2007/258/EC: Commission Decision of 20 December 2006 on the measure No C 24/2004 (ex NN 35/2004) implemented by Sweden for the introduction of digital terrestrial television (notified under document number C(2006) 6923) (Text with EEA relevance )
Date: 2006-12-20
Institutions: European Commission
Subjects: State aid, Sweden, control of State aid, high-definition television, telecommunications industry

30.4.2007

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Official Journal of the European Union

L 112/77

COMMISSION DECISION

of 20 December 2006

on the measure No C 24/2004 (ex NN 35/2004) implemented by Sweden for the introduction of
digital terrestrial television

(notified under document number C(2006) 6923)

(Only the Swedish version is authentic)

(Text with EEA relevance)

(2007/258/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

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

Whereas:

1.

PROCEDURE

(1)

By letter dated 9 August 2001, the satellite operator Nordic
Satellite AB (‘NSAB’) (2) submitted a complaint
to the
European Commission (‘the Commission’) regarding alleged
State aid granted by the Swedish State to the Swedish
terrestrial network operator, Teracom AB (‘Teracom’) and
certain of its subsidiaries in connection with the establish-
ment of digital terrestrial television in Sweden (3). By letter
dated 28 November 2001, the television distributor Viasat
AB (‘Viasat’) — an integrated free-television and pay-
television operator — submitted a very similar complaint to
that of NSAB.

(2) After

investigation,

a preliminary

the Commission
informed Sweden, by letter dated 14 July 2004, that it
had decided to initiate the formal investigation procedure
(hereafter referred to as the ‘opening Decision’) as set out in
Article 88(2) of the EC Treaty in respect of the alleged aid
measures. The opening Decision was published in the
the European Union on 25 September
Official
2004. It called upon Sweden and other interested parties to
submit their comments on the alleged aid measures.

Journal of

the Commission received the
(3) On 29 October 2004,
Swedish Government's
‘29 October
response
response’) to its opening Decision. It received comments

(the

(1) See Case C 24/04 (ex NN 35/04) Introduction of digital terrestrial

television in Sweden, OJ C 238, 25.9.2004, p. 5.

(2) On 1 December 2005, NSAB changed its name to SES Sirius AB.
Notwithstanding this, the complainant will throughout this Decision
be referred to as ‘NSAB.’

(3) On 12 April 2002 and on 2 October 2002, NSAB supplemented its
complaint with additional information concerning the alleged state
aid measures.

also from the following interested parties: B2 Bredband AB
(‘B2’) (4), the European Cable Communications Association
(‘ECCA’) (5), the European Satellite Operators Association
(‘ESOA’) (6), NSAB (7), Telenor Broadcast Holding AS
(‘Telenor Broadcast’) (8), TeliaSonera AB (‘TeliaSonera’) (9),
UGC Europe, Inc. (‘UGC’) (10) and Viasat (11).

(4)

By letters dated 17 November 2004 and 17 January 2006,
the Commission forwarded interested parties' observations
to the Swedish Government. The latter submitted its
comments on the observations by letters dated 20 Decem-
ber 2004 and 20 March 2006.

(5) On 22 November 2004, the Commission departments met
with ECCA. Meetings were also held with representatives of
NSAB and ESOA on 1 March 2005 and on 21 and
30 November 2005.

(6)

By letters dated 8 February 2006, 7 April 2006, 31 May
2006 and 30 August 2006,
the Commission sent
additional requests for information to Sweden. The Swedish
Government responded by letters dated 20 March 2006
(the ‘20 March response’)
received on
22 March 2006), 25 April 2006 (the ‘25 April response’)
(registered as received on 24 October 2006), 5 May 2006
(the ‘5 May response’) (registered as received on 11 May
2006), 15 June 2006 (registered as received on 16 June
2006) and 1 September 2006 (registered as received on
4 September 2006).

(registered as

(4) See B2's submission dated 22 October 2004.
(5) See ECCA's submission dated 25 October 2004 (registered as

received on 2 December 2004).

(6) See ESOA's submission dated 18 October 2004 (registered as

received on 25 October 2004).

(7) See NSAB's submissions dated 22 October 2004, 11 February 2005
(registered as received on 14 February 2005), 9 March 2005
(registered as received on 10 March 2005) and 1 December 2005
(registered as received on 6 December 2005).

(8) See Telenor Broadcast's submission dated 17 November 2004

(registered as received on 18 November 2004).

(9) See TeliaSonera's submission dated 25 October 2004 (registered as

received on 26 October 2004).

(10) See UGC's submission dated 25 October 2004 (registered as received

on 26 October 2004).

(11) See Viasat's submission dated 25 October 2004 (registered as

received on 26 October 2004).

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2.

BACKGROUND

(7)

This Decision concerns the alleged State aid provided to
Teracom and its
subsidiary Boxer TV-Access (‘Boxer’)
(unless otherwise stated, Teracom and its subsidiaries will
hereafter be collectively referred to as
in
connection with the development of the digital terrestrial
television platform in Sweden (12). According to the
complainants, Teracom has received direct and indirect
(through the public-service broadcasters SVT and UR)
financial support from the Swedish State. This support has
allegedly been used to give digital terrestrial transmission in
Sweden an unfair competitive advantage over other types of
digital transmission platforms such as cable and satellite.

‘Teracom’)

(8)

This Decision will not address Sweden's failure to adopt the
laws, regulations and administrative provisions necessary to
comply with the Directive on the transparency of financial
relations between Member States and public undertakings
because this has been the subject of a separate ruling by the
European Court of Justice (13).

network in Sweden (15). To broadcast via the terrestrial
platform, private and commercial television channels enter
into transmission agreements with Teracom and pay
Teracom for services provided.

(12) On 15 December 2005, the Swedish Post and Telecommu-
nications Regulator (‘Post- och telestyrelsen’) adopted two
Decisions stating that Teracom, in its role as a network
operator, has significant market power in the Swedish
wholesale markets for terrestrial broadcasting services. It
therefore imposed special obligations on Teracom with
regard to the distribution of television content to end-users
terrestrial
through both the analogue and the digital
network. Teracom is now obliged, under certain conditions,
to provide access to the terrestrial platform to companies
wishing to distribute television content to end-users, to
apply cost-oriented pricing, to apply non-discriminatory
conditions for access to the terrestrial platform and to keep
separate and open accounts for its own activities and
activities connected with the provision of access (16).

3.

RELEVANT COMPANIES

3.1.2. Boxer

3.1.

Companies involved in the development of

the digital terrestrial platform in Sweden

3.1.1. Teracom

(9)

Teracom is a company charged with the building and
operation of the terrestrial television transmission platform
in Sweden. It is a public company, wholly owned by the
State. It was created in 1992 to take over the television and
radio transmission operations previously carried out by the
Swedish Telecommunications Administration (‘Telever-
ket’) (14).

(10) According to its articles of association, Teracom is to
transmit and distribute radio and television programmes,
and develop, market and perform other services related to
or compatible with its
transmission and distribution
activities. These other services consist mainly of telecom
and information services.

(11) Since its creation, Teracom has been the exclusive owner
and operator of the only existing terrestrial broadcasting

(12) According to the complainants, unlawful state aid has also been
provided to a company called Senda i Sverige AB (‘Senda’). Senda
used to be a subsidiary of Teracom dealing with the coordination,
marketing and packaging of television programmes and services for
terrestrial digital television. Since 1 October 2002, Senda has been
merged with Boxer and the two companies are now operating under
the name ‘Boxer.’

(13) See Commission Directive 2000/52/EC of 26 July 2000 amending
Directive 80/723/EEC on the transparency of financial relations
between Member States and public undertakings, OJ L 193,
29.7.2000, p. 75.
Judgment of the Court of Justice of 15 July
2004 in Case C-141/03 Commission v Sweden, not yet reported.
(14) See Prop. 1991/92:140, bet. 1991/92:KrU28, rskr. 1991/92:329.
Televerket has since been privatised and is now known as Telia AB.

(13) Boxer offers consumers access to television programme
packages and other services via the digital
terrestrial
television platform. The company was established in
October 1999 and is owned 70 % by Teracom and 30 %
by the British private equity and venture capital company
3i (17).

(14) Boxer is the only distributor of television programmes
(including pay television) in the digital terrestrial network in
Sweden. When a television channel receives a broadcasting
licence for the Swedish terrestrial network, the channel can
either sign a distribution agreement with Boxer to have its
programmes distributed or choose to broadcast free-to-air,
i.e., unencrypted. Most television channels broadcasting in
the digital terrestrial network have signed a distribution

(15) In December 2004, the Commission opened infringement proceed-
ings against Sweden for violations of the Directive on competition in
the markets for electronic communications networks and services
(SG infringement No 2004/2197; Case COMP/C-1/39.157). The
case concerned the maintenance of exclusive rights in the relevant
sector. As a result of these proceedings, the Government undertook
to abolish the exclusive rights awarded to Teracom with regard to the
provision of analogue terrestrial broadcasting services by 1 January
2006. The case concerning digital terrestrial broadcasting services is
still ongoing although the Government no longer disputes the
Commission's assessment that the regulatory framework currently in
force infringes the said Directive. However, because the Government
has failed to provide the Commission with a draft piece of legislation
which would allow it to ascertain whether the infringement will
come to an end and when the new legislation would enter into force,
the Commission has decided to refer Sweden to the Court of Justice;
see Commission press release IP/06/1411 of 17 October 2006.
(16) See Decision 05-8675/23 of 15 December 2005 relating to the
digital terrestrial network and Decision 05-8674/23 of 15 December
2005 relating to the analogue terrestrial network.

(17) See www.boxer.se. Between April 2000 and April 2005, 3i's 30 %

shareholding in Boxer was held by Skandia Liv (‘Skandia’).

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Official Journal of the European Union

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agreement with Boxer (18). According to Boxer, it grew by
42 % in 2005 and had over half a million subscribers at the
end of December 2005 (19).

programmes must be broadcast over the terrestrial net-
work, and are broadcast
free-to-air on the terrestrial
networks and as must-carry on the cable networks.

3.1.3. SVT

(15) SVT is the main public service broadcaster in Sweden. Since
1997, SVT, like all the other radio and television public
service companies in Sweden,
is owned by a Founda-
tion (20). Its obligations as a public service broadcaster are
regulated in both its analogue and its digital broadcasting
licences, which are issued by the Government. SVT's public
service channels must
the Swedish
population and it must broadcast via the terrestrial network
to its fullest extent (21). The requirement to cover 99,8 % of
the population means that, until
terrestrial
platform is fully built out, SVT must broadcast in parallel
over
the analogue terrestrial network. SVT currently
purchases all its services for terrestrial transmission from
Teracom (22).

reach 99,8 % of

the digital

(16) All of SVT's channels are broadcast as ‘free-to-air television’.
SVT's broadcasting licence also states that SVT can use
satellite and, in fact, to reach the entire Swedish population,
SVT broadcasts its public service channels via satellite.
Between March 1999 and April 2004, NSAB — one of the
complainants — had the exclusive right to broadcast SVT's
public service channels in the Nordic region via its
satellites (23). SVT's public service channels are also available
via the cable network by virtue of must-carry legislation.

3.1.4. Utbildningsradion (‘UR’)

(17) UR — the ‘educational radio’ — is the second public service
broadcaster
It broadcasts both radio and
television. Like SVT, UR is also owned by the Foundation
(see 3.1.3. above) (24).

in Sweden.

(18) Similarly to SVT, UR's obligations as a public service
broadcaster are regulated in its broadcasting licence and UR
is required, after having consulted Swedish Radio (‘Sveriges
Radio’) and SVT, to purchase services for transmitting via
the analogue terrestrial network from Teracom (25). UR
broadcasts via one of SVT's channels and its programmes
must reach 99,8 % of the Swedish population. Also, UR's

(18) This Decision is without prejudice to the application of the EU

internal market rules.

(19) See Boxer's press release of 18 January 2006, Boxer grew by 42 % in
2005. See also Boxer's press release of 12 July 2005, Boxer fortsätter
att öka antalet digitala TV-kunder; and its press release of 20 October
2005, Fortsatt ökning för Boxer.

(20) See www.svt.se and Prop. 1995/96:161, pp. 70-72.
(21) See, e.g., Government Decision of 10 February 2005 (No I:11),
Government Decision of 22 June 2005 (No I:22), Government
Decision of 15 December 2005 (No I:102) and Government
Decision of 23 February 2006 (No I:15).

(22) Until 31 December 2005, it was obliged to do so with regard to

analogue broadcasting.

(23) The agreement between NSAB and SVT was notified to the
Commission in 1999 (Case No IV/C-2/37.517) and the parties
received a comfort letter in November 1999.
(24) See www.ur.se/ur/start.php? s1=omur&s2=historik.
(25) See Government Decision 29 addressed to UR, Tillstånd att sända
television, KU2001/1543/Me (partly) of 20 December 2001; and
Annex 1 to Government Decision I:12, Tillstånd att sända ljudradio och
television, U2005/1824/Me of 2 October 2005. This broadcasting
licence has been prolonged and covers the whole of 2006 as well.

(19)

In the remaining part of this Decision, SVT and UR will be
collectively referred to as ‘SVT’ and figures (e.g., appropria-
tions and payments) relating to each of the two companies
will be referred to in aggregate (26).

3.2.

Complainants

3.2.1. NSAB

(20) NSAB is a company with its head office registered in
Sweden. NSAB owns and operates two Sirius satellites that
provide the Nordic and Baltic regions, as well as Eastern and
Central Europe, with television and other media and
telecommunications services. NSAB distributes radio and
television signals of both public and private broadcasters.

(21) NSAB is 75 % owned by one of the leading direct-to-home
satellite services operators in Europe — the Luxembourg-
registered SES ASTRA — and 25 % owned by the Swedish
Space Corporation (‘Svenska Rymdaktiebolaget’). Swedish
Space Corporation is a State-owned limited liability
company with operations in Sweden (27). Until March
2000, NSAB was partly owned by Teracom (28).

3.2.2. Viasat

(22) Viasat is an integrated free- and pay-television operator
which distributes programmes via the Sirius
satellite
platform. It operates out of the United Kingdom, where it
is also registered. Viasat is a wholly owned subsidiary of the
Swedish media group MTG AB (‘MTG’). MTG operates
worldwide and claims to be, among other things, the largest
free- and pay-television operator in Scandinavia and the
Baltic countries.

4.

TELEVISION BROADCASTING

4.1.

Television broadcasting platforms in Sweden

(23)

In Sweden, television is currently distributed through the
terrestrial networks, through cable networks and satellite-
delivered master antenna television systems (‘SMATV’), via

(26) The reason for this is that the appropriations allocated to UR are not
significant and the rules governing UR's activities and transmissions
are virtually the same as those governing SVT. Moreover, UR
broadcasts via one of SVT's channels. The appropriations allocated
to each of the two companies, and payments made by each of them,
will therefore be treated as one.

(27) See http://www.ses-sirius.com.
(28) See Teracom's Annual Report 2000.

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satellite and via broadband. According to the Government,
television broadcasting will soon be available also through
third-generation mobile telephone networks (29).

Figure 2:

Development of digital platforms in Sweden (2000-05)

(24) Figure 1 below illustrates the comparative significance of
the different television platforms in Sweden in 2006. The
figure indicates the actual use of the different platforms as a
percentage of all Swedish households (30). In the case of the
terrestrial platform, the figure distinguishes further between
analogue and digital reception.

Figure 1:

Actual household TV reception in Sweden in 2006

(28) On the basis of a proposal

from the Government,
Parliament decided in 1997 that the development of a
digital terrestrial network should start in several parts of the
country and that the State should gradually decide whether,
and if so how,
the network should
continue (32). It was decided that the development of the
digital terrestrial network should be financed entirely by the
participating companies,
the broadcasters and the
i.e.,
network owner, and not by the State (33).

the build-out of

(25) All the currently commonly available transmission plat-
forms, i.e. cable, satellite and terrestrial, have been or are
affected by the transition from analogue to digital television
broadcasting. The digitisation of broadcasting has great
advantages in terms of more efficient spectrum usage and
increased transmission possibilities. This will lead to new
and better high-quality services and to wider consumer
choice.

(26)

Irrespective of the transmission mode, digital transmission
has either an open architecture or contains a conditional
access system where the channels are encrypted. This means
that, in order to receive open digital transmissions, viewers
need a digital receiver which is either built
into the
television set or comes in the form of a separate ‘set-top
box’ which operates as a decoder.
In order to watch
encrypted channels, viewers must have a set-top box which
is capable of reading a so-called ‘access card’.

4.2.

The development of digital terrestrial

television in Sweden

(27) Digital television in Sweden has developed strongly during
the last five years. While all the digital platforms — satellite,
cable and terrestrial — experienced growth during the
period from 2000 to 2005, satellite was at the forefront of
digitisation (see Figure 2) (31).

(29)

In 2003, Parliament decided that the analogue terrestrial
network should be switched off by 1 February 2008 (34),
and in May 2004 it decided that the multiplex reserved for
SVT's digital transmissions should be built out to cover
99,8 % by the time the analogue terrestrial network was
entirely shut down. By then, at least one more multiplex
should cover 98 % of the population. No requirements as to
the coverage of the other multiplexes were decided on (35).

(30) According to Teracom, the first stage of the shut-down of
the analogue terrestrial network started on 19 September
2005 and covered approximately 150 000 households in
Sweden (36). See Table 1 below for the planned stages and
the estimated percentage population affected by the shut-
down in each stage.

Table 1:

Planned shut-down of the analogue terrestrial network and
estimated percentage of the population affected

% of popula-
tion in affected
area

% of population
covered by digital ter-
restrial television

(accumulated figures)

Stage 1 ended in Novem-
ber 2005

4

4

(29) See the 29 October response, p. 11.
(30) See Statens Offentliga Utredningar: Sveriges övergång till digital-TV,

Digital-TV-Kommissionen.

(31) Source: Mediavision, MMS, see the 20 March response, question 15.
See also Radio och TV-verket's Mediautveckling 2005 och 2006.

(32) See Bet. 1996/97:KU17; Rskr. 1996/97:178.
(33) See Bet. 1996/97:KU17.
(34) See Bet. 2002/03:KU33, Rskr. 2002/03:196.
(35) See Bet. 2003/04:KU24; Rsks. 2003/04:231.
(36) See https://www.teracom.se.

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% of popula-
tion in affected
area

% of population
covered by digital ter-
restrial television
(accumulated figures)

Stage 2 ended in May
2006

Stage 3 is scheduled to
end in November 2006

Stage 4 is scheduled to
end in May 2007

Stage 5 is scheduled to
end in October 2007

20

16

28

33

Source: Teracom. Note that figures are estimates.

24

39

67

100

(31) Teracom's own funds and the revenues from the sale of
network services (e.g., user fees) have not been sufficient to
cover the entire investment costs related to the roll-out of
the countrywide digital terrestrial network and Teracom,
therefore, has had to raise additional capital. It has done this
through loans on the capital market and through the sale of
assets, and in this way it has managed to finance the
development of the digital terrestrial network (37).

4.2.1. Transmission via the digital terrestrial network in Sweden

(32) Digital terrestrial television operates through multiplexes,
which are systems that combine and digitalise multiple
signals for transmission over a single line or a common
channel. This results in more capacity and in a larger
number of channels which can be broadcast simulta-
neously. Teracom currently operates five multiplexes, each
multiplex having the capacity to transmit around eight
individual television channels. During the spring of 2006,
four of the multiplexes covered approximately 98 % of the
Swedish population and the fifth multiplex approximately
50 % of the population (38).

(33) The Government bases its decision to grant a licence on
recommendations from the Radio and Television Agency
(‘Radio och TV-verket’), which reviews the applications. In
October 2006, approximately 40 television channels were
granted a licence to broadcast in the digital terrestrial
network. One of the five multiplexes is reserved for SVT, a
second one is currently mainly devoted to TV4 and the
remaining multiplexes are shared among the other licence
holders (39).

(37) See the 29 October response, sections 3.4.2. and 3.5.
(38) See http://www.teracom.se and Statens Offentliga Utredningar:

Sveriges övergång till digital-TV, Digital-TV-Kommissionen.

(39) See http://www.rtvv.se/se/Om_media/tv/digitaltv/but also the Report
made by the Post and Telecommunications Regulator in November
frekvensutrymme vid övergången till digitalt
2005, Förstudie: Frigjort
marksänd TV, pp. 5-7.

4.2.2. The marketing of
consumers

the digital

terrestrial network to

(34) Boxer is responsible for the subscriber base — that is, for
marketing the pay television offer on the digital terrestrial
platform to end customers. According to the Government,
Teracom and Boxer face fierce competition from other
transmission platforms such as satellite operators. This
made it difficult for Boxer, while trying to establish itself
and build up a customer base, to charge customers the full
cost of a set-top box. After the launch of
the digital
terrestrial platform, Boxer therefore offered set-top boxes to
customers at a low price and recovered the costs over the
entire subscription contract period. This explains why
Boxer suffered substantial losses in the initial phase of its
operations. When Boxer was making losses, it received a
capital
terms from both its parent
companies: 70 % from Teracom and 30 % from Skan-
dia (40).

injection on equal

4.3.

Swedish public service television and its

funding

(35) According to Swedish law, each household that owns a
television set must pay a television licence fee. The money
from the television licence fee finances the public service
companies (television and radio) in Sweden (41).

(36) The television licence fee is collected by an entity jointly
owned by all the Swedish radio and television public service
companies: Radiotjänst i Kiruna AB (‘Rikab’) (42). Rikab
transfers the money it collects to a specific account with the
Swedish National Debt Office (‘Riksgäldskontoret’), the so-
called ‘rundradiokontot’.

(37) On the basis of SVT's activities and any changes or
additions that the Government wishes to add to the public
service obligations, Parliament decides each year on the
amount the company will have at its disposal for the
performance of its public service duties (43). SVT uses the
money allocated to it to perform its public service activities,
as detailed in the broadcasting licence and the conditions of
funding (44). Out of the allocated money, SVT decides itself
how much should be used for, e.g., programme activities
and how much should be spent on distribution of
programmes (e.g.,
transmission fee payments to Tera-
com) (45).

(38) During the digital

terrestrial switchover, analogue and
digital terrestrial transmissions will be broadcast in parallel

(40) See the 29 October response, p. 22, and the Government's response
of 20 December 2004, p. 2. It should be noted that, as of April
2005, 3i is the owner of the 30 % previously held by Skandia.

(41) See the Law on the Television Licence Fee (1989:41).
(42) Ibid.
(43) See Radio och TV i allmänhetens

för en ny
tillståndsperiod, Betänkande av Kommittén om radio och TV i
allmänhetens tjänst, Stockholm 2005.

tjänst — Riktlinjer

(44) See Anslagsvillkor för Sveriges Television AB för år 2005, Prop. 2004/

05:1, bet. 2004/05:KrU1, rskr. 2004/05:97.

(45) See the 29 October response, pp. 27-30 and 42-43.

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to give viewers time to switch to the new reception mode.
To prevent the higher costs incurred by SVT because of
these parallel transmissions leading to a significant increase
in the television licence fee collected from television set
owners (46), the State decided to implement an alternative
financing mechanism to cover the costs. To this end, a
separate account was opened with the National Debt Office
in 2002, the so-called ‘distribution account’ (‘distributions-
kontot’). The distribution account is financed by money
from the rundradiokontot and through a credit facility
granted by the National Debt Office. From the distribution
account money is then transferred to SVT to pay for
terrestrial transmission (47).

(39) For the first few years, the distribution account is running a
deficit because the amount of money which is transferred to
it from the rundradiokontot is less than the amount which
is transferred from it to SVT for transmission payments.
The difference between what
the distribution account
receives from the rundradiokontot and the money which
SVT needs for transmission payments is covered by the
credit granted by the National Debt Office. Once the
analogue terrestrial network is switched off and SVT no
longer needs to pay for
transmission of
analogue and digital terrestrial signals, the transfers from
the distribution account to SVT will be reduced and the
deficit on the distribution account will be paid off gradually.
It is estimated that all costs for parallel transmission will be
fully recovered by 2013, when the distribution account will
be in balance again (48).

the parallel

(40) According to the conditions of funding, SVT appears in no
way to be restricted in how it uses and allocates the amount
given to it from the rundradiokontot and the distribution
account — on condition that the money is used solely for
its public service activities as detailed in the broadcasting
licence and the conditions of funding (49).

4.4.

Public service broadcasting in the terrestrial
network: SVT's payments to Teracom
for transmission services

(41) Part of

the funding SVT receives is used to purchase
terrestrial transmission services from Teracom. The price of
those services is negotiated between SVT and Teracom
without the involvement of the Government. According to
the Government and the Annual Reports of Teracom,
Teracom applies a principle of ‘equal treatment’ (‘likabe-
handlingsprincipen’) towards all broadcasters with regard to
its fees for analogue and digital transmission (50).

(46) Also, the distribution costs will decrease as the analogue terrestrial

network is shut down.

(47) See the 29 October response, pp. 27-30.
(48) See the 29 October response, pp. 27-29; Prop. 2001/02:1, p. 121;
Prop. 2004/05:1, p. 108; and the 20 March response, question 4.
(49) See, e.g., Anslagsvillkor för Sveriges Television AB för år 2005, Prop.
2004/05:1, bet. 2004/05:KrU1, rskr. 2004/05:97; but also the 20
March response, question 4.

(50) See the 29 October response, section 3.6.2; the 20 March response,
question 9; and Teracom's Annual Reports for, e.g., 2003 and 2004.

level

(42) With regard to analogue terrestrial transmission, Teracom
was, from 1992 until December 2005, required to set its
prices at cost
(‘självkostnadskalkyl’). SVT's actual
payments to Teracom are usually fixed for several years in
advance
two
companies. According to the current agreement, SVT's
payments to Teracom for the period from 2004 until 2013
are based, inter alia, on the planned timetable for the switch-
off of the analogue terrestrial network. If Parliament decides
to change this timetable, the payments may be adjusted (51).

in agreements negotiated between the

(43) With regard to digital terrestrial transmission, Teracom's
application of the principle of equal treatment is reflected
in the fact that, since 1999, all broadcasters (including SVT)
have been charged according to the same pricing model, the
so-called penetration-based pricing model (‘penetrationsba-
serad prissättning’) (52). This means that, apart from certain
fixed fees per channel, i.e., a basic fee (‘grundavgift’) and a
connection fee (‘anslutningsförbindelser’), the broadcasters
are charged a variable fee which is proportionate to their
respective number of viewers
(i.e., penetration). The
amount per viewer of this variable fee is the same for all
channels (53). The principle of equal treatment constrains
Teracom's pricing behaviour towards SVT and guarantees
that SVT does not pay more for digital
terrestrial
transmission than the other broadcasters — to the extent
the services required are the same (54). The principle of
treatment has recently been re-confirmed in the
equal
Government's budget bill 2005/06 (55).

(44)

[…] (*) (56).

5.

DETAILED DESCRIPTION OF THE ALLEGED AID

MEASURES

(45) The measures assessed in this Decision are the following:

— indirect

financial support

to Teracom through al-
legedly excessive transmission fees paid by SVT in
return for Teracom's transmission services provided
on both the analogue and the digital
terrestrial
network;

— direct financial support by means of a State credit

guarantee granted to Teracom; and

(51) See the 29 October response, section 3.6.2; and the framework
agreement (‘ramavtal’) between Teracom and SVT signed on 4 March
2004, annexed to the 20 March response. The reason why Teracom
is no longer obliged to price analogue transmission at cost level is
the recent decision (with commitments) issued by the PTS. Since that
decision, Teracom's prices are subject to ex ante control by the PTS.
See Section 3.1.1. above.

(52) See the 29 October response, section 3.6.1, p. 29.
(53) It is only in the case of the fourth multiplex that since 2002 the
variable part of the transmission fee has been based on another, cost-
based pricing model; see the Government's reply of 21 March 2003.
(54) See the 29 October response, section 3.6.2., and the 20 March

response, question 9.

(55) See Prop. 2005/06:1, Utgiftsområde 24, pp. 71-74.
(*) The text in paragraph 44 and related footnote has been deleted for
confidentiality reasons. The text contains certain information about
an agreement between SVT and Teracom.

(56) […]

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Official Journal of the European Union

L 112/83

— direct financial support in the form of a conditional
shareholder contribution (‘villkorat aktieägartillskott’),
to be repaid by Teracom.

transmitting SVT's channels. The excess funding appeared
to amount to approximately SEK 509,61 million by 2013
(see below).

5.1.

SVT's transmission fee payments to Teracom

(46) On the basis of the information available to it at the time of
the opening Decision,
the Commission had reason to
believe that the Government used SVT as a vehicle to
channel State money to Teracom during the switch-over
from analogue to digital terrestrial television. According to
the available information, SVT had been allocated funding
for transmission which, cumulated over the period from
2002 to 2013, would exceed Teracom's expected costs of

(47) As set out in the opening Decision, the Commission was
also concerned that the funding allocated to SVT to cover
its transmission payments was automatically transferred to
Teracom. Should Teracom's terms and conditions for the
provision of transmission services to SVT not be compar-
able to those of a normal market transaction, any payments
in excess of
the market price could raise concerns of
possible disguised aid in favour of Teracom.

(48) The information at the Commission's disposal at the time of the opening Decision suggested that, up to
2007, SVT's transmission fee payments to Teracom would be lower than Teracom's costs of transmitting
SVT (visible from column 5 in Table 2). As of 2008, however, when the analogue terrestrial network will
be switched off and SVT will no longer be obliged to make parallel transmissions in analogue and digital
mode,
the information suggested that SVT's annual payments would exceed Teracom's costs of
transmitting SVT: from 2008 until 2013, SVT would, every year, pay Teracom considerably in excess of
its transmission costs. In 2013, SVT's payments were estimated at 2,3 times the size of its transmission
costs. Such payments would more than offset Teracom's initial losses and would allow Teracom a
cumulated profit of SEK 509,61 million by 2013. The Commission had doubts that this profit would be
the result of normal market conditions and was concerned that the profit might constitute State aid in
favour of Teracom (see the opening Decision, paragraph 32).

Table 2:

SVT's transmission fee payments to Teracom from 2002 to 2013 as presented in the opening Decision

Payments from
SVT to Teracom
(1)

Teracom's costs
of transmitting
SVT in analogue
(2)

Teracom's costs
of transmitting
SVT in digital
(3)

Teracom's total
costs of trans-
mitting SVT
(4 = 2+3)

Teracom's pre-
dicted annual
profits
(5 = 4 — 1)

Teracom's pre-
dicted cumulated
profits/losses (6)

485

523

480

160

640

- 155,00

- 155,00

480

160

640

- 117,00

- 272,00

Year

2002

2003

2004

556,46

480

160

2005

591,79

480

160

640

640

- 83,54

- 355,54

- 48,21

- 403,75

2006

256,19

240

160

400

- 143,81

- 547,56

2007

273,79

120

160

2008

291,58

2009

309,57

2010

327,77

2011

346,16

2012

364,75

2013

383,55

160

160

160

160

160

160

280

160

160

160

160

160

160

- 6,21

- 553,77

131,58

- 422,19

149,57

- 272,61

167,77

- 104,85

186,16

81,31

204,75

286,06

223,55

509,61

L 112/84

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5.2.

The State guarantee issued in favour of

Teracom

(49) On the basis of the information available at the time of the
opening Decision, the Commission had reason to suspect
that a credit guarantee was issued in favour of, or at least
was available to, Teracom.

(53) On the basis of the background to the credit guarantee and
the reasons for the decision to issue a guarantee — as
explained in the opening Decision (Teracom's poor
financial situation and falling solvency), the Commission
had reason to believe that
in
section 4 of the Notice on Guarantees might not have been
fulfilled and that the credit guarantee constituted State aid
to Teracom.

the conditions set out

(50) During 2001,

for reasons mainly related to Teracom's
investments in digital terrestrial television, the predictions
concerning Teracom's solvency were not very optimistic
and it was expected that its solvency would continue to
fall (57). As a consequence, there was a serious risk that
Teracom would not only fail to respect its contracts for the
transmission of SVT and TV4's programmes but also have
no means
for developing and operating the digital
terrestrial network as a whole. In addition, there was a
risk that Teracom would not be able to honour its creditors.

(51) A Government proposal of November 2001 recommended
that a credit guarantee amounting to a maximum of
SEK 2 000 million (approximately €210 million) be given
to Teracom. Teracom would be charged a fee to cover the
risks and administrative costs involved in granting the
guarantee and the guarantee was limited in time (58). This
in February
approved by Parliament
proposal was
2002 (59). According to the information available to the
the opening Decision,
Commission at
subsequent
took a
decision to issue a credit guarantee in favour of Teracom.

to the approval,

the Government

time of

the

(52) The Commission explains the application of Article 87(1)
of the EC Treaty to credit guarantees granted by a Member
State in its Notice on State aid in the form of guarantees
(the ‘Notice on Guarantees’) (60). According to section 4 of
the Notice on Guarantees, only the fulfilment of all of a
number of conditions ensures that an individual State
guarantee does not constitute State aid under Article 87
(1) (61).

(57) See Teracom's Interim Report for the second quarter of 2002.
(58) See Government bill 2001/02:76.
(59) See Parliament's Decision 2001/02:KrU07; Rskr. 2001/02:149.
(60) See the Commission's Notice on the application of Articles 87 and
88 of the EC Treaty to State aid in the form of guarantees, OJ C 71,
11.3.2000, p. 7.
(61) These conditions are:

(i) the borrower may not be in financial
difficulty; (ii) the borrower must, in principle, be able to obtain a
loan on market conditions from the financial markets without any
intervention by the State; (iii) the guarantee should be linked to a
specific financial transaction, be for a maximum amount, not cover
more than 80 % of the outstanding loan or other financial obligation
(except for bonds and similar instruments) and not be open-ended;
and (iv) the market price for the guarantee should be paid (which
reflects, among other things, the amount and the duration of the
guarantee,
the borrower's
financial position, the sector of activity and the prospects, the rates
of default, and other economic conditions).

the security given by the borrower,

5.3.

The capital injection

(54) On the basis of information concerning Teracom's financial
position available at the time of the opening Decision, the
Commission could not exclude that
the conditional
shareholder contribution in the form of a capital injection
constituted State aid to Teracom.

(55) Although Teracom had started a reorganisation of

the
entire Group's activities in 2002 to improve its financial
situation (62) and sales forecasts were improving, Teracom
still made losses and its solvency kept falling (63). According
to the information available to the Commission at the time
of the opening Decision, Teracom's solvency ratio was at
20 % at the end of 2002 while its lenders required that the
solvency ratio be at a level of 25 % (the level for the Group
was, according to the Commission's information, appar-
ently 30 %) (64). Both Teracom and its lenders therefore
requested that a capital injection be granted to Teracom (65).

(56) According to the Commission's information, the Govern-
ment concluded that Teracom's dire financial situation was
of a temporary nature, triggered by high investment and
operating costs, and that in the long term Teracom would
be a viable company with a strong position in the
marketplace and a serious business model.
In March
2003, the Government proposed that Parliament should
authorise it to grant Teracom a conditional shareholder
contribution in the form of a capital injection amounting to
approximately SEK 500 million (approximately €52,5 mil-
lion) (66). After approval by Parliament in May 2003 and
the signing of an agreement with Teracom in June 2003,
the State granted Teracom the conditional shareholder
contribution.

(62) See, e.g., Teracom's Interim Report for the second quarter of 2002.
(63) Ibid.
(64) This is defined as the consolidated equity/assets ratio.
(65) See the 29 October response, p. 39.
(66) See Prop. 2002/03:64. A conditional shareholder contribution is not
a loan. A conditional shareholder contribution means that the
repayment takes place through payments of dividends once the
company has enough own capital in the balance sheet. According to
the agreement between the State (through the Government) and
Teracom, there was a condition that repayment should start as soon
as Teracom had sufficient financial means to do so.
It is also
specifically stated in the agreement that the contribution is done on
‘market terms’ and that the expected return is the same as that of a
a
conditional
‘competitive business operation.’

contribution made

in respect of

shareholder

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Official Journal of the European Union

L 112/85

(57)

In March 2003, prior to the adoption of the proposal, the
Government informed the Commission about its intention
to put forward a proposal to Parliament about the capital
injection. According to the Government, however, this did
not constitute a formal notification to the Commission (67).

that prior to the capital

(58) The information available to the Commission indicated,
therefore,
injection Teracom's
solvency was lower than the requested 25 %. This led the
Commission to conclude that the transaction may not have
taken place on conditions similar to those on the private
credit market (i.e., that a private creditor would have taken
the same decision to inject capital
into Teracom). The
Commission could, therefore, not exclude that the capital
injection constituted State aid.

5.4.

Reasons for initiating the formal investigation

procedure

(59) The information available to the Commission at the time
the procedure was initiated suggested that it could not be
excluded that all three alleged State aid measures met the
requirements of Article 87(1) and, therefore, constituted
State aid.

(60)

the opening Decision,

the
In addition, at the time of
Commission had no information suggesting that the aid
would be compatible with the EC Treaty. None of the
derogations provided for in Articles 87(2), 87(3) or 86(2)
seemed to be applicable and it was problematic that
Sweden appeared to have disregarded the principle of
technological neutrality during the digitalisation process.

(61) The Commission therefore initiated the formal investigation
procedure to provide Sweden and interested parties the
opportunity to submit their comments on the Commis-
sion's preliminary assessment as set out in the opening
Decision.

6.

COMMENTS FROM INTERESTED PARTIES

6.1.

B2 Bredband AB (‘B2’)

(62) B2 agrees with all the allegations set out in the opening
Decision. According to B2,
the advantages granted to
Teracom are capable of distorting competition not only for
digital satellite but also for digital cable. For broadband
distribution, multicast
television will become a major
product in the next few years (68).

especially, digital terrestrial networks and services. Accord-
ing to ECCA, these policies already influence customers'
behaviour vis-à-vis cable services.

(64)

the procedures and
In addition, according to ECCA,
conditions set for these platforms by national and regional
authorities are discriminatory in nature and have the effect
of putting other platform operators at a competitive
investors are
disadvantage. According to ECCA, capital
reluctant to invest in infrastructure if it is likely that public
authorities will promote the establishment of a competing
infrastructure capable of offering the same types of services
at subsidised prices. This could have very negative effects on
financing needed to consolidate this
the availability of
branch of
the cable industry, upgrade networks and
introduce new services (69).

6.3.

ESOA

(65) According to ESOA, the Swedish authorities grant unlawful
State aid to Teracom. The effect of the aid is to favour the
terrestrial technological solution over others such as cable
and satellite solutions, which distorts competition because
State aid enables Teracom to reduce costs and undercut
prices set by normal market conditions.

significant

(66) According to ESOA, the operation of satellites for digital
television transmission requires
investment.
Nevertheless, in an undistorted market, satellites are strong
competitors to terrestrial (including cable) digital solutions.
Given that
to digital
transmission is ongoing throughout the European Union,
ESOA is concerned that interventions similar to those seen
in Sweden may be occurring in other Member States as
well (70).

transition from analogue

the

6.4.

NSAB

(67) NSAB stands by the arguments advanced in its complaint
and supplementary submissions and agrees with the
allegations as set out in the opening Decision. It doubts,
however, whether
the figures communicated by the
Swedish authorities in response to the opening Decision
correspond to all payments made by SVT to Teracom and
whether
the
the
amounts actually being paid.
Commission to demand further information and explana-
tions from the Government.

they give a fair and accurate picture of
therefore urges

It

6.2.

ECCA

(63) ECCA has no specific comments on the information
presented in the opening Decision, but welcomes the
Commission's examination of digital terrestrial services in
Sweden. This is particularly because several Member States
and,
intervening to finance new infrastructure
are

(68) With regard to the Government's arguments in favour of
digital terrestrial broadcasting as against digital satellite
broadcasting, NSAB notes that
in some neighbouring
countries there are only relatively few households that
cannot receive satellite broadcasts. In addition, it points out
that in countries such as, for example, Finland 10 % of
terrestrial network
households within adequate digital

(67) See the 29 October response, p. 50.
(68) See footnote 4 above.

(69) See footnote 5 above.
(70) See footnote 6 above.

L 112/86

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Official Journal of the European Union

30.4.2007

coverage experience reception problems. It states further
that, according to the BBC, 25 % of households in the
United Kingdom cannot watch digital terrestrial television
owing to poor aerial installations.

(69) Finally, NSAB questions the neutrality of the report by
Öhrlings PriceWaterhouseCoopers (‘PWC’) concerning the
capital injection to the Teracom Group. It also claims that
the report based its business forecast for Teracom on some
over-optimistic assumptions, for example with respect to
the expected number of subscribers (71).

6.7.

UGC

(74) UGC does not take a position on whether the alleged
measures in the present case are compatible with the EC
Treaty. At the same time, however, it strongly supports the
Commission's investigation. It further maintains that State-
sponsored competition can only serve to distort the market.
there can be no justification for State
In its view,
terrestrial
in the development of digital
involvement
television based on a public interest argument. Should it
be in the public interest to provide digital television, there
are many alternative infrastructures that can do so (74).

6.5.

Telenor Broadcast

6.8.

Viasat

(70) Telenor Broadcast does not take a position on whether the
alleged measures in the present case constitute State aid.
However,
it stresses that aid provided to the digital
terrestrial platform will put other platform operators at a
competitive disadvantage; both in the distribution markets,
where television services are offered to consumers, and in
the transmission markets, where infrastructure transmis-
sion capacity is offered to broadcasters.

(71) Teracom (including Boxer) is active as a provider of both
transmission services to broadcasters and television services
to consumers, and will be able to use the State aid to
subsidise both activities.
In the downstream television
distribution market this can be done either by offering the
television services at lower prices or offering more set-top-
boxes than would otherwise be economically feasible
without the State aid. According to Telenor Broadcast, this
is of critical importance at this stage of the development
towards a single market for all platforms.

(75) Viasat welcomes the Commission's investigation and takes
the view that it is clear from the opening Decision that
Teracom (including Boxer) has
received considerable
funding from State resources which constitute unlawful
State aid. It fully agrees with the conclusions in the opening
Decision. According to Viasat, satellite transmission is a
much more cost-efficient distribution platform and the
choice by the Government to favour the terrestrial network
lead to a reduction of consumer choice and lower
will
quality of available products.

(76) Viasat adds that Boxer has also benefited from additional
State aid not only through Teracom but also directly from
SVT. Unlike satellite broadcast distributors
(including
Viasat), Boxer does not have to pay a fee for the distribution
rights to SVT's programmes (75).

7.

COMMENTS FROM SWEDEN

(72) Telenor Broadcast also raises the question whether the
the Swedish
obligation for SVT to cover 99,8 % of
population via the terrestrial network in itself constitutes
State aid, and questions whether terrestrial transmission is
the most cost-efficient means of distributing television (72).

(77)

In its 29 October response, the Government takes the view
that there has been no aid to Teracom in contravention of
Sweden's obligations under the EC Treaty. It maintains in
particular that the opening Decision relied on incomplete
and often inaccurate information.

6.6.

TeliaSonera

7.1.

SVT's allegedly excessive transmission fee

payments to Teracom

(73) TeliaSonera does not take a position on whether the alleged
measures in the present case are compatible with the EC
Treaty. However, it emphasises the importance of compe-
titive neutrality among various technical infrastructures in
the television distribution marketplace (73).

(78) According to the Government, SVT has not made and will
not make any excessive payments to Teracom in return for
transmission services on the analogue and the digital
terrestrial network. In addition, the Government claims that
the Commission's assessment in the opening Decision was
based on inaccurate figures.

(71) See footnote 7 above.
(72) See footnote 8 above.
(73) See footnote 9 above.

(74) See footnote 10 above.
(75) See footnote 11 above.

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Official Journal of the European Union

L 112/87

(79) First, in the opening Decision, the Commission looks at Teracom's costs in the digital terrestrial network
(column 3 of Table 2) excluding VAT although all other figures in the same table included VAT.
According to the Government, all figures should exclude VAT to make them comparable (76). Table 3
below presents the relevant table from the opening Decision corrected for VAT. According to these
corrected figures, Teracom's accumulated profits will, by 2013, be significantly lower (SEK 23,7 million)
than the amount indicated in the opening Decision (SEK 509,61 million).

Table 3:

SVT's transmission fee payments from SVT 2002 to 2013

(excluding VAT)

Payments from
SVT to Teracom
excl. VAT (1)

Teracom's costs
of transmitting
SVT in analo-
gue

excl. VAT (2)

384

384

384

384

192

96

388,0

418,4

445,2

473,4

205,0

219,0

233,3

247,7

262,2

276,9

291,8

306,8

Teracom's costs
of transmitting
SVT in digital

(3)

160

160

160

160

160

160

160

160

160

160

160

160

Teracom's total
costs of trans-
mitting SVT
excl. VAT
(4 = 2+3)

Teracom's pre-
dicted annual
profits/losses

(5 = 4 — 1)

544

544

544

544

352

256

160

160

160

160

160

160

- 156,0

- 125,6

- 98,8

- 70,6

- 147,1

- 37,0

73,3

87,7

102,2

116,9

131,8

146,8

Teracom's pre-
dicted accumu-
lated profits/losses

(6)

- 156,0

- 281,6

- 380,4

- 451,0

- 598,1

- 635,0

- 561,8

- 474,1

- 371,9

- 255,0

- 123,2

23,7

Year

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: The 29 October response, p. 25. Note, however, that the table still includes a number of errors which are explained and
corrected in below.

(80) Second, the Government maintains that the Commission's opening Decision is based on estimates of
Teracom's costs of transmitting SVT made as early as 2001 (see columns 3 and 4 in Table 4 and Table 3
respectively). According to the Government, Teracom's actual costs have been significantly different from
these estimates (see Table 4 below) and to support its statement, the Government submitted accurate
figures. The difference is most notable for Teracom's costs in the digital terrestrial network where the
costs were originally estimated at SEK 160 million per year. This estimate was based on a coverage rate of
the digital network of 98 % and on a complete functionality of the network as of 2002 including, for
example, a regional breakdown (‘regional nedbrytbarhet’) of transmission signals and security enhancing
measures (‘säkerhetsåtgärder’) (77). It was, however, only during the course of 2005 that the digital
terrestrial network was rolled out to this degree and that Teracom's costs of transmitting SVT via the
digital platform started to correspond to the original estimates (see Table 4 below). The submitted figures
which reflect Teracom's actual costs also address the concern the Commission expressed in the opening
Decision that the costs of transmitting SVT were, in the initial phase of the roll-out, lower than SEK
160 million (78).

(76) In particular, the Government has pointed out that the transmission fees which Teracom charges SVT include VAT and
that the amounts which SVT receives from the distribution account allow for this. Teracom does not benefit from the
part of the payment earmarked for VAT because it has to pay this money to the tax authority; see the 20 March
response, question 2.

(77) See the 29 October response, p. 34.
(78) See the opening Decision, paragraph 36.

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Official Journal of the European Union

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(81) Third, the Government pointed out that SVT's transmission fee payments to Teracom as presented in the
opening Decision (column 1 of Table 2 and Table 3 above) do not correspond to SVT's actual payments
but refer to the funding that was intended to be transferred from the distribution account to SVT. These
funds were at SVT's disposal to pay for terrestrial transmission, but there was no obligation for SVT to
use these funds solely for that purpose (79). The Government also pointed out to the Commission that,
contrary to the original assumption, SVT is scheduled to receive SEK 384 million (excluding VAT) in
2006 from the distribution account instead of SEK 205 million (excluding VAT) as estimated in the
opening Decision (80).

(82) Table 4 below presents SVT's actual payments to Teracom (columns 1a to 1c) and Teracom's actual costs
of transmitting SVT (columns 2 to 4) for the period from 1999 to 2006 (81). In addition to the
timeframe covered in the opening Decision, the table includes the years 1999, 2000 and 2001.
According to the Government, these figures allow the Commission to verify that for the entire period
since the launch of the digital terrestrial network in April 1999 SVT has not made any excessive
payments to Teracom. The information relating to these additional years also addresses the concern
raised by the Commission in the opening Decision (82), namely that SVT received extra funds during the
initial phase of the roll-out of the digital terrestrial network (from 1997 until 2001) i.e., before the
distribution account was created. The Government made clear that SVT received, during this period, in
total SEK 300,3 million for technical renewal (‘teknisk förnyelse’). Out of this amount, SEK [...] million
was spent on digital terrestrial transmission services (SEK [...] million in 2000 and SEK [...] million in
2001). These figures are included in Table 4 (column 1b) and are considered in the calculation of
Teracom's profits and losses in its dealings with SVT.

(83) Based on Teracom's actual costs and fees, Table 4 illustrates, for every year between 1999 and 2006,
Teracom's profits or losses in its dealings with SVT (column 5). It appears that, in every year except 2005,
SVT's total payments for analogue and digital transmission to Teracom (column 1c) have been lower than
Teracom's total costs of transmitting SVT (column 4). Over the period as a whole, Teracom has in fact
made losses on transmitting SVT in the order of SEK 149,5 million.

Table 4:

SVT's actual transmission fees and Teracom's actual transmission costs from 1999 until 2006
(excluding VAT)

Year

SVT's
analogue
fees

(1a)

SVT's
digital
fees

(1b)

SVT's
total fees

(1c)

Teracom's
costs of
transmitting
SVT in ana-
logue
excl. VAT (2)

Teracom's
costs of
transmitting
SVT in digital
(3)

Teracom's
total costs of
transmitting
SVT

excl. VAT
(4 = 2+3)

Teracom's
annual
profits/
losses
(5 = 4–1c)

Teracom's
accumula-
ted profits/
losses
(6)

1999

[...]

2000

[...]

2001

[...]

2002

[...]

2003

[...]

[...]

[...]

[...]

[...]

[...]

2004

[...]*

[...]*

2005

[...]*

[...]*

2006

[...]*

[...]*

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

[...]

- 10,3

- 10,3

- 31,8

- 42,1

- 24,1

- 66,2

- 18,9

- 85,1

- 3,6

- 88,7

- 58,2

- 146,9

17,5

- 129,4

- 20,1

- 149,5

Source: Annex 6 to the 20 March response. For figures with an asterisk, see explanation in footnote 81.

(79) See the 29 October response, section 3.6.2., p. 32.
(80) See and the 20 March response, Annex 7.
(81) […]
(82) See the opening Decision, paragraph 36.

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(84) The Government has provided the Commission with
explanations regarding the losses Teracom made on SVT
transmissions during the period 1999 to 2006. First,
according to the Government, Teracom's pricing in the
digital terrestrial network was based on the actual number
of viewers (the so-called penetration rate), which, during the
initial phase of
the roll-out, was below expectations.
Second, to give broadcasters an incentive to start digital
terrestrial transmissions, Teracom was initially not able to
charge transmission fees which would fully cover its costs.
Finally, Teracom's costs as presented in include imputed
costs such as the owner's required rate of return. Such
imputed costs are not considered losses under accountancy
rules (83).

(85) The Government has also submitted Teracom's actual prices
and costs of transmitting broadcasters other than SVT in
the analogue and the digital terrestrial network (84),
in
particular the costs and prices of Sweden's main commer-
cial broadcaster, TV4, which is also the only other
broadcaster present in the analogue terrestrial network.
To the extent that the data indicate that SVT has paid higher
transmission fees than TV4, these price differences can,
according to the Government, be explained by the special
requirements for SVT's transmissions, for example, SVT's
higher coverage rate and greater capacity utilisation, the
regional breakdown of SVT's transmission signals and
security enhancing measures (85).

7.2.

The alleged credit guarantee issued in favour

of Teracom

(86) According to the Government, a credit guarantee was never
issued. The Government concedes, however,
in
February 2002 Parliament adopted a Decision authorizing
the Government to issue a credit guarantee (86).

that

(87) As indicated by the Government, it is important to note
that, according to the Swedish Constitution, only the
Government, but not Parliament, can make financial
commitments towards third parties (such as Teracom) with
respect to funds belonging to the State budget. However,
the Government cannot make such commitments without
Parliament's prior approval. Also, in the case at hand, the
Government had requested that the National Debt Office be
charged with the task of issuing the guarantee (87).

(88) According

to the Government, once parliamentary
approval was given, the Government,
in June 2002, by
decision, asked the National Debt Office to issue a credit
guarantee in favour of Teracom and decide upon a fee to
the
charge Teracom for

involved

risks

and

the

(83) See the 25 April response, question 4.
(84) See the 20 March response, Annex 6.
(85) See the 20 March response, questions 7 and 8. For each of the special
the Government also quantified the effect on

requirements,
Teracom's prices.

(86) See Parliament's Decision 2001/02:KrU07; Rskr. 2001/02:149.
(87) See Regeringsformen (1974:152), chapter 9 § 10; the Guarantee
Decree (1997:1006) and the Law regarding the State's budget
(1996:1059). See also Government Decision Ku2002/483/Me dated
27 June 2002.

administrative costs. The Government emphasises, how-
ever, that this decision specified that the National Debt
Office had to consider the EC rules on State aid to see
whether a credit guarantee would be compatible with those
rules, and, if it was not, to gather the information necessary
for a notification under Article 88(3) of the Treaty (88). In
addition, the National Debt Office had to make a risk
assessment of any State guarantee. Importantly, prior to a
decision by the National Debt Office concerning the
amount of the credit guarantee, the time period and the
amount of the fee and prior to establishing that the credit
guarantee would not conflict with EC State aid rules, the
credit guarantee could not be issued (89).

(89) The National Debt Office, which based itself partly on a
preliminary credit assessment carried out between July and
September 2002 by Standard & Poor's (90), concluded that
the financial risks involved in issuing a credit guarantee
were too significant. If any credit guarantee were to be
issued, a very high fee would have to be charged to cover
the risks involved. In addition, the National Debt Office
found that it could not be excluded that a State guarantee
would constitute State aid (91). According to the Govern-
ment, after the National Debt Office had reported its view
on 1 October 2002, no actions were taken by the
Government, the National Debt Office or by Teracom.

7.3.

Capital injection

(90) According to the Government, the conditional shareholder
contribution in the form of a capital injection does not
constitute State aid within the meaning of Article 87(1) of
the EC Treaty.

(91) The Government notes first that the opening Decision is
based on partly inaccurate information, which makes
Teracom's economic and financial situation look worse
than in reality. Teracom's solvency was not as low as
indicated in the opening Decision and Teracom had made
losses only in 2001 and 2002 and not in 2003 (92).

(92) According to the Government, the Commission,

in the
opening Decision, made a wrong assessment of Teracom's
economic and financial situation at the time of the capital
injection. The Government emphasises that at the end of
the
June 2003, when it injected capital
company's financial and economic situation had changed
considerably compared with the time period which
provided the basis for the National Debt Office's negative
opinion on the proposal to grant a State guarantee to
Teracom (93).

into Teracom,

(88) See Government Decision Ku2002/483/Me dated 27 June 2002.
(89) See Government Decision Ku2002/483/Me dated 27 June 2002,
read in conjunction with § § 8, 9, 11 and 12 of the Guarantee
Decree (1997:1006).

indices, risk evaluations,

(90) Standard & Poor's is a global company providing independent credit
ratings,
investment research, data, and
valuations. The preliminary credit assessment was based mainly on
the financial indicators of the company and not on a detailed market
analysis.

(91) See the National Debt Office's report DNR 2002/000170 dated

1 October 2002.

(92) In fact, since its creation in 1992, Teracom has only made losses in
these two years — 2001 and 2002. See Teracom's Annual Reports
but also the 29 October response, page 40.

(93) See the 29 October response, pp. 38-40.

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(93) As indicated by the Government, over the course of 2002
Teracom had taken various steps to remedy its financial and
economic problems. It sold off three of its subsidiaries,
reduced costs by laying off a significant part of
its
workforce (20 %), merged subsidiaries, shut down parts of
its operations and concentrated its business on fewer
locations and reduced investments compared with 2000
and 2001. In addition, the market for digital terrestrial
television was developing favourably, with growing demand
for digital television subscriptions, in particular during the
autumn of 2002. For Teracom, this led to a significant
increase in annual subscription sales from approximately
100 000 at the end of 2001 to approximately 140 000 at
the end of 2002. These cost-cutting measures and the sales
increase during the second half of 2002 significantly
improved Teracom's financial and economic situation and,
in fact, the company was already making profits in the first
three months of 2003 — before the Government made its
proposal to Parliament (94).

(94) The Government explains that, when the National Debt
the
Office communicated its negative opinion to it,
Government decided to conduct a more in-depth analysis
of Teracom's economic and financial position (95) —
instead of the snapshot type of analysis which the National
Debt Office had carried out.

(95) Similarly to what a private shareholder would have done,
the Government assessed Teracom's short- and long-term
economic and financial position based on Teracom's
business plans for the years 2003 to 2005, on its financial
forecasts for the period 2003 to 2010 and on comparisons
with other companies and other shareholders in the same
and similar industries.
It concluded that a conditional
shareholder contribution in the form of a capital injection
amounting to SEK 500 million would improve Teracom's
solvency and allow Teracom to subsequently generate
enough profits to pay back the injection within a reasonable
time. The Government maintains that, in this situation, the
shareholder capital injection did not constitute State aid.
According to the Government, a private investor would, in
the same situation, have been prepared to contribute capital
forecasts were
because Teracom's
positive (96).

long-term financial

(96) The Government adds that, in this context and contrary to
what it should have done, the Commission did not take
into account all relevant factors in examining whether the
capital injection could be expected to generate a reasonable
return. The Commission limited its analysis to Teracom's
past losses and its solvency ratio. In the Government's view,
the Commission was also wrong to compare the State with
an outside creditor but should instead have compared it
with a private shareholder, which can be presumed to take a
long-term approach to its investment. The State owns

100 % of Teracom, which also implies a longer term
interest than in the case of a minority holding (97).

(97) To further

its

support

arguments,

the Government
submitted a report by PWC, an independent auditing
consultancy, which was requested by the Government to
review the Government's decision concerning the capital
injection. The report assesses Teracom's economic and
financial situation at the time of the capital injection and
the
based on information available at
the time of
Government's decision. The report concludes that
the
Government had sufficient information to decide on the
injection and that Teracom's long-term profitability was at a
level which would have satisfied a private investor (98).

(98) Finally,

is of

the Government

the opinion that

the
Commission did not sufficiently take into account the
broader context of
for
example, have taken into account that the injection was
necessary to secure the investments already made which, in
the long term, were expected to be profitable (99).

the capital

It should,

injection.

8.

ASSESSMENT OF THE ALLEGED AID MEASURES

(99) For a measure to be characterised as State aid within the
meaning of Article 87(1), four conditions must be fulfilled:
(1) there must be a transfer of State resources; (2) the
measure in question must involve an economic advantage
to the recipient; (3) the measure must distort, or threaten to
distort, competition; and (4) the measure must affect trade
between Member States.

8.1

SVT's transmission fee payments to Teracom

8.1.1. Economic advantage

(100) To determine whether the transmission fees which SVT
pays to Teracom for terrestrial transmission confer an
economic advantage on Teracom, it needs to be examined
in the future, due to pay
whether SVT has paid or is,
amounts which exceed what Teracom could reasonably
expect to obtain from customers under normal market
conditions.

(101) First, the Commission has investigated whether, since the
launch of digital terrestrial television in Sweden in 1999 up
to the year 2006, SVT has paid Teracom more than
Teracom's costs of transmitting SVT. While the calculations
in the opening Decision were to a large extent based only
on estimates of SVT's payments and Teracom's costs, the
Commission has
in the present Decision based its
calculations on actual figures (see Table 4 above). These
figures demonstrate that, during the period from 1999 to
2006, SVT has not made excessive payments to Teracom.

(94) See the 29 October response, pp. 38 and 39, and Teracom's Annual

Reports 2002 and 2003.

(95) See the 29 October response, p. 39.
(96) See the 29 October response, pp. 39, 40 and 51-56.

(97) See the 29 October response, pp. 51 and 53.
(98) See the 29 October response, Annex 33.
(99) See the 29 October response, pp. 55 and 56.

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In fact, seen over the entire period, SVT's payments have
been lower than Teracom's costs of
transmitting SVT,
resulting in losses on transmission amounting to approxi-
mately SEK 149,5 million. Because this
figure (SEK
149,5 million) includes payments for both analogue and
digital transmissions, this also indicates that there has been
no cross-subsidisation in the sense that Teracom has
charged excessive fees for analogue transmissions in order
to use the money for its digital operations.

explained by the Government (see paragraph 40 above) and
contrary to the concern raised by the Commission in the
opening Decision, SVT is not obliged to use all the funds it
receives from the distribution account to pay Teracom for
transmission. SVT negotiates
transmission price
independently with Teracom, and if it ends up spending
less on transmission than forecast it is free to use these
funds for its programme activities (105).

the

respect,

In this

transmission fees

(102) Second, the Commission has verified whether Teracom has
to SVT than to
charged higher
in this way, extracted an
commercial broadcasters and,
economic advantage from SVT.
the
Commission notes that Teracom's pricing is subject to
the principle of equal treatment, i.e., Teracom applies the
same terms and conditions to all its customers (100). More
particularly, the Commission notes that Teracom's pricing
for analogue transmissions has been cost-based ever since
transmissions are
its prices for digital
1992 and that
determined by the so-called penetration-based pricing
model
in which the parameters are the same for all of
Teracom's customers (101). The Commission has also
compared the actual prices which Teracom has charged
to SVT and to other broadcasters in the digital terrestrial
network. While Teracom has charged a higher price to SVT
than to, for example, the commercial broadcaster TV4, this
price difference is due to additional services which SVT
requires from Teracom (102). The Commission, therefore,
has not found any indications that SVT is subject to less
favourable (or more favourable) terms and conditions than
other broadcasters or that it is charged disproportionately
high transmission fees.

(103) Third, and for the sake of completeness, the Commission
has investigated whether, in the future, SVT will have to pay
Teracom more than a normal market price for transmis-
sion. One of the concerns raised in the opening Decision
was whether, between 2008 and 2013, SVT would make
excessive transmission payments to Teracom which, by
2013, would lead to accumulated profits in favour of
Teracom of about SEK 510 million. However,
the
Commission notes that Teracom's pricing is currently and
for the foreseeable future subject to the above-mentioned
pricing principles which will prevent it from charging SVT
excessive transmission fees (103). Moreover,
since the
decisions of the Swedish Post and Telecommunications
Regulator in 2005, Teracom is subject to ex-ante regulation
in the wholesale markets for analogue and for digital
terrestrial transmissions (104). These decisions should,
in
principle, eliminate any risk that Teracom might charge
SVT excessive transmission fees. Finally, as has been

(100)See paragraph 41 above.
(101)See paragraphs 42 and 43 above.
(102)See paragraph 85 above.
(103)See paragraph 102 above.
(104)See paragraph 12 above.

(104) On the basis of the above considerations, the Commission
takes the position that, although SVT is obliged to transmit
via the analogue and digital
terrestrial network and
currently has no other alternative than to use Teracom
for its services, Teracom is restricted in its capacity to take
advantage of SVT as a captive customer. In this context, the
Commission also notes that, because commercial broad-
casters find it worthwhile being present in the digital
terrestrial network and paying Teracom's
respective
transmission fees, it is reasonable that SVT does so too.

(105) As regards the allegation that Boxer received aid because
SVT does not pay for distribution (106), the Commission
would point out that commercial agreements between
broadcasters and distributors can take various forms. In
view of the fact that the transaction between these two
transmission services
parties involves an exchange of
versus availability of content which is valuable to both
parties,
the precise terms and conditions can vary
considerably depending, for example, on the platforms
and operators involved.

(106) On the basis of the foregoing, the Commission concludes
that the transmission fees paid by SVT to Teracom do not
confer an economic advantage on Teracom and thus do not
constitute State aid within the meaning of Article 87(1).

8.2.

The State guarantee

(107) According to the Notice on Guarantees, a guarantee
generally falls within the scope of Article 87(1) if trade
between Member States is affected and no market premium
is paid. According to section 2 of the Notice on Guarantees,
if a State guarantee has been issued, even if no payments
are ever made by the State under a guarantee, there may
nevertheless be State aid under Article 87(1). This is
because aid is considered to have been granted at the

(105)See paragraph 41 above.
(106)See paragraph 76 above.

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moment the guarantee is granted, not at the moment at
which it is invoked or the moment at which payments are
made under the terms of the guarantee.

The opening Decision,
financial situation as slightly worse than in reality.

therefore, pictured Teracom's

(108) However, the Commission notes that, according to settled
case law, e.g., Austria v Commission, there has to be an
unconditional and legally binding promise to grant the aid
in question before aid can be established to exist (107).

(109) In the present case, the Commission takes the view that the
Government's decision to request the National Debt Office
to issue a credit guarantee was a conditional decision and
did not confer on Teracom an unconditional right to
that a credit guarantee be issued to it. The
request
Commission notes
that, under Swedish law, when
authorities subject to governmental oversight issue a credit
guarantee,
its issuance is always conditional upon the
findings of the National Debt Office regarding, among
other things, solvency and honesty. This feature of the
Swedish system and laws is a matter of public knowledge.
it is clear that the Government was aware of its
Also,
obligations under Community law because it stated that the
National Debt Office had to consider the credit guarantee
under the State aid rules and,
if necessary, gather the
relevant information for a notification to the Commission.
Importantly, the Commission notes that no action was
taken subsequent to the National Debt Office's report. To
sum up, on the basis of
the above the Commission
therefore finds that it is not possible to conclude that a
credit guarantee was ever issued and that an unconditional
and legally binding promise to grant the aid was made to
Teracom. Consequently, no economic advantage was
granted to Teracom.

8.3.

The capital injection

(110) Where a State provides

finance to a company in
circumstances that would not be acceptable to an investor
operating under normal market economy conditions,
it
confers an economic advantage on the beneficiary (108). To
determine whether the conditional shareholder contribu-
tion in the form of a capital injection granted to Teracom at
the end of June 2003 conferred an economic advantage on
Teracom,
it needs to be examined whether this capital
injection complied with the market economy investor
principle.

(111) The Commission concedes that the information concern-
ing Teracom's financial situation as set out in the opening
Decision was not entirely accurate. As demonstrated by the
Government, Teracom's solvency was not as low as
indicated in the opening Decision and Teracom had made
losses for two years and not for three consecutive years.

(107)Case C-99/98 Austria v Commission [2001] ECR I-1101.
(108)See the Commission communication to the Member States:
Application of Articles 92 and 93 of the EEC Treaty and of Article 5
of Commission Directive 80/723/EEC to public undertakings in the
manufacturing sector, OJ C 307, 13.11.1993, p. 3.

(112) Having analysed the

information submitted by the
Government in its 29 October response as well as in
subsequent responses, including Teracom's short- and long-
term business plans, the Commission considers that the
in 2003, of Teracom's then
Government's assessment,
current and future economic and financial situation was
realistic, and that the prospects of a satisfactory return on
the capital injection were credible.

(113) As described in detail in Section 7.3 above, the Govern-
ment made an assessment of Teracom's economic and
financial position based on the company's business plans
for the years 2003 to 2005, its financial forecasts for the
period 2003 to 2010 and comparisons with other
companies and other shareholders in the same and similar
It concluded that a conditional shareholder
industries.
contribution amounting to SEK 500 million would
improve Teracom's solvency and allow the company to
subsequently generate enough profits to pay back the
shareholder contribution within a reasonable time (109).
The forecast for 2003 indicated that Teracom's loss and
profit accounts would be positive.
In this context, the
Commission notes that Teracom was already making
profits in the first three months of 2003 — before the
Government made its proposal to Parliament.

(114) Finally, the Commission has reviewed the report made by
PWC on behalf of the Government, which explains the data
which formed the basis for the Government's decision. In
the Commission's view, these data provided a credible basis
for an investment decision.
the report
indicates that, after losses in 2001 and 2002, Teracom
was close to break-even at the time the capital injection was
made. Especially, Teracom's economic and financial situa-
tion had improved considerably compared with the time
when the National Debt Office gave a negative opinion on
issuing a State credit guarantee (110).

In particular,

(115) The report demonstrates that the Government's choice is
compatible with the type of analysis that a private investor
would have carried out, which consists in assessing the
expected additional profits
from the investment and
whether these profits are sufficient to compensate for the
risks of the investment. The report calculates the expected
internal rate of return of the investment by determining the
incremental cash flow it generates. This is done by taking
the difference between two alternative scenarios — with or
without the shareholder contribution. The internal rate of
return of the investment was expected to reach approxi-
mately 24 %, a level that would exceed the demands of

(109)A conditional shareholder contribution has to be paid back once the
company is demonstrating free own capital in the balance sheet.

(110)See paragraphs 93 and 94.

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private market investors in this sector (the comparable
industry rate of return on equity is 8,6 %) and compensate
also for the financial risk of the company (111).

(116) Although it is impossible to establish with certainty ex post
what would have been the evolution of revenues in the
absence of the shareholder contribution, the Commission
notes that Teracom's return on equity grew from 3 % in
2003 to 11 % in 2004 and 19 % in 2005 (112).

(117) Figure 3 below illustrates Teracom's return to profitability
in 2003, 2004 and 2005. The company made its first
repayment of the conditional shareholder contribution in
2006 (113).

Figure 3:

Development of Teracom's actual profits from 1998 to 2005

Source: Teracom's Annual Reports 1998 to 2005

(118) The Commission concludes, therefore, that the conditional
shareholder contribution by way of a capital injection was
made in circumstances that would be acceptable to a
private investor operating under normal market economy
conditions.

(119) However, in this particular case the question arises whether
the fact that Teracom maintained its position as exclusive
terrestrial network operator notwithstanding the entry into
force in October 2002 of the Directive on competition in
the markets for electronic communications networks and
services (the ‘Competition Directive’) (114), which prohibits
the maintenance of exclusive rights in the relevant sector,
has an impact on the present State aid assessment (115).

(111)See PWC's report Bedömning av kapitaltillskott till Teracom AB enligt den
marknadsekonomiska investerarprincipen, Annex 33 to the 29 October
response.

(112)See Teracom's Annual Reports 2003 to 2005.
(113)See Teracom's Interim Report for the second quarter of 2006. The
repayment amounted to SEK 150 million, i.e., approximately one
third of the conditional shareholder contribution.

(114)See reference in footnote 15.
(115)According to the Directive, Sweden had to abolish all monopoly
rights for broadcasting transmission services by 24 July 2003.

(120) When, in examining a potential aid measure, the Commis-
sion finds that another provision of the EC Treaty has been
breached, it must be assessed whether aspects of that aid
contravene specific provisions of the EC Treaty other than
Articles 87 and 88 and are so indissolubly linked to the
object of the aid that it is impossible to evaluate them
separately (116). In such a case, it is only if the breach of that
other EC Treaty provision has a distortive effect which is
demonstrable and additional
in the
potential aid measure that it can determine the Commis-
sion's assessment of the measure (117).

inherent

to that

(121) In the case at hand,

the Commission notes that

the
infringement of the Competition Directive does not form
part of the measure under assessment, but results from a
course of action of the Government that is separate and
distinct
the shareholder
contribution.

from the decision to grant

(122) Moreover, although it cannot be excluded that the exclusive
right may have influenced the profitability of Teracom and,
therefore, of
the shareholder contribution to a certain
extent, this cannot be established with certainty since
Teracom is subject to price regulation — as explained
above in paragraphs 42, 43 and 102 — and cannot freely
it can,
exercise its market power.
therefore, not be demonstrated that it is primarily because
of the exclusive right that the shareholder contribution was
a profitable investment.
It can therefore also not be
determined that, without the exclusive right, the expected
return on the shareholder contribution would not have
been acceptable to a private investor.

In the present case,

(123) Therefore, in the absence of a clearly established causal link
between Sweden's breach of the Competition Directive and
the expected profitability of the shareholder contribution,
the Commission is not in a position to invalidate Sweden's
claim that the MEIP test has been met in the present case.
This, however, does not prejudge the position which the
Commission may take in future cases in the light of their
facts.

(124) To conclude, in the present case the shareholder contribu-
tion and the breach of the Competition Directive can and
should be assessed separately in accordance with the rules
and procedures applicable to the two measures. It should

(116)See, e.g., Case 74/76 Iannelli & Volpi SpA v Ditta Paolo Meroni [1977]
ECR 557; Case C-225/91 Matra SA v Commission [1993] ECR
I-3203.

(117)See, e.g., Case 47/69 France v Commission [1970] ECR 487 and Case

C-204/97 Portugal v Commission [2001] ECR I-3175.

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be noted that, with regard to the Competition Directive, the
Commission has referred Sweden to the European Court of
Justice under Article 226 of the EC Treaty.

HAS ADOPTED THIS DECISION:

Article 1

(125) As regards the shareholder contribution, however,

the
Commission concludes that
the existence of State aid
within the meaning of Article 87(1) has not been
established.

The measures investigated by the Commission and described in
this Decision relating to the introduction of digital terrestrial
television in Sweden do not constitute State aid within the
meaning of Article 87(1) of the EC Treaty.

Article 2

9.

CONCLUSION

This Decision is addressed to the Kingdom of Sweden.

(126) On the basis of the foregoing, the Commission finds that
there are no indications that the investigated measures
conferred an economic advantage upon Teracom or any of
its subsidiaries. The Commission therefore concludes that
the measures which Sweden has implemented do not
constitute aid within the meaning of Article 87(1) of the
Treaty,

Done at Brussels, 20 December 2006.

For the Commission

Neelie KROES

Member of the Commission