Sectoral regulation is not the same as definition of public service obligation. Aid that favours a certain technology is incompatible with the internal market, unless it can be objectively justified.
Introduction
“Altmark” has become a permanent feature in the landscape of State aid. Its application was again one of the main issues of contention in six judgments rendered by the General Court on 26 November 2015. The judgments concerned the conversion of analogue television transmission to digital transmission in Spain. This article reviews primarily the judgment in case T-461/13, Spain v Commission. The other cases, brought by aid beneficiaries, are very similar.[1] However, the remaining judgments deal with some other interesting aspects of the Spanish conversion to digital transmission. For this reason, the article also reviews the judgment in the case T-462/13, Basque Country v Commission.[2]
Background
The Commission, in decision 2014/489, found that aid granted by Spain to operators of terrestrial television for conversion from analogue to digital broadcasting was State aid that was incompatible with the internal market and had to be recovered. The main reason for the incompatibility was that the aid discriminated in favour of terrestrial platforms and therefore violated the principle of technological neutrality. Spain raised a number of arguments which are reviewed below.
Economic activity
Spain contented that the operation of the terrestrial TV network was offered as a public service to rural communities and therefore did not constitute an economic activity.
The General Court replied that the economic nature of an activity does not depend on whether it is carried out by a private or public entity, or whether it is profitable or not. Activities that fall within the official powers of the state are not considered to be economic. However, an entity that exercises official powers may also be classified as an undertaking in relation to its other activities that are economic in nature. The fact that the aim of the measure was to address the needs of rural communities is not relevant. Article 107(1) TFEU does not identify State aid measures according to their objectives. [Paragraphs 35-39]
The Court went on to clarify that in order to determine whether a measure falls within the scope of the official powers of the state, it is necessary to examine whether it relates to exercise of public authority by i) its nature, ii) its subject and iii) the rules that apply to it. [Paragraph 40]
Then the Court concurred with the Commission that the measure in question did not fall within the scope of official powers because i) it was an economic activity, as the market already offered such services, ii) the operation of networks was not included in the prerogatives of the state and iii) it was not a service that could be offered only by the state. [Paragraph 41]
The Court concluded that it was not relevant that the services were offered by entities that belonged to the state, as an economic activity can also be carried out by state-owned entities [paragraph 43]. The Spanish view that there was no market for those services was unfounded because other European companies [e.g. the complainant in this case] were ready to provide such services [paragraph 44]. The Court also rejected the argument that the services were not provided for profit. The Court noted that whether an activity is economic does not depend on whether a private investor is willing to carry it out under the same conditions, nor on the efficiency of the activity. In addition, the free provision of the services does not prevent their characterisation as economic. [Paragraph 45]
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These are important clarifications of the nature of economic activity. The General Court is telling us that if a company is willing to supply a product, the provision of a similar product by the state for free is not sufficient to remove it from the realm of economic activities. It is also irrelevant that the market supplier is willing to offer it on different terms. I think the Court is correct in taking this position. Otherwise, the state could always offer a product for free and then claim that there is no market for it because no market operator is willing to supply it for free. The problem, however, is that we do not know how different the terms of supply can be before similar products stop being similar and what the state offers is something else for which there may indeed be no market.
I suppose the right way to look at these issues is not to ask whether a product can be offered by the market but to examine whether the market would ever offer a product, regardless of costs and demand and supply configuration. For example, no private investor would offer shelter to homeless or food to the destitute, nor would a private investor finance research for the sake of knowledge or education in the interest of improving society. In these examples, the issue is never whether the beneficiaries can afford to pay. In these cases the beneficiaries are those who need or deserve help. The market does not operate according to need or fairness but according to ability to pay.
In my view the decisive element is not whether prices are high enough or costs are low enough so that a market operator would be able to cover its costs or make profit. The decisive element is whether the provider of a product would ever want to offer it at the right price or to cover its costs. The providers of shelter, soup kitchens or research funding would never charge a price to the consumers of these products simply because price is not the criterion by which the supply of these products is determined.
Selective advantage and Altmark
Spain argued that the services were in fact services of general economic interest [SGEI] and therefore they were not selective, nor did they confer an advantage because they satisfied the Altmark criteria. The Court had no difficulty pointing out that the selectivity of a measure does not depend on its classification as SGEI. [Paragraph 49]
With respect to the application of the 1st Altmark criterion, the Court began its analysis by recalling that since Member States have discretion in defining SGEI, the Commission is not allowed to determine the scope of a public service mission, the amount of costs, the efficiency of the SGEI providers or whether the public choices of Member States are reasonable [paragraph 61]. However, the discretion of Member States is not unlimited. A service can be classified as SGEI when it concerns i) the general interest, ii) which has special characteristics in relation to other activities of the market [paragraph 62]. The minimum criteria for ensuring that an SGEI is properly defined are i) the existence of an official act of entrustment, ii) the universal and iii) compulsory nature of the public mission. Moreover, according to the rules on public service compensation [PSC], the nature, duration and geographic scope of the public mission must be defined in the act of entrustment [paragraph 63].
Despite the fact that Spanish law classified the services in question as public services, the Court noted that that was not sufficient for the characterisation of a service as SGEI. The 1st Altmark criterion requires the imposition of an obligation on certain undertakings. The undertakings that provided the relevant services in Spain were under no such obligation [paragraph 67]. Moreover, Spain did not indicate which public service obligations had been imposed on the undertakings in question [paragraph 73]. Lastly, the Court agreed with the Commission that where several platforms exist for the delivery of television services, Spain committed a manifest error by designating only terrestrial broadcasting as an essential service [paragraph 74].
Then the Court moved on to analyse whether Spain complied with the 4th Altmark criterion concerning the selection of the public service providers. Spain argued that terrestrial broadcasting was cheaper than satellite transmission. That was the reason why it compensated terrestrial service providers. The Court rejected this argument on the grounds that it did not prove that there were no other more efficient terrestrial providers [paragraphs 80-81].
It is interesting to note that in case T-462/13, Basque Country v Commission, the General Court referred to the issue of why Spain chose to support terrestrial platforms. In this connection it faulted the Commission for not examining whether the choice of platform could be objectively justified. In other words, the principle of technological neutrality does not mean that Member States are deprived of choice in the event that they can demonstrate the existence of objective reasons for choosing a specific platform. This is especially the case in relation to SGEI where Member States enjoy wide discretion [paragraph 78].
In the same judgment, the Court rejected the argument that a beneficiary undertaking was efficient in the meaning of the 4th Altmark criterion because the compensation it received corresponded to the cost of the required equipment. The Court observed that, on the one hand, the undertaking in question was active in other markets, not just supply of equipment. On the other hand, the indication of investment cost does not replace the analysis of efficiency required by the 4th Altmark criterion. [Paragraphs 83-84]
In addition, the Court dismissed the argument that the Basque Country could award the contract for the service to its own departments without competition. It does not follow that the public administration is more efficient than other operators. [Paragraph 87]
Distortion of competition and affectation of trade
Spain argued that there was no distortion of competition and no affectation of trade because the services in question were offered in areas in which there were no other providers and because they were offered for free, while satellite-based services were available on subscription. The Court rejected the argument. It agreed with the Commission that the terrestrial and satellite platforms were addressing the same market. They could be used to offer free or on-subscription services. And, indeed some operators of satellite platforms did express interest. [Paragraphs 86, 90, 92]
Compatibility
The General Court agreed with the Commission’s assessment that the aid in question was not compatible with the internal market because it violated the principle of technological neutrality. As a consequence, it caused excessive distortion of competition that could have been avoided [paragraph 101]. The Court rejected a Spanish argument that the Commission failed to examine each and every case of aid to a terrestrial platform operator and demonstrate that there was discrimination in their favour. The Court reiterated that assessment of the situation of every beneficiary is necessary only at the stage of recovery of aid. At the stage of assessing a broad measure, it is sufficient for the Commission to examine the general characteristics of the measure without having to take into account the situation of every beneficiary [paragraph 105].
Procedure
Spain contented that the Commission took too long to assess the measure. The Court found that in view of the complexity of the measure, the number of parties involved at national and regional level and the number of information exchanges between Spanish authorities and the Commission, the preliminary examination which lasted 16 months and the formal investigation which lasted 33 months were not excessive. [Paragraphs 140-141]
The Court also rejected complaints that the principles of legal certainty and reasonable expectation were violated. This is because such principles cannot be invoked by Member States that grant aid without prior notification to the commission. [Paragraphs 157-158]
Recovery of incompatible aid and de minimis amount
Spain complained that the Commission had transferred to it the responsibility to calculate the amount of aid to be recovered. The Court found that that was the correct procedure. The Commission is not obliged to calculate the precise amount. That was the task of the Member State that granted the aid in the first place.
The Court also stated that it was Spain’s responsibility to determine whether aid fell below the de minimis aid so that it did not have to be recovered. In the original Commission decision the following is stated:
“(196) In the cases where the individual beneficiaries received funding not exceeding thresholds specified in Regulation (EC) No 1998/2006, such funding is not considered state aid if all the conditions set by this Regulation are fulfilled, and is not subject to recovery.”
Strictly speaking this means that if an undertaking received aid that exceeded the de minimis threshold, the whole amount could not be considered as de minimis and therefore, the whole amount would have to be recovered, not just the part of the amount exceeding the threshold. However, in practice, what is there stopping Member States from returning to the undertakings concerned the amount that can be granted as de minimis, provided of course that no other de minimis aid has been received by the undertakings at the moment of recovery?
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[1] The text of the judgment in languages other than English can be accessed at:
[2] The text of the judgment in languages other than English can be accessed at:
