan. Bouygues Telecom points out that the participation of private investors was neither certain nor significant at the time of the announcement by the Government of its participation in the capital increase, even if the analysis of the date of taking of the decision to invest is brought forward to 5 December. According to the case law of the Court of Justice, where private investors are prepared to intervene only after the authorities have decided to grant aid, the fact that those investors are then prepared to intervene at the same time is no longer relevant. Such an intervention is the consequence of the support given by the State and not the result of a decision of a private investor. Hence, in the present case, the fact that a banking syndicate undertook to underwrite the transaction cannot be taken as a basis for concluding that the concomitance principle is complied with. The French authorities' decision to invest is firm and unconditional whereas that of the private investors is not, and the private investors made their contribution only after having received, on a number of occasions and with certainty, the assurance that the State would also participate in the transaction and especially that it would take every step to ensure that France Télécom did not have any financing problems. At all events, Bouygues Telecom takes the view that, in accordance with the case law relating to the Seleco decision referred to in paragraph 80, a significant participation by private investors is not in itself sufficient to rule out any aid element. It maintains, moreover, that the State's investment is higher than the amount of its participation in France Télécom's capital. It argues, lastly, that the very high level of banking commissions allows the bank to subscribe to the underwritten shares at a lower discount than that offered to the public.

(87) As regards the effect on competition, Bouygues Telecom points out inter alia that the measures at issue have had the effect of affecting competition in the market for mobile telecommunications. In substance, it refers to the fact that the scale of France Télécom's debt can be traced back to the development of the mobile telecommunications business. Thus, Orange does not bear the debt linked to its acquisitions; instead, the parent company bears it in its entirety. Being endowed with the means of coping with its debt thanks to the measures at issue, France Télécom enables Orange to consolidate and develop its position in the mobile telecommunications markets. With a 49,8 % market share, Orange is in a dominant position in the French mobile telephony market. In its comments of 11 April 2003, Bouygues Telecom points out that the structure of the mobile telecommunications market in France is due to a capitalistic investment strategy (together with an aggressive commercial strategy) carried on by Orange to the detriment of its operational profitability, thanks to the support granted to it by the State through France Télécom, notably via the aid at issue in the present case. It stresses, moreover, that the measures at issue affect competition throughout the telecommunications market and dissuade foreign operators from coming to propose their services in France. France is thus the only European country in which no ‘foreign’ mobile operator has been able to establish itself.

(88) As to the compatibility of the support measures within the meaning of the Guidelines, Bouygues Telecom argues that they do not possess the exceptional character required in order to be characterised as rescue aid within the meaning of the Guidelines. Basically, the fact is that the Ambition 2005 plan does not satisfy the minimum requirements of the Guidelines. The plan contains measures not forming part of a rescue operation, such as recourse to the bond market or the envisaged recapitalisation. Among other things, the amount of the recapitalisation is more than is needed to cover France Télécom's short-term operating needs alone, excluding reimbursement of the loans taken out at the time of its expansion. Moreover, the plan is not a restructuring plan capable of modifying the structure of France Télécom with a view to improving its profitability, but is limited to increasing the Company's liquidity so as to lessen the impact of its current difficulties. Bouygues Telecom insists also on the fact that the measures at issue are weak in comparison with those taken by the historical operator's competitors, such as KPN, Deutsche Telekom or British Telecom, both as regards the disposal of assets and as regards the social measures taken.

(89) The restructuring plan does not contain any substantial compensatory measures capable of preventing any undue distortions of competition so as to offset the aid granted by the State. Bouygues Telecom notes among other things the lack of any disposal of valuable or strategic assets. Thus, the sales envisaged by France Télécom are limited to non-strategic assets worth very little (EUR 3,5 billion, according to France Télécom's own estimates).

(90) Additionally, Bouygues Telecom maintains that compensatory measures must be adopted for the benefit of the historical operator's competitors in the mobile telecommunications market, and in particular for the benefit of the last entrant, the presence of whom is a precondition for the existence of genuine competition in the French market. It proposes inter alia as compensatory measures within the meaning of the Guidelines a five-year ban on Orange proposing lower rates than its competitors for equivalent services, and the imposition of a self-limitation on Orange's monthly market shares to 33 % until such time as Orange's net market share is reduced to 40 %. It also proposes a limitation of the length of the commitments entered into by consumers vis-à-vis Orange to 12 months (acquisition and renewal), a freezing of the deployment of Orange's GSM and GPRS network so as to re-establish a competitive balance, the obligation to dispose of strategic assets and the obligation to limit marketing activities.

(91) In its comments of 26 May 2004, Bouygues Telecom furnishes inter alia an economic analysis which states that, in view of the specific attitude of States (variable according to their own credibility), the support of the State has a substantially different scope from that of a majority shareholder. The analysis also points out that state intervention is part of a long tradition and that that intervention is judged on the basis of an already established reputation. In Bouygues Telecom's view, it is clear that, by supporting France Télécom, the State is staking its reputation and hence is placing on the line its ability to intervene again in favour of other French companies. The analysis also stresses that the question of the French State's credibility is to be seen in the context of the specific French situation with regard to privatisation. Any flagging in its support would have deprived the State of its capacity to act subsequently, which was speedily done in the case of Alstom.

(92) Bouygues Telecom also furnishes an analysis of whether the State's declarations had any binding effect under the law of the state of New York, where the Company is also quoted. According to that analysis, it is probable that such declarations would be considered binding either as a unilateral contract or by virtue of the principle of estoppel.

(93) Bouygues Telecom furnishes, lastly, a study of whether such declarations emanating from the British Government would have a binding character under English law. The conclusion of that study is that such declarations would be binding or would impose on the State the burden of justifying a change of position.

4.6. Comments from Cable & Wireless

(94) Cable & Wireless expresses the view that the measures at issue constitute state aid. The market's confidence following the announcement of the granting by the French authorities of the shareholder loan sufficed to confer an advantage on France Télécom. In so far as a prudent private investor would not have taken the decision to recapitalise a company such as France Télécom, which was clearly inefficient prior to the adoption of the 2005 Ambition Plan, the Company enjoyed an advantage which it would not have secured under normal market conditions. Cable & Wireless also points to the dangerous precedent that would be created by allowing a government to underwrite all the financial problems of public undertakings and to the negative dynamic that would be created for competition. It adds that the measures cannot be considered compatible within the meaning of the Guidelines. Inasmuch as the Company is not in financial difficulties, the Guidelines are not applicable.

4.7. Comments from AFORS Télécom

(95) AFORS Télécom (Association française des Opérateurs de Réseaux et Services de Télécommunications) observes that the measures at issue constitute state aid. More particularly, it states as follows:

(96) Through a series of step-by-step decisions taken in the course of 2002 — including the State opting for payment of the 2002 dividends in shares and not in cash — until the opening of a EUR 9 billion credit line made available to France Télécom via ERAP, the French authorities restored investors' confidence by giving formal status to their support. Moreover, even if the credit line opened by ERAP were never used by France Télécom, it symbolises the guarantee of state support and hence mobilises state resources within the meaning of Article 87(1) of the Treaty.

(97) The terms on which the credit line was granted and the terms governing its remuneration do not satisfy the tests of the prudent private investor principle. AFORS Télécom argues that France Télécom's financial failings since 2000 could not have happened in the presence of a prudent investor. The State thus did not perform its role of ‘watchdog’ and it allowed France Télécom to increase its indebtedness on an unheard-of scale. AFORS Télécom observes that France Télécom's past acquisitions strategy was conducted without regard to the inherent risks inasmuch as the State in its capacity as shareholder assured France Télécom of its support against any prospect of bankruptcy.

(98) The State's support has had the effect of preventing any further downgrading of France Télécom's credit rating by the rating agencies, which has made it possible to speed up France Télécom's return to the market and the refinancing of its debt under less onerous financial conditions. France Télécom has enjoyed an advantage which AFORS Télécom estimates is worth EUR 1,5 billion (71). Hence, it is the credibility of the French State, enjoying as it does excellent creditworthiness, and not that of the restructuring plan, that determined the conditions of France Télécom's return to the financial markets. Moreover, the State's support had the advantage that France Télécom no longer had to modify its strategic perimeter.

(99) The Ambition 2005 plan consists of guidelines and not of clearly worded, binding and irreversible commitments and cannot be compared to the restructuring process implemented in Europe by, say, British Telecom.

(100) The advantages enjoyed by France Télécom prolong distortions of competition damaging to the members of AFORS Télécom. In AFORS Télécom's opinion, the aid granted by the French State reinforces the already existing anticompetitive practices which are highly detrimental to alternative operators. AFORS Télécom mentions among other things the exclusive utilisation of France Télécom's distribution network by Orange and Wanadoo, the unbundling offers which systematically benefit Wanadoo and France Télécom, and the monopoly position held by France Télécom in the market for shared-revenue services (the supplying to consumers of value-added content accessible by telephone). AFORS Télécom points to the real risk of prolongation of this conduct which the state aid would allow.

(101) Compensatory measures should be imposed on France Télécom with a view, firstly, to ensuring that the conduct of the State is analogous to that of a company which has to restore its financial capacity without benefiting from exceptional aid and, secondly, to restoring fair competition. This would involve (i) restricting France Télécom's investment to that of an indebted company, e.g. by limiting its overall investment policy to investments the return on investment period of which is less than 12 months in the case of retail activities; (ii) introducing transparent structures between each business within the group; and (iii) preventing the state aid from being used to fuel a price war, for example through the systematic publication of its tailor-made retail offerings.

4.8. Comments from Cégétel

(102) Cégétel maintains that there are two separate measures: (i) the announcement by the French authorities of the granting of a shareholder loan to France Télécom; and (ii) the participation by the State in the recapitalisation of France Télécom.

(103) As regards the first measure, Cégétel remarks first of all that the situation of a company with a private reference shareholder and that of a company with a public majority shareholder are not comparable. A similar announcement made by a private shareholder would have been received with the greatest circumspection by the rating agencies and would have caused them to take a close look at the arrangements for the refinancing by the shareholder in question of the credit line thus extended. Cégétel concludes from this that the mere fact of being backed by the State confers a considerable advantage vis-à-vis investors and prevented any further downgrading of France Télécom's credit rating by the rating agencies despite the fact that the operator appeared to be in an insoluble situation. It maintains that the Commission may justifiably consider that the French State granted aid to France Télécom even before an agreement for the granting of a EUR 9 billion credit line was signed as the announcement of support was sufficient to render this emergency financing unnecessary. Lenders were thus certain that France Télécom could never default on its payments inasmuch as the State would always be ready to grant it the funds it needed to honour its commitments, and this enabled France Télécom to obtain financing directly on the market. Cégétel concludes on this point that the government declarations were worded in such a way that the markets would be certain that lending money to France Télécom would be strictly equivalent to lending money directly to the State. France Télécom thus enjoyed advantages which it would not have secured under normal market conditions, compared, for example, with the situation of Vivendi Universal. The recourse to the bond market enabled it to avoid having to resort exclusively to financial institutions in order to cope with its liquidity crisis and suffering all the constraints linked to that type of financing. Cégétel maintains that the terms of grant of the credit line by the French authorities are not in keeping with those granted by a prudent investor in relation to one of his participations. More particularly, a prudent investor would never have agreed to the policy of financing acquisitions through debt which placed France Télécom in a critical financial situation such that the State had to carry out a recapitalisation. Cégétel refers to the Crédit Lyonnais II decision, in which the Commission finds that the aid measures could not be justified by the failings over many years of the State as shareholder (72). In Cégétel's opinion, opting to channel the aid through ERAP is not what a prudent investor would have done. In this connection, Cégétel notes in particular the interest rate applicable to the drawings on the loan and the absence of securities and guarantees. Regarding quantification of the aid relating to the shareholder loan, Cégétel maintains that point 3.2, fourth subparagraph, of the Notice on state aid in the form of guarantees is applicable and that, in view of the fact that, thanks to state support, France Télécom has been able to borrow EUR 16 billion to meet its maturities despite the catastrophic nature of its finances, the amount of the aid is equivalent to the amount raised thanks to the announcement.

(104) Cégétel maintains that the same reasoning applies to the recapitalisation, which it analyses, from an economic point of view, as being the transfer of EUR 9,2 billion of France Télécom's debt to ERAP, which benefits from the State's guarantee. Cégétel counts the whole of this amount as aid. It also highlights the amount of the aid corresponding to the redundancy costs which a company would have had to bear in terms of staff cuts, namely EUR 1,5 billion, and which the historical operator would not bear owing to its employees being transferred to civil service jobs under the Ambition 2005 plan.

(105) Cégétel maintains that France Télécom benefits from a formal guarantee in so far as the Court of Cassation considers that private-law companies enjoying special legal status are not subject to the applicable judicial liquidation procedures (cf., for example, SEITA or Air France). Thus, by virtue of this case law, France Télécom must be regarded as not falling within the ambit of the ordinary-law arrangements. Cégétel acknowledges that France Télécom has not enjoyed EPIC status since 1996, but points out that, in reality, the guarantee has not disappeared inasmuch as the state authorities have sought, through their repeated declarations, to convince the markets that France Télécom would retain, come what may, the support of its reference shareholder and that, if necessary, the State would help the operator to meet its maturities (73).

(106) Cégétel maintains, lastly, that the measures cannot be considered compatible within the meaning of the Guidelines. It recalls that, according to the Guidelines, where a State injects capital into a firm in difficulty, ‘it must be deemed likely that the financial transfers involve state aid’ (74). It argues that the compensatory measures taken by France Télécom cannot be considered sufficient within the meaning of the Guidelines. Thus, the Ambition 2005 plan does not contain any specific provisions on asset disposals or a social plan. Cégétel proposes inter alia the following compensatory measures in the fixed telecommunications market: (i) the sale of local loop access and associated services; and (ii) increased ring-fencing between France Télécom and the companies Orange and Wanadoo.

4.9. Comments from LDCOM (75)

(107) LDCOM identifies a dual mechanism of aid in support of France Télécom, backed by support for staff mobility, namely: (i) the provision of an unlimited guarantee; and (ii) the granting of a EUR 9 billion credit line.

(108) Provision of the unlimited guarantee: LDCOM bases its considerations on the content of the declarations by the French authorities which have appeared since 20 June 2002 in the press via press releases of the Ministry of Economic Affairs and Finance addressed directly or indirectly to the rating agencies. These declarations, which seek to reassure the financial markets about France Télécom's situation (76), have contributed directly to the improvement in France Télécom's credit rating in the markets and have helped the Company to face up to the liquidity wall with which it was confronted. According to LDCOM, the State's intervention by may be characterised from a legal standpoint in a number of ways. It points out that, under French law, no form is required for the creation of a legal obligation and that an oral declaration may therefore, under certain conditions, constitute a legal act giving rise to a right on the part of its addressee. The binding force of the unilateral act is based on the theory of commitment by unilateral will, which is one of the sources of the law of obligations. This obligation arises from the dual condition of the firm and precise nature of the will. LDCOM also affirms that the State's responsibility is based, in company law, on the analysis of the theory of the apparent mandate and of the de facto manager — in the latter instance for having directly contacted the rating agencies. Under international law, the State's contractual responsibility is also incurred in so far as a unilateral legal act has binding force where it can be shown that the declaration was expressed publicly with the intention of binding its author (77). Thus, a mere oral and public declaration made by a State may create a legal obligation on its part. In the present case, according to LDCOM, the content of the declarations binds the French authorities as the letter of the declarations constitutes a clear and unequivocal unilateral commitment by the State to be the lender of last resort to France Télécom and not to leave the latter in the financial crisis it has known since the summer of 2002. Inasmuch as the State's commitment is of a binding nature, any failure to honour that commitment may incur the State's contractual responsibility (third parties could have forced the State to carry out its commitment).

(109) LDCOM asserts that the State's tortious liability was also incurred, notably under company law. Thus, a company which gives the impression of taking over the debts of another company gives rise to a claim on itself by third parties. According to LDCOM, the State, by its declarations, guaranteed third parties that it would take over France Télécom's maturing debt. More precisely, LDCOM maintains that the State's declarations to the effect that it ‘will contribute to the very substantial strengthening of the company's capital base (78)’ give rise to an obligation on its part incurring its legal and financial responsibility (79). According to learned opinion: ‘if the State did not respect the commitment thus entered into, its responsibility would incontestably be incurred before the administrative courts, the forum for hearing cases involving promises not kept by the State’ (80). LDCOM states that Article L465-1, third subparagraph, of the Monetary and Financial Code provides for the punishment of persons who distort the normal functioning of markets by illicit actions which influence the trend of stock prices. Consequently, according to LDCOM, it is clearly established that the State did not at all intend to announce hypothetical future events but was in fact announcing its future line of conduct.

(110) In LDCOM's opinion, Community case law also confirms that any press article, emanating either from the company concerned or from the Government, which is of an unconditional nature necessarily indicates that state resources are being made available (81). In the present case, the declarations emanate directly from the Government and are of an unconditional nature.

(111) It follows from the above that the legally and financially binding declarations of support made by the French authorities on and after 2 June 2002 are akin to a guarantee the purpose of which is to enable France Télécom to avoid bankruptcy and to survive within its existing business perimeter. In LDCOM's opinion, the guarantee is an unlimited one. LDCOM states that it is therefore not only the provision of a credit line and the amount thus granted but the very announcement of that provision which constitutes the aid. In accordance with the Notice on state aid in the form of guarantees, the criterion relating to state resources is fulfilled, whether or not the guarantee is called. Considering that the measures at issue did not satisfy the criteria of the said Notice, on the grounds that France Télécom could not then find the necessary funds on the markets, LDCOM observes that the measures constitute aid. LDCOM also argues that ‘in view of the amounts involved, the State alone was capable of providing such a guarantee, no prudent investor being able to ensure the credibility vis-à-vis the markets of the “taking in hand” of France Télécom’ (82). Lastly, LDCOM stresses that any analysis to the contrary would be fraught with consequences inasmuch as not only would it run counter to the principles of domestic positive law but it would also open up the possibility for Member States to sustain with impunity the share price of companies in which they have an interest (83).

(112) The effect of this unlimited guarantee is clearly felt in the market and the market's reaction corresponds to the value investors actually place on the guarantee. Thus, the stock exchange price of France Télécom's shares rose as from July 2002, leading to an increase in the operator's stock exchange value. LDCOM argues that the increase in value thus brought about by the State's announcement may be put at EUR 5,9 billion. Similarly, France Télécom's spreads (84) started to improve as from July 2002, thereby reducing the operator's financial burden and permitting the rebuilding of its financial capacity. These spreads make it possible to evaluate in concrete terms the financial weight of the State's announcement. They must be related to France Télécom's entire debt financed through bond issues. Depending on the circumstances, they vary from 2 % to 3 %, equal to an annual saving of between EUR 1,37 billion and EUR 2,05 billion. Assuming that France Télécom will maintain a constant level of indebtedness and hence that the debt will be financed indefinitely, LDCOM evaluates the impact of the saving thus made at between EUR 19,57 billion and EUR 29,36 billion. Moreover, the State's support has enabled France Télécom to refinance itself on the bond markets on more advantageous terms than it would have obtained beforehand.

(113) Announcement of the making available of a EUR 9 billion credit line: LDCOM does not analyse this measure in the light of Article 87(1) of the Treaty, but refers to the analysis carried out by the Commission in its opening decision, insisting on the part played by ERAP.

(114) In LDCOM's opinion, both from the point of view of its amount and of that of its modalities or its very objective, the State's support is not covered by the prudent investor criterion. Thus, no prudent investor would, in September 2002 (when the State announced that it would be supporting France Télécom financially), have advanced EUR 9 billion under such economic circumstances without basing itself on a restructuring plan. LDCOM explains, moreover, that no private investor would have had the financial capacity to mobilise such amounts in such a short space of time. It also states that, for a private investor, maintaining the integrity of a group's operational structure is a means to the end of earning a return on his investment. In the present case, for the French authorities it is an end in itself. It is understandable that the State should bear social and political considerations in mind, but such a move would violate the principle of equality between public and private sectors.

(115) In LDCOM's opinion, the State's position that a prudent majority investor would not have called into question France Télécom's functional integrity does not stand up to an analysis of the conduct of such an investor under the market conditions prevailing in June-July 2002. Thus, investors who invest an extremely large proportion of their assets in a company threatened with collapse will be the first to demand a radical and immediate review of its strategy, involving, if necessary, a huge sell-off of strategic assets. The relevance of this analysis can be verified by comparing the situation in which France Télécom would have found itself without the State's support with that of Vivendi Universal, which was obliged, under pressure from the markets, to revise its range of assets. LDCOM thus maintains that the Commission must not only refuse to take as point of departure the maintenance of the group's functional integrity, but also analyse the impact of such maintenance as being the veritable effect on competition. It argues that, in July 2002, without any state intervention, France Télécom would have had no choice but to reduce its range of assets, enforce redundancies (85) and revise its strategic objectives.

(116) LDCOM puts the total amount of aid at EUR 15 billion, this being the sum which France Télécom succeeded in raising on the financial markets thanks to the aid granted to it by the State. The aid amount cannot therefore be limited to the EUR 9 billion provided directly by the State, since it was through various state measures (unlimited guarantee, shareholder loan, staff movements) that France Télécom was able to increase its capital by such an amount.

(117) In LDCOM's opinion, the aid granted by the State constitutes restructuring aid. LDCOM has carried out a comparison between the situation before and after the public intervention in the markets for voice telephony, high-speed Internet access and low-speed Internet access, and that which would have obtained in the absence of any public intervention. This comparison confirms that the aid has had the effect of maintaining the status quo ante in the run-up to 2005 (intact operational and marketing capacities), which makes it possible by deduction to quantify in terms of market shares some of the effects of the public intervention. LDCOM proposes that remedies should be imposed on France Télécom under point 35 of the Guidelines, the effect of which will have to be to restore the market situation to what it would have been had France Télécom been forced to modify its business perimeter spontaneously. In so far as the State has, in LDCOM's view, set itself the primary objective of maintaining France Télécom as an integrated telecommunications operator, the main markets affected are that for mobile telephony and that for fixed telephony, both upstream (interconnection, DSL access) and downstream (retailing of communications, DSL Internet access, etc.). LDCOM proposes therefore that the Commission should take behavioural measures to limit the distortion of competition thus brought about and to enable alternative operators to work under the conditions which they would have enjoyed in the absence of aid. It proposes, therefore, a reduction in the market shares of France Télécom and its subsidiaries in the high-speed Internet market (maximum of 42 % of the market for the sale of high-speed Internet access by DSL, in terms of value) and in the voice telecommunications market (maximum of 55 % of the local and national voice communications market, in terms of value) and a series of measures aimed at implementing the limitation in France Télécom's market shares (86). The second category of measures proposed by LDCOM consists of the imposition of measures aimed at enabling the development of competitors (87).

(118) In its comments of 17 May 2004, LDCOM states that the declarations by the Minister for Economic Affairs and Finance constituted a unilateral state act non-compliance with which was punishable under international law. It also states that the prohibition on a person denying a fact to the detriment of another person (estoppel) is a general principle of international commercial law which is binding on the State. It points out in this connection that the principle's applicability in the present case is incontestable in view of the fact that the French State is acting as a shareholder and hence also as an operator in international trade.

(119) LDCOM also stresses that the State cannot go back on its declarations without harming its own financial credibility. In its intervention on the market, the State plays a role of borrower and a role of majority shareholder in a number of companies. This dual role leads to a dual credit rating by the rating agencies, in its capacity as borrower and in its capacity as shareholder through the ratings given to public undertakings. This twofold intervention possibility calls for particular vigilance as any deficiency established in either of these two roles is likely to have consequences for its other role and for its rating (LDCOM refers to Moody's assessment of public undertakings). LDCOM further stresses the fact that the credibility of the State is fundamentally different from that of other enterprises in a similar situation which cannot reassure the market (as in the case of Vivendi Universal). The security which, for the financial markets, French public borrowings represent is therefore the justification for the unconditional confidence placed by investors in the State's declarations, the State having always respected its commitments. The taking into account of the support given by the State following its entering into direct contact with the rating agencies, the role of which is be extremely critical as regards the risk inherent in a financial investment, highlights the credibility of the State's support for France Télécom. LDCOM also points out that the State's rating attains the top mark of Aaa as it honours its commitments. A disengagement by the State would lead to a fall in its rating, which would result in a re-evaluation of public debt interest. Likewise, a disengagement from one public undertaking might have an impact on the credit rating of all the others.

4.10. Comments from B

(120) In B's opinion, the making available of funds, coupled with the public commitment by the State to support France Télécom, is comparable to the providing of a financial guarantee capable of reassuring not only the Company's creditors but also the entire market, which has helped to improve France Télécom's situation vis-à-vis the stock markets. Hence, B concludes, the measure at issue has been granted through state resources. Given that the State's conduct cannot be considered to be that of a private investor in a market economy, the Company enjoyed an advantage which it would not have obtained under normal market conditions. Thus, at the time of opening of the credit line, France Télécom's financial situation was such that no prudent investor would have carried out a transaction of this type. Likewise, B maintains that the concomitance principle has not been complied with, the participation of private investors having been made possible only by the announcement and making available of a shareholder loan the amount of which was so huge that no private investor would have been able to mobilise so much money. It points out that the support measures reassured private investors that any risk of France Télécom's becoming bankrupt could be ruled out. It also argues that the amount of France Télécom's recapitalisation (between 80 and 100 % of its stock exchange valuation) is such that, in the light of France Télécom's economic situation, no private investor would have carried out such a transaction were it not for the declarations of support and the prefinancing measures taken by the Government.

(121) B maintains that the measures cannot be considered compatible within the meaning of the Guidelines. In the alternative, it proposes compensatory measures, inter alia in the market for fixed telephony, in the market for Internet access and in the market for mobile telephony. It points to the various effects on the development of competition in the French market (88). In the fixed telephony market, it advocates, among other things, accounting separation and the creation of a genuine management system for France Télécom's network activities so as to prevent the pursuit of anticompetitive practices. It also proposes the imposition on France Télécom of an obligation to inform fixed telephony subscribers about the possibility for them to choose their operator for the routing of their telephone calls so as to attenuate the ‘tremendous “competitive leverage” afforded it by its virtual monopoly in the market for access to the telephone network and in the markets for the routing of telephone communications’. In the mobile telephony market, B proposes inter alia the imposition on Orange of an obligation to make a MVNO (Mobile Virtual Network Operator) offer to operators wishing to penetrate this market.

4.11. Comments from Tiscalinet

(122) Tiscalinet argues that the declarations made by the State as from 2 July 2002 signal to the market that any compulsory administration of France Télécom is ruled out. At the same time, the State's option for its 2002 dividends to be paid in shares and not in cash is another signal by the State to the market that it supports France Télécom even though a prudent investor would have opted for payment of the dividends in cash. Tiscalinet adds that the approaches made by the Minister for Economic Affairs and Finance to the Caisse des Dépôts et Consignations, which holds 5 % of the historical operator's capital, to induce it to block the securities to make them less volatile and strengthen investor confidence raises the question as to what private investor would have acted in that way. Tiscalinet also stresses that the set of legislative measures aimed at extending ERAP's company objects so as to enable it to hold France Télécom shares (89), the provision of a state guarantee to ERAP to enable it to invest in France Télécom (90) and the instrument dealing with the method by which the State would hold France Télécom's capital strengthen the analysis of the irrevocable character of the state guarantee on which market operators, and in particular bond holders, relied when subscribing to the successive calls made by France Télécom. These factors bear out that the State is acting as a ‘last resort’ vis-à-vis France Télécom, a transaction to which a prudent investor would not have subscribed. In Tiscalinet's opinion, only the French State was capable of mobilising such resources.

(123) Tiscalinet maintains that the guarantee given by the State and the subscription to the capital increase which no prudent private investor would have made enabled France Télécom to avoid having to carry out huge asset disposals with the sole aim of maintaining its business perimeter and of benefiting from relatively low bond rates compared with its intrinsic financial situation.

(124) The aid is incompatible with the Guidelines. Tiscalinet maintains that the conditions for the granting of restructuring aid are not met, inter alia because the Ambition 2005 plan does not contain sufficient compensatory measures to safeguard competition. It refers to the distortions of competition brought about by the French State's support in the case of the high-speed Internet access market. It maintains that France Télécom is able to invest heavily in certain aspects of the network, using advertising monies, which benefits Wanadoo. Moreover, Wanadoo has not had to dispose of major assets and continues to benefit from Yellow Pages income and from France Télécom's commercial agency network. Tiscalinet also points out that the strategy introduced by France Télécom, notably as regards the launch of the simplified mixed public purchase and exchange offer concerning Wanadoo's shares of 11 March 2004, had the effect of enabling France Télécom to benefit from fiscal aid which it would not have received without the State's support measures. Tiscali draws attention, moreover, in its letter of 5 April 2004 to the anticompetitive strategy introduced in the DSL market in France thanks to the initial aid from the French State.

(125) In the alternative, if the aid were to be found compatible with the Guidelines, Tiscalinet proposes compensatory measures essentially in the high-speed Internet access market, such as the setting of a minimum price for France Télécom's ADSL retail offerings to its subsidiaries, a ban on making joint offers of France Télécom's and Wanadoo's services, a ban on distributing Wanadoo's services in France Télécom's commercial agencies, and the disposal of the Yellow Pages business and of Wanadoo's foreign subsidiaries.

4.12. Comments from D

(126) D has submitted a document entitled ‘Stage report on the fulfilment of President Jacques Chirac's campaign commitments in the fields of industry, energy, telecommunications and posts of June 2003’. On the subject of France Télécom, the document states that: ‘Thanks to the State's resolute support and to the appointment of Thierry Breton, France Télécom has been more than just saved from a life-threatening situation.’

4.13. Comments from France Télécom

(127) France Télécom has presented its comments in the form of three reports: (i) a report drawn up by Mr Ehlermann dated 12 January 2004 entitled ‘Opinion for the attention of France Té