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France Telecom SFR and Orange do not have to pay EUR4.95 billion for their 3G licenses EU Court of Justice Rules - Changes To SFR, Orange 3G Licenses Were Legal

Press release April 2, 2009 Business

KTL Legal Associates, Case C-431/07 P ECJ The retroactive reduction of fees due from Orange and SFR for 3G licences does not constitute State Aid

2 April 2009

The European Court of Justice upheld the judgement of the Court of First Instance in relation to the objective of Directive 97/13/EC of the European Parliament and of the Council of 10 April 1997 on a common framework for general authorisations and individual licences in the field of telecommunications services (OJ 1997 L 117, p. 15).

The French government acted legally when it changed the conditions of third-generation mobile telecommunications licenses granted to SFR and Orange, a European Union court ruled Wednesday.

The court rejected an appeal from French conglomerate and mobile phone operator Bouygues. Bouygues claimed the French state illegally subsidized its rival mobile operators when it extended their so-called 3G licenses at no cost.

The court ruling saves SFR, the mobile arm of France Telecom, and Orange, jointly owned by Vivendi and Vodafone Group, from having to pay the French government about EUR4 billion apiece.

Orange and SFR in 2001 each paid the government EUR4.95 billion for their 3G licenses, enabling them to offer a range of new mobile services such as wireless data and video. The price of the licenses reflected the dot-com boom and widespread anticipation across Europe that 3G services would be widely used and immensely profitable.

After the internet bubble burst and mobile users proved slow to switch to 3G services, the French government decided that more than two 3G operators were needed to ensure effective competition. In 2002, it sold Bouygues a license for EUR619 million and a percentage of its profits. The government also changed the terms of Orange and SFR's licenses to match the Bouygues deal.

Bouygues protested, claiming the new terms for Orange and SFR were an illegal state subsidy to business. Bouygues first asked the European Commission, the EU's regulatory arm, to investigate the licensing terms. When the commission cleared the French government of wrongdoing, Bouygues appealed to the European Court of First Instance in Luxembourg.

During a March hearing, the court's panel of judges said they were amazed the French government was willing to walk away from about EUR8 billion in licensing fees. A French government lawyer replied that the state wasn't trying to make money from the licenses, but was trying to manage a public resource effectively.

In its ruling, the court said the reduced fees "applied to Orange and SFR was neutral for the three operators."

Orange and SFR so far haven't seen strong demand for their 3G services. Bouygues plans to launch its 3G services later this year, following pressure from the French regulator to use its license. The French government in March decided to sell a fourth 3G license under the same terms given to Bouygues, Orange and SFR.