Bloomberg News

Bouygues Should Win France Telecom Aid Case, Court Aide Says

June 28, 2012

Bouygues SA (EN) should win a challenge that may require a European Union tribunal to reexamine France Telecom SA (FTE)’s 9 billion-euro proposed state loan, an EU court aide said today.

Bouygues is seeking to overturn a 2010 court ruling that said a French government offer of support for France Telecom when it was near bankruptcy in 2002 wasn’t unlawful state aid. France Telecom didn’t accept or act on the proposed credit line.

That decision may have been based on an incorrect interpretation of EU law on the “existence of a link between the advantage resulting from declarations” by the French government in 2002 and “the potential engagement of state resources as a result of” the offered credit line, Paolo Mengozzi, a legal adviser to the European Court of Justice, said in a non-binding opinion.

France Telecom is the country’s largest phone company. The former state monopoly is fighting increased competition from rivals Bouygues Telecom and SFR, units of builder Bouygues SA and Vivendi SA (VIV), respectively. The fight has intensified in France as Iliad SA (ILD) received permission to become France’s fourth mobile-phone operation this year, stealing subscribers with steep price cuts.

Not Binding

Bouygues Telecom, the European Commission and France Telecom declined to comment on the legal opinion. While the advocate general’s opinion isn’t binding, it is followed by the EU’s highest court in the majority of cases.

France Telecom shares fell 0.5 percent to 9.89 euros in Paris before rising to 9.94 euros at 15:49CET. Bouygues shares dropped 1.1 percent to 20.02 euros before rising to 20.13 euros at 15:49CET.

The lower EU court ruled in 2010 that while statements by the French government in 2002 that it would support France Telecom “conferred a financial advantage,” the comments didn’t commit any state resources. The French plan included a 9 billion-euro credit line for which the loan contract was sent to the company in December 2002, the court said.

That court’s failure to see a link between the promise of aid and a real financial advantage was “an error of law,” Mengozzi said.

The European Commission must approve large state subsidies to companies to prevent firms gaining an unfair advantage over rivals. It ruled in 2004 that the proposed loan helped boost the company’s shares and credit rating and qualified as unlawful aid. France Telecom last year lost a court challenge against a separate EU decision that forced it to pay as much as 1.1 billion euros in back taxes to the French government.

The case is C-399/10 Bouygues and Bouygues Telecom v Commission.

To contact the reporters on this story: Aoife White in Luxembourg at awhite62@bloomberg.net; Heather Smith in Paris at hsmith26@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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