2007/374/EC: Commission Decision of 24 January 2007 on State aid C 52/2005 (ex NN 88/2005, ex CP 101/2004) implemented by the Italian Republic for the subsidised purchase of digital decoders (notified under document number C(2006) 6634)   (Text with EEA relevance)
Date: 2007-01-24
Institutions: European Commission
Subjects: Italy, State aid, audiovisual equipment, cable distribution, control of State aid, high-definition television, pay television, purchase

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II

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

DECISIONS

COMMISSION

COMMISSION DECISION

of 24 January 2007

on State aid C 52/2005 (ex NN 88/2005, ex CP 101/2004) implemented by the Italian Republic for the
subsidised purchase of digital decoders

(notified under document number C(2006) 6634)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2007/374/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

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

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

Whereas:

investigation procedure. On 3 May 2005 the company Sky
Italia srl (hereinafter referred to as Sky Italia) also submitted
a complaint against the two Articles cited. On 22 June
2005, a meeting was held between the Commission and
Sky Italia. On 31 August 2005, Sky Italia submitted further
information concerning amendments to the Law of 3 May
2004 entitled ‘Regulations and principles governing the set-
up of the broadcasting system and RAI-Radiotelevisione
italiana SpA, authorising the government
to issue a
(known as the Gasparri
consolidated broadcasting act’
law), which regulates the television sector in Italy. Finally,
on 31 October 2005 Sky Italia requested the Commission
— pending a decision — to order the Italian Government
to suspend the measure pursuant
to Article 11(1) of
Council Regulation (EC) No 659/1999 laying down detailed
rules for the application of Article 88 of the EC Treaty (2).

I.

PROCEDURE

(1) On 11 May 2004, the company Centro Europa 7 srl
(hereinafter referred to as Europa 7) submitted a State aid
complaint against Article 4(1) of Law No 350 of
24 December 2003 (2004 Finance Act). By letter dated
the complainant provided further
10 February 2005,
information and comments, according to which the Italian
Government had refinanced the measure under Article 1
(211) of Law No 311/2004 (2005 Finance Act). The
complainant called on the Commission to initiate a formal

(1) OJ C 118, 19.5.2006, p. 10.

(2)

By letters dated 13 October 2004, 21 April 2005 and
15 July 2005, the Commission submitted requests for
information to the Italian Government. The information
was provided on 5 November 2004, 13 May 2005 and
12 September 2005, following a short extension of the
deadline. A meeting also took place between the Commis-
sion and Italy on 6 June 2005.

(3)

By letters dated 20 September 2005 and 16 November
2005, Italy informed the Commission of its intention not
to extend the scheme in the same form.

(2) OJ L 83, 27.3.1999, p. 1. Regulation as last amended by Regulation

(EC) No 1791/2006 (OJ L 363, 20.12.2006, p. 1).

(4)

(5)

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the Commission
By letter dated 21 December 2005,
informed Italy that it had decided to initiate the formal
investigation procedure laid down in Article 88(2) of the EC
Treaty in respect of the aid in question (hereinafter referred
to as decision to initiate the procedure). The Commission
decision to initiate the procedure was published in the
Official Journal of the European Union (3). The Commission
called on interested parties to submit their comments on
the measures in question.

‘for 2004, each user of the broadcasting service who has
fulfilled his obligations regarding payment of the relevant
subscription fee for the year in progress and who purchases
or rents a device allowing the reception, free-to-air and at no
cost to the user or to the content provider, of television
signals transmitted using digital terrestrial technology (T-
DVB/C-DVB) and the
resulting interactivity shall be
entitled to a public grant of EUR 150. Award of the
grant shall be made within the spending limit of EUR
110 million’.

Following the extension of the deadline, Italy responded by
letter dated 13 February 2006 to the request for comments
made in the decision to initiate the procedure. The
Commission also received comments from the following
interested parties: National Federation of Electronic and
Electrotechnic Companies (ANIE) by letter dated 19 June
2006, Europa 7 by letter dated 19 June 2006, European
Satellite Operator Association (ESOA) by letter dated
20 June 2006 Mediaset SpA by letter dated 20 June
2006, RAI-Radiotelevisione Italiana by letter dated 23 June
2006, and Sky Italia by letter dated 26 June). By letter dated
12 July 2006, the Commission forwarded those observa-
tions to Italy. Italy did not comment on these observations.

II.

DETAILED DESCRIPTION OF THE AID

II.A.

DESCRIPTION OF THE AID

(6)

The subject-matter of the formal investigation procedure is
Article 4(1) of Law No 350/2003 (2004 Finance Act), the
interministerial Decree of 30 December 2003 on the grant
for digital terrestrial television and for internet broadband
access pursuant to Article 4(1) and (2) of Law No 350 of
24 December 2003 and paragraph 211 of Law No 311/
2004 (2005 Finance Act).

(7) Article 4(1) of the 2004 Finance Act provides for a public
grant of EUR 150 for users who purchase or rent a set up
box or decoder (hereinafter referred to as decoder) capable
of receiving TV signals transmitted using digital terrestrial
technology and the associated interactive services, and
allocates a total budget of EUR 110 million for the purpose.
It should be noted that decoders which do not receive
digital terrestrial signals are not entitled to the grant even if
they allow the reception and utilisation of the interactive
services. The Article in question states that:

(3) See footnote 1.

(8) Article 4(4) specifies that:

‘the grant for the purchase or
rental of boxes using C-DVB technology shall be awarded
only on condition that
the commercial offer clearly
indicates to the user the content providers with whom
the owners of the cable platform have agreed terms and
conditions for the cable retransmission of the signal using
digital terrestrial technology’.

(9) According to Italy, the subsidy is granted to consumers for
purchasing or leasing a decoder that allows the reception of
a non-encrypted digital signal at no cost to the consumer
and the content provider. Again according to Italy,
the
reception of non-encrypted digital
decoder's capacity to execute any interactive service
provided by any broadcaster. In essence this means that
the decoder must permit non-encrypted interactive func-
tions (i.e. it must not only be interactive but it must also
allow interoperability). These are decoders with an open
standard for the application programming interface (API) of
which the Multimedia Home Platform (MHP) is almost the
sole example.

signal means

(10) Paragraph 211 of the 2005 Finance Act refinanced the
measure with the same spending limit of EUR 110 million,
but with a grant per decoder of EUR 70. The scheme in
question ceased to apply on 1 December 2005.

(11) The measure has been successful

for

two reasons.
Apparently, some 2 million Italian nationals have bought
a subsidised decoder. This figure represents 50 % of the
decoders sold up to November 2005. The other 50 % were
purchased by consumers without the grant, even though
the decoders were of the type eligible for it. Thanks to the
economies of scale in production resulting from this
increase in demand,
interactive
decoders has also decreased from EUR 300/EUR 350 to
around EUR 150.

the consumer price of

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(12)

In 2006 the two measures in question were followed by a
similar measure under Article 1(572) of Law No 266/2005
of 23 December 2005 (2006 Finance Act). This provides
for a subsidy of EUR 90 for each decoder purchased by
users in Sardinia and Valle d'Aosta between 1 December
and 31 December 2005 and of EUR 70 for each decoder (4)
purchased as of 1 January 2006.

(13) Compared to the 2004/2005 measures, the 2006 Finance
Act directly links the subsidy to the interoperability of
decoders without a priori excluding non-terrestrial decoders.

(14)

In its decision of 11 May 2006, the Italian competition
authority, AGCM, rejected (5) a complaint against Article 1
(572) of the 2006 Finance Act. The complaint alleged that
the measure favoured companies linked to Mr Berlusconi's
family. The proceeding was based on Law No 215 of
20 July 2004 on conflict of interest.

II.B.

BACKGROUND

II.B.1.

THE COMPLAINANTS

(15) Europa 7 is an Italian company that has held an analogue
broadcasting licence since 1999. However, it has not yet
been able to operate in the analogue broadcasting market,
allegedly due to the behaviour of the national authorities,
which have not yet allocated the frequencies Europa 7
needs in order to broadcast.

(16) Sky Italia is a pay-TV company that broadcasts via satellite,
owned by News Corporation. It was formed as a result of
News Corporation's take-over of Telepiù SpA and Stream
SpA in 2003, a merger which was approved subject to
certain commitments (Case No COMP/M.2876 Newscorp/
Telepiù). As a result of the commitments given, Sky Italia
was requested to give up its terrestrial activities. It cannot
operate in Italy as a terrestrial network operator or
terrestrial pay-TV operator.

(4) The text of the law states that the subsidy is granted if direct and
unrestricted reception of non-encrypted digital content and services
are guaranteed and if interactive services are provided, through
application programming interfaces (API) which are open and
recognised as such, in accordance with the standards published in
the Official
the European Communities pursuant to
Article 18 of Directive 2002/21/EC of the European Parliament and
of the Council of 7 March 2002.

Journal of

(5) Measure No 15389 of 10 May 2006 of the Competition Authority
(AGCM) CI2 ‘Prime Minister –TV decoder subsidies’ based on the law
on conflict of interest.

II.B.2

THE CONTEXT

(17) The measure in question must be viewed against

the
backdrop of the digitisation of broadcasting, which has an
impact on all the currently available transmission plat-
forms,
i.e. cable, satellite and terrestrial. Digital video
broadcasting can be over a terrestrial network (DVB-T) or
by satellite (DVB-S) or cable (DVB-C). The prime benefit of
digitisation is the increased transmission capacity on all
platforms as a result of more efficient use of
the
radiofrequency spectrum (6), as compared to analogue
broadcasting. This is particularly relevant for terrestrial
TV in view of the limited availability of the frequency
the Commission
spectrum. Between 2002 and 2005,
actively expressed its
the digitisation of
support
broadcasting, adopting several communications on this
subject (7). In these communications the Commission also
supported the diffusion of so-called ‘open standards’ digital
technologies,
i.e. technologies allowing interactivity with
final consumers and interoperability through open API, i.e.
the possibility for different producers and consumers to be
connected together via a single technology that can be
freely used by every operator in the market.

for

(18) The viewing of digital programmes through the most
commonly used television sets requires the use of a decoder
(although some of the more modern TV sets have an
integrated decoder). There are various types of digital
decoders on the market, which can broadly be classified by
their features and functions: (a) simple decoding of digital
programmes, on either the terrestrial or satellite platform;
(b) interactivity (possibility of sending information to the
broadcasters); (c) conditional access (possibility of decoding
pay-TV services); (d) interoperability (the possibility of using
the same decoders to receive programmes from different
broadcasters on the same platform). Interoperability can
easily be achieved through the adoption of open standards
by broadcasters and through the use of the corresponding
open interfaces in decoders. Alternatively, interoperability
would require
the owners of non-open proprietary
technologies to agree to make available the necessary
technical specifications. In principle, decoders could offer
various combinations of the above features;
in practice,
however, the most widespread categories of decoders are:
(a) zappers (just the decoding function); (b) proprietary Sky
decoders (interactive, with conditional access, but not open)

(6) Depending on the quality of

the broadcasting and the use of
interactivity, the digital technique uses at most about one fifth of the
frequency needed to transmit the same data in analogue mode.
(7) See COM(2002)263 final: Communication from the Commission on
eEurope 2005: An information society for all (OJ C 154, 29.5.2001,
p. 123); COM(2003)541 final, Communication from the Commis-
sion on the transition from analogue to digital broadcasting (from
digital switchover to analogue switch-off) (OJ C 96, 24.4.2004,
p. 17); COM(2004)541 final, Communication from the Commission
on interoperability of digital interactive television services (OJ C 123,
21.5.2005, p. 2); COM(2005)204 final: Communication from the
Commission on accelerating the transition from analogue to digital
broadcasting (OJ C 49, 28.2.2006, p. 23).

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and (c) subsidised decoders (interactive, with conditional
access and open).

(19)

In Italy there are four TV broadcasting platforms:
(i)
satellite, on which the main free-to-air channels are
available plus Sky Italia's channels, whose programmes
can be accessed via subscription or pay-per-view agree-
ments; (ii) terrestrial hertzian TV (8), on which 6 national
broadcasters operated in December 2005 i.e. RAI (free-to-
air), Mediaset (9)
(free-to-air and pay-per-view), Telecom
Italia Media/La 7 (free-to-air and pay-per-view), Holland
Coordinator & Service Company Italia (HCSC) which owns
Prima TV/DFree, Gruppo l'Espresso and Television Broad-
casting Systems (free-to-air) (10).
In addition there are
almost 500 local operators on analogue terrestrial broad-
casting and 78 local operators (11) on digital television; (iii)
cable, on which Fastweb operates (free-to-air and pay
services); and (iv) X-DSL, on which Fastweb and Telecom
Italia's Rosso Alice operate (free-to-air and pay services).

(20) Sky Italia is a satellite pay-TV and has a quasi-monopolistic
position on the Italian market for pay-TV satellite broad-
casting, but, as has already been pointed out,
it cannot
operate in Italy as a terrestrial network operator or a
terrestrial pay-TV operator.

(21) Cable hardly exists in Italy, although Fastweb, which owns a
cable network and is a pay-TV operator present in some
Italian cities, had acquired some 140 000 TV customers by
March 2004 using fibre and DSL infrastructure.

the TV audience in Italy.

In a
approximately 85 % of
decision of 11 March 2005, the Italian Communications
Guarantee Authority (AGCOM) analysed the televisionmar-
ket on the basis of Law No 112/2004 and concluded that
the two operators held a collective dominant position on
this market (12) and imposed various obligations (13) on the
two operators in order to preserve pluralism in the market.
Furthermore, on 27 June 2006 AGCOM notified the
Commission of the definition of relevant markets on the
terrestrial analogue television market and its assessment of
significant market power, concluding that RAI and Mediaset
held a collective dominant position. AGCOM did not,
however, propose any measures to remedy this situation.
On 27 July 2006 the Commission sent AGCOM its
comments pursuant to Article 7(3) of Directive 2002/21/
EC of the European Parliament and of the Council of
7 March 2002 on a regulatory framework for electronic
communications networks and services (Framework Direc-
tive) (14). The Commission broadly agreed with AGCOM's
conclusions but asked for a more in-depth analysis and
invited AGCOM to notify remedies as soon as possible.
Finally,
currently considering a
complaint alleging that Law No 112/04 regulating the
switchover from analogue to digital terrestrial broadcasting
technology creates entry barriers for newcomers to the TV
advertising and broadcasting transmission services markets.
After requesting Italy to submit its observations on the
complaint and asking both Italy and the undertakings
affected by the measures for information, the Commission
sent a letter of formal notice to Italy on 19 July 2006
concerning the infringement of
the above Directive
2002/21/EC and Directive 2002/20/EC of the European
Parliament and of the Council of 7 March 2002 on the
authorisation of electronic communications networks and
services (Authorisation Directive) (15), and Commission
Directive 2002/77/EC of 16 September 2002 on competi-
tion in the markets for electronic communications net-
works and services (16).
Italy replied on 15 September
2006. The Commission subsequently received a copy of the
bill to reform the Italian broadcasting legislation with a
view to addressing the issues raised in the letter of formal
notice. The Commission is currently examining this bill.

the Commission is

(22) Terrestrial continues to be the main means of television
viewing in Italy, with a market penetration of some
19 million households out of a total of 22 million. The
main players are the public service broadcaster (RAI) with
three channels and the commercial broadcaster Mediaset,
also with three channels. The two operators account for

(8) For the sake of simplicity, only the term ‘terrestrial’ will be used

hereinafter.

(9) RTI manages the infrastructure but it is owned by Mediaset.
(10) At the end of December 2005, Mediaset had acquired the analogue
frequencies of EuropaTV from Holland Italia and planned to create a
DVB-H channel for mobile TV. According to the Italian authorities'
submission in state aid case C52/2005 of 13 May 2005 (ref. A/
33952) the operators present on the market in 2005 were RAI, RTI,
TI and Prima TV.

(11) Data taken from the submission of the Italian authorities in case

C52/2005 of 13 May 2005 (ref. A/33952).

(23)

In June 2005, the overall digital TV penetration rate was
34,5 % of households, with some 7,3 million viewers in
total. This figure includes digital terrestrial, satellite and
cable/ADSL viewers. 10 % of households were digital
terrestrial TV viewers and more than one third of them

(12) AGCOM Decision 136/05/CONS on measures

to safeguard
pluralism pursuant to Law No 112 of 3 May 2004, Italian Official
Gazette No 35, 11.3.2005.

(13) The main obligations imposed on the two operators are: (a) to
accelerate the digitalisation of the network; (b) RTI to use a different
advertising licenser from Publitalia ’80 for digital programmes and
Publitalia ’80 to introduce separate accounting for revenue from
analogue TV and from digital terrestrial TV; (c) RAI to create a new
programme for the general public to be transmitted in digital
technology.

(14) OJ L 108, 24.4.2002, p. 33.
(15) OJ L 108, 24.4.2002, p. 21.
(16) OJ L 249, 17.9.2002, p. 21.

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(0,8 million) were also viewers of pay-per-view TV
content (17). However, when this decision is published, the
two types of digital TV on offer — terrestrial and satellite —
are both expected to have achieved a similar number of
viewers (5 million viewers for satellite and 4 million viewers
for digital terrestrial).

(28)

Italy started the digitisation process with Law No 66/2001
of 20 March 2001, which stipulated that the switchover to
digital should be completed and transmission in analogue
mode should be switched off by December 2006. As from
the end of 2003 digital
transmissions (T-DVB) were
broadcast alongside those in analogue mode (so-called
simulcast phase). Decree Law No 273 of 22 December
2005 postponed the deadline for the switch-off to 2008
and, on 30 August 2006, the Minister for Communications,
Mr Gentiloni, declared that the date for the switch-off
would be further postponed to 30 November 2012 (19).

(24) Penetration of satellite TV is limited — around 16 % of
households (4,8 million) had a parabolic antenna in June
2005. Around four-fifths of these households subscribe to
Sky Italia's DTH platform (satellite) which reported about
3,3 million customers in June 2005 and an estimated
3,9 million subscribers by the end of that year. Sky Italia is
therefore the third television operator in Italy (18).

(25)

In order to fight piracy, at the end of 2004 Sky began
codifying its signal with the so-called NDS proprietary
technology. The owner of this technology for the Italian
market is a subsidiary of the Newscorp group, i.e. Sky's
parent company. This type of technology is a proprietary,
closed technology because, unlike open common interface
decoders, access to NDS decoders requires provision of
access to the technology or to certain components of the
decoders. Sky rents decoders that use this closed technology
to its subscribers. When it decided to change to NDS
technology, Sky replaced all its subscribers' decoders.

i.e.

(26) Digital terrestrial broadcasters, however, now use a so-
technology using open
called open technology,
standards for
interactivity. This is currently the only
technology that allows simultaneous reception of all DTT
channels with only one decoder — thereby replicating the
current situation in the analogue mode — plus interactivity
and the conditional access properties that allow the use of
prepaid pay-per-view cards.

(27) The aid measure in question is for decoders that allow the
reception of digital terrestrial transmissions where inter-
active services are provided. Digital mode can accommo-
date more television channels than analogue mode within
the same frequency. The advantages of using open
interfaces have been explained above.

(29)

the

In the meantime, according to Law No 112/2004
regulating the sector in Italy, only broadcasters already
transmitting with analogue technology can apply for
experimental digital authorisations and/or digital licences.
There is no formal obligation for analogue operators to
release
frequencies — which have never been
reallocated or subject to a regulated sale by Italy — used
for transmissions in analogue format after the switchover
to digital. New entrants can only access the market via the
acquisition of frequencies from operators already on the
market. By December 2005, 7 multiplexes (frequency
blocks containing one or more programmes) for digital
terrestrial had been licensed in Italy. RAI and Mediaset have
two multiplexes, while Telecom Italia/TV International, D-
Free and Gruppo l'Espresso have one multiplex each. Under
the Italian regulatory regime, network operators holding
more than one digital licence must give access to 40 % of
their bandwidth to unrelated content providers. In 2006,
having acquired infrastructure and licenses from existing
regional and local analogue operators, Telecom Italia and
the mobile operator H3G entered the digital terrestrial
market and started to set up two new multiplexes with the
digitalisation of the acquired networks.

(30) The distinction between broadcasters and network oper-
ators is not so relevant for the major Italian broadcasters in
the terrestrial television sector because RAI, Mediaset, La7
and D-Free all have their own subsidiary for terrestrial
transmission. It should be noted that the television market
in Italy is characterised by strong vertical
integration
between network operators and broadcasters. The manda-
tory legal separation between the first
two types of
companies was only introduced by AGCOM with Decision
435/01/CONS of 2001 and only concerns digital television.
The network operators in the satellite TV sector are not,
however, integrated with the broadcasters.

(17) Measure No 15389 of 10 May 2006 of the Competition Authority

(AGCM) CI2 ‘Prime Minister –TV decoder subsidies’.

(18) AGCOM's Annual Report of 30 June 2006.

(19) See the ‘news’ section of the Italian Ministry of Communications'

Internet site.

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(31) As regards coverage in terms of T-DVB — according to
AGCOM (20) — in 2004 more than 50 % of the population
was effectively covered by at least two multiplexes and 60 %
was potentially covered by three multiplexes. The market
trend suggests that coverage should increase considerably.
According to Italy, 85 % of households could potentially be
covered by at least two multiplexes after the switchover to
digital terrestrial. On the other hand, satellite broadcasting
could cover virtually 100 % of the population.

therefore, be
the criteria of Article 87(1) and could,
regarded as State aid. In particular, it discriminated between,
on the one hand, incumbent terrestrial broadcasters and
cable network operators already on the market and, on the
other hand, satellite operators and other terrestrial broad-
time. The
casters which could not operate at
Commission noted that the beneficiaries receive an indirect
advantage and asked the interested parties to propose
methods for accurately quantifying this advantage.

the

(32) As regards programmes, according to Italy, in June 2005 23
national channels and some 250 local programmes were
broadcast free-to-air on digital terrestrial frequencies. Ten of
these national channels were broadcast in simulcast with
analogue terrestrial television (simultaneous broadcasting in
analogue and digital mode). Four channels had been created
specifically for digital broadcasting; the remaining channels
were broadcast in simulcast with satellite transmissions.

(36) The Commission also expressed doubts as to the compat-
ibility of the aid with the EC Treaty. The case in hand
seemed not to meet either the exceptions from the general
prohibition on aid listed in Article 87(2) or the exception in
Article 87(3)(c) of the EC Treaty. Particularly problematic,
in the Commission's view,
is the fact that the objective
pursued by Italy — i.e. the diffusion of open standards for
digital television — was reached by causing dispropor-
tionate distortion of competition and an unnecessary
infringement of the principle of technological neutrality.

(33) As has already been stated,

the TV market was once
characterised by mass viewing of free-to-air TV in analogue
terrestrial mode and by the offer of satellite pay-TV. The
introduction of digital terrestrial TV and the development
of cable and Internet TV are altering this pattern. For
example,
in January 2005 Mediaset and Telecom Italia
(through LA7) launched on T-DVB a pay-TV service for
premier league soccer matches based on a system of
prepaid cards. At the same time, TF1 — 49 % partner in the
D-Free broadcaster — indicated that it may be interested in
launching pay channels on its T-DVB multiplex. The pay-TV
services are made possible, with the prepaid card system, by
the digital interactive technology contained in the decoders
that are subsidised by the measure in question.

(34) Total

revenue

from the

television market

in 2005
amounted to EUR 6 851 million, of which some 57 %
(EUR 3 885 million) came from advertising and 21 % from
the licence fee paid to the RAI and the supply of pay-TV
(EUR 1 483 million and EUR 1 437 million respectively).
Pay-TV revenue amounted to EUR 1 199 million from
subscription fees (up by 26,4 % from 2004) and EUR
238 million from pay-per-view (up by 65 % from 2004), a
considerable share of which (EUR 45 million) was revenue
from the new DTT services.

(37) Lastly, the Commission initiated the formal investigation
procedure in order to give the Italian Government and
interested parties the opportunity to submit their com-
ments on its provisional assessment of
the measure
described and to provide the Commission with any relevant
information.

III.

COMMENTS FROM INTERESTED PARTIES

(38) Generally speaking, both Italy and Mediaset maintained in
their comments that the measure does not constitute aid
and that, if it were aid, it would be compatible. RAI states
that it was forced to act within the limits imposed by its
legal obligations and that it could not therefore benefit
from the measure. The complainants and ESOA, on the
contrary, maintained that the measure constitutes unlawful
aid.

II.C.

GROUNDS FOR INITIATING THE PROCEDURE

III.A.

COMMENTS FROM ITALY, MEDIASET AND RAI

(35)

In the decision to initiate the procedure, the Commission
noted firstly that the measure described seemed to meet all

(20) See AGCOM's Report under Law No 43 of 24 February 2004,
converting Decree-Law No 352 of 24 December 2004 on urgent
measures concerning arrangements for the definitive end of the
transitional regime of Law No 249 of 31 July 1997.

(39) First,

refer

Italy and Mediaset

to the decision by
AGCOM (21) rejecting a complaint against Article 1(572)
of the 2006 Finance Act, i.e. against the measure which
replaces the measure in question. The complainant alleged
the 2006 Finance Act favoured
that Article 1(572) of

(21) Decision No 21263/06 of 11 May 2006.

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decoders distributed by companies linked to Mr Berlusco-
ni's family. The procedure was based on the law on the
conflict of interest involving members of Government (22).

excluded T-System from the beneficiaries because it was not
possible to ascertain the existence and the amount of a
transfer of resources in its favour.

(40) Comments by Italy more directly related to the content of
the decision to initiate the procedure are that the measure
does not constitute aid because (a) the beneficiaries do not
receive an advantage and (b) there is no distortion of
competition. Even if it did constitute aid, the measure
would be compatible under the exceptions in Articles 87(2)
(a) and 87(3)(b), (c) and (d) of the EC Treaty. Italy agrees that
there is no aid to decoder producers and that network
operators and broadcasters have to be put on the same
footing. Mediaset raises similar issues, although it some-
times uses different arguments.

III.A.1.

THE MEASURE IS NOT AID

III.A.1.1. The selective advantage is not certain

(41)

judgment

Italy argues that there is no reasonable certainty that the
beneficiaries had to bear the costs that are subsidised by the
State with the measure in question because there is no
proof
that the beneficiaries subsidised the purchase of
decoders by consumers. Italy argues that, contrary to the
Court's
in the Netherlands v Commission
case (23) cited in point 30 of the decision to initiate the
procedure,
the beneficiaries did not even have any
economic incentive to subsidise consumers because (a)
they are the market incumbents and do not have any
interest in completing the switchover to digital because they
will then face greater competition as consumers with the
digital
to many more
competitors; (b) the size of the pay-per-view market was
too small to compensate for a possible loss of this type and
cannot be the only reason for subsidising consumers'
purchase of decoders given the share of revenue from pay-
per-view in 2004 and 2005; (c) the deadline set for switch-
off was not sufficiently feasible, given that without a certain
mass of consumers, no switch-off could take place.

technology will have access

(42) Furthermore,

it would be impossible to determine the
amount of public resources transferred to these benefici-
aries. In the case of State aid C-25/2004, which was the
subject of Decision 2006/513/EC (24)
the Commission

(22) Law No 215 of 20 July 2004.
(23) Judgment of 13 June 2002 in Case C-382/99 [2002] ECR I-5163.
(24) See Commission Decision 2006/513/EC of 9 November 2005 on
State aid C 25/2004: Financing of the introduction of DVB-T in
Berlin-Brandenburg, Germany (OJ L 200, 22.7.2006, p. 14).

(43) Second, Mediaset maintains that terrestrial broadcasters and
satellite broadcasters are not comparable companies,
because the DTT operators are only required to achieve
digitalisation and encourage the digital switchover
in
gradual stages (with simulcast and switch-off) and therefore
terrestrial broadcasters are subject to specific public service
obligations — with a view to ensuring the availability of
terrestrial broadcasting throughout Italy — and to use open
technologies. According to Mediaset, the purpose of the
scheme was to facilitate the transfer from analogue to
digital and to promote the development of open standards
in a context where there was a legal deadline set for the
compulsory transition from analogue to digital broad-
casting — the so-called digital switchover — imposing
burdensome costs specific to DTT operators (the cost of
infrastructure for Mediaset was very high). Moreover, Media
argues that contrary to what is stated in the decision to
initiate the procedure, there is no protection against the
entry on to the market of new competitors via the
acquisition of broadcasting infrastructure (Mediaset quotes
the example of H3G which entered the market by acquiring
a local broadcaster) and that new entrants do not have to
bear the cost of simulcast.

(44) Similarly, RAI maintains that the Commission's position
does not take into account the obligations on RAI as the
public service television broadcaster, which would reduce
the alleged advantages to zero. This is because (i) switchover
can be done by RAI (given that it is the public service
company) only if the penetration rate of DTT equals that of
analogue TV; and (ii) RAI was obliged to choose its
investments in the DTT sector
in line with its legal
obligations, and not following market criteria, since it was
obliged to have two multiplexes covering at least 70 % of
the population by 1 January 2005, with the aim of rapid
digitalisation, helped in this by the decoder subsidies. Total
costs were EUR 150 million. Given the timing of the
switchover, the fact that RAI transmits only free-to-air
programmes, the very small number of viewers and the
non-inclusion of the cost of digitalisation in the annual
licence fee for 2004, 2005 and 2006, the only costs borne
by RAI are the technological costs
(frequencies and
infrastructure), costs which RAI would have to bear
the subsidy in question, while speeding up
without
digitalisation did not guarantee additional revenue.

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III.A.1.2. Distortion of competition

III.A.2.1. Article 87(2)(a) of the EC Treaty

(45) First, Italy maintains that terrestrial and satellite operators
do not compete on the same pay-TV market because they
cover different market segments, namely free-to-air and
pay-TV. Furthermore, pay-per-view offers started only in the
second half of 2005. The separation of the two markets
also holds for the network operators as confirmed by
AGCOM in one of its decisions (25), in line with the RAI/
Rami d'azienda decision (26) and the survey of the television
sector by the Competition Authority (27).

(49)

Italy argues that the AGCOM figure of 50 % of households
with a decoder by the end of 2006 or 2008 quoted by the
Commission in point 55 of the decision to initiate the
procedure (28) is low, particularly given that the aim is to
push the more expensive interactive decoders. The price
reduction due to the economies of scale resulting from the
subsidies would mean that poor households could also
afford to buy the decoder.

III.A.2.2. Article 87(3)(b) of the EC Treaty

(46)

In addition, the cost of the decoder has only a marginal
impact on the consumer's choice between the two different
platforms. The absence of distortion of competition is
confirmed by the fact that in the first six half of 2005 Sky's
subscriptions increased by 7,4 %.

(50) The measure would foster a project of common European
interest — the switchover — which is part of a
transnational programme supported by various Member
States, in line with existing case law (C-62/87 and C-72/87,
paragraph 22). The exclusion of satellite decoders is
explained in the general comment above.

(47) Similar arguments are put forward by Mediaset, which
maintains that the measure is not selective because the aid
is granted to consumers and that the selectivity arises from
Sky's business choice to use NDS technology. This is what
creates the discrimination and enables Sky to charge a
subscription fee to recoup the cost of the decoders. If they
so wish, all operators can use the technology that entitles
them to the subsidies in question.

III.A.2.3. Article 87(3)(c) of the EC Treaty

III.A.2.3.a. Well-designed aid

Coordination problem

III.A.2.

COMPATIBILITY

(48) As a general comment, Italy emphasises that the Commis-
sion acknowledges the benefits of interoperability and that
the reason for excluding satellite decoders from the benefit
is that when the aid measure was introduced, there were no
satellite decoders that offered interoperability. Moreover,
following the 2006 Finance Act, which included satellite
decoders, Sky did not alter the characteristics of its decoder
to benefit from the subsidy.

(51) The mere fact of a legal deadline is not enough to secure
switch-off unless demand is stimulated. Consumers would
not be willing to make the change-over given that the
in
incumbent
subsidising their purchase of a decoder in a situation
where most consumers use analogical terrestrial TV.

terrestrial broadcasters have no interest

Subsidising consumers

(52) Subsidising consumers for digital

terrestrial services is
justified because they do not incur additional costs to watch
free-to-air programmes, unlike in the case of satellite TV,
which requires consumers to buy satellite dishes and pay a
fee for the pay-TV service. In the case of cable, despite
for decoders
additional costs,

Italy justified subsidies

(25) Decision No 163/06/CONS, approval of a programme of measures
to foster rational use of frequencies for broadcasting services with a
view to the switchover to digital. Published on AGCOM's web site on
29 March 2006.

(26) Measure 13137, case No C/6161 of 29 April 2004.- RAI/Rami

d'azienda.

(27) Survey No 23, opened by decision No 12056 of 29 May and closed

by decision No 13770 of 16 November 2004.

(28) In point 55 of the decision to initiate the procedure, the Commission
quoted a survey by AGCOM on the availability on the market of
affordable decoders. AGCOM had concluded that the impact of the
purchase of the decoder on the average household income with or
without a public subsidy was small and that the market trend
indicated that even without the aid more than 50 % of households
would have a decoder by 2006 in the best-case scenario and by the
beginning of 2008 in the worst-case scenario.

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because these costs are not directly linked to TV services
and because,
Italy wished to promote the
development of broadband.

in general,

III.A.2.3.b. Avoiding unnecessary distortions of com-

petition

Increasing competition between platforms

(53)

Italy disagrees with the Commission that the measures in
question have an impact on competition between platforms
but considers that ultimately the new digital platform will
increase competition between the different segments of the
television market to the benefit of consumers.

Externalities

(54) The Commission's argument that the incumbents already
receive compensation for the switchover because digital
technology allows greater transmission capacity at lower
transmission costs does not take into account the true
costs/benefits of
incumbent
network operators holding more than one digital licence
must give access to 40 % of their bandwidth to content
providers with which they do not have ownership links.

the switchover, given that

(55) The main beneficiaries of the switchover (the entrants)
differ from those who bear the cost of the switchover
(consumers and, above all, the incumbents). Incumbents are
not compensated for increased competition by a cost
reduction and therefore they have no incentives to switch-
off. Indeed, if there is in fact any advantage, this should be
seen as compensation for the costs incurred by incumbents.
Mediaset puts forward the same argument.

(56) Mediaset also argues

that

simply obliging terrestrial
operators to bear the cost of the decoders, on top of the
other switchover-related costs, would not allow it to achieve
sufficient coverage and would leave Mediaset subject to free
riding by other companies because consumers could use
open technology decoders to watch competing channels.

Promoting innovation

(57) When the measure was enforced, the interactivity of satellite
decoders was very limited due to the use of a proprietary
technology without open API standards. Italy emphasises
that up to now there have been no interoperable satellite
decoders on the market even after the amendments to the
2006 Finance Act. The need to promote the availability of
interactive services is also highlighted by Mediaset.

(58)

Italy stresses that the pay-per-view TV market is different
from the satellite market because the two products are not
the same.
In any case, the aid in question helps new
entrants to access the pay-TV market, which should mean
increased benefits for consumers.

(59) Mediaset maintains that there have been no unnecessary
distortions of competition because (i) discrimination is
simply the result of Sky's business choices; (ii) terrestrial
television carries local channels, whereas 80 % of
local
programmes are not carried by satellite TV because local
channels' revenue is not sufficient to support the cost of
transmission (satellite is not comparable to free-to-air
broadcasting); and (iii)
failure as
regards DTT decoders and not satellite decoders. This is
because satellite is based on a subscription fee system and
can recoup the costs of providing decoders to its own
customers and because Sky, as a monopolist, is not subject
to the free riding problem.

there is only market

III.A.2.4. Article 87(3)(d) of the EC Treaty

(60)

In Decision 2006/513/EC (29), the Commission stated that
the aid was not compatible under Article 87(3)(d) of the EC
Treaty because it was not related to particular cultural
content, nor targeted at small local operators which would
otherwise be absent from the terrestrial platform. In Italy
there are many terrestrial local broadcasters that broadcast
a clearly identified cultural product which Italy wants to
protect. Given that satellite is not well suited to providing
local services — a view also shared by experts working for
the Commission — satellite decoders should not be entitled
to the subsidy.

III.A.3.

RECOVERY

(61) The Commission should not impose recovery of the aid
when this is against a general principle of Community law.
This is the case when it is clear from the outset that
recovery is impossible (30).
is
impossible to determine which broadcaster benefited from
a transfer of State resources and how much, so that the
Commission should not call for recovery of the aid. Italy
also argues that broadcasters had no means of opposing the
subsidy so that, even if the beneficiaries had acted diligently,
they could have not refused it. This type of reasoning was
followed by the Commission in Decision 2006/513/EC (31).

In the case at

issue,

it

(29) See footnote 24.
(30) Case C-75/97 Belgium v Commission [1999] ECR I-3671.
(31) See footnote 24.

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III.B.

COMMENTS FROM SKY ITALIA, ESOA AND

EUROPA7

(66) Finally, given the ‘duality’ of the market, a broad consumer
base that allows attractive content at reduced price also
gives an advantage in the advertising market.

(62) Sky Italia, ESOA and Europa7 agree with the Commission
that
the measure constitutes aid for DTT operators.
Furthermore, they do not contest the preliminary conclu-
sion that the measure does not constitute aid for producers
of decoders. The two complainants, in particular, do not
disagree with this conclusion, even though Sky Italia had
stated the opposite in its complaints.

(63)

In its analysis, Sky Italia focuses on the alleged positive
effects in favour of DTT operators, mainly Mediaset and
Telecom Italia. According to Sky, at the time of the Telepiù/
Newscorp merger,
the Commission had listed various
barriers to the entry and expansion of DTT operators that
called for remedies (32). Contrary to the Commission's
assumptions, as a result of the subsidies, new entrants —
which were in fact incumbents on the analogue TV market
— brought about a rapid expansion in DTT.

(64) The subsidies in question provided Mediaset and Telecom
Italia with a threefold advantage: first, since access to DTT
decoders and to DTT broadcasters are complementary, the
reduced price of decoders led to increased demand for both
decoders and broadcasters — indeed it
is only to be
expected that DTT broadcasters would install a base for
their platform, just as Sky did, incurring costs that they
have not yet recouped — and the subsidies helped DTT
operators to convince consumers to change over to their
new television offer. The measure also helped to solve the
free-riding issue by creating a customer base.

financing for Mediaset and Telecom Italia:

(65) Second, according to a study by the Global Equity Division
of Deutsche Bank (33), subsidies would allow Mediaset a low
risk/low cost way of entering pay-TV. Subsidies reduced the
(a)
cost of
directly, since in order to achieve the same effect as
achieved through the subsidies, DTT companies would have
had to invest EUR 100 million, i.e. half the total cost of the
infrastructure investment borne by Mediaset by January
indirectly, because they dispelled the
2005; and (b)
uncertainty about the success of the switchover to digital.

(32) The main barriers were: (a) a regulatory framework that would allow
DTT providers to be operational only as of 2007; (b) the requirement
(c) higher
to upgrade transmission networks at significant cost;
transmission costs for DTT than for satellite; (d) the need to roll out a
large number of DTT decoders; (e) need for regulators to modify the
regime applicable to national frequencies in order to implement
simulcast; and (f) the risk that a significant portion of the population
may not be covered by the DTT signal.

(33) ‘Mediaset, the beautiful game’, 18 January 2005.

(67) Sky argues that these advantages are selective in that Sky's
commercial freedom was limited because its growth rate
was low and, as a consequence, its capital costs increased.
Sky provides figures to support the argument that the
increase in DTT decoder sales — sales subsidised by the
State — had a negative impact on sales of its Premium
Sports package.

(68) Similarly, Europa7 maintains that there was an advantage to
in the DTT sector.
broadcasters and other operators
Europa7 quotes AGCM, which acknowledged that
the
measure has had the following effects on the market: half of
the decoders were bought using the subsidy; the penetra-
tion of DTT doubled in the first half of 2005 thanks to
DDT pay-TV, whereas pay satellite TV increased by only 1
percentage point.

(69) The advantage is selective in that the subsidy did not favour
access to Europa7's market, which has not yet been
allocated the transmission frequencies, but simply allowed
Mediaset and RAI to saturate demand and investment and
extend their market power to digital TV.

that

reasons

(70) Secondly, Europa7 maintains that there are no general
interest
justify the measure because (i)
incentives for consumers to buy DTT decoders are linked
to access to commercial activities; (ii) the switchover has
already been delayed and (iii) although the measure is pro-
competitive in the sense that it limits Sky's market power, it
nonetheless helps incumbent oligopolist operators on the
analogue TV market, who were granted licences.

(71) Finally, Europa7 emphasises that recovery is the logical
consequence of
the aid and that
the elimination of
difficulties in the quantification of the aid do not justify
its non-recovery. If it proved impossible to quantify exactly
Italy could pay compensation to
the amount of aid,
competitors.

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(72) ESOA maintains that the satellite platform has been put at a
disadvantage — even if it is in a better position as regards
use of the frequency spectrum for TV broadcasting — and
that satellite operators have borne the entire cost of the
introduction of digital
transmission. ESOA therefore
considers that the subsidies in question, which ultimately
favour DTT, are a illegal aid out of proportion to the market
failure they claim to address.

producers of decoders and, consequently hinder technolo-
gical developments in this sector (34).

III.D.

REPLY BY ITALY

(78)

Italy did not comment on the third parties’ submissions.

III.C.

COMMENTS FROM ANIE

IV.

LEGAL ASSESSMENT

(73) ANIE did not have specific observations on the measure in
question, but it submitted the text of a complaint which
ANIE itself sent to AGCM against Sky Italia for abuse of a
dominant position. AGCM has not yet taken any decision.

(74) Allegedly, Sky was requested by certain producers of
decoders to issue licenses for certain aspects of NDS
technology for encrypting satellite signals, of which Sky has
exclusive ownership and use in Italy. These licenses are
essential for producing decoders with a so-called ‘common
interface’, i.e. which can decrypt both terrestrial and satellite
digital signals if NDS technology is used.

(75)

In 2005 Sky started codifying its message exclusively with
the NDS system. The owner of this technology for the
Italian market is a subsidiary of the Newscorp group, i.e.
Sky's parent company. According to Sky, the aim of this
changeover to NDS is to combat piracy. This type of
technology is a proprietary, closed technology because
unlike common interface decoders, access to NDS decoders
requires provision of access to the technology or to certain
components of the decoders.

(76) Sky rents decoders containing this closed technology to its
subscribers. When it decided to change to NDS technology,
Sky accordingly replaced all its subscribers' decoders.

IV.A.

STATE AID ASSESSMENT PURSUANT TO

ARTICLE 87(1) OF THE EC TREATY

(79) The Commission has examined whether the measure in
question can be characterised as State aid within the
meaning of Article 87(1) of the EC Treaty, which lays down
the following conditions for the presence of State aid. First,
there must be an intervention by the State or through State
it must confer a selective economic
resources. Second,
advantage on the recipient. Third,
it must distort or
threaten to distort competition. Fourth, the intervention
must be liable to affect trade between Member States.

IV.A.1.

STATE RESOURCES

(80) The measure in question is contained in the 2004 and
2005 Finance Acts and funded from the State budget. It is
therefore clearly imputable to the state and involves the use
of state resources, as already stated in the decision to initiate
the procedure. The Commission therefore confirms its
previous assessment that this state resources criterion is
met. Neither Italy nor the third parties contested this
conclusion.

IV.A.2.

ECONOMIC ADVANTAGE

(81)

In the decision to initiate the procedure, the Commission
maintained that, even if the direct beneficiaries of the grant
are final consumers, the measure may benefit indirectly (i)
the television broadcasters operating on digital terrestrial
and cable platforms; (ii) the operators of the networks that
carry the signal; and (iii) the producers of decoders.

(77) Sky refuses to share its technology with producers of
common interface decoders on the grounds that the final
arrangement would not be
sufficiently piracy-proof.
According to ANIE, Sky's claims of possible piracy are
unfounded and the reason it uses proprietary decoders is to
defend its monopolistic position in the pay-TV market.
ANIE claims that as a result of this choice, Sky can capture
its customers and also limit market possibilities for the

(82)

In the decision to initiate the procedure the Commission
established that an indirect advantage may fall within

(34) ANIE argues that Sky's behaviour hinders technological development
in that it does not allow the development of decoders using different
conditional access systems or other possibilities, such as those
offered by open decoders. In particular, Sky hinders the technological
development of more advanced common terrestrial and satellite
decoders.

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Article 87(1) EC and referred to case-law in this respect (35).
As for the broadcasters using T-DVB/C-DVB, the Commis-
sion considered that the measure in question helps those
broadcasters to create and develop their audience, by
relieving them of a cost that they would have normally
borne had they wanted to develop their digital audience in
the same way and also reduces
the
broadcasters emitting in simulcast would normally have
to bear. As for the network operators,
the advantage
consists of the potential
increased demand that can be
generated by the broadcasters using the ‘privileged’ plat-
form. Finally, the Commission, after acknowledging that the
selective advantage cannot be easily measured, invited all
parties to provide comments on the possible quantification
of, or methodology for estimating the advantage accrued to
the various indirect beneficiaries of the measure.

the costs

that

the standard free-to-air

type of decoder being subsidised here allows consumers to
take advantage of
supply of
channels currently available in the analogue mode and of
the offer of pay-TV and interactive services by a whole
range of broadcasters and content providers. Interactive
services accessible
services can include e-government
through a ‘smart card’ (37). The subsidy therefore allows
consumers to enjoy a much wider offer at the same price as
a previously available, much simpler decoder giving access
to a smaller number of services.

(83) After receiving comments from the interested parties, the
Commission, for the reasons given below, remains of the
opinion that the measure entails a selective advantage in
favour of the terrestrial and cable pay-TV operators.

(86) Accordingly,

the measure has created an incentive for
consumers to switch from the analogue to the digital
terrestrial mode. This has been to the advantage of
broadcasters, especially as regards the services that were
not available in the analogue mode. In other words, the
government subsidy has allowed the T-DVB broadcasters to
avoid the cost of a business practice (subsidising decoders)
that is widespread on the market and instrumental
in
developing an audience.

Broadcasters

(84)

In the case of broadcasters, this advantage mainly involves
the possibility of developing an audience, in particular for
expanding pay-per-view activities. Without the measure, the
digital audience would not have developed at the same
pace, unless broadcasters themselves had financed the
reception costs of their own potential viewers. Developing
an audience is a crucial part of the business for a pay-TV
company or a broadcaster that wishes to develop its pay-TV
services as
for
generating revenues and for setting low prices for the
pay-per-view offers. This can also be seen from the costs
incurred by satellite operators in building up this client base
and, once they have switched to digital technology, the
further costs borne by them to keep this base (36). For
example, one of the complainants — Sky Italia — claims
that it provided its subscribers with a free decoder and
satellite dish.

the number of customers

is crucial

(85)

It should also be added that the main effect of the measure
was to reduce the price of decoders offering interactivity,
bringing it more into line with the price of ‘zappers’. The

(35) Case C-382/99 Netherlands v Commission [2002] ECR I-5163 and
Case C-156/98 Germany v Commission [2000] ECR I-6857, points 24
to 28.

(36) This is not the case only in Italy. By analogy, in point 371 of its
investigation on BSkyB (CA98/20/2002), the Office of Fair Trading
describes the relevance of customer acquisition for BSkyB.

(87) The Deutsche Bank document (38), which illustrates to
investors the profit opportunities of buying Mediaset
shares, indirectly confirms the relevance of this argument.
The research division of Deutsche Bank demonstrates in the
paper that because of its special position, favourable market
conditions, its market strategy and subsidies to consumers,
Mediaset can develop DTT as a low risk/low cost way of
entering the pay-TV market.

(88) Another advantage to incumbent terrestrial operators is
that the measure allows them to consolidate their early
presence on the digital terrestrial platform in terms of
image branding and customer retention. This advantage
refers to the new services — in particular pay-TV services
— that are offered on the digital platform. The measure in
question can therefore reinforce the effects of the existing
legislation, i.e. the fact that the main broadcasters control
network operators and that a digital licence can only be
obtained in connection with an existing analogue licence.
Incumbents can easily transform their analogue licences
into digital ones, whereas entrants need to purchase
analogue licences on the market before being able to
transmit digitally. The time disadvantage suffered by new

(37) The ‘smart-card’ referred to here is a device that can identify the user

and allows on-line transactions to be made.
(38) ‘Mediaset, the beautiful game’, (see footnote 33).

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entrants can be further compounded by measures, like the
one in question, which increase the audience of incum-
bents.

this was confirmed by the Court
beneficiaries,
judgement in the case Germany v Commission (40).

in its

(89) The above arguments do not apply to services already
provided on the analogue platform and with which
consumers are familiar. Moreover, early transition to the
digital platform is unlikely to have increased to any
significant degree the total number of viewers (analogue
plus digital) for those programmes/services.

(90) The arguments put forward by Italy and Mediaset that there
is no advantage because without the State subsidy the
beneficiaries would not have subsidised the purchase of
decoders by consumers is not convincing. If consumers had
not been willing to purchase open decoders without the
subsidies in question, or if the size of the pay-per-view
market were too small, the effect of granting the subsidy is
precisely to create a customer base for the terrestrial
broadcasters which would not have otherwise developed. If
terrestrial broadcasters had not subsidised the purchase of
interoperable decoders — the only decoders that currently
allow pay-TV via pay-per-view with the prepaid card system
— for fear of free riding by other broadcasters, this would
have held up the launch of pay-TV services. The measure
has therefore helped terrestrial broadcasters to overcome
this externality and create a business opportunity.

(91) Furthermore, the Commission disagrees that the benefici-
aries' readiness or interest in mimicking the effects of the
aid, even without the aid, are relevant criteria for deciding
whether or not the measure provides an advantage. In fact,
in the case in question, the advantage to the terrestrial
broadcasters is simply the result of an effect of the measure.
Once the measure is put
in place the beneficiaries'
behaviour is simply aimed at maximising profits in the
situation thus created, by achieving an expansion of their
business activity that would not have been possible without
the subsidy. Moreover, this is clearly the case here, as
according to AGCOM's Annual Report (39) the increase in
the revenue from pay-TV offers in 2005, especially for
digital terrestrial pay-per-view, was very high, although still
at a low level in absolute terms.

(92) According to established case-law,
measure are decisive and relevant
existence of an advantage and,

the effects of
the
in determining the
indirect

in the case of

(39) AGCOM's Annual Report, 30 June 2006.

(93) The Commission also disagrees with the other arguments
put forward by Italy and the other parties that there is no
advantage. First,
the Commission disagrees with Italy's
argument that there is no advantage because it is impossible
to determine the amount of public resources transferred to
the beneficiaries. In Decision 2006/513/EC (41) quoted by
Italy, the Commission did not deny the presence of an
indirect advantage in favour of certain beneficiaries (the
it simply excluded them from the
network operators)
recovery obligation since it was not possible to establish
whether there had been a transfer of State resources.

(94) The Commission also disagrees with the arguments put
forward by Mediaset and RAI which maintain that
terrestrial broadcasters and satellite broadcasters are not
in a comparable situation because terrestrial operators must
achieve digitisation within a legal deadline and have to bear
the cost of simulcast — hence the measure in question does
not provide a selective advantage.

the large amount of

(95) The main reason for imposing digitisation on terrestrial
operators is that terrestrial transmission occupies a very
frequency spectrum (42).
high value portion of
the
frequency needed for
Essentially,
analogue transmission has created a technical barrier to
entry by new competitors onto the terrestrial transmission
market, which has helped preserve the duopoly of RAI and
Mediaset. This intensive use of a scarce resource — the
frequency spectrum — by terrestrial operators justifies the
difference in the obligations that have been imposed on
them compared with operators on other platforms. Broad-
casters are not entitled to use the frequencies but they do
expect the national regulatory authorities to allocate and
assign radio frequencies on objective, transparent, non-

(40) Case C-156/98 (see footnote 35). In this case the indirect beneficiary
would probably not have acted without the state intervention: the
beneficiaries are the companies invested in by the investors that
receive the fiscal advantage, and it is possible that there are cases in
which such companies do not even act in order to receive the
advantage. As the Court makes clear in points 25 to 28 of its
judgment, a measure constitutes aid where the origin of
the
advantage indirectly conferred on undertakings is the renunciation
by the Member State of tax revenue which it would normally have
received,
inasmuch as it is this renunciation which has enabled
investors to take up holdings in those undertakings on conditions
which are more advantageous. The fact
take
independent decisions does not mean that the connection between
the tax licence and the advantage given to the undertakings in
question has been eliminated since, in economic terms, the alteration
of the market conditions which gives rise to the advantage is the
consequence of the public authorities' loss of tax revenue.

investors

that

(41) See footnote 24.
(42) As already explained in recital 9, digital

transmission is more

efficient in the use of the radiofrequency spectrum.

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discriminatory and proportionate criteria (43). Finally, the
measure is not designed so that it is proportional to the
costs of switchover. Firstly,
it does not seem to the
Commission that a consumer subsidy can easily be devised
so that it is proportional to the costs possibly incurred by
companies in the switchover process. Secondly, the burden
of proof of the proportionality of the measure lies with the
Member State. Italy, however, has not provided a clear
estimate of the costs of switchover and nor has it given
precise indications of the proportionality of the benefits
derived by the broadcasters from the measure.

Network operators

(96) To the extent

that broadcasting requires

the use of
transmission services provided by network operators, the
development of digital terrestrial TV could also provide an
It can be
indirect advantage to network operators.
considered that a broadcaster's willingness to pay for
transmission services depends, inter alia, on the additional
revenue that can be achieved through its presence on a
particular platform, which, in turn, depends on the number
of viewers present on that platform. Since the measure has
an effect on the numbers of consumers for digital terrestrial
television services, there might also be an indirect positive
impact on network operators.

(97)

It is not possible, however, to be certain that the measure
has already influenced the choice of broadcasters as regards
their presence on the various transmission platforms or to
quantify the price which broadcasters would have been
prepared to pay in the absence of
the aid. Moreover,
and network
ownership links between broadcasters
operators in the digital terrestrial platform means that
distinguishing between the two types of beneficiaries is less
relevant — a point on which Italy also agrees. If, however,
the measure in question were repeated over time and
consistently favoured the change-over by current analogue
viewers to the digital terrestrial platform, it would affect the
size of audiences on the different platforms to a point
where it would also influence the choice of broadcasters as
regards their presence in a given platform. Hence, a possible
repetition of the measure would give the digital terrestrial
network operators an advantage over the satellite network
operators.

(98) Finally, there are network operators who do not simply sell
transmission services to the broadcasters but market the
provision of TV services directly to the public. This is the

(43) See Article 9 of Directive 2002/21/EC of the European Parliament
and of the Council of 7 March 2002 on a common regulatory
framework for electronic communications networks and services
(Framework Directive).

case, for instance, with the ‘triple play’ (44) cable operator
Fastweb, which is also a pay-TV provider. In this case, the
network operator enjoys an advantage similar to that
enjoyed by broadcasters, as described in recitals 84 to 88.

Producers of decoders

(99) As already pointed out

in the decision to initiate the
procedure, the indirect advantage for decoder producers is
the possibility of selling a larger amount of decoders than
they would have done without the measure. The effect of
the subsidy is basically to make the decoders targeted by the
measure cheaper for consumers. This allows the producers
either to increase their sales without lowering the price of
the product or to raise the price without losing customers.

IV.A.3.

SELECTIVITY

(100) The advantage that the measure provides to terrestrial
broadcasters and cable pay–TV operators is selective. Not
all broadcasters can profit indirectly from the measure.
There are broadcasters that are present only on the satellite
platform, which will not be able to take advantage of the
increased number of digital TV viewers brought about by
the subsidy.

(101) There will also be a selective advantage for the decoder

manufacturing sector.

IV.A.4.

DISTORTION OF COMPETITION

(102) Broadcasters

(103) In the decision to initiate the procedure, the Commission
considered that the advantage granted to broadcasters and
operators of
to
technological platforms or
broadcasters using different
broadcasters that cannot transmit at the moment.

terrestrial networks to be detrimental

(104) DTT broadcasting does not only compete with other free-
to-air analogue offers but also with pay-TV: the aid allows
the T-DVB and C-DVB operators to enter the pay-TV
markets at a lower cost and to compete with existing
operators (such as Sky Italia). This in confirmed by the
conclusions of the AGCOM Report (45), according to which
the subsidy is decisive in developing the audience of
broadcasters using T-DVB and by AGCM's investigation
which stresses
the principle of
importance of
technological neutrality (46).

the

(44) ‘Triple play’ is a marketing term for the joint provision of high-speed
telephone and television services over a broadband

Internet,
connection.

(45) See point 88(d) of AGCOM's Report (see footnote 20).
(46) Italian Competition Authority: Conclusion of fact-finding investiga-
tion into sale of television commercials, Rome, 6 December 2004.

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the Commission maintains its view that

(105) After receiving the comments from Italy and the interested
parties,
the
selective advantages provided by the grant can distort
competition. First,
terrestrial and
the arguments
satellite operators do not compete on the same pay-TV
market and that the cost of the decoder has only a marginal
impact on the consumer's choice between the two different
platforms are disputable. Hence the conclusion implied by
these arguments,
i.e. that the measure does not distort
competition, must be rejected.

that

rather

of companies owned by the Prime Minister, it examined the
pay-TV market
than emphasising the market
separation between terrestrial and satellite television. In
point 52, it stated that Mediaset, Telecom Italia, Sky and
Fastweb could be considered potential competitors on the
pay-TV market, despite the different type of offer by pay-
TV.

(106) For the application of Article 87(1) it is sufficient that aid
threatens to distort competition by granting a selective
advantage. Even if the pay-TV digital terrestrial offer is for
the moment not comparable with the pay-TV offer
available on satellite, either in terms of type of service
(pay-per-view vs. monthly subscriptions) or in terms of
economic size (satellite TV collected almost 95 % of
revenues from subscribers in 2005), there is a certain
degree of substitutability between the two. Once the digital
terrestrial platform has successfully launched and estab-
lished pay-TV services — also thanks to the subsidised
decoders — it will be able to compete with similar services
provided on alternative platforms.

(110) Nor is the argument put forward by Italy and Mediaset that
the selective nature and competition-distorting effect of the
measure are the result of Sky's business choice to use NDS
acceptable, because the wording of the legislation excluded
satellite decoders from the measure, even if
satellite
operators had wanted to use decoders with the relevant
the
it
open technology. Nor
amendments made to the 2006 Finance Act to allow the
subsidising of all ‘interoperable’ decoders irrespective of the
platform, Sky Italia did not switch from closed technology
decoders to decoders that could be subsidised. In fact, this
strategy could depend on many factors, such as previous
investments by the company or opting to await
the
Commission's decision on the compatibility of this new
measure.

that, after

relevant

is

(107) This is confirmed by developments in other Member States.
For example, in the UK, in the investigation into BskyB
quoted above, the Office of Fair Trading came to the
conclusion that live Football Association Premier League
games were a single relevant market across television
platforms. It is therefore clear that, depending on the state
of development of pay-TV markets, the television offer on
the digital terrestrial platform may be a competitor to the
one on satellite.

scenarios

(111) Indirect confirmation that access to the pay-TV market at
the reduced cost is distorting competition is given in
Deutsche Bank's research (p. 18 et seq.), which analyses the
financial
resulting from the
for Mediaset
development of transmitting soccer matches on pay-per-
view TV as a function of the customers that would not be
acquired by Sky Italia affecting the growth rates of DTH
pay-TV. Furthermore, the figures provided by Sky Italia —
aimed at showing that
the growth rate of Sky Italia
subscribers is influenced by the sale of subsidised decoders
— also tend to support the view that there is a degree of
competition within the pay-TV market.

for
transmissions. By lowering the cost of

(108) In addition, the subsidies came at a critical point in time,
i.e. when many analogue terrestrial TV viewers must face
the transition to digital TV and have the choice between
receiving satellite or
investing in the equipment
terrestrial
the
terrestrial TV (the
investment
decoder), the subsidies have a clear impact on this choice.
In view of the costs of switching between platforms once
the choice is made, the subsidies might also have a rather
prolonged distortion effect.

in the equipment

for

Network operators

(109) It should also be recalled that, in the AGCM's measure (47)
in which it assessed the existence of possible conflict of
interest in order to decide whether the subsidy for the
decoders in question caused a conflict of interest in favour

(47) See footnote 5.

(112) The distortion of competition does not only occur at the
level of broadcasters but possibly also at the level of
network operators. In December 2005, there were some
4,8 million satellite TV viewers in Italy but only 3,5 million
subscribers to Sky. The remaining 1,3 million viewers were
therefore interested in the free-to-air offer available on
satellite. This is an indication that for consumers, free-to-air
satellite can be an alternative to digital terrestrial and cable
TV and can equally serve the purpose of facilitating the
switchover to digital TV. By excluding the satellite platform

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from the subsidies in question and by targeting them
selectively at digital terrestrial and cable decoders,
the
measure may well push viewers towards broadcasters that
use terrestrial and cable network operators rather than the
satellite operators.

IV.A.5.

EFFECT ON TRADE BETWEEN MEMBER STATES

(113) The broadcasting and network services markets are open to
international competition. By selectively favouring certain
broadcasters or network operators, competition is distorted
at the expense of economic operators that could be from
other Member States. The examples of satellite operators,
or of one of the complainants, Sky TV, are very clear in this
respect. The measure in question therefore favours certain
companies with respect to competitors in the common
market.

(114) The conclusion by the Commission that distortion of
competition between television broadcasters and between
network operators is capable of affecting trade between
Member States was not challenged by any of the interested
parties. The Commission therefore confirms the conclusion
of the decision to initiate the procedure that the measure
affects trade among Member States.

IV.A.6.

CONCLUSION

from the measure in question,

(115) In summary, although the main beneficiaries derive only an
the
indirect benefit
Commission considers that the measure constitutes State
aid for pay-TV operators using T-DVB, which above all
allows them to create a customer base and thus provide
new services and enter the pay-TV market at a low cost.
This also applies to cable operators that provide pay-TV
services and are therefore pay-TV operators.

(116) The Commission deems that

the measure in question
constitutes indirect aid because the aid scheme's main effect
has been to provide an indirect advantage to those
beneficiaries indicated, despite the fact that they did not
have a direct
link with the companies producing the
subsidised good.

(117) The presence of State aid in the case at issue is not called
into question by the possible application of the Altmark
judgment (48) in respect of a possible compensation for
public service costs. None of the four criteria (definition
and assignment of the service of general economic interest,
ex-ante determination of parameters for compensation, no
overcompensation and choice of efficient provider via
tender or estimate of the net additional costs of the average
well-run company) is met.

(48) Judgment of 24 July 2003 in Case C-280/00 Altmark Trans GmbH

[2003] ECR I-7747, points 88 to 94.

(118) Therefore RAI's comment

the measure does not
constitute aid for RAI because it was obliged to make
specific investments in digital television because of
its
public service mandate cannot be accepted.

that

(119) As

regards digital

terrestrial network operators,

the
Commission — despite considering that the measure in
question has potentially distorted competition in their
favour — is not in a position to state with reasonable
certainty that the advantage was already present in the
period of application of the measure. It therefore concludes
that these operators are not the beneficiaries of State aid
under Article 87(1) EC.

(120) Finally,

the Commission notes that

in the decision to
initiate the procedure it
identified a third category of
possible indirect beneficiaries of the measure in addition to
television broadcasters and network operators, namely
producers of decoders.

(121) In the decision to initiate the procedure, the Commission
doubted that the measure constituted aid for producers of
decoders, since the subsidy is granted to decoders that
i.e. an open API that is
incorporate the MHP standard,
freely available to any manufacturer. The aid is directed at
consumers who can choose from among all manufacturers'
decoders; it therefore seemed that the aid did not selectively
favour any type of producer of decoders on the basis of the
place of production. Nor did there seem to be manufac-
turers that specialised in the production of the subsidised
decoders and that could have been favoured over producers
of other models. Furthermore,
it did not appear that
manufacturers of decoders competed with operators in
other sectors that could not benefit from the measure.
Finally, the measure being examined did not seem to seek,
through its purpose or general structure, to create an
advantage for manufacturers of decoders.

(122) On the other hand, the Commission notes that producers
of decoders benefit from a sectoral advantage that cannot
be enjoyed by other sectors of the economy and that
creates a distortion in the allocation of resources in the
economy. Even though none of the comments received in
the context of
the decision to initiate the procedure
suggests the existence of aid for producers of decoders, the
Commission considers that the existence of distortion of
competition at their level cannot be entirely ruled out.

(123) However,

in this
the Commission also considers that,
particular case, it is not necessary to determine whether or
the measure constitutes aid for the producers of
not
decoders within the meaning of Article 87(1) EC. The

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indirect effect of the measure, in terms of increase in the
is inherent in whatever initiative the
sale of decoders,
public authorities decide to take in favour of
the
development of digital television, even the most technolo-
gically neutral. As explained in section IV.B below, if aid to
the Commission
producers of decoders were present,
would consider it compatible under Article 87(3)(c) EC.

IV.B.

COMPATIBILITY ASSESSMENT

the

(124) In the decision to initiate the procedure, the Commission
expressed doubts as to whether the measure in question is
an aid measure compatible with the single market on the
basis of Article 87(2)(a), Article 86(2) and Article 87(3)(c),
three
after having excluded the application of
exceptions in Article 87 of the EC Treaty to the case in
point. In their comments, however, Italy and Mediaset put
forward arguments to counter the Commission's objections
in the decision to initiate the procedure, stating that the
measure is compatible on the basis of Article 87(2)(a) and
Article 87(3)(c) and Italy stressed that,
in its view, the
exceptions provided for in Article 87(3)(b) and Article 87
(3)(d) apply in the present case. After
receiving the
comments of Italy and the interested parties, the Commis-
sion maintains its view that
is not
compatible with the common market, for the reasons set
out below in this Decision.

the aid in object

would have a decoder by 2006 and in the worst-case
scenario by the beginning of 2008 (50).

(126) The argument by Italy that the AGCOM figure of 50 % of
households with a decoder by the end of 2006 or 2008 is
low given the higher cost of interoperable decoders does
not change the Commission's assessment, since Italy has
not presented any argument
the aid is
designed only for the population groups that need it, nor
that the entire population needs this aid.

to prove that

(127) Likewise, the argument that the measure would have an
the
indirect effect on poor households as a result of
economies of scale brought about by a reduction in prices
cannot be accepted by the Commission for two reasons.
First, the exceptions to the general rule of incompatibility
of the aid with the common market must be interpreted
narrowly. The same holds for the notion of aid of a social
character, which must be interpreted as aid solely and
directly for the disadvantaged sections of the population.
Second, accepting the argument proposed by Italy would
be tantamount to accepting the argument that aid given to
the entire population has a social character as it would also
help the population groups in need of the aid. Adopting
this approach would imply accepting that all indirect aid
provided via consumers or investors is compatible aid,
the
thereby circumventing the
exceptions from the general ban on State aid.

restrictive nature of

(128) In short, it seems that the measure does not have a social
character and that the exception on the basis of Article 87
(2)(a) EC is not applicable.

IV.B.1.

ARTICLE 87 (2) (A)

(125) In the decision to initiate the procedure, the Commission
the term ‘social character’ should be
had argued that
therefore, according to
interpreted narrowly and that
Commission practice, this term refers to aid addressing
the needs of underprivileged population groups and
referred to the example of the Guidelines on State aid in
the aviation sector (49), section III.3, where aid with a social
character must in principle only cover specific categories of
passengers. The Commission argued that in the case of this
measure, the law does not contain any reference to the
social or economic status of the beneficiary. It referred to
AGCOM's survey on the availability on the market of
decoders at an affordable price which seemed to suggest
that not the whole population is in need of the aid in order
to switch to digital TV — the market trend was such that in
the best-case scenario more than 50 % of households

(49) OJ C 350 1994, p. 5. See Section III.3.

IV.B.2

ARTICLE 87(3)(B) OF THE EC TREATY

(129) In the decision to initiate the procedure, the Commission
considered that the exception provided for in Article 87(3)
(b) did not apply to the aid in question. Yet,
in its
submissions Italy argues that as the switchover is a project
of common European interest as part of a transnational
programme backed by various Member States, the waiver
in Article 87(b)(3) should apply in line with the Court of
Justice ruling in Exécutif régional wallon and SA Glaverbel v
Commission (51).

(50) See AGCOM's Report, points 50 to 56.
(51) Judgment of 8 March 1988 in joined cases C 62/87 and C 72/87
Exécutif régional wallon and SA Glaverbel v Commission [1988] ECR I-
1573.

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a

the Walloon regional government
(130) In these two cases,
supported Glaverbel,
company investing in high
technology areas such as the development of thin-layer
photovoltaic cells, which was part of
the European
programme for research and development in information
technologies (ESPRIT). On this basis, the Wallon regional
government stated that the aid was compatible in line with
the exception provided for by Article 87(3)(b). The ESPRIT
programme was set up by the European Community. The
Court maintained that the Commission had exercised its
discretion on the matter and that the parties had not
proven that
the measure contributed to a project of
common European interest.

(131) In this case, the Commission does not consider that the
steps taken by Italy to promote the sale of decoders qualify
for the exception provided for by Article 87(3)(b). The
measure is an individual
initiative of a Member State,
which, as explained further on in this Decision, causes an
unnecessary distortion of competition. It cannot be seen as
part of a well-identified project agreed or coordinated with
other Member States in such a way as to exclude adverse
effects on trade and competition and to ensure a common
European interest. As regards the comment by Italy that
there is Community interest in completing the switchover
and that an increasing number of Member States support
such an aim,
this argument will be addressed in the
following section, which discusses the possible grounds for
compatibility under Article 87(3)(c).

IV.B.3

ARTICLE 87(3)(C) OF THE EC TREATY

(132) In the decision to initiate the procedure the Commission
stated that it was not convinced that the aid to broadcasters
could be deemed compatible under Article 87(3)(c) EC. The
Commission maintains this opinion even after having
received the comments of the interested parties.

(133) In order for aid to be compatible under Article 87(3)(c) it
must pursue an objective of common interest
in a
necessary and proportionate way. In particular, the measure
should be assessed in the light of the following questions:

(a)

Is the aid measure aimed at a well-defined objective of
common interest?

(b)

Is the aid well designed to deliver the objective of
common interest, i.e. does the proposed aid address a
market failure or other objective? In particular:

(i)

is the aid measure an appropriate instrument, i.e.
are there other, better placed instruments?

(ii)

is there an incentive effect,
change the behaviour of firms?

i.e. does the aid

(iii)

is the aid measure proportional, i.e. could the
same change in behaviour be obtained with less
aid?

(c) Are the distortions of competition and effect on trade
limited, so that the overall balance is positive?

IV.B.3.1. Objective of common interest

(134) In the decision to initiate the procedure the Commission
maintained that the digital switchover has great advantages
— a more efficient frequency spectrum usage and increased
transmission possibilities — leading to new and better
quality services and to wider consumer choice. Accordingly,
in the decision to initiate the procedure the Commission
considered that the transition from analogue to digital
broadcasting and the diffusion of open standards for
interactivity were to be considered objectives of common
interest. Italy agreed with the Commission in its submis-
sion. Europa7, however, reiterated comments which had
been made by Sky Italia in its complaint and stressed that
there was no general interest at stake because, at present,
the purchase of digital decoders was linked to purely
commercial activities and that
from the
the benefit
switchover had already been put off to 2012.

(135) The Commission disagrees with Europa7. First, as it stated
in the decision to initiate the procedure, the Commission
actively supports the digital switchover and it has under-
lined these advantages in the eEurope 2005 Action Plan, in
the two communications on the digital switchover (52) and
its communication ‘e2010 — A European Information Society
for growth and employment’ (53). Regulation should neither
impose nor discriminate in favour of the use of a particular
digital platform — i.e.
the so-called
‘technological neutrality’ but, as stated in
principle of
Directive 2002/21/EC (54),
intervention targeting at cor-
recting market failures that are specific to one platform can
be envisaged.
In the end, the platforms that offer the
greatest benefit to consumers should prevail.

it should respect

(52) COM(2003)541 final and COM(2005)204 final, (see footnote 7).
(53) Communication from the Commission to the Council, the European
Parliament, the Economic and Social Committee and the Committee
of the Regions, COM(2005)229 final, 1 June 2005.

(54) See footnote 14. See recital 18.

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(136) In the communication on interoperability of digital
interactive television services (55)
the Commission also
stresses the relevance of ‘interactivity’ and ‘interoperability’.
The communication states that ‘the Commission seeks to
ensure that European citizens benefit from a growing range
interactive DTV services, available on an increasing
of
number of transmission platforms’. Indeed, interactive TV
adds another layer of functionality to digital television
(DTV) beyond video which could be exploited in the future
not only for commercial purposes but also to implement e-
government functions for the share of the population with
most difficulties with informatics.

(137) In the communications, the Commission also stresses that
the lack of
interoperability (covering both technical
interoperability and access issues) and possible constraints
on consumer choice could affect
the free flow of
information, media pluralism and cultural diversity. These
concerns could be summarised as follows. Consumers
would be unable to buy a standardised, universal receiver
able to receive all free-to-air and pay-TV interactive services
and could be locked into using more costly receivers
containing proprietary APIs. Broadcasters would face
obstacles in developing and delivering interactive services
because they would have to negotiate with vertically-
integrated network operators, in control of proprietary API
technologies. Open APIs
i.e.
portability of interactive content between delivery mechan-
isms with full
the content intact. The
Commission also emphasises that the MHP standard is
currently the most advanced open API standard in Europe
and that the Commission will take additional measures to
promote the voluntary adoption of this standard. One way
of reducing the additional costs to consumers of equipment
incorporating standard execution engines such as MHP is
to subsidise purchases at the level of the consumer. It
concludes that the Member States may therefore offer
consumer subsidies.

facilitate interoperability,

functionality of

IV.B.3.2. Well-designed aid

(140) In the decision to initiate the procedure the Commission
recognised that the switchover may be hindered by certain
market failures and problems of social cohesion so that, in
principle, consumer subsidies are an acceptable way of
promoting the switchover, provided they respect
the
principle of technological neutrality.

(141) The Commission expressed its preliminary view on the
measure in question as regards the possible types (56) of
market failure or social problems and also, in particular, the
markets related to broadcasters, namely:

(a)

The development of digital terrestrial broadcasting
may be hampered by a coordination problem
between market players.

(b) The measure is compensation for consumers that

need to update their analogue equipment.

(c)

The presence of market power may prevent
the
market from achieving the full benefits of competi-
tion between operators.

(d) The switchover may have positive externalities due to

better use of the frequency spectrum.

(e)

The measure promotes innovation and development
of new services, a particular type of externality.

(138) Second, even if many of these benefits — in particular the
benefits not linked to commercial activities — are for the
future, this is not a reason to believe that the measure will
not contribute to achieving an objective of common
interest. Nor does the Commission believe that the fact that
the only observable benefits are currently linked to
commercial activities implies that no objective of common
interest is involved. Indeed, benefits for consumers are not
only an essential part of any competition policy, but also a
positive consequence of government
intervention, and
increasing consumers’ well-being can very well be part of
the definition of common interest.

(139) Therefore the Commission holds its view that the measure

is aimed at a well-defined objective of common interest.

(142) As regards these points, first it should be assessed whether
these are true market failures that prevent the market from
achieving economic efficiency. Second, whether State aid is
the appropriate remedy to correct them and, third, if the
aid granted is the minimum necessary to achieve the
objective.

The coordination problem

(143) In the decision to initiate the procedure the Commission
acknowledged that
the coordination problem between
market players may in principle represent a ‘market failure’
because broadcasters need to agree on common dates for
the switchover in order to minimise the costs of parallel

(55) See COM (2004) 541 (see footnote 7).

(56) See also Commission final Decision 2006/513/EC (see footnote 24).

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transmission, particularly as the frequency spectrum is
insufficient to transmit analogue and digital TV signals in
parallel (so-called simulcast phase). Consumers might not
be willing to shift to the digital platform until it can carry a
large number of broadcasters. Accordingly, broadcasters
might want to wait for other operators before moving to
the digital platform. Without coordination among oper-
ators,
is
this approach might delay the switchover.
therefore worth limiting the length of the simulcast phase
and achieving simultaneous switchover of broadcasters.

It

Compensation for consumers

(148) In the decision to initiate the procedure the Commission
maintained that offering compensation to consumers that
need to update their analogue equipment is a necessary
step for a smooth switchover process. Although this
argument justifies aid to consumers, it does not justify the
discrimination between the terrestrial and the satellite
platforms because there is no need to guide consumers
towards one digital platform, as is the case with this
measure.

(144) However, the Commission considers that the measure is
not the appropriate instrument for targeting such a market
failure. Indeed, the existence of a mandatory deadline for
switchover — 31 December 2006 at the time the measure
to help
was implemented — already seems sufficient
broadcasters plan a coordinated transition to the new
platform and consumers to adapt to the new transmission
technology. Subsidies to consumers may increase demand
for DTT services but do not specifically address the issue of
coordination between market players.

(149) In its submissions Italy simply reiterated the previous
argument that the measure contains the requirement that
decoders must allow the reception of free-to-air television
at no cost to the user, which would already exclude the
satellite platform from the benefits of the measure because
the main satellite operator, Sky Italia, requires a fee to
access its programmes.

(145) On the first aspect, Italy commented that the existence of a
binding deadline is insufficient to secure switch-off in the
absence of demand stimulus because consumers not
interested in pay-TV would not be willing, given that the
incumbent
in
subsidising consumers' purchase of the decoder in this
situation. Consequently, given the competitive situation of
the incumbents in the analogue terrestrial sector and the
fact that consumers mostly used analogue terrestrial TV, no
operator had any incentive to start the digitisation process.

terrestrial broadcasters have no interest

(150) However, the Commission notes that a free-to-air offer is
to consumers without a
also available on satellite
In addition, there seem to be no
subscription to Sky.
reasons to exclude from the subsidy consumers that choose
to switch to digital services offered on a subscription basis.
Indeed, Italy itself accepts this approach when granting the
subsidy to consumers on the cable platform, which requires
a subscription.

(146) The Commission maintains its opinion that the existence of
a legislative deadline is a sufficient instrument to solve the
market failure due to the need for coordination. As the
Italian authorities had taken the decision to start
the
switchover process and had set a statutory deadline for
switch-off of the analogue mode, incumbent broadcasters
had to take this as an established fact and, as a
consequence, had to develop new commercial strategies.
Possible difficulties arising from low demand have to be
assessed as a separate issue and not linked to the need for
coordination between market players.

to receive other

(151) If the no-cost requirement has to be interpreted as an
additional cost necessary for
receiving the free-to-air
channels compared to the costs already paid by the
services provided by the
consumer
broadcaster, then also subscribers to satellite TV do not
bear additional costs in order to watch free-to-air TV. On
the other hand, if the provision is interpreted as meaning
that the consumer must bear no cost at all in order to
receive free-to-air channels, it is unclear why the subsidy is
given to decoders of other platforms which require
payment of a subscription fee for certain telecom and
internet services.

(147) In any event, the Commission considers that, given the
huge size of the terrestrial TV market in Italy, the risk that a
critical mass of consumers is not reached — sufficient to
justify investment in digital terrestrial — is not so great that
commercial operators could not cope with it.

(152) Italy considers that the differential treatment between S-
DVB and C-DVB can be justified by the current policy of
encouraging the diffusion of broadband. The Commission
cannot accept this argument because support for broad-
band cannot justify distortion between broadcasters and
any possible aid to broadband has to be duly considered
and assessed on its own merits.

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Strengthening of competition between the different distribution
platforms

be considered as compensation for the costs incurred by
incumbents.

(153) In the decision to initiate the procedure, the Commission
recalled that aid is not an appropriate instrument to target
lack of competition and that providing an aid measure to
the terrestrial
technology because Sky Italia enjoys a
monopolistic position on the satellite broadcasting market
and the pay-TV market
for
compatibility.

is not a valid argument

(154) The Commission emphasises

the

that

commitments
required in the context of News Corporation's acquisition
of control of Telepiù and Stream already address competi-
tion concerns. Indeed, the fact that it is impossible,
in
particular for Sky, to acquire rights on all platforms for the
live football events clearly favours the
transmission of
other pay-TV operators, including digital terrestrial broad-
casters.

increased competition in the market

(157) The Commission considers that the above argument is
based on an incorrect assumption, namely that the losses
that incumbents with market power may suffer as a result
should be
of
compensated for. A mandatory switchover or a reallocation
of frequencies that provides room for new entrants is a
legitimate regulatory intervention that does not call for
compensation, in particular bearing in mind that previous
licences have been awarded without competitive bidding or
a time limit. Accordingly, the loss of revenue suffered by
incumbent broadcasters should not be taken into account
in determining the costs of switchover.

(158) Another argument put forward by Mediaset is that if it
were to finance the cost of open-technology decoders itself,
it would be subject
to free-riding by competitors as
consumers could also watch other channels via the
decoders financed by Mediaset.

Existence of externalities

(155) In the decision to initiate the procedure the Commission
argued that incumbent analogue broadcasters were already
being favoured in the switchover process because the
digital licences were granted automatically and without any
State compensation to network operators connected to the
broadcasters. Although they had to provide part of their
radiofrequencies to third parties, broadcasters were guar-
anteed 60 % of the transmission capacities. Furthermore,
the digital technology allows broadcasters greater transmis-
lower costs. These elements seemed
sion capacity at
sufficient
to compensate broadcasters for the costs of
digital switchover.

(156) Italy and Mediaset hold that this argument does not take
into account the true costs/benefits of
the switchover,
considering that the main beneficiaries of the switchover
(the entrants) differ from those who bear the cost of the
switchover (consumers and, especially, the incumbents).
Cost
reduction does not compensate incumbents for
increased competition given that they are obliged to release
40 % of their capacity to independent producers. Therefore,
incumbents do not have incentives to switch-off and, if
there is any advantage to analogue broadcasters, this should

(159) The Commission does not completely reject this argument,
although it considers that broadcasters might have an
interest in providing a wider offer to viewers — also
including competitors' channels. This is particularly true in
the case of the Italian market, where consumers are used to
viewing free-to-air TV and where with the subsidised open
decoders it is possible to replicate, using the new digital
technology,
for
analogue technology (with the addition of pay-TV). In this
context it is only to be expected for the main broadcasters
to bear the cost of subsidising the purchase of decoders and
to suffer some ‘free-riding’ (57).

the framework that

currently exists

(160) In any event, the Commission accepts that the State might
intervene to stimulate demand to help broadcasters cope
with the costs of the switchover, in view of the externalities

(57) It is the Commission's belief that, given the particular situation of
strong vertical integration of the Italian TV market, the risks referred
to by the parties are not very great, at least for certain operators. This
view held by the Commission seems to be shared by certain financial
operators. Indeed, Deutsche Bank in its study quoted above states
‘Surely the risk is that ... Mediaset is helping undermine its own
terrestrial
franchise... we believe that... as analogue TV will be
switched off, it is far more sensible to capitalise on the opportunity
created by the technological pay-TV hardware vacuum arising due
largely to Italy's unique broadcasting infrastructure. We suspect
Mediaset and RAI will jointly continue to dominate audience shares
in DTT...Given their control of access to DTT customers for new
entrant channels seeking to join their multiplexes, we believe their
control of the competitive landscape is assured’.

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involved and the possible free-riding issues. However, it
considers that these arguments cannot justify the fact that
the aid is selectively aimed at terrestrial TV and excludes the
competing satellite platform.

Promoting innovation

(161) In its submission prior to the decision to initiate the
procedure, Italy stated that the digital technology will serve
to promote innovation by offering interactivity (the
possibility for the user to ‘dialogue’ with the system) and
interoperability (the possibility for the user to access all
broadcasters via one decoder).

(162) Already in the decision to initiate the procedure the
Commission acknowledged that the measure brought the
price of interactive decoders into line with that of simpler
models without interactive services (zappers).

(163) However, in its comments on the decision to initiate the
procedure, Italy did not provide valid reasons for excluding
the satellite mode from the measure and instead simply
repeated that when the measure was enforced,
the
interactivity of satellite decoders was very limited due to
the use of a proprietary technology without open API
standards.

IV.B.3.3. Avoiding unnecessary distortions

(166) While public intervention might be justified in view of the
existence of certain market failures and possible cohesion
problems, the Commission remains of the opinion that the
way the measure is designed gives rise to unnecessary
distortions of competition.

(167) The Commission has explained in section IV.A.3 ‘Distor-
tion of competition’ why it believes that such distortion
exists, contrary to the claims made by Italy and Mediaset.
Moreover, as stated in the decision to initiate the procedure,
the fact that satellite operators are explicitly excluded from
the aid measure is unnecessary. It also has the effect of
distorting competition on the pay-TV market where some
of the beneficiaries are incumbent operators on the very
concentrated market of terrestrial analogue TV and can rely
on very large audiences.

(168) An unnecessary distortion of competition does not,
however, exist in the case of producers of decoders. The
measure promotes technological development in the form
of higher-performance decoders with standards available to
all producers. Any producer of decoders willing to engage
in such production can gain from the advantage, including
producers located in other Member States. While it is true
the normal allocation of
that
resources in the market by stimulating the demand for
decoders, this is an inherent and inevitable effect of any
public policy in favour of digitisation — even the most
technologically neutral. Therefore it cannot be said that the
measure introduces unnecessary distortions to competition
as far as producers of decoders are concerned.

the measure will alter

(164) The Commission believes that these arguments are not a
valid reason for considering that the aid to digital terrestrial
broadcasters offering pay-TV services and cable pay-TV
operators is compatible, for the following reasons. First,
technically it was possible to put on the market decoders
with advanced interactive capacities for the free-to-air
satellite viewers. By excluding, a priori, satellite decoders,
the measure probably hampered the diffusion of high-
quality satellite decoders. Second, Sky Italia launched its
conversion to a technology with closed standards during
2004 and up to the beginning of 2005. It cannot be ruled
out that Sky Italia would have made a different choice if the
aid measure had also included satellite.

IV.B.3.4. Conclusion on Article 87(3)(c) of the EC

Treaty

(169) Article 87(3)(c) requires there to be a balance between
positive developments allowed by a given measure and its
negative effects on competition. In the present context, it
seems that digital switchover and interoperability are
objectives of common interest, which, in the presence of
externalities caused by the switchover and cohesion
problems related to the obligation imposed on consumers
to switch to digital television, can, in principle, justify aid in
the form of a consumer subsidy.

(165) Hence the Commission remains of the opinion that the
exclusion of the satellite platform, based on the argument
that at the time the first measure was adopted satellite used
only ‘non-interoperable’ decoders, does not seem to take
into account that satellite operators could have been willing
and able to provide ‘interoperability’ in order to benefit
from the measure.

(170) The measure, however, has certain characteristics that are
neither necessary nor proportional and create unnecessary
distortion in favour of the incumbent terrestrial television
broadcasters, on a market seemingly characterised by a
strict oligopoly where these distortions can have a
considerable impact on competition.

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(171) Accordingly, the Commission considers that the aid to
digital terrestrial broadcasters that offer pay-TV services
and cable pay-TV operators cannot be deemed compatible
under Article 87(3)(c) of the EC Treaty. The Commission
also considers that the measure in favour of producers of
decoders, if it were indeed aid, would be compatible under
Article 87(3)(c) of the EC Treaty.

IV.B.6.

CONCLUSION ON THE COMPATIBILITY ASSESS-
MENT

(176) It is therefore concluded that the aid to digital terrestrial
broadcasters offering pay-TV services and cable pay-TV
operators does not qualify for any of
the exceptions
provided for in the Treaty and is therefore not compatible
with the common market.

IV.B.4.

ARTICLE 87(3)(D) OF THE EC TREATY

(172) Italy states that, given the presence of many terrestrial local
broadcasters that the Italian government wishes to protect,
the measure is compatible on the basis of the exception in
Article 87(3)(d) of the EC Treaty because of its positive
effects on cultural diversity. Given that satellite is not well
suited to providing local services, satellite decoders should
not be entitled to the subsidy.

(173) The Commission considers that this argument by Italy
cannot be accepted. The measure is not targeted specifically
at promoting cultural objectives, nor at enhancing cultural
diversity by favouring only local operators which, without
the aid, would not be present on the market. It is a measure
terrestrial broadcasters and cable pay-TV
in favour of
operators
in general. Therefore, given the restrictive
applicability of the exceptions, the Commission cannot
accept
that a large-scale measure with wide-reaching
impact can be justified by the positive effects on local
broadcasters.

IV.B.5.

ARTICLE 86(2) OF THE EC TREATY

(174) The Commission considers that the Article 86(2) exception
that can apply to State compensation for the costs of
providing a public service cannot be invoked in this case.
The Member State has not clearly defined and imposed
public service obligations for which the measure would
constitute proportional compensation. In fact, the measure
is also of benefit to the normal commercial activities of
various operators that do not provide a public service.

IV.C.

CONCLUSION OF LEGAL ASSESSMENT

terrestrial

(177) The Commission concludes that the subsidy granted by
Italy to digital
terrestrial broadcasters offering pay-TV
services and cable pay-TV operators for the purchase of
decoders capable of receiving programmes broadcast using
technology constitutes aid within the
digital
meaning of Article 87(1) EC. The aid is not compatible
with the common market.
It was not notified to the
Commission by the Member State as required by Article 88
(3) of the EC Treaty and was unlawfully put into effect
without Commission authorisation. It must therefore be
recovered from the digital terrestrial broadcasters offering
pay-TV services and from the cable pay-TV operators
involved.

(178) The Commission also concludes that no aid has to be

recovered from producers of decoders.

V.

ELIMINATION OF THE AID

V.A.

NEED TO ELIMINATE THE AID

to decide that

(179) According to the Court of Justice's established case-law, the
the State
Commission is competent
concerned must abolish or alter aid (58) when it has found
that it is incompatible with the common market, The Court
has also consistently held that the obligation on a State to
abolish aid regarded by the Commission as being
incompatible with the common market is designed to re-
establish the previously existing situation (59).
In this
context, the Court has established that that objective is
attained once the recipient has repaid the amounts granted
by way of unlawful aid, thus forfeiting the advantage which
it had enjoyed over its competitors on the market, and the
situation prior to the payment of the aid is restored (60).

(180) Following that case-law, Article 14(1) of Regulation (EC)
No 659/99 (61) laid down that: ‘where negative decisions
are taken in respect of unlawful aid, the Commission shall
decide that the Member State concerned shall take all

(175) Even in the case of the public service broadcaster RAI, if
there were public service obligations
in relation to
investments in digital TV, the cost of these investments
should have been clearly identified so as to allow an
appropriate level of compensation.

(58) Case C-70/72 Commission v Germany [1973] ECR-813, point 13.
(59) Joined Cases C-278/92, C-279/92 and C-280/92 Spain v Commission

[1994] ECR I-4103, point 75.

(60) Case C-75/97 Belgium v Commission [1999] ECR I-3671, points 64

and 65.

(61) See footnote 2.

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necessary measures to recover the aid from the beneficiary
[…]. The Commission shall not require recovery of the aid
if
this would be contrary to a general principle of
Community law.’

(181) In its submission, Italy argued that the Commission should
impose recovery because this would be against a

not
general principle of law:

(a) According to Italy, ordering recovery would be against
the principle of protection of legitimate expectations
since even if diligent, the broadcasters could not
refuse the aid or oppose it in any way. Italy argues that
the same logic was applied in Decision 2006/513/
EC (62).

(b)

In addition, according to Italy,
it was clear that
recovery was impossible from the outset (63). Italy
argues that in this case it is impossible to determine
which broadcaster benefited from the measure and by
the Commission should not
how much, so that
require recovery.

(182) In the case at issue the Commission considers that no
general principle of Community law stands in the way of
recovery. In particular, as to legitimate expectations, the
Court of Justice stated that:
‘in view of the mandatory
nature of the supervision of State aid by the Commission
under Article 87 of the Treaty, undertakings to which an
aid has been granted cannot,
in principle, entertain a
legitimate expectation that the aid is lawful unless it has
been granted in compliance with the procedure laid down
in that Article. A diligent operator should normally be able
to determine whether
that procedure has been fol-
lowed’ (64). It is only in cases where the recipient can rely
‘on exceptional circumstances on the basis of which it had
legitimately assumed the aid to be lawful’ that it can decline
to refund that aid (65).

competitive conditions. The Commission also points out
that the reference to Decision 2006/513/EC (66) does not
seem relevant because in that instance the Commission
decided that the measure could be annulled by recovering
all the aid from the direct beneficiaries and that is precisely
what it did. The question of whether aid could be ‘refused’
was not raised. In addition, it should be noted that in the
Germany v Commission (67) case, the Commission ordered
the recovery of aid paid out to investors who had acquired
shares of companies situated in the new German Länder
and West Berlin, and this recovery order was confirmed by
the Court.

(185) Italy has also argued that recovery is impossible since it is
not possible to establish which broadcaster benefited from
a transfer of State resources and how much the transfer
amounted to.

(186) It is correct that the Commission may not impose an
obligation whose implementation from the outset would
be impossible in objective and absolute terms. The
Commission acknowledges that due to the facts of the
case, it may be somewhat more difficult than in other cases
to establish the amount of State resources that actually
the
went
Commission considers that it is not impossible to quantify
the benefit conferred on the recipients of the aid.

the aid. Nevertheless,

to the recipients of

(187) The Commission is therefore of the opinion that there are
not sufficient grounds to release the Member State from its
obligation to abolish the measure and re-establish the
conditions of competition.

V.B.

STATE AID RECIPIENTS

(183) The aid in question was granted without prior notification.
In addition, the existence of exceptional circumstances
cannot be established in this case since there is no element
that could lead the recipient company to believe that it was
entitled to assume, on the basis of specific facts or
Commission assurances, that a benefit accorded to it by the
public authorities was not to be regarded as aid.

(188) In the present case, the State paid a subsidy to private
individuals for the purchase of certain decoders. However,
neither the consumers nor the producers of decoders can
be deemed to have benefited from State aid within the
meaning of Article 87(1) of the EC Treaty. As the Court has
explained, the recovery of the aid must be from the actual
recipients — in this case, digital terrestrial broadcasters
offering pay-TV services and cable pay-TV operators (68).

(184) As regards the impossibility for beneficiaries to ‘refuse’ the
aid, the Commission notes that if such an argument were
to be accepted, Member States would be able to grant
indirect aid via consumers without
there being any
the Commission to restore normal
possibility

for

(62) See footnote 24.
(63) Italy is referring to case C-75/97.
(64) Case C-169/95 Spain v Commission [1997] ECR I-135, point 51.
(65) Case C 5/89 Commission v Germany (BUG-Alutechnik) [1990] ECR

I-3437, points 13 and 14.

(189) Following the points made in sections IV.A.2 and IV.A.3 on
the assessment of the existence of a selective advantage and
the distortion of competition, the Commission is of the
opinion that the main advantages of the measure are the
creation of a customer base for the introduction of new

(66) See footnote 24.
(67) Case C-156/98 Germany v Commission, (see footnote 35).
(68) Case C-303/88 Italy v Commission [1991] ECR I-1433, point 57.

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digital services, in particular pay-per-view activities, and an
increased number of customers for the cable operators.

190. The Commission therefore calls for recovery of the aid from
digital terrestrial broadcasters offering pay-TV services and
cable pay-TV operators.

Since a significant percentage of eligible consumers did not
take advantage of the subsidy and since those who did
could have been influenced by other considerations than
the subsidy, the number of viewers whose decisions were
affected by the subsidy is not equal to the total number of
viewers who acquired a decoder using the subsidy.

V.C.

QUANTIFICATION OF THE AID TO BE RECOVERED

(191) As regards establishing what should be recovered from
the Commission acknowledges that accu-
broadcasters,
rately calculating the amount of State resources that has
actually benefited the recipients is fairly complex. This is
because not only was the aid granted indirectly via the
consumers but also it was linked to the equipment needed
to receive the broadcasters' services rather than the services
themselves.

(192) However, according to the case-law of the Court of Justice,
no provision of Community law requires the Commission,
when ordering the recovery of aid declared incompatible
with the common market, to fix the exact amount of the
aid to be recovered. It is sufficient for the Commission's
decision to include information enabling the recipient to
work out himself, without overmuch difficulty,
that
amount (69).

(193) The Commission therefore considers that it is worth giving
some guidelines on how the advantage should be
quantified. In its view, because of the special characteristics
of this case, a suitable method would be to determine the
amount of additional profits generated by the new digital
services and pay-TV or pay-per-view offers as a result of the
measure in question

(194) It should be recalled that in the decision to initiate the
procedure the Commission invited interested parties to
provide an estimate of the size of the advantage or at least
to provide a method that the Commission could follow to
quantify precisely the selective advantage enjoyed by the
recipients. However, no comments were forthcoming and
only Sky Italia provided a tentative list of the possible
effects of the aid but no precise method for calculating the
amount to be recovered.

(195) The Commission considers that the additional profits can
be estimated as the proportion of profits generated by the
number of additional viewers of the pay-per-view offer and
of the new digital channels that resulted from adoption of
the State aid measure.

(196) As a first step, therefore, an estimate of the number of
additional terrestrial and cable pay-TV viewers is needed.

(197) Determining how consumer behaviour was affected by the
subsidy calls for a consumer demand model and an
estimate of the relative importance of the different drivers
of this demand. The influence of the price of pay-TV
services (including the equipment) on consumers’ choice
will then provide an indication of the effect of the subsidy.

(198) The first stage of the analysis is to define consumer choice
models from among the main alternatives available. Italian
consumers of analogue terrestrial television in 2004 and
2005 could choose between the following four options:

(a)

remain in the analogue terrestrial platform and
postpone switching to digital;

(b)

(c)

switch to digital
purchasing pay-TV services;

satellite TV, with or without

switch to digital
purchasing pay-TV services;

terrestrial TV, with or without

(d)

switch to cable TV, with or without purchasing pay-
TV services.

(199) Pay-TV on the terrestrial, cable and satellite platforms are
paying options that provide premium content to viewers.
Consumers with no interest in pay-TV switch to digital TV
mainly for technical reasons since in 2004 and 2005 the
free-to-air offer is richer in digital than in analogue mode
but not
these
consumers is not affected by the subsidy, and, accordingly,
they should be excluded from the calculation.

substantially different. The choice of

(200) There were, however, a number of consumers who were
interested in premium content (pay-TV) and who had to
choose between the
terrestrial
providers (Mediaset, Telecom Italia), the satellite provider,
and Fastweb. For those consumers, the subsidy may have
had an impact on their choice.

two available digital

(69) See, in particular, Case C-480/98 Spain v Commission [2000] ECR
I-8717, point 25, and Case C-415/03 Commission v Greece [2005]
ECR I-3875, point 39.

(201) The Commission considers that the difference between the
offers provided by Fastweb, a triple play operator, and the
other pay-TV providers will have to be taken into account

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in order to estimate the number of consumers that chose
Fastweb just because of the subsidy.

view to overcoming the difficulties whilst fully observing
the EC Treaty provisions (72).

(202) Another group of consumers that may have been affected
by the subsidy is the group of marginal consumers of pay-
TV, i.e. people with a slight preference for premium content
who could have been led into purchasing this content by
promotions and special offers. The subsidy may have
increased digital terrestrial providers' access to this demand.

(203) For example, a discrete choice demand model (70) could
estimate the impact of different factors such as programme
content and price on the choices of different types of
consumers. The Commission will need Italy's help to
establish an exact model because a model is dependent on
the availability and characteristics of the data. By estimating
the impact of different factors, such as programme content
and price on the choices of different types of consumers,
the discrete choice demand model could be used to
estimate the number of additional consumers who choose
pay-per-view just because of the subsidy and hence exclude
from the calculation the other share of consumers who
account for the new demand in 2004-2005.

(204) Once an estimate has been made of

the number of
additional users of terrestrial pay-TV or pay-per-view offers,
the second step is to estimate the average revenue per user
(ARPU) for 2004 and 2005. This requires an estimate of
the total number of users of pay-TV or pay-per-view
from pay-TV
services. Dividing the overall
services by the total number of users gives the ARPU.

revenues

(205) The ARPU multiplied by the estimated number of
additional users gives the additional revenues generated
by the aid measure. The additional costs of servicing these
users (71) must be subtracted from this number in order to
obtain the amount
to be recovered. The Commission
expects the additional costs to be relatively low, given that
the incremental costs of transmission are negligible and
that fixed costs should not be included in the calculation.

V.D.

IMPLEMENTATION OF THE DECISION

(206) As stated by the European Court of Justice, a Member State
encountering unforeseen or unforeseeable difficulties or
perceiving consequences overlooked by the Commission
may submit
those problems for consideration by the
Commission, together with proposals for suitable amend-
ments. In such a case, the Commission and the Member
State concerned must work together in good faith with a

(70) These models are widely use in academic literature to assess issues
relating to consumer choice. Many advanced graduate-level books on
econometrics contain an introduction to these models. See for
example W. Greene (2000), Econometric Analysis, fourth ed., Prentice
Hall, Upper Saddle River, NJ or G.S. Maddala, Limited Dependent
Variables
in Econometrics, Cambridge
University Press, 1983.

and Qualitative Variables

(71) These are often referred to as ‘avoidable costs’, i.e. costs that would
have been avoided in the scenario where no additional viewer was
induced by the subsidy.

(207) The Commission therefore invites Italy to submit to the
Commission for consideration any problem that it may
meet in implementing this Decision.

(208) Therefore the Commission:

HAS ADOPTED THIS DECISION:

Article 1

scheme which the

Italian Republic has unlawfully
The
implemented for digital terrestrial broadcasters offering pay-TV
services and cable pay-TV operators constitutes State aid which is
incompatible with the common market.

Article 2

1. The Italian Republic shall take all necessary measures to
recover from the beneficiaries the aid defined in Article 1.

2. Recovery shall be effected without delay and in accordance
with the procedures of national law provided that they allow the
immediate and effective implementation of the Decision. The
sums to be recovered shall include interest from the date on
which the aid was at the disposal of the beneficiaries until the
date of its recovery.

3. The interest to be recovered under paragraph 2 shall be
calculated in accordance with the procedure laid down in
Articles 9 and 11 of Commission Regulation (EC) No 794/2004
of 21 April 2004 implementing Council Regulation (EC)
No 659/1999 laying down detailed rules for the application of
Article 93 of the EC Treaty (73).

Article 3

The Italian Republic shall inform the Commission, within two
months of notification of this Decision, of the measures taken to
comply with it.
It will provide this information using the
questionnaire attached to this Decision.

The Italian Republic shall submit within the same period of time
referred to in the first paragraph the documents giving evidence
that the recovery proceedings have been initiated against the
beneficiaries of the unlawfully granted and incompatible aid.

(72) Case C 94/87 Commission v Germany [1989] ECR-175, point 9; Case

C-348/93 Commission v Italy [1995] ECR I-673, point 17.

(73) OJ L 140, 30.4.2004, p. 1.

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Article 4

This Decision is addressed to the Italian Republic.

Done at Brussels, 24 January 2007.

For the Commission

Neelie KROES

Member of the Commission

L 147/28

EN

Official Journal of the European Union

8.6.2007

Information regarding the implementation of Commission Decision C(2006)6634 on State aid scheme C 52/2005
(ex NN 88/2005, ex CP 101/2004) — Italy: subsidy for digital decoders

ANNEX

1.

Calculation of the amount to be recovered

1.1. Please provide the following details regarding the amount of unlawful State aid that has been put at the disposal of the

recipient:

Date(s) of payment (1)

Amount of aid (2)

Currency

Identity of recipient

(1) Date or dates on which the aid or individual instalments of aid were put at the disposal of the recipient (if the measure consists of

several instalments and reimbursements, use separate rows).

(2) Amount of aid put at the disposal of the recipient, in gross grant equivalent.

Comments:

1.2. Please explain in detail how the interest payable on the amount to be recovered will be calculated.

2.

Recovery measures planned or already taken

2.1. Please describe in detail what measures have been taken and what measures are planned to bring about the immediate
and effective recovery of the aid. Please also explain what alternative measures exist in national law to bring about
recovery. Where relevant, please indicate the legal basis for the measures taken or planned.

2.2. By what date will the recovery of the aid be completed?

3.

Recovery already effected

3.1. Please provide the following details of aid that has been recovered from the recipient:

Date(s) (3)

Amount of aid repaid

Currency

Identity of recipient

(3) Date or dates on which the aid was repaid.

3.2. Please attach supporting documents for the repayments shown in the table at point 3.1.