1. State Aid Law and Broadband
INCA
London
Duncan Gillespie, Partner
24 July 2012

2. To introduce myself
 Partner in DLA Piper’s EU, Competition and Trade Group, particular focus on State aid
 Cases include:
 Acting for KCom in the EC Commission's investigation into alleged underpayment property tax on telecoms
infrastructure.
 Representing Sheffield City Council on the notification to the EC Commission of the South Yorkshire Digital
Region Broadband network .
 Advising Adit Yorkshire and Humber on the notification to the EC Commission of the Nynet Broadband project
in North Yorkshire.
 Acting for the UK Film Council in the notification to the Commission of its initiative to subsidise the deployment
of digital technology in cinemas with the intent of promoting films of artistic merit.
 Advising the Personal Accounts Delivery Authority on the State aid implications of Government support for the
proposed new stakeholder pensions.
 Advising the Department for Transport on the State aid and EU law implications of a proposal to introduce road
user charging for lorries using UK roads.
 Advising the Olympic Delivery Authority on the State aid implications arising from the provision of sporting and
transport infrastructure for the 2012 London Olympics.
 Advising Liverpool City Council and Liverpool FC on the State aid implications of a proposal to build a new
stadium for Liverpool FC partially using public funds.
 Advising a major pharmaceuticals company on the State aid implications of a proposal to build a medical
research centre in Scotland in conjunction with Scottish universities.
 Advising a major UK airport on the State aid implications of various aspects of its charges to airlines.
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3. Aims of today
 Place State aid law in context
 General introduction to State aid law
 Highlight particular points of relevance to Broadband projects
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4. State aid law in context
 An element of competition law
 Intent is to foster:
 undistorted competition within the European Union
 economic efficiency
 avoid waste of State resources
 Enforced by EC Commission in conjunction with National
Courts
 Commission generally supportive of State aid to fund
Broadband deployment in underserved regions
 However there are sensitivities regarding distortions of
competition
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5. Definition of State aid
Article 107(1) of the Treaty on the Functioning of the EU:
"…any aid granted by a Member State or through State resources in
any form whatsoever which distorts or threatens to distort
competition by favouring certain undertakings or the production of
certain goods shall in so far as it affects trade between Member
States be incompatible with the internal market."
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6. The legal position on State aid
 State aid is therefore prohibited unless:
 it is covered by a block exemption regulation; or
 it falls within an approved aid scheme (BDUK scheme??); or
 it has first been approved by the EC Commission.
 Commission approval is under Article 107(3)(c) TFEU:
 The Commission will attempt a "balancing test"
 is there a need for State intervention?
 is State aid the right way to address that need?
 is aid a proportionate response?
 do benefits outweigh the distortive effect of aid?
 No block exemption for Broadband projects but Commission
issued Broadband Guidelines in 2009 – currently under review
 Commission had decided on 101 Broadband cases by 6 July 2012
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7. Consequences of illegal State aid
 Aid granted before Commission approval is unlawful:
 The Commission may order the recovery with interest
 Third parties may sue the awarding body for damages
 Interim measures to suspend aid payments
 Can cause cancellation of projects
 Embarrassment for UK authorities
 Individual clearance can typically take 6 months
 Approval required, not before aid paid, but before a legal step
that would lead to it being paid – i.e. contract award
 Applies also to material amendments to approved aid schemes
 Aid must be given in line with Commission approval Decision -
if not misuse of aid – clearance may not be valid
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8. Unpacking the Treaty definition of State aid
 Legal definition (all 5 elements must be met to be State aid):
 An "advantage" in any form whatsoever
 Conferred by the State or via State resources
 Which benefits particular “undertakings” or the production of
certain goods
 Thereby distorting competition
 Potentially affecting trade between EU Member States
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9. What is an advantage?
 Wide category of benefits can be State aid:
 Subsidies/grants
 Loans at preferential interest rates
 Sales of land or assets at an undervalue
 Capital injections by the State
 Tax breaks
 Funding of infrastructure projects that benefit specific undertakings
 Generally, any departure from normal commercial terms in
agreements between a State body and an undertaking, e.g.:
 overpayment by State / superfluous procurement
 provision of services by State at an undervalue
 unequal allocation of risk or reward between public and private parties
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10. Unpacking the other parts of the definition
 Favouring undertakings/goods (“selectivity condition”)
 can arise at a number of levels in Broadband cases:
 the project contractor;
 service providers using the network; or
 commercial users of services provided
 but is the beneficiary an undertaking?
 Distortion of competition
 very difficult to argue against where a market is in theory contestable –
see e.g. Network Rail case
 important concern in Broadband cases
 need to avoid dis-incentivising private sector investment
 possible first-mover advantage for contractor
 unfair advantage to end users of new system
 Commission almost always finds a potential effect on inter-state trade
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11. Some protections typically required in
Broadband cases
 The Broadband Guidelines set out the Commission's approach
 Minimising the advantage to contractors:
 open tender with MEAT selection criteria
 claw back mechanism for excessive profits
 open access of network infrastructure on FRAND terms
 limiting duration of project
 Minimising advantage to service providers/end users:
 bench-marked pricing (with input from national sector regulator)
 open access at wholesale level
 To minimise distortions of competition:
 State intervention only allowed in "white" or (sometimes) "grey" areas
 market testing – do existing players intend to roll (basic or NGA) out in the area?
 use of open tender process to appoint contractor
 wholesale access to infrastructure/services on FRAND terms
 technical neutrality
 re-use of existing infrastructure where possible
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12. Not all payments by the State are State aid
 Payment by the State for services rendered to it – but need
a show no over-compensation (open
procurement/benchmarking)
 Compensation for carrying out services of general economic
interest ("SGEIs") – see Altmark
 Not State aid where the State makes a prudent,
commercially-driven decision to invest in a given project
(the "market economy investor test")
 Building of general infrastructure?
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13. Any Questions?
duncan.gillespie@dlapiper.com
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14. State Aid Law and Broadband
INCA
London
Duncan Gillespie, Partner
24 July 2012