2005/346/EC: Commission Decision of 14 July 2004 on the State aid implemented by Germany for MobilCom AG (notified under document number C(2004) 2641)Text with EEA relevance.
Date: 2004-07-14
Institutions: European Commission
Subjects: Germany, Internet, State aid, aid to undertakings, application of EU law, credit guarantee, mobile phone, telecommunications industry

4.5.2005

EN

Official Journal of the European Union

L 116/55

COMMISSION DECISION

of 14 July 2004

on the State aid implemented by Germany for MobilCom AG

(notified under document number C(2004) 2641)

(Only the German text is authentic)

(Text with EEA relevance)

(2005/346/EG)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

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

By letters dated 21 and 30 October 2002,
the
Commission asked for additional information, which
Germany duly supplied by letters dated 23 October,
registered as received on 23 and 24 October, and by
letter dated 5 November, registered as received on the
same day.

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

(3)

Having regard to Council Regulation (EC) No 659/1999 of
22 March 1999 laying down detailed rules for the application
of Article 93 of
the Treaty establishing the European
Community (1), and in particular Article 7(3) and (4) thereof,

By letter dated 27 November 2002, registered as
received on 28 November, Germany informed the
Commission of a further 80 % deficiency guarantee
for a new loan of EUR 112 million. Representatives of
the Commission and Germany met on 10 December
2002.

Having called on the Member State and other interested
parties to submit their comments pursuant to the provisions
cited above (2), and having regard to their comments,

(4)

By letter dated 21 January 2003, the Commission
its decision to approve the
informed Germany of
guarantee for the loan of EUR 50 million as rescue aid
pursuant to Article 87(3)(c) of the EC Treaty and to
the Community guidelines on State aid for rescuing
and restructuring firms in difficulty (3).

Whereas:

I.

PROCEDURE

(1)

By letter dated 18 October 2002, Germany informed
the Commission of ‘rescue aid’ in the form of a State
guarantee for a loan of EUR 50 million granted to
MobilCom AG (hereinafter referred to as MobilCom)
by the State‑owned Kreditanstalt für Wiederaufbau
(KfW). The loan had been paid out on 19 September
2002.

(5)

(6)

same

letter,

By the
the Commission informed
Germany of its decision to initiate formal proceedings
under Article 88(2) of the EC Treaty in respect of the
80 % deficiency guarantee for the EUR 112 million
loan.

The Commission's decision to initiate proceedings was
published in the Official
the European
Union (4). The Commission called on interested parties
to submit comments.

Journal of

(1) OJ L 83, 27.3.1999, p. 1. Regulation as amended by the 2003

Act of Accession.
(2) OJ C 80, 3.4.2003, p. 5.

(3) OJ C 288, 9.10.1999, p. 2.
(4)

See footnote 2.

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(7)

(8)

(9)

By letters dated 24 February 2003, registered as
received on 25 and 26 February, Germany submitted
comments on the Commission's decision to initiate
proceedings.

By letter dated 14 March 2003, registered as received
on the same day, Germany supplied the Commission
with further information, while at the same time
announcing its intention of extending up to the end of
2007 the State guarantees for the EUR 50 million and
EUR 112 million loans granted to MobilCom.
Germany
only
EUR 88,3 million of the second loan had been paid
out to the company.

pointed

also

that

out

By letter dated 10 April 2003, the Commission asked
for additional information on the planned extension
of the State guarantees, which Germany supplied by
letter dated 9 May, registered as received on 12 May.
Germany then submitted further information by letter
dated 21 May, registered as received on 21 May.

(10)

By letter dated 3 June 2003, registered as received on
4 June, MobilCom submitted its comments on the
Commission's decision to initiate proceedings.

(11)

(12)

(13)

By letter dated 9 July 2003, the Commission informed
Germany that
it was extending the Article 88(2)
proceedings already under way to take in the planned
extension of the loan guarantees up to the end of
2007.

The Commission's decision to extend proceedings was
published in the Official
the European
Union (5). The Commission called on interested parties
to submit comments.

Journal of

By letter dated 1 September 2003, registered as
received on 2 September, Germany submitted its
comments on the extension of proceedings. By letter
dated 9 September 2003 the Commission asked for
information. Germany replied by letter
additional
dated 23 September,
received on
registered as
in which it also informed the
25 September,
Commission that MobilCom had, on 22 September
2003, fully repaid the outstanding loans for which
State guarantees had been granted and that
the
guarantee bonds were being returned to the Federal
Government and the Land of Schleswig-Holstein by
KfW (the consortium leader).

(14)

(15)

(16)

By letter dated 5 November 2003, registered as
received on 6 November, Germany stated that the
question of the application to the Commission for an
extension of the loan guarantees up to 2007 had been
dealt with since the loans had been paid back.

By letter dated 25 September 2003, registered as
received on 25 September, and by letter dated
2 October, registered as received on 6 October, two
of MobilCom's competitors sent
the Commission
comments on the extension of proceedings, which
were forwarded to Germany for its opinion. Germa-
ny's reply was received by letter dated 5 November,
registered as received on 6 November.

the Commission,

Talks were held on 9 and 21 January 2004 between
representatives of
the Federal
Government, the Land of Schleswig‑Holstein and the
company on the matter of whether additional
measures were required to prevent undue distortions
of competition. By letter of 13 February 2004,
registered as received on 13 February, Germany
informed the Commission that MobilCom AG was,
in principle, prepared to discontinue direct online
distribution of MobilCom mobile telephony contracts
for a period of seven months. By letter of 16 February
2004, the Commission requested clarification of a
number of points. It sent a further letter on 26 March,
to which Germany replied by letters of 2 April,
registered as received on the same day, and of
28 April, registered as received on the same day,
stating that it could not make a definite commitment
to close MobilCom's online shops. By letter dated
23 June 2004, registered as received on 24 June,
Germany provided the Commission with additional
information on current trends in MobilCom's custo-
mer numbers.

II.

DETAILED DESCRIPTION OF THE AID MEASURES

1.

MobilCom AG

(17)

MobilCom AG was founded in 1991 by Gerhard
Schmid
as MobilCom Communicationstechnik
GmbH. It is registered in Büdelsdorf, Rendsburg‑Eck-
ernförde, Schleswig‑Holstein, an area eligible for aid
under Article 87(3)(c) of the EC Treaty. Besides its
headquarters in Büdelsdorf, MobilCom has a number
of
in Germany (Kiel, Karlstein, Erfurt and
Hallbergmoos).

sites

(5) OJ C 210, 5.9.2003, p. 4.

(18)

France Télécom is currently the largest shareholder in
MobilCom (28,3 %), and the remaining shares are in
the hands of small shareholders.

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L 116/57

(19)

(20)

(21)

(2G) mobile

MobilCom started its business as a reseller of ‘second-
generation’
for
telephony services
T‑Mobile, Vodafone and E‑Plus, among others.
In
1996, it was floated on the stock exchange and in
1997 it was one of the first firms to be listed on the
Neuer Markt segment of the Frankfurt stock exchange.
In 1998 MobilCom expanded into other areas of
business, entering the German landline and Internet
market. Expansion during the boom years of mobile
telephony allowed MobilCom to grow quickly.

Between 1997 and 2000, MobilCom bought up other
including the network service provider
companies,
Topnet, the mobile telephony service provider Cellway
and the largest German Internet search engine at the
time, DINO‑Online. It also added to its portfolio the
telecommunications firm TelePassport,
the service
provider D Plus and a majority holding in the
Comtech computer chain. In 1999 MobilCom listed
its
subsidiary freenet.de AG, Germany's
second‑largest online service, on the Neuer Markt in
Frankfurt.

Internet

(24)

(25)

(26)

the

joint

In 2000, MobilCom, together with France Télécom,
venture
founded
MobilCom Multimedia GmbH, with the aim of
bidding for a UMTS licence and breaking into the
UMTS market. France Télécom exchanged its share of
the joint venture for a 28,3 % stake in MobilCom AG,
so that MobilCom AG came to hold all shares in
MobilCom Multimedia GmbH. For
the shares in
MobilCom AG France Télécom paid a purchase price
of EUR 7,3 billion. The external funding needed for
the UMTS licence was
to be provided by an
international banking consortium. The basis for the
strategic partnership in the UMTS field was a
cooperation Framework Agreement signed by the
parties in March 2000.

The landline/Internet business consisted, on the one
hand, of voice telephony and, on the other, of the
Internet access business operated by the Internet
subsidiary freenet.de AG, in which MobilCom held a
76,1 % stake.
In the landline business MobilCom
served nearly 8 million customers before the crisis, of
whom around 3,2 million were Internet customers.

for

turnover

The MobilCom group's
the 2001
financial year was EUR 2,59 billion, an increase of
around 10 % on the previous year. Of that figure,
EUR 1,919 billion was accounted for by the mobile
business,
telephony/service
EUR 0,583 billion by the landline/Internet business
and EUR 88 million by other areas. Turnover in the
UMTS field was zero as it was still under construction.

provider

By the end of the year 5,01 million customers were
making calls on a MobilCom mobile phone, an
increase of 25 % on the 4 million customers the year
before. This meant that in mobile telephony Mobil-
Com was growing at a faster rate than the market
(17 % in 2001). Two thirds of the customer base
consisted of subscribers, compared with a market
average of 44 %.

(27)

On 31 July 2002 MobilCom employed 5 175 people,
including staff on fixed‑term contracts. This was
equivalent to 4 463 full-time employees.

(22)

In August 2000, MobilCom Multimedia GmbH made
a successful bid of EUR 8,4 billion and obtained a
UMTS licence from the Federal Government. In 2001
D Plus was merged with Cellway in order to gear up
the distribution structure for the UMTS business. In
the same year work began on building up the UMTS
network.

(23)

In the mobile telephony/service provider
sector,
MobilCom's aim in entering the UMTS business was
to develop from a simple service provider into a
network-based mobile telephony provider (6).

(28)

(29)

(6)

After concluding a national roaming agreement with E‑Plus in
April 2001, MobilCom was able to route voice and data
messages through E‑Plus's GSM/GPRS network and already
offer special nationwide voice and data services via GPRS under
its own brand before its own UMTS start-up.

2.

The mobile telephony market

After the restructuring, MobilCom will concentrate on
the mobile telephony/service provider business. Before
the crisis,
it also had UMTS and landline/Internet
operations.

According to Germany and to the market survey
attached to the restructuring plan that was submitted,
the market for mobile telephony services is part of the
market for telecommunication services, which also
includes landline connections, cable television, rented
lines, carrier business and other sectors. The market
for mobile telecommunications services (market for
mobile telephony services) must be regarded as a
separate relevant market that is distinct from the
market for other telecommunications services since its
products differ significantly from those on the market
for such services.

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(30)

(31)

(32)

(33)

and pure

Among the firms active in the mobile telephony
market a distinction can be drawn between network
operators
service providers. Network
operators own and operate the infrastructure needed
to set up mobile services. They sell these services
direct, as well as indirectly via service providers. The
activities of service providers are confined to operat-
ing mobile telephony services based on their own
pricing structure.

According to the telecommunications and post
regulator (RegTP), total turnover in telecommunica-
tions services in Germany in 2002 was around
EUR 61 billion. At present,
landline services and
mobile services are the two segments that account for
the
telecommunications
in the
services market as a whole, each enjoying around
one third of total turnover.

turnover

largest

The combined total earnings of mobile telephony
firms came to EUR 23,7 billion in 2002, according to
figures from RegTP. Between 1998 and 2002, annual
growth in mobile telephony services averaged 25,7 %,
well above the annual average growth rate for the total
for
German market
services
(8,3 %). However,
the average annual growth in
turnover in mobile telephony services was much
lower than the average annual growth in the number
of participants in that sector on account of the steady
drop in the average monthly turnover per participant.
In 2001 and 2002, growth in mobile telephony
markets slowed markedly (2,8 % in 2002).

telecommunications

All the predictions and studies on trends in the mobile
telephony market
in Germany available to the
Commission (7) are based on the expectation that in
the next three or four years the number of mobile
telephone customers will approach a natural satura-
tion point of 80 to 90 % of the German population.
At the end of 2002 market penetration was 72,4 % of
the population (68 % in 2001). It is therefore likely
that, in future, the main focus will be not on achieving
higher customer numbers, but on keeping existing
profitable customers and pushing up average monthly
turnover. Competition will concentrate increasingly
on customers who are prepared to change operator.
Following the boom years of 1999 and 2000, the
need to exchange terminal equipment (and hence also

(7)

(8)

Xonio Mobilfunkreport 2002; annual report by the German
telecommunications and post regulator (RegTP) 2002; market
study of 10 March 2003 conducted by Deloitte & Touche on
behalf of MobilCom.
Xonio Mobilfunkreport 2002; market study of 10 March 2003
conducted by Deloitte & Touche on behalf of MobilCom.

mobile telephony contracts) will grow further in
Germany in the years ahead.

(34)

In 2002 the participants in the German mobile
telephony market were as follows (market shares
based on numbers of mobile telephone customers) (8):

T-Mobile D1

Vodafone D2

E‑Plus E1

O2

Quam (9)

Subtotal (network operators)

Debitel

MobilCom

Talkline

Hutchison

Victor Vox

Drillisch

27,20 %

25,60 %

9,30 %

6,50 %

0,05 %

68,65 %

13,60 %

8,00 %

3,20 %

1,40 %

1,60 %

1,10 %

Subtotal (service providers)

31,35 %

Total (digital mobile telephony)

100,00 %

(35)

(36)

(37)

(38)

in second‑generation mobile
The market
telephony are T‑Mobile and Vodafone, which also
have their own mobile telephony networks.

leaders

In terms of the number of customers and employees,
three mobile telephone operators can be compared to
MobilCom.

O2 Deutschland,
a 100 %-owned subsidiary of
mmO2 plc, a former mobile telephony subsidiary of
British Telecommunications plc, operates mobile
telephony networks and offers mobile telephony
services in Germany. It employs a staff of 3 500.

Debitel is a telecommunications company without its
own network infrastructure; it operates as a reseller of
telephone minutes and second‑generation mobile‑te-
lephony network functions.
It employs a staff of
3 544. In 2002 its turnover was EUR 2,8 billion.

(39)

Talkline resells second‑generation mobile telephony
services. In 2001 its turnover was EUR 1,26 billion.
Talkline states that it employs 1 000 people.

(9) Quam has since withdrawn from the German mobile telephony

market.

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(40)

(41)

(42)

(43)

(44)

(45)

(46)

(47)

3.

Financial difficulties and restructuring

Although it considerably expanded its turnover in the
mobile telephony/service provider sector between
1997 and 2000 as a result of a steep net increase in
customers, MobilCom's operating results
in that
business line steadily declined. This was primarily
because the costs of acquiring new customers rose at
the same time as margins in its existing business fell.
Added to this was a rise in bad debts, for which
significant provision had to be made, particularly in
2001.

Moreover, the external situation in the UMTS field, in
particular the development of the market, content
products and terminal equipment, was worse than
planned and clearly behind schedule.

that

On 13 September 2002, France Télécom announced
the end of its partnership with MobilCom AG since it
felt
its German partner's independent UMTS
activities were no longer profitable. The complete
withdrawal of France Télécom from joint UMTS
activities brought an immediate end to all payments
for the purpose of financing the UMTS business.

At this point, MobilCom had, according to its business
report, debts of EUR 7,1 billion plus large current
financing requirements to cover
further network
investments, ordinary organisational expenditure and
interest. Since France Télécom had for months been
MobilCom's sole remaining source of financing and
since there were no alternative financing options,
MobilCom was directly threatened with insolvency.

Against
this background the Federal Government
granted rescue aid in the form of a deficiency
guarantee for a loan of EUR 50 million. The loan
was provided by the State‑owned KfW and paid out
on 21 September 2002.
It enabled the firm to
maintain its operations for an initial period. This aid is
not covered by the present proceedings, having been
approved by
the Commission by decision of
21 January 2003.

At the same time, MobilCom sought to enforce a
compensation claim on the basis of the cooperation
agreement with France Télécom.

On 22 November 2003 MobilCom AG, MobilCom
Holding GmbH, MobilCom Multimedia, France Télé-
com and Wirefree Services Belgium SA signed the
MC Settlement Agreement, which cleared a consider-
able amount of MobilCom's debts.

The central plank of the Settlement Agreement was
France Télécom's assumption of
the MobilCom
group's UMTS liabilities. In return, MobilCom waived,
in France Télécom's favour, any possible earnings
from the sale or use of all UMTS assets, except for a
10 % share.

(48) More specifically, France Télécom took over bank
liabilities (EUR 4,692 billion) and supplier credit
(around EUR 1,25 billion). At the same time,
it
waived repayment of its shareholder's loans totalling
around EUR 1,009 billion. The claims waived and
liabilities assumed came to a total of EUR 6,9 billion,
plus the interest that had accrued up to the time of
the transfer.

(49)

France Télécom also undertook to provide funds for
the withdrawal from the UMTS business, albeit only
up to 31 December 2003 and for a total amount of
EUR 370 million. The parties also waived all
reciprocal claims arising from their business relation-
ship (10).

(50)

However, France Télécom's withdrawal from coopera-
tion in the UMTS business not only had an impact on
MobilCom's UMTS operations but also made restruc-
turing necessary in other business areas, in particular
the loss‑making core business of mobile telephony/
service provision.

(51)

France Télécom had expressly refused, during the
negotiations on the settlement, to provide funds for
reorganising the mobile telephony/service provider
business as well. On 20 September 2002, in order to
ensure the additional funding needed to finance the
requisite reorganisation measures
sector,
Germany and the Land of Schleswig‑Holstein granted
a further 80 % deficiency guarantee for a loan
amounting to EUR 112 million.

in this

4.

Description of the restructuring plan

(52)

Germany submitted a comprehensive restructuring
plan for the MobilCom group which examined the
the crisis and set out how long‑term
causes of
profitability might be restored.

(10) The MC Settlement Agreement has since been approved at the
general meetings of MobilCom AG and France Télécom.

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(53)

(54)

(55)

According to the plan, the fundamental causes of the
continuing economic difficulties of
the MobilCom
group were to be found in the core business segment
of mobile telephony/service provision and the former
UMTS business segment.

According to the restructuring plan,
the external
situation in the UMTS sector was worse than planned.
The original profits expected from the UMTS business
had to be corrected. In the end, the trigger for the
crisis was France Télécom's withdrawal (which the
from the
MobilCom group had not
the
the UMTS business;
expansion of
considerable finance required to develop the UMTS
business,
the
MobilCom group.

this had threatened the liquidity of

in view of

expected)

In the mobile telephony/service provider business
segment, the chief cause of the crisis according to the
restructuring plan was the exclusive concentration on
growth at the expense of profitability. In the desire to
win customers for the future UMTS business, too
much emphasis had been placed in the past on
increasing market share. Since,
in the past, new
could frequently be gained only at
customers
disproportionately high acquisition costs and primar-
ily in cheap price‑ranges and since, at the same time,
only small
turnovers were generated, gross yield
margins were small.

(60)

(61)

It was also planned that MobilCom would withdraw
from the Internet/landline sector. To this end, the
landline division was to be integrated into freenet.
de AG and the stake in freenet.de AG subsequently
sold (in part).

The key components of the reorganisation strategy for
the loss‑making mobile telephony/service provider
business were to cut 850 full‑time jobs, to concentrate
sales and customer‑services activities, which had
previously been scattered over several sites, at the
Büdelsdorf group headquarters and the Erfurt site, to
reduce customer acquisition costs
(among other
things, by closing MobilCom shops) and to streamline
customer portfolios. Overall, the emphasis would be
on consolidation at
lower but more profitable
customer and turnover levels.

(62)

The measures were to be financed by the loan with an
80 % State guarantee. It was originally estimated that
EUR 112 million would be needed. In the end, the
amount required was only EUR 88,3 million, which in
the restructuring plan is broken down as follows:

— customer/loyalty measures

structure: EUR […]* (*) million,

to optimise price

— closure

of
EUR […]* million,

unprofitable MobilCom shops:

(56)

In addition, the unsatisfactory payment behaviour of
many customers and the consequent provisions for
bad debt resulted in significantly high charges. The
mobile telephony/service provider business segment
recorded continual losses at that time.

(57)

Concentration on the UMTS business also meant that
necessary adjustments in the other business segments
were neglected.

(58)

(59)

the strategy for restoring the firm's
The basis of
profitability set out in the restructuring plan was to
concentrate strictly on the original core business as a
service provider in the mobile telephony sector.

The unprofitable UMTS business was to be completely
discontinued. The cost of withdrawing from the
UMTS business, i.e. selling or cutting back all UMTS
assets and shedding 1 000 UMTS full‑time jobs, was
estimated in the restructuring plan at a maximum of
EUR 370 million. According to the plan, no further
funds were needed in the UMTS sector besides the
EUR 370 million promised by France Télécom as part
of the MC Settlement Agreement.

— job cuts in service provider sector: EUR […]*

million,

— external consultancy, to March 2003: EUR […]*

million,

— closure of Karlstein and Hallbergmoos and
relocation of infrastructure: EUR […]* million,

— impending financial obligations,

in particular
from leasing commitments for business assets no
longer used on account of change in strategy:
EUR […]* million,

— cash deposits […]*: EUR […]* million.

(*)

Parts of this text have been edited to ensure that confidential
information is not disclosed; those parts are enclosed in square
brackets and marked with an asterisk.

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(63)

According to a business plan attached to the
restructuring plan and to a profit and loss account
for the period up to 2007, MobilCom would return
to profit in the service provider sector in 2005. As
regards repayment of the loans guaranteed by the
State, a liquidity analysis concluded on the basis of
the three scenarios put forward, favourable outcome,
‘realistic’ outcome and unfavourable
medium or
outcome, that, even if turnover was as posited in
the worst‑case scenario, the loans could be repaid by
the end of 2007. According to the restructuring plan,
earlier repayment would be possible, though, if the
shares in freenet.de AG were successfully sold.

5.

Implementation of the restructuring plan

(64) MobilCom began implementing the measures set out
in the restructuring plan back in November 2002. The
UMTS sector was frozen in accordance with the plan
and prepared for sale. The planned shedding of a total
of 1 850 full‑time jobs in the UMTS and service
provider sectors was already concluded in March
2003. The additional measures
relating to the
reorganisation of the service provider core business,
such as the shutdown of the Karlstein and Hallberg-
moos sites, the closure of unprofitable shops and the
introduction of a new organisational structure, were
also fully implemented in the fourth quarter of 2002
and the first quarter of 2003.

(65)

In addition, all MobilCom's landline activities were
grouped together in mobilcom CityLine GmbH (MCL)
and transferred on 10 April 2003 by way of a
purchase contract from MobilCom to freenet.de AG.
The first
two instalments, EUR 10 million and
the total purchase price of
EUR 8,5 million, of
EUR 35 million to be paid to MobilCom, which were
due in May and August 2003, were used in
accordance with the plan to repay the second loan
guaranteed by the State.

(66)

The UMTS network was sold to E‑Plus in May 2003
and the UMTS licence returned to RegTP in December
2003. This left MobilCom free as a service provider to
offer UMTS services as well and to take part in the
emerging market (11).

(67)

On 17 September 2003 the management board and
the supervisory board decided to sell up to 20 % of
the shares in freenet.de AG. Under an accelerated
bookbuilding procedure, 20 % of the shares (3,75 mil-
lion) were sold to various domestic and foreign
sale was
investors. The gross yield from the
EUR 176,1 million (EUR 47 per share). This left
MobilCom with 52,89 % of the shares in freenet.
de AG.

(68) With the proceeds, MobilCom repaid the outstanding
credit lines from the two State‑guaranteed loans on
22 September 2003 and was thus free from debt. The
guarantee bonds were
returned to the Federal
Government and the Land of Schleswig‑Holstein.

(69)

After repaying the loans, MobilCom was left with
proceeds of nearly EUR 60 million from the sale of
the freenet shares.

(70)

it said,

According to Germany, the sale of further shares in
freenet.de AG is not planned. MobilCom's stake in
freenet.de AG had,
in the meantime been
transformed from a strategic into a purely financial
holding, even though MobilCom retained 52,89 % of
the shares. Germany described the surviving opera-
tional
links between the freenet subgroup and the
MobilCom subgroup as insignificant. There was no
and profit‑transfer
control-
agreement between
MobilCom and freenet.de AG.

(71)

In October 2003 further extraordinary receipts flowed
to MobilCom from the successful sale by the trustee
Prof. Helmut Thoma of the shares held by the founder
and former head of MobilCom (12).

(72)

In the

service provider

The MobilCom group returned to profit in both the
mobile telephony/service provider and landline/Inter-
sector,
net businesses.
MobilCom achieved a positive result in the second
and third quarters of 2003, recording a profit for the
first time in eleven quarters. Its EBITDA (earnings
before interest, taxes, depreciation and amortisation)
rose to EUR 103,6 million in the financial year 2003
in both the mobile telephony/service provider and
landline/Internet sectors combined on a turnover of
EUR 1,837 billion. EBIT (earnings before interest and
taxes) rose to EUR 22,3 million (compared with
EUR - 372,9 million in 2002).

(11)

If the licence had been retained, this would not have been
possible since licence holders may not be service providers at
the same time.

(12)

[…]*.

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(73)

The trend of the service provider segment during the restructuring phase was as follows (13):

Results

Turnover (EUR million)

EBITDA (EUR million)

EBITDA to turnover

EBIT (EUR million)

EBIT to turnover

Mobile telephony customers (million)

of which subscribers (million)

of which pre‑paid customers (million)

Q1
2004

349

15,2

Q4
2003

371

- 11,2

4,4 %

- 3,0 %

8,7

- 20,2

2,5 %

- 5,4 %

4,2

2,4

1,8

4,2

2,6

1,6

Q3
2003

Q2
2003

Q1
2003

336

17,4

5,2 %

10,3

3,1 %

4,1

2,6

1,5

329

13,5

4,1 %

4,8

1,5 %

4,2

2,7

1,5

321

- 5,2

- 1,6 %

- 14,2

- 4,4 %

4,5

3,0

1,5

0,16

Gross new customers (million)

0,42

0,43

0,19

0,13

(74)

If the capital gain from the placing of 3,75 million
freenet shares is taken into account, group earnings in
2003 rose to EUR 160,4 million. According to the
firm itself, MobilCom now has a solid basis.

(75)

(76)

6.

Details of State guarantees granted

could be

The loan of EUR 50 million granted by KfW on
19 September 2002, which was fully secured by a
Federal Government guarantee, was due to expire on
15 March 2003 but
extended until
15 September 2003. It was initially extended until
21 July 2003. In July 2003 KfW again extended the
the loan, pending a decision by the
term of
Commission on the restructuring plan submitted, to
20 May 2004 at the latest. The interest rate for the
loan was 6,814 %. It consisted of the Euro Interbank
Offered Rate (Euribor)
the interest period in
for
question plus 3,50 % per annum.

to

for

AG

MobilCom

The second guarantee,
the EUR 112 million
and
granted
loan
MobilCom Holding GmbH by the consortium of
banks consisting of Deutsche Bank AG, Dresdner
Bank AG, KfW and Landesbank Schleswig-Holstein,
with KfW as lead bank, was assumed by the Federal
Government and the Land of Schleswig‑Holstein
together.
on
loan, which was
20 November 2002, had a term of 18 months until
20 May 2004. It was to be paid in several instalments.
the Euro Interbank
The interest rate consisted of
Offered Rate (Euribor) for the relevant interest period

granted

The

for each instalment plus 2,50 % per annum. The
guarantee provided by the Federal Government and
the Land of Schleswig‑Holstein covered 80 % of the
loan. The Federal Government underwrote 48 % of
the amount, and the Land 32 %. Under the guarantee
agreement of 20 November 2002, the guarantee was
due to expire on 15 March 2003. However,
if a
restructuring plan was submitted to the Commission
before the expiry date, this period was to be extended
automatically until such time as the Commission
adopted a decision on the aid on the basis of the
restructuring plan in question. With the submission of
the restructuring plan in March 2003, the second
guarantee was extended to cover the entire duration of
the loan up to the time of the Commission's decision
on the basis of the plan.

(77)

Germany informed the Commission that the premium
which MobilCom had to pay the Federal Government
for the guarantees on the loans of EUR 50 million and
EUR 112 million was 0,8 % per annum in each case.
An application fee of EUR 25 000 was also due. The
Land of Schleswig‑Holstein was entitled to a guarantee
premium of 1 % per annum and a processing fee of
EUR 25 564.

(13)

Interim report, 1st quarter 2004, MobilCom AG.

(78)

Germany stated that, because only EUR 88,3 million
was needed and called in for
the restructuring,
MobilCom wrote on 1 April 2003 to KfW as
consortium leader to waive the outstanding loan
amount of EUR 23,7 million.

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7.

Reasons for initiating/extending the proceedings

(86)

(79)

(80)

(81)

(82)

(83)

The Commission approved the guarantee for the loan
of EUR 50 million as rescue aid pursuant to Article 87
(3)(c) of the EC Treaty and the Community guidelines.

In its decision to initiate the formal
investigation
procedure, the Commission also classified the guar-
antee from the Federal Government and the Land of
Schleswig‑Holstein on the second loan as State aid
within the meaning of Article 87(1) of the EC Treaty.
On the basis of
it
concluded that the notified aid should be assessed
on the basis of
the Community guidelines and
doubted whether it was compatible with the common
market.

its provisional assessment,

(87)

(88)

a

later

loan

it was not clear for the Commission
In particular,
whether
stage
at
granted
the
(EUR 112 million) was being used exclusively to keep
the business running in the declared rescue period or
was already being used for restructuring the firm.
Because it is particularly distortive of competition,
restructuring aid may be authorised only on the basis
of a restructuring plan; however, this was not available
to the Commission when the proceedings under
Article 88(2) of the EC Treaty were initiated.

By decision of 9 July 2003, the Commission included
the originally planned extension of the loan guaran-
tees until 2007 within the scope of
its ongoing
investigation.

The Commission doubted in particular whether
MobilCom needed an extension of the State‑guar-
anteed loans. It could not at the time rule out the
possibility of MobilCom's being able to secure
sufficient funds for paying off the credit from a quick
sale of its stake in the Internet subsidiary freenet.
de AG.

(89)

(90)

III.

COMMENTS FROM GERMANY

(84)

As the loans were repaid on 22 September 2003, with
the guarantee bonds subsequently being returned to
the guarantors, Germany considers that the question
of the application to extend the loan guarantees until
2007, which had in any event been submitted only as
a precautionary measure, is now closed.

Germany states that the loans were used exclusively to
finance measures taken in the service provider sector
and aimed at such things as optimising the customer
tariff structure, adjusting sales expenditure and cutting
current staff costs, the dual purpose being simply to
keep the firm's ordinary business running and to
reduce the need for liquidity during the rescue phase.
Without these measures,
the liquidity requirement
would have been EUR 110 million higher by
March 2003.

Furthermore, a comprehensive restructuring plan had
not yet been submitted at the time the aid was granted
and indeed could not have been drawn up in the short
time available.

In the event of the Commission's not accepting this
the second loan
assessment, Germany asks that
guarantee be approved as restructuring aid on the
basis of the restructuring plan that was submitted to
the Commission subsequently. It takes the view that,
in particular, MobilCom's withdrawal from the UMTS
business and from the landline and Internet segment,
as provided for in the restructuring plan, offset any
distortions of competition on the mobile telephony
market caused by the State‑guaranteed loan.

IV.

COMMENTS FROM THIRD PARTIES

1.

Comments from MobilCom

In its comments on the initiation and extension of the
formal
investigation procedure, MobilCom rejected
the doubts about the aid's compatibility with the
common market.

it claimed,

It argued that competition on the market for mobile
telephony services would have come to a standstill if
MobilCom had ceased to exist. The mobile telephony
market,
is dominated by the network
operators, which have a total market share of almost
70 %, with some 52 % being accounted for by the two
dominant suppliers, T‑Mobile and Vodafone. The
disappearance of MobilCom would have given Debitel
a virtual monopoly among service providers without
their own network, thereby removing the pressure on
that company to bundle the most favourable rates and
offer them to its customers. The role of service
providers as catalysts of price competition between
the network operators would thus have been
decisively weakened and the oligopolistic structure
of the German mobile telephony market would have
been further strengthened.

(85)

The second aid measure is the guarantee on the loan
of EUR 112 million: Germany maintains its view that
this too constituted rescue aid within the meaning of
the Community guidelines.

(91)

MobilCom also claimed that
the State guarantee
would not have led to a distortion of competition and
was limited to the absolute minimum. The guarantee

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covered altogether only 80 % of the loan amount. The
available funds were entirely earmarked for
the
implementation of the restructuring plan and were
strictly limited to the costs of restructuring in the
service provider
the measures
described in the restructuring plan had been essential
to restoring long‑term viability, and MobilCom again
explained in detail, and gave a further breakdown of,
the individual costs provided for in the restructuring
plan.

sector. Each of

(92) MobilCom also pointed out

that

the remaining
competitors benefited from the restructuring plan
it, MobilCom was divesting all
because, under
activities that did not belong directly to the core
business sector but would be of use to it, such as the
UMTS network operation in particular.

(98)

Talkline gave as a reason for the particular severity of
the distortion of competition, first, the fact that the
guarantee enabled MobilCom to continue in business
without restriction, while carrying out a full and rapid
restructuring. True, MobilCom did lose market shares
during the restructuring, but its market presence was
still appreciable for competitors.

(99)

Second, the State‑guaranteed loans enabled MobilCom
to make its customer base profitable. After streamlin-
ing its customer base, MobilCom had grown about as
strongly as the market but had a disproportionately
high‑yield customer base.

No negative effects on competitors were to be
expected, moreover, since under the restructuring
considerable capacity reductions would be made in
the service provider sector as well. In particular, the
substantial reduction of staff and the closure of sites
had considerably reduced MobilCom's ability to
acquire customers.

At the talks held between Germany and the Commis-
sion on 9 and 21 January 2004, in which representa-
tives of MobilCom also took part,
the company
clarified its written comments, stating that it main-
tained the legal view also adopted by Germany,
namely that the second aid measure was rescue and
not restructuring aid. The question of appropriate
compensatory measures therefore did not arise.

(100)

(101)

2.

Comments from Talkline GmbH & Co KG

In addition, because of the loans, MobilCom was able
to delay the proposed sale of the fixed network to
freenet.de AG and the ensuing partial sale of its stake
in the latter, so that it could use the expected related
rise in the market price not only to repay the loan but
also to invest in the mobile telephony business since
the
in
September 2003 left it with liquid resources of almost
EUR 60 million after paying off the loans in full.

sale of 20 % of

the block of

shares

Talkline also doubts whether it was necessary to grant
the second guarantee. MobilCom already had con-
siderable fixed assets at the time, the stake in freenet.
de AG in particular being emphasised by Talkline. The
sale of 20 % of
the freenet shares (3,75 million
shares), which took place only in September 2003,
would have already brought the firm an income of at
least EUR 18,75 million in November 2002 at the
then price of some EUR 5 per share. The sale of the
whole stake (13,65 million shares) would have
provided
of
EUR 68 million and hence made borrowing largely,
and a State guarantee definitely, unnecessary. This
calculation was based only on the stock market price
and not the net asset value of freenet.de AG, which
had been put significantly higher by the supervisory
board of MobilCom and the management board of
freenet.de AG.

firm with

resources

liquid

the

service

telephony

a mobile

provider,
As
is a direct
Talkline GmbH & Co KG (Talkline)
competitor of MobilCom. It pointed out that,
like
other direct competitors, it had had to adapt to market
conditions in the last two years and change direction
at its own expense and without State aid.

Talkline argued, first of all, that the second State‑guar-
anteed loan was restructuring aid for MobilCom and
not rescue aid. The restructuring of the firm had
already begun before the second loan was granted in
November.

The firm also took the view that the distortion of
competition caused by the aid to MobilCom was
particularly severe. The aid granted was not compa-
tible with the common market without sufficient
compensation.

(102)

If the Commission concludes that the State guarantee
for the second loan is admissible restructuring aid, it
can authorise it, in Talkline's view, only if Germany
offers further compensatory measures in accordance
with point 35 et seq. of the Community guidelines.

(103)

The measures taken by Germany were not sufficient,
in Talkline's opinion, to offset the aid's adverse effects.
The reduction of capacities in the mobile telephony
sector and the associated reduction of the customer
base were largely attributable to the fact
that
MobilCom had dropped unprofitable customer rela-
tionships. This reduction was necessary from an

(93)

(94)

(95)

(96)

(97)

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economic point of view and cannot
accepted as a quid pro quo.

therefore be

V.

GERMANY'S RESPONSE TO THE COMMENTS

SUBMITTED BY THIRD PARTIES

(104)

(105)

(106)

There had been no complete withdrawal from the
landline and Internet business. What is more, the sale
of the stake in freenet, given its effect on competition
in the mobile telephony sector, constituted a capital
restructuring. As a quid pro quo for possible distortions
of competition, it was thus not only worthless but
considerably aggravated the distortion since Mobil-
Com was now investing the proceeds from the sale of
the freenet stake directly in the service provider
business.

The freezing of the UMTS business was an economic
necessity and was therefore not suitable either as a
to offset distortions of
compensatory measure
competition in the mobile telephony sector. The
withdrawal benefited only the remaining UMTS
licence holders, who had one direct competitor less.

Lastly, Talkline proposed a catalogue of possible
measures for offsetting the distortions of competition
it felt had occurred. The measures included a pro rata
‘sale’ of customers to competitors, a closure of online
shops and other direct channels for a limited period,
and withdrawal from the UMTS business as a service
provider (enhanced service providing) for a limited
period.

3.

Comments from a third party which wished

to keep its identity secret

(107)

The Commission also received comments from a
further competitor, likewise a pure service provider
without its own network structure.

(110)

In response to the comments submitted by third
parties, Germany argues that the second aid measure
was necessary because in mid‑November 2002 the
liquidity needed to maintain MobilCom's current
business had run out. Without the loan from the
KfW consortium, MobilCom would have had to apply
for
In the event of an
application for insolvency, MobilCom's management
board estimated that a substantial proportion of
customers would very rapidly be lost; a restructuring
of MobilCom on the basis of an insolvency would
thus have been impossible.

insolvency immediately.

(111) Germany further

that,

states

in the

insolvency law. From the outset of

settlement
negotiations in the second half of September 2002,
France Télécom always made it clear that it could
undertake to release MobilCom from its UMTS
commitments only if
it could be certain that
MobilCom would not need to seek insolvency within
the periods in which challenges might be possible
under
the
negotiations, therefore, France Télécom had wanted
an outside expert's report giving a positive forecast for
the continued existence of the business areas remain-
ing to MobilCom and had demanded undertakings
from third parties
financing
necessary for a successful reorganisation would be
available. The loan of EUR 112 million granted for this
purpose by the KfW consortium was accordingly
made a condition of the MC Settlement Agreement.
France Télécom also demanded that the necessary
loan facilities be open for at least 18 months. The fact
that the loan and guarantee ran until 20 May 2004
meant, in Germany's view, that this demand had been
met.

ensuring that

the

(108)

This competitor also thinks that the quid pro quo
offered is not sufficient to achieve the reduction of
capacities in MobilCom's core business necessary for
offsetting distortions of
competition. MobilCom
wanted to concentrate on high‑yield customers in
the middle and upper segments. Consequently, despite
a decline in customers, it would be able to maintain its
market presence since, by concentrating on high‑yield
customers, costs could be reduced and turnovers
increased.

(112)

(109) Under current market conditions, viz. saturation,
lower average turnovers per customer and falling
margins, the repositioning that MobilCom was trying
to achieve was what all service providers were striving
for. The aid, which was not available to direct
competitors, was being used by MobilCom to secure
a competitive advantage in the valuable, and fiercely
contested, customer stratum. Germany had therefore
supported the restructuring of MobilCom at the direct
expense of competitors, which was not acceptable
without further compensatory measures.

Germany also submits that the State guarantee was
necessary for the granting of
the loan. The loan
contract with the KfW consortium required Mobil-
Com to provide all the collateral it had at its disposal.
But this was not enough to convince the consortium
to grant
the necessary funding. Despite intensive
efforts on the part of the Federal Government to
induce the banks in the consortium to assume a
higher proportion of the risk, the banks insisted that
there had to be a deficiency guarantee from the
Federal Government and the Land of Schleswig-
Holstein covering 80 % of the loan. Without this
official cover for the loan (risk shield), none of the
banks would have been prepared to provide funding
for MobilCom, and MobilCom would have become
insolvent.

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(113) On the question of whether the aid was limited to the
minimum necessary, Germany argued that in the loan
contract with the KfW consortium MobilCom under-
took to use all net revenue from the sale of major
physical or financial assets to redeem the loans, and
thus also the State guarantee. It also undertook to
begin the sale of the landline network and the Internet
business very soon. It began at once efforts to sell
these assets and the UMTS assets. It disposed of them
so quickly and so successfully that it was able to
redeem the loan financing advanced and the State
guarantees ahead of schedule.

(114)

The sale of the landline business and the UMTS assets,
and later the transfer of the Millenium shares, meant
that the loan was gradually reduced, and the sale on
17 September 2003 of a stake in freenet.de AG
ultimately brought it to zero. The State guarantee was
thus in operation only for about half of the lifetime of
the KfW loan.

(115)

It was not possible to realise the assets and thus to
repay the State‑guaranteed loans more quickly. This
was true of the sale of the landline business, which
was agreed in March 2003, the sale of the UMTS
assets, which was agreed in May 2003, and the sale of
MobilCom shares by the trustee, Dr Dieter Thoma,
which was permissible only from April 2003 onwards
(MobilCom had no power to instruct Dr Thoma;
under his trustee contract with Gerhard Schmid and
Millenium, he was obliged to obtain as high a price as
possible).

(116) Germany contends that the same applied to the sale of
the freenet shares. Under the German law governing
limited companies, the management board had an
obligation,
in the interest of the company and its
shareholders, to prevent any sale of its assets below
their value. Germany states in particular that, at that
time, the stake could have been sold quickly only
through the stock market. The market price of a
freenet share was low, at about EUR 5, which gave a
market value of EUR 68 million for the entire holding;
if 76,1 % of freenet shares were to be disposed of
rapidly, the price would probably have collapsed. And
the company supervisory bodies would not have
agreed to a sale in November 2002 because at that
time France Télécom's general meeting had not yet
approved the MC Settlement Agreement.

Instead, considerations of
through an insolvency.
competition,
infrastructure and the labour market
argued in favour of the granting of a State guarantee.

the landline business,

(118) Germany initially maintained its view that substantial
compensatory measures had already been taken, the
main ones being the sale of the UMTS business, the
sale of
the reduction in
MobilCom's stake in freenet.de AG from a qualified
majority to a financial holding only, and the closure of
the Hallbergmoos and Karlstein sites. In direct talks
held with Germany in January 2004, the Commission
raised other possible compensatory measures, and in
particular closure of MobilCom's online shops for a
limited period of seven months, to which Germany
initially agreed. However,
in April 2004 Germany
informed the Commission that it could not make a
definite commitment to close the online shops.

VI.

ASSESSMENT OF THE MEASURES

(119) Article 87(1) of the EC Treaty states that, save as
otherwise provided in the Treaty, any aid granted by a
through State resources which
Member State or
to distort competition by
distorts or
favouring certain undertakings or the production of
certain goods is incompatible with the common
market,
insofar as trade between Member States is
affected.

threatens

(120) The Commission notes that the question of Germany's
application to the Commission for authorisation to
extend the loan guarantees until 2007 is now closed
because the loans were repaid on 22 September 2003,
with the guarantee bonds subsequently being returned
to the guarantors. Thus the Commission no longer has
to consider this application.

(121)

The Commission approved the State guarantee on the
EUR 50 million loan as rescue aid within the meaning
of the Community guidelines on 21 January 2003.
This aid need not, therefore, be considered afresh.

1.

The State guarantee on the EUR 112 million

loan as aid

(122) The Commission considers that it has been shown
that the 80 % State guarantee on the EUR 112 million
loan granted on 20 November constitutes aid within
the meaning of Article 87(1) of the EC Treaty.

(117) Germany submits that

there were no alternative
courses
that would have enabled MobilCom to
continue operating in the market. Insolvency would,
at best, have served the interests of competitors
because MobilCom's clientele would readily have
moved over to them. But Germany contends that
there was no justification for breaking up MobilCom

(123) The guarantee was granted by the Federal Ministry of
Finance and by the Ministry of Economic Affairs,
Technology and Communications of
the Land of
Schleswig‑Holstein, both of which are State autho-
rities. The aid must therefore be considered as having
been granted by the State.

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(124)

State guarantees generally fall within the scope of
Article 87(1) if no market premium is paid and trade
between Member States is affected (14).

market there is intense competition between providers
from different Member States. Many of MobilCom's
current or potential competitors in the provision of
second‑generation mobile telephony services are firms
with their head offices in other Member States (e.g.
O2, E‑Plus, Vodafone D2, Talkline and Debitel).

(125) The Commission takes the view that the premium
the State guarantee was not a market
paid for
premium. Germany stated that the premium which
MobilCom had to pay to the Federal Government for
the guarantee was 0,8 % per annum plus
an
application fee of EUR 25 000 in each case. The Land
of Schleswig‑Holstein was entitled to a guarantee
premium of 1 % per annum and a processing fee of
EUR 25 564. But Germany did not supply any further
data that might show that that the premiums were
appropriate to the risk or
in line with market
conditions. Rather, Germany itself always refers to
the guarantee on the second loan too as ‘aid’. Against
this background, and given MobilCom's difficult
economic situation and the fact that it was on the
brink of insolvency, the Commission concludes that
the premium did not reflect the risk that the Federal
Government and the Land were running by giving the
guarantee; no private investor would have granted a
guarantee on those terms.

(126) The guarantee thus conferred a selective advantage on
MobilCom which it would not have received under
normal market conditions. In particular, its access to
borrowing was improved. MobilCom was in financial
distress and the guarantee enabled it to obtain loans
on terms that did not correspond to its real financial
position or to the risk accepted by a lender lending to
a firm in a comparable position without a State
guarantee. Under normal market conditions,
few
refuse to grant a loan to a firm if
banks will
reimbursement is guaranteed by the State.

(127) Moreover, the guarantee may affect competition and
trade between Member States. MobilCom provides
second‑generation GSM mobile telephony services
throughout Germany. The loan guarantee granted by
Germany improved MobilCom's competitive position
and is such as to have an adverse effect on the ability
of other second‑generation mobile telephony provi-
to compete. The guarantee also helped to
ders
reinforce MobilCom's position at Community level
because it made it less likely that providers from other
Member States might set up or expand operations in
Germany. On the Community telecommunications

(128) The State guarantee accordingly constitutes State aid

caught by Article 87(1) of the EC Treaty.

(129) The Commission takes the view that the loan on
which the guarantee was granted does not
itself
contain any aid element. The guarantee meant that the
loan was secured in line with market requirements.
rate charged to MobilCom on the
The interest
EUR 112 million loan (2,5 % per annum above
Euribor) was comparable to interest rates charged in
the case of healthy firms and was not below the
Commission's reference rates (15).

2.

Compatibility with the common market

(130) Article 87 of the EC Treaty lays down exceptions to
the principle that State aid is incompatible with the
common market. It has to be considered first of all
whether the aid at issue here is compatible with the
common market under Article 87(2). But the aid is
not (a) aid having a social character and granted to
(b) aid to make good the
individual consumers;
damage caused by natural disasters or exceptional
occurrences; or (c) aid granted to the economy of
certain areas of the Federal Republic of Germany.
Turning to Article 87(3) of
the
exemptions provided for in subparagraphs (a) and
(c) (regional aspect) are not applicable since the aid to
MobilCom is not intended to facilitate the develop-
ment of a specific economic area. The exemptions
provided for in Article 87(3)(b) and (d) do not apply
either. They refer to aid to promote the execution of
an important project of common European interest
and to aid to promote culture and heritage conserva-
tion.

the EC Treaty,

(131)

There remains the exception laid down in Article 87
the EC Treaty and in the Community
(3)(c) of
guidelines based on it. The Commission takes the
view that other Community guidelines, e.g. on aid for
research and development, small and medium‑sized
enterprises or employment and training, are not

(14) Commission Notice on the application of Articles 87 and 88 of
the EC Treaty to State aid in the form of guarantees, point 2.1.1
(OJ C 71, 11.3.2000, p. 14).

(15) When the aid was granted, the relevant reference rate was
5,06 %; see the reference and discount rates for State aid in
Commission letter SG(97) D/7120 of 18 August 1997.

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applicable. If the conditions set out in the Community
guidelines on State aid for rescuing and restructuring
firms in difficulty are met, the aid may contribute to
the development of economic activities without
adversely affecting trade (point 20 of the guidelines)
and may therefore be considered compatible with the
common market.

(138) Another category of costs arose out of the termination
or cancellation of unprofitable contracts and the
migration to tariffs appropriate to a service provider
for customers who had been acquired for the firm's
own UMTS network. This reorganisation of
the
customer base and tariffs was intended to establish
profitable long‑term relations with customers and put
a stop to the fall in gross trading profit margins.

(a) Assessment of the second aid measure as restructuring

aid

(139)

(132) After thorough consideration the Commission has
concluded that, contrary to the stance taken by
Germany and the beneficiary company, the second aid
measure constitutes restructuring aid, and not rescue
aid.

(133) Rescue aid within the meaning of the Community
guidelines is, by nature, temporary. It serves to keep
an ailing firm afloat for the time needed to work out a
restructuring or liquidation plan. It must be restricted
to the amount needed to keep the firm in business
until the restructuring plan has been drawn up (e.g.
covering wage and salary costs or routine supplies).

(134) Restructuring, on the other hand,

is based on a
feasible, coherent and far‑reaching plan to restore a
It usually involves the
firm's long-term viability.
firm's
reorganisation and rationalisation of
activities,
from
loss‑making activities and the restructuring of those
existing activities that can be made competitive again.
Financial restructuring usually has to accompany the
operational restructuring.

the
typically involving a withdrawal

(135)

The Commission takes the view that
the second
guarantee does not qualify as rescue aid. The loan it
covered was not
intended exclusively to finance
current costs, including ordinary improvements, with
a view to keeping the firm afloat for a limited period
until a restructuring plan had been drawn up.

(140)

(141)

(142)

(136) Germany states

rather

the purpose of

the
that
State‑guaranteed loan of EUR 112 million (or
EUR 88,3 million) was to enable MobilCom to take
a series of reorganisation measures in the loss‑making
service provider division. The package was thus clearly
aimed at the long‑term resolution of the causes of the
continuing losses in this area of the business.

(137)

In particular, the State‑guaranteed loan financed the
rapid shedding of 850 full‑time jobs in the service
provider sector, which was intended to reduce the
high staff intensity in the segment, a factor identified
in the restructuring plan as a major source of loss.

By furthermore closing the Karlstein site, which had
been brought into the MobilCom group with the
takeover of D‑Plus Telecommunications GmbH, and
the Hallbergmoos site, which had been brought in
with the takeover of Cellway Kommunikationsdienste,
and by concentrating all its distribution and customer
care structure at the Büdelsdorf headquarters and the
Erfurt site, MobilCom says that it made up a backlog
of adjustments that had been neglected while it had
been focusing on building up its UMTS business.

The Commission is accordingly satisfied that
the
package of measures financed by the State‑guaranteed
loan had effects that were primarily structural, being
aimed at ensuring the long‑term profitability of the
service provider division and of the company, and not
merely at keeping the firm in operation until a
restructuring plan was drawn up. Structural measures
cannot be financed with rescue aid. The Commission
therefore finds that the second guarantee constitutes
restructuring aid within the meaning of the Commu-
nity guidelines.

The Commission also assumes that
the measures
relating to the service provider business were based on
a solid plan for the restoration of the firm's long‑term
profitability. The Commission expressly rejects Ger-
many's objection that, at the time the State‑guaranteed
loan was granted in November 2002, no restructuring
plan had yet been presented.

The management board, in close consultation with the
supervisory board, decided the main points of the
reorganisation strategy back in September 2002 (16).
the
MobilCom was
participation of France Télécom, the UMTS project
could not be realised and would have to be
abandoned.

in no doubt

that, without

(143)

The management board also submitted a comprehen-
sive reorganisation programme for the mobile service
provider division the main features of which even at
that time were a shedding of 850 full‑time jobs in the

(16)

See press releases issued by MobilCom on 27 September 2002.

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Official Journal of the European Union

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core business, a concentration of the distribution and
customer care activities, hitherto spread over five sites,
at the permanent headquarters at Büdelsdorf and the
Erfurt site, and a reduction in the cost of acquiring
customers,
in particular by closing unprofitable
MobilCom shops.

the last instalment to the firm. That was not the case
here.

(147)

To sum up, the second aid measure thus constitutes
restructuring aid which the Commission can authorise
only if the conditions laid down in the Community
guidelines are met.

(144)

(145)

on

25

October

delivered

This reorganisation plan, which was fundamentally
identical to the subsequent restructuring plan sub-
mitted to the Commission in March 2003, was
examined by the auditors Deloitte & Touche. In its
2002,
report,
Deloitte & Touche came to the conclusion that, given
the lack of time and the terms of reference of the
contract, no final opinion could be reached on the
question of whether the MobilCom group's restruc-
turing plan had dealt fully with all points of weakness.
But the essential points of weakness had indeed been
taken into account and described in the report. The
measures set out
taken
together, could be expected to remedy the points of
weakness identified so far and to put the MobilCom
group in a position to achieve positive results within
one to two years.

in the restructuring plan,

MC

The Commission considers, therefore, that it has been
adequately shown that by November 2002 at the
latest, there was a coherent plan for the reorganisation
of the firm which formed the basis not only of the
KfW consortium's decision to grant a loan but also of
the measures
to reorganise the service provider
business undertaken in November. This conclusion
is in no way invalidated by the fact that, at that time,
France Télécom had not yet given its final assent to
the
the
Settlement Agreement had not become effective,
MobilCom would have had to apply for insolvency
anyway. The assessment of its prospects consequently
rested from the outset on the premise that a
far‑reaching discharge of debts would be possible
and thus assumed that an effective agreement could be
concluded. MobilCom itself, logically enough, began
implementing the measures without delay and did not
wait for final approval from France Télécom's general
meeting.

Agreement.

Settlement

If

(146)

that a decisive
The Commission also considers
indication that the second aid measure constituted
restructuring aid is the fact that, when the State‑guar-
anteed loan was granted,
it had a lifetime of
18 months, up to 20 May 2004. The guarantee was
to run initially until 15 March 2003, but that deadline
was to be extended automatically if a restructuring
plan had been submitted to the Commission before it
expired. Point 23 of the Community guidelines states
that rescue aid in the form of loan guarantees must be
linked to loans that are to be reimbursed over a period
of not more than twelve months after disbursement of

(b) Compatibility with the restructuring guidelines

E l i g i b i l i t y o f t h e f i r m

(148)

For the purposes of the Community guidelines, a firm
is regarded as being ‘in difficulty’ where it is unable,
whether through its own resources or with the funds
it is able to obtain from its owner/shareholders or
creditors,
to stem losses which, without outside
intervention by the public authorities, will almost
certainly condemn it to go out of business in the short
or medium term (point 4 of the guidelines). The usual
signs of a firm being in difficulty include increasing
losses, declining cash flow and falling or nil net asset
value as well as situations where the firm cannot
recover through its own resources or with the funds it
obtains from its owners/shareholders or creditors
(point 6 of the guidelines).

(149)

The withdrawal of France Télécom from the financing
of the UMTS business meant the liquidation of all of
MobilCom's corporate funds.

(150)

its

capital

In the third quarter of 2002 MobilCom suffered a loss
before interest and taxes (EBIT) of EUR 2,9 billion,
while
to
EUR 606,7 million (2001: EUR 3 769 million); the
insolvency looming in September 2002 could be
averted only through the State‑guaranteed liquidity aid
loan of EUR 50 million provided by KfW.

amounted

resources

(151) Despite

of

under

successful

conclusion

the
Settlement

the
MC
which
Agreement,
France Télécom took over UMTS liabilities totalling
EUR 6,9 billion plus interest, the group's loss in the
to
amounted
quarter
fourth
EUR 289 million, still well
in excess of the losses
before the crisis (second quarter of 2002: a loss of
EUR 172,8 million; first quarter of 2002: a loss of
EUR 116,4 million; fourth quarter of 2001: a loss of
EUR 91,9 million).

2002

of

(152)

The Commission further deduces from the liquidity
figures available to it that the negative cash flow
developments in the MobilCom group could not be
halted in November 2002 either. The available
liquidity reserves were already exhausted in Septem-
ber 2002. The rescue aid merely allowed the short‑-
term current liquidity requirement to be covered and
the immediate threat of insolvency to be averted.

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4.5.2005

(153) Germany moreover showed that, without the reorga-
nisation measures provided for in the restructuring
plan,
loss would probably have been
EUR 110 million higher in March 2003. In Germany's
view, it would not have been possible to finance such
a loss through bank loans.

the current

(154)

The Commission likewise concludes that MobilCom
would also not have been able to cover the financing
requirement
in November 2002 from its own
available capital resources.

(155) As already explained, liquidity reserves were no longer
available at that time. The Commission is also obliged
to conclude on the basis of the available information
that the (partial) sale of the Freenet stake, as envisaged
in order to redeem the
in the restructuring plan,
State‑guaranteed loan, which eventually happened in
September 2003, would not have been possible in the
short term.

the MC Settlement Agreement
it was not possible to sell

(156) Germany has convincingly shown that, prior to the
in
conclusion of
November 2002,
the
freenet holding because of the existing credit liabilities
to the creditor banks in the context of the UMTS
project. Any such sale would not have been possible
without the agreement of the creditor banks, to which
the freenet holding was still pledged at the time. In
the
view of
creditor banks would not have agreed to a sale.
Furthermore, the proceeds would have had to be used
exclusively for the repayment of the credit liabilities
resulting from the UMTS project for the banks.

the large debts in the UMTS sector,

(157) Nor does the Commission have any evidence to
suggest that, during the acute crisis in the third and
fourth quarters of 2002, investors would have shown
any interest in acquiring shares in MobilCom AG. This
means of procuring funds was therefore also not
available to MobilCom.

(158) Germany has also demonstrated sufficiently that the
consortium banks would not have granted the
EUR 112 million loan without the State guarantee,
since the default risk was considered to be too high
and in particular since the usual banking collateral
was not provided in sufficient measure.

collateral

(159) Germany submitted among other things an opinion
drawn up by the consortium lead bank, KfW, on
1 June 2003 in which the latter assessed the value of
the
the
EUR 112 million loan. In the EUR 112 million loan
contract, MobilCom undertook among other things to
the subsidiaries and
pledge all
associated
of MobilCom AG and
including the freenet.
MobilCom Holding GmbH,
de AG holding, and to transfer all claims against

the shares in all
companies

additionally

provided

for

Millenium GmbH and against the former manager
Gerhard Schmid amounting to EUR 71 million. All
the usual banking collateral that was available in the
company was also to be transferred.

(160)

The value of the freenet holding, which had already
been pledged in December 2002, could not be
assessed according to KfW because of the marked
volatility of the shares.

(161)

claims

against

Schmid

Gerhard

The
and
Millenium GmbH made over to the bank consortium
were to be met through the sale of the MobilCom AG
holding by the trustee Prof. Dieter Thoma by
31 December 2003. The valuation of this collateral
was based on the stock exchange price of MobilCom's
stock. Since that price is dependent on MobilCom's
creditworthiness, KfW, according to Germany, was
not able to attribute any collateral value, based on
customary banking principles, to the collateral.

(162) Other collateral, such as the subsequently transferred
purchase money claim against freenet.de AG arising
from the sale of the landline division amounting to
EUR 35 million, was not yet available at the time the
loan was granted.

(163)

The Commission must therefore conclude that the
granting of the 80 % Federal and Land guarantee was
necessary in order for the banks to be able to justify
the granting of the EUR 112 million loan.

(164)

The Commission thus finds that, at the time when the
second loan was granted, the firm was unable to
restructure itself through its own resources or with
the funds it was able to obtain from its owner/
shareholders or creditors, without the State contribu-
tion. In its view, therefore, there is sufficient evidence
that, in November 2002, MobilCom was still a firm in
difficulty within the meaning of
the Community
guidelines.

R e s t o r a t i o n o f

l o n g ‑ t e r m v i a b i l i t y

(165)

(166)

seq. of

to point 31 et

the Community
Pursuant
guidelines, the grant of restructuring aid is conditional
on implementation of a restructuring plan which
must be endorsed by the Commission in the case of all
individual aid measures and checked to see whether it
is likely to restore the long‑term viability of the firm.

The Commission did not have any doubt that the
MobilCom group could be stabilised following the
successful conclusion of the MC Settlement Agree-
ment with France Télécom. The detailed restructuring
plan submitted to the Commission in March 2003
contained a comprehensive analysis of the structural
deficits responsible for the problems and a compre-
hensive list of measures to overcome the weaknesses

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Official Journal of the European Union

L 116/71

identified. On the basis of a forecast profit and loss
account up to the end of 2007 and a scenario and risk
analysis, the Commission was able to establish that
the proposed restructuring measures were reasonable,
cogent
to allow
in principle,
MobilCom to restore its long‑term viability.

appropriate

and,

(167)

(168)

Furthermore, Deloitte & Touche carried out an
assessment of the restructuring plan on behalf of
MobilCom and came to the conclusion that the plan
was in line with the auditing firm's assessments in the
25 October 2002 report and in its monthly reporting
on the restructuring process.

This ex ante assessment is also borne out by actual
developments. MobilCom was back in profit in the
service provider sector in the second quarter of 2003
(for the first time after eleven quarters) and was able
to pay off its debts in full through the sale of freenet
shares in September 2003.

A i d l i m i t e d t o t h e m i n i m u m

(169) Under point 40 of the Community guidelines, the
amount and intensity of the aid must be limited to the
strict minimum needed to enable restructuring to be
undertaken. Aid beneficiaries must make a significant
contribution to the restructuring plan from their own
resources, including through the sale of assets that are
not essential to the firm's survival, or from external
financing at market conditions.

(170)

for

the

a State

The Commission considers that Germany has demon-
strated sufficiently that the restructuring aid in the
loan of
guarantee
form of
EUR 112 million is limited to the minimum needed
for the restructuring in the light of
the existing
financial resources of the company, its shareholders or
the business group to which it belongs. During the
restructuring phase, MobilCom did not carry out any
additional acquisitions or new investment not strictly
necessary for the restoration of long‑term viability.
Nevertheless, the Commission thinks it necessary to
attach conditions to its approval of the aid in order to
avoid undue distortions of competition (see para-
graphs 176 to 189).

the Commission notes

(171) As far as the period covered by the State‑guaranteed
loan is concerned,
that,
according to the information provided by Germany,
France Télécom pressed for a term of at
least
18 months for the State‑guaranteed restructuring loan
as a precondition for its taking over the liabilities
stemming from the UMTS business, as MobilCom
needed it to do, and that, consequently, a shorter term
would not have been practicable without endangering
the conclusion of the MC Settlement Agreement. The
Commission therefore regards the requirement that

aid be limited to the minimum as also having been
met in this respect.

(172) As regards the beneficiary's own contribution to the
restructuring, the Commission notes that the State
guarantee covered only 80 % of the guaranteed loan.
The risk in relation to the remaining 20 % was thus
borne by the firm and the lending banks. In addition,
restructuring
MobilCom helped to finance
through the sale of assets as
in the
restructuring plan. The first instalments made possible
by the EUR 35 million sale of the landline division to
freenet in March 2003 were used to pay back the
loans. The remainder of the loan was repaid in full in
less than one year out of the proceeds from the sale of
20 % of the shares in freenet.

the
set out

(173) Against this background and bearing in mind that the
aid took the form of a loan guarantee and not a
non‑repayable grant, the Commission concludes that
MobilCom made a sufficient contribution to the
restructuring from its own resources within the
meaning of point 40 of the guidelines and that the
aid was reduced to the minimum.

Av o i d a n c e
c o m p e t i t i o n

o f

u n d u e

d i s t o r t i o n s

o f

(174) Under point 35 et seq. of the Community guidelines,
measures must be taken to mitigate as far as possible
any adverse effects of the aid on competition. This
condition usually takes the form of a limitation or
reduction of the presence which the company can
enjoy on its market or markets, such limitation or
restriction being in proportion to the distortive effects
of the aid and, in particular, to the relative importance
of the firm on its market or markets.

(175)

(176)

The Commission finds that MobilCom used the aid as
the
specified in the restructuring plan only for
stabilisation of the mobile telephony/service provider
business area. The aid therefore had an impact
primarily on the mobile telephony market. In the
Commission's view, the markets for landline services,
voice telephony and Internet services, on which
MobilCom will continue to operate in the future
through its holding in freenet.de AG, are not
appreciably affected.

follows

the Commission will

In what
therefore
examine first whether the aid has had a negative
impact on MobilCom's competitors in the mobile
telephony market and whether it has led to distortions
which make compensatory measures necessary.

(177)

Taking the market for mobile telephony services as a
whole, MobilCom is one of the smaller suppliers, with

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4.5.2005

restructuring. Moreover,

a total market share of 8 % prior to the restructuring
of the group and an estimated share of around 6 %
after
the aid granted to
MobilCom took the form of a loan guarantee, and
not a grant. The guaranteed loan was repaid in full on
20 September 2003, only 10 months after the loan
had been granted in November 2002.

only 20 % of the shares. After redemption of the
lines from the State‑guaranteed
outstanding credit
loans,
remaining proceeds gave MobilCom
the
EUR 60 million in additional liquidity for its service
provider operations.

(178) On the other hand, in the years prior to the crisis in
2002, MobilCom pursued an aggressive expansion
strategy geared exclusively to growth in the mobile
telephony/service provider sector at the expense of
profitability. MobilCom's focus purely on expanding
its market share also had to be viewed in the context
of the planned expansion of its UMTS network since
network operators earn higher margins on their
customers than pure service providers.

(179)

By focusing its activities on the UMTS field and
attempting to establish itself as a UMTS operator,
MobilCom was taking a major risk. Ultimately, this
business
strategy failed, as demonstrated by the
difficulties MobilCom experienced in the second half
of 2002. MobilCom therefore withdrew as a network
operator
from the UMTS sector and geared its
marketing strategy towards keeping existing profitable
customers and pushing up average monthly turnover.

(180) However, because of the aid, MobilCom did not have
to bear the negative consequences of its high‑risk
strategy alone, while it continued to benefit from the
positive effects such as the possibility of drawing on a
wider clientele when streamlining its customer base.
its
This gave MobilCom a clear advantage over
competitors.

(181) MobilCom also conceded that, without the State aid, it
would have had to declare insolvency, which would
probably have lost it a large proportion of its existing
customers. The aid enabled MobilCom not only to
stay in business but also to carry out a physical
reorganisation, to reorient its marketing strategy, to
drop customers with lower profit margins from its
clientele and to focus on profitable customers. In the
end, although customer numbers dropped during the
restructuring, gross yield per customer rose (17).

(182)

The Commission also takes account of the fact that
the aid gave MobilCom time to
the granting of
prepare the planned sale of
the freenet holding
carefully in order to achieve the maximum proceeds
from the sale for redeeming the loans and to generate
further liquidity. In point of fact, MobilCom managed
to achieve proceeds of EUR 176 million on the sale of

(17) 2003: EUR 30 per subscriber (2002: EUR 28,60) and EUR 6,80

per pre‑paid customer (2002: EUR 5,20).

(183)

In changing its business strategy, MobilCom thus
benefited from the guaranteed loan directly, as well as
indirectly in that the guarantee allowed it to obtain a
bridging loan in order to enable it to sell shares in
freenet.de AG at an appropriate later date. An earlier
sale would probably have resulted in lower proceeds.

(184)

their business

The aid therefore has a particularly negative effect on
competitors, who, as the expected natural saturation
point is reached in the next few years, will also have to
gear
strategy to more profitable
customer segments, but without the support of any
State aid. Despite the fact that MobilCom's share in the
German mobile telephony market is less than 10 %
and although the State‑guaranteed loans were repaid
rapidly, the Commission has therefore concluded that
the aid led to undue distortions of competition in that
market.

(185)

In the Commission's view,
the measures cited by
Germany for reducing the firm's market presence, in
particular its withdrawal from the UMTS business,
have not sufficiently mitigated these distortions.

(186) MobilCom's withdrawal

from the UMTS business
cannot fully offset the adverse effects of the aid on
competitors as the remaining UMTS licence holders
were the main beneficiaries of the withdrawal and are
only some of
the competitors on the mobile
telephony market. Nor can the withdrawal from the
landline/Internet business by way of the transfer of
landline activities to freenet and the changing of the
freenet stake from a strategic into a financial holding,
as claimed by Germany, be regarded as adequate
compensatory measures for the undue distortions of
competition caused by the aid since they primarily
benefited landline operators and Internet
service
providers, not mobile telephony operators.

(187) Germany cited as further compensatory measures the
shedding of 1 850 full‑time jobs, including 850 in the
service provider sector, and the closure of sites. It also
indicated that MobilCom had lost customers and
therefore market shares. At the end of 2003 the firm
had only 4,2 million customers compared with some
4,9 million at the beginning of the crisis, a drop which
was reflected in a 7,2 % decline in turnover in the

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service provider sector (EUR 1,356 billion in 2003
compared with EUR 1,487 billion in 2002).

(191)

(188) However,

stood

sector

already

service provider

the Commission would point out

that
shedding jobs and closing sites were, in any event,
necessary efficiency‑boosting measures under
the
restructuring plan. The company has meanwhile
succeeded in ending the negative trend in turnover
recorded during the restructuring phase. Turnover in
the
at
EUR 349 million in the first quarter of 2004,
compared with EUR 321 million in the first quarter
of 2003. The number of MobilCom customers has
also stabilised meanwhile at around 4,2 million. In the
fourth quarter of 2003 the number of new customers
(426 000) exceeded customer departures in the same
period (338 000) (18). It is true that, according to the
company's figures, subscribers still show a marked
readiness to switch operator, which again led to a
slight decline in customer numbers in the first two
quarters of 2004. Overall, however, MobilCom gained
far more new subscribers in the first two quarters of
2004 than in the same period in 2003. According to
its own data, MobilCom had a market share of 10 % in
the new customer business in the first quarter of
2004 (19).

(189)

In view of
the undue distortions of competition
described in paragraphs 175 to 184, the Commission
thus concludes that the adverse effects of the aid on
MobilCom's competitors have not yet been sufficiently
mitigated by the measures referred to by Germany,
although, when determining further compensatory
measures, account should be taken of the customer
losses which have already occurred,
the turnover
losses during the restructuring phase and the with-
drawal from the UMTS business.

(190)

The Commission has made it clear to Germany that
the second aid measure cannot be approved as
restructuring aid and deemed compatible with the
common market without
compensatory
measures. However, in view of MobilCom's above‑-
mentioned customer and turnover losses during the
restructuring phase and its withdrawal
from the
UMTS business as a network operator, these compen-
satory measures should not be too detrimental to its
activities.

further

(18) Company data.
(19)

Press release of 13 May 2004.

the Federal Government,

Following negotiations on 9 and 21 January 2004
between Commission representatives and representa-
tives of
the Land of
Schleswig‑Holstein and the company, further com-
pensatory measures were discussed, including, at the
Commission's instigation, a possible temporary cessa-
tion of direct online sales of MobilCom mobile
telephony contracts.
In these discussions, while
maintaining its legal stance, Germany expressed a
willingness in principle to commit itself to suspending
online direct sales of MobilCom mobile telephony
contracts for seven months with a view to enabling
the aid to be approved.
In a communication of
13 February 2004, Germany then informed the
Commission that, generally speaking, MobilCom was
also prepared to close its online shops for direct sales
of its mobile telephony contracts for a maximum of
seven months. The communication also contained
further details as to how the measure might be
organised, with additional clarification provided in an
e‑mail
from Germany on 18 February 2004 in
response to a request from the Commission.

(192) However,

in April 2004 Germany informed the
Commission that
it could not make a definite
commitment to close the online shops, in the light
of the legal stance taken in the end by MobilCom. The
firm still doubted that
the measure constituted
restructuring aid. However, were the Commission
none the less to conclude that restructuring aid was
the planned seven‑month suspension of
involved,
online direct sales of mobile telephony contracts
imposed a disproportionate burden on the company.

(193) As set out in detail in paragraphs 132 to 147, it takes
the view that
the second aid measure constitutes
restructuring aid. Likewise as stated above, it considers
that further compensatory measures are necessary to
offset the undue distortions of competition caused by
the granting of the aid.

(194)

Since agreement could not be reached with Germany
and the company on potential compensatory mea-
sures, the Commission is making approval of the
to Article 7(4) of
second aid measure, pursuant
Regulation (EC) No 659/1999, conditional on the
cessation of online direct sales of MobilCom mobile
telephony contracts (pre‑paid and/or post‑paid) for a
period of seven months.

(195)

Specifically, this condition requires Germany to ensure
that MobilCom AG and all the companies in the
group close their online shops for direct sales of
MobilCom mobile telephony contracts
seven
months so that no new mobile telephony contracts
(pre‑paid or post‑paid) may be concluded directly with
MobilCom AG or the companies in the group. The

for

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4.5.2005

distribution of mobile telephony contracts of other
suppliers via freenet.de AG is not affected.

(196) Germany must also ensure that, as long as the online
shops are closed, MobilCom also suspends direct sales
of its mobile telephony contracts via the websites of
the MobilCom shops and that MobilCom AG and the
other companies in the group do not take any other
measures to circumvent this condition.

and/or

post‑paid)

(197) During the period of closure, customers may not
conclude online any new mobile telephony contracts
(pre‑paid
with
MobilCom AG or the companies in the group. The
Commission would make it clear
that all other
services not
concluding new mobile
telephony contracts with final customers may con-
tinue to be provided online. This includes all services
that are provided for existing customers (e.g. servicing,
contract extensions, ring tones and games).

aimed at

directly

(198)

During the period of closure, customers may be
informed on the websites concerned that they cannot
conclude a new mobile telephony contract online for
the time being. However, MobilCom may specify on
its website the addresses of distribution partners from
which customers may obtain the desired service.
However, customers may not be passed on directly to
another distribution partner by means of an auto-
matic link.

(199)

The Commission also requires Germany to start
implementing the measure within two months of the
adoption of
this Decision. A longer preparatory
period prior to implementation seems unnecessary
and would undermine the effectiveness of the measure
since it would no longer be close in time to the
restructuring of the firm.

(200)

In formulating this condition, the Commission has
been guided by Germany's original proposals.

to the

(201) After carefully weighing up all the circumstances, the
Commission has
conclusion that
come
discontinuing online direct sales of MobilCom mobile
telephony contracts will help to offset sufficiently the
distortions of competition which have occurred. In
2003, according to its own data, MobilCom gained
[...]* new customers (gross), of which [...]* subscribers,
through its direct online sales. Overall,
the gross
number of new customers in 2003 was […]*, of
which […]* were subscribers. This means that in
2003 MobilCom gained some 1 to 1,5 % of its total
customers and some 2 % of its subscribers via its
online shops. For 2004 it can be assumed that
MobilCom will gain as many as 2 to 5 % of
its
customers through its direct sales online. The fact that,
during the closure period, customers cannot conclude
online any new mobile telephony contracts (pre‑paid
and/or post‑paid) directly with MobilCom AG or the

other companies in the group means that MobilCom
is barred access to an increasingly important direct
distribution channel. The consequence of the measure
for competitors will be that they temporarily have the
benefit of customers visiting their websites instead
and concluding contracts there.

(202) The seven‑month period during which the measure is
to be implemented likewise appears appropriate. The
State‑guaranteed loan was granted to MobilCom in
November 2002 and repaid by the company in
September 2003. If account is also taken of the fact
that the guaranteed loan was paid out in several
instalments, the last being in March 2003, the period
of seven months corresponds to the period during
which MobilCom actually benefited in full from the
State‑guaranteed loan during its
It
restructuring.
to
therefore seems appropriate when it comes
compensating for
the distortions of competition
caused to fix the duration for the closure of the
online shops for the direct distribution of MobilCom
mobile telephony contracts at seven months too.

(203)

Furthermore,
the Commission sees no reason to
suppose that the cessation of online direct sales of
mobile telephony contracts for a period of seven
months would impose a disproportionate burden on
the company. On the contrary, it takes the view that
the measure interferes, as is necessary in this case,
only to a limited extent with the business activities of
the company. The company still acquires most of its
customers via its MobilCom shops as well as via
independent distribution partners. MobilCom's main
distribution channels are therefore not affected by the
shutdown of direct online distribution.

(204) Nor can it be assumed that all customers who would
actually have concluded a direct contract online with
MobilCom during the shutdown period will turn to
another (online) provider. Rather, it can be expected
that some of these customers will conclude a contract
with MobilCom via other distribution channels. Even
if, during the closure period, all customers who would
have liked to conclude a direct online contract with
MobilCom turn to a competitor, the resulting loss of
customers appears reasonable considering the distor-
tions of competition which have occurred.

aimed at

(205) Moreover, existing customers will still be able to
renew their contracts online on expiry. MobilCom will
also be able to provide customer services and other
services not
concluding new mobile
telephony contracts online. Furthermore, even during
the closure period, MobilCom can advertise its mobile
telephony products intensively in its online shops,
highlighting particularly favourable post-paid and
pre‑paid products which customers can acquire from
MobilCom shops and other remaining distribution
channels.

4.5.2005

EN

Official Journal of the European Union

L 116/75

(206) The Commission notes

that discontinuing direct
online sales of MobilCom mobile telephony contracts
is not likely to cause a manifest deterioration in the
structure of
the market within the meaning of
point 38 of the Community guidelines. The closing
of the online shops is a relatively limited compensa-
tory measure that in no way threatens MobilCom's
continued existence. There is therefore no danger of a
major competitor's being eliminated or
severely
weakened, thereby indirectly strengthening the two
market leaders T‑Mobile and Vodaphone.

to competitors or

(207) The Commission does not consider it necessary to
impose other measures such as a pro rata ‘sale’ of
customers
the withdrawal of
MobilCom from the UMTS business as a service
provider for a limited period. It does not regard these
two measures as suitable compensatory measures. A
‘sale’ of MobilCom customers is neither legally nor
practically possible. As for prohibiting MobilCom
in the UMTS
from acting as a service provider
business for a limited period, the Commission takes
the view that this would obstruct innovation in the
mobile telephony market and would thus not be in
the interest of competition as it would restrict its
dynamic.

VII.

CONCLUSION

that

the State guarantee
(208) The Commission finds
granted on the
EUR 112 million loan for
MobilCom AG is restructuring aid which, on the
basis of the Community guidelines on State aid for
rescuing and restructuring firms
is
compatible with the common market pursuant to
Article 87(3)(c) of
the EC Treaty provided that
Germany meets the condition described in detail in
recitals 195 to 199, namely to discontinue direct
online sales of MobilCom mobile telephony contracts.
Should this condition not be met, the Commission
reserves the right to make use of the powers conferred
on it by Articles 16 and 23 of Regulation (EC)
No 659/1999,

in difficulty,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Germany granted to MobilCom AG and
MobilCom Holding GmbH in the form of the 80 % deficiency
guarantee that was assumed by the Federal Government and
the Land of Schleswig‑Holstein on 20 November 2002 for the
EUR 112 million loan granted to the company by the
consortium of banks with the Kreditanstalt für Wiederaufbau

as lead bank is compatible with the common market pursuant
to Article 87(3)(c) of the EC Treaty provided that Germany
complies with the condition set out in Article 2 of this
Decision.

Article 2

1. Germany shall ensure that MobilCom AG and all the
companies in the MobilCom group close their online shops
for direct online sales of MobilCom mobile telephony
contracts for a period of seven months so that no new
mobile telephony contracts (pre‑paid and/or post‑paid) can be
concluded directly with MobilCom AG or the companies in
the group via this distribution channel. The distribution of
other suppliers' mobile telephony contracts via freenet.de AG
shall not be affected.

2. Germany shall ensure that, as long as the online shops are
closed, MobilCom also suspends direct sales of its mobile
telephony contracts via the websites of the MobilCom shops
and that MobilCom AG and the other companies in the group
do not take any other measures to circumvent this condition.

3. During the period of closure pursuant to paragraph 1,
customers may be informed on the websites concerned that it
is not possible to conclude a new mobile telephony contract
online. However, MobilCom AG may specify on its websites
the addresses of distribution partners from which customers
may obtain the desired service. Customers may not be passed
on directly to another distribution partner by means of an
automatic link.

4. Germany shall ensure that the closure of the online shops
commences within two months of
this
Decision.

the adoption of

Article 3

Germany shall inform the Commission when the closure of
the online shops commences. Within the first month of the
closure of the online shops, it shall submit a report detailing
all the steps taken to implement the measure. Furthermore, it
shall inform the Commission immediately when the measure
is terminated.

Article 4

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels, 14 July 2004.

For the Commission
Mario MONTI
Member of the Commission