WRITTEN QUESTION E-3615/02

by Benedetto Della Vedova (NI) and Marco Cappato (NI) to the Commission

(16 December 2002)

Subject: State aid for France Telecom from the French Government

It has been announced that the French Government intends to adopt a revival plan for the telephone group France Telecom (FT), in which it has a 55,5 % holding and which has a global debt of nearly EUR 70 billion.

The plan envisages an immediate injection of EUR 9 billion from the State, as an advance payment in the context of recapitalisation amounting to EUR 15 billion, probably to be completed by next spring.

The advance of EUR 9 billion would consist in transferring FT shares from the French State to the Entreprise de recherches et d'activités pétrolières (ERAP), which would then take steps to borrow EUR 9 billion from the Caisse des dépots et consignations (CDC), which it would in turn lend to FT. The CDC loan to ERAP would be guaranteed by the French State.

1. Does the Commission not consider that if the guarantee offered by the French State allows FT to acquire, via ERAP, financial resources at an interest rate lower that which an operator on the private market would have asked, this constitutes an instance of State aid of the kind which ought to be notified?

2. Does it not also consider that the very guarantee provided by the State for debts incurred by a public company (a guarantee which is, obviously, inaccessible to private competitors needing comparable financing) constitutes State aid?

3. Does it not also consider that, at a particularly difficult moment for the telecommunications sector, this kind of intervention on the part of national governments who are both referees and players in the same sector and are therefore involved in an obvious conflict of interest constitutes a serious distortion of competition which makes the situation of operators both businesses and employees who cannot count on State aids even more critical?

Answer given by Mr Monti on behalf of the Commission

(12 February 2003)

On 4 December 2002 the French authorities have submitted to the Commission a document describing the intervention of the French State in respect of France Telecom. The Commission has studied this document to see whether or not this intervention raises doubts under State aid rules. The Commission has carried out a preliminary examination focused on the question of whether the intervention is in line with the market economy investor principle, i.e. non implying State aid, and, if State aid is involved, whether such State aid could comply with the State aid rules. Following this preliminary examination the Commission has doubts as to the compliance of the French intervention with

State aid rules. Accordingly, on 30 January 2003 it has decided to open the formal investigation procedure provided for by Article 88 (2) of the EC Treaty. This procedure will allow an in-depth investigation of the State intervention, and all interested parties to present their observations.

Given the economic importance of the case the Commission has treated it as a priority and it has been able to clarify its preliminary position in the a few weeks. The answer to the issues raised by the Honourable Member must be considered against the background of the decision to open the formal investigation procedure adopted by the Commission. It seems useful to make some general remarks as to the issues raised.

1. As to the question concerning the possibility for France Telecom to obtain financial resources at conditions that are more favourable than those applicable to other operators thanks to the intervention of ERAP, it should be noted that when a company is able to obtain financial resources at conditions more favourable than normal market conditions thanks to a State intervention implying the actual or potential mobilisation of State resources (regardless of whether this is a direct intervention or an indirect one through another State body), the State intervention constitutes, in principle, a State aid that must be notified, provided the other requirements of Article 87(1) of the EC Treaty are fulfilled.

2. As to the general question concerning State guarantees, it must be underlined that a State guarantee may constitute a State aid only if the guarantee is not remunerated by an appropriate premium. Commission notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees(1) provides for more details as to the Commission's approach in this matter.

3. On the last issue raised by the Honourable Member, regardless of whether the telecom sector is undergoing a sectorial crisis, the Commission believes that State aid rules must be respected in any particular economic conjuncture. In this connection, it should be reminded that State interventions must be assessed on the basis of their effects. Therefore, when a State measure qualifies as State aid, the Commission has to take the appropriate steps to ensure that the aid does not distort competition to an extent contrary to the common interest.

(1) OJ C 71, 11.3.2000.