TELECOMMUNICATIONS: COMMISSION DECISION ON FRANCE TELECOM CRITICISED BY ALL SIDES.

The European Executive ordered France Telecom on July 20, 2004, to repay between Euro 800 million and 1.1 billion, plus interest and tax benefits. The Commission also identified as public aid the Government's decision in 2002 to make Euro 9 billion available to France Telecom - never actually used in practice - and more generally, the Government's verbal backing for the operator.

In view of the unique nature of the case, the Commission nevertheless resolved not to demand payment to compensate for these last elements, a decision challenged by alternative operators. The existence of State aid "is demonstrated by the Commission in its decision" Aforst Chairman Richard Lalande indicated in an interview for the French economic daily Les Echos on November 15, adding "no reparation has been demanded of France Telecom, be it financial, competitive or structural. In this respect, fair competition is the loser".

The Commission's legal services anticipated the risk of dissatisfaction in the sector. In July, four days after his services verdict, Competition Commissioner Mario Monti was being pressed to substantiate his case for not demanding repayment. The Commission legal services' position was further complicated by the fact that the absence of a financial penalty on this aspect of the enquiry was not sufficient to take the sting out of the decision for France Telecom and the French Government, the latter making a point of honour of the fact that verbal support cannot be deemed to represent public aid. Indeed, the role and prerogatives of the shareholder State lie at the very heart of the debate.

As...