State aid C 34/2006 (ex N 29/05 and ex CP 13/04) Germany Introduction of digital terrestrial television (DVB-T) in North Rhine-Westphalia

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1 EUROPEAN COMMISSION Brussels, 19 July 2006 C (2006) 3173 final PUBLIC VERSION WORKING LANGUAGE This document is made available for information purposes only. Subject: State aid C 34/2006 (ex N 29/05 and ex CP 13/04) Germany Introduction of digital terrestrial television (DVB-T) in North Rhine-Westphalia Sir, The Commission wishes to inform the Federal Republic of Germany that, having examined the information supplied by your authorities on the measure referred to above, it has decided to initiate the procedure laid down in Article 88(2) of the EC Treaty. Seiner Exzellenz Herrn Frank-Walter STEINMEIER Bundesminister des Auswärtigen Werderscher Markt 1 D Berlin I. PROCEDURE (1) By letter of 26 January 2004, the Commission requested information from the Federal Government regarding press reports about public support of the introduction of digital terrestrial television in North Rhine-Westphalia ("NRW"). The Federal Government replied to this request by letter of 23 March The Commission services met on 2 June 2004 with the authority in charge of the present measure, the media authority of NRW (Landesanstalt für Medien Nordrhein-Westfalen, "LfM") and on 10 December 2004 with representatives of the Land of NRW. (2) By letter of 13 January 2005, registered as received on that day, the Federal Government notified the Commission in accordance with Article 88(3) of the EC Treaty of a measure concerning the financing of the roll-out of digital terrestrial television in NRW. The Federal Government notified for reasons of legal certainty. (3) By letter of 10 March 2005, the Commission requested additional information to which the Federal Government replied, after extension of the deadline, by letter of Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2)

2 29 April 2005, registered as received on that day. The Commission services met with representatives of LfM and of the Land of NRW on 23 June 2005 where the latter submitted additional information. (4) The measure is similar to the public funding of digital terrestrial television in Berlin- Brandenburg where the Commission initiated the procedure on 14 July and adopted a final decision declaring the aid incompatible with the Common Market on 9 November In view of the similarities between the two cases, the Commission and Germany agreed to suspend the notification procedure in the present case in order to allow the authorities to assess the consequences of the Berlin-Brandenburg decision for the present procedure (as well as for a similar notification concerning Bavaria). 3 (5) By letter of 12 April 2006, the Commission requested Germany to determine its position in the pending notification procedure within one month. By letter of 12 May 2006, Germany informed the Commission that it did not intend to withdraw or modify the notified measure concerning NRW. Germany announced that it would explain in more detail why the indications in the Berlin-Brandenburg decision with respect to possible types of public support for the digital switchover would not be applicable in the present case. Germany has not, however, followed up on this announcement. It will have the opportunity to do so during the formal investigation procedure. 2. DETAILED DESCRIPTION OF THE MEASURE 2.1 Regulatory and technical background (6) The notified measure concerns the introduction of digital terrestrial television ("DVB-T") in NRW. 4 As in several other Member States, the transmission of broadcasting signals is being switched from analogue to digital mode. This switchover concerns all technological platforms commonly used for the transmission of broadcasting signals, that is cable, satellite and terrestrial transmission. The prime benefit of digitisation is the increased transmission capacity on all platforms achieved by a more efficient use of the frequency spectrum. The Commission actively supports the digitisation of broadcasting. 5 The present measure deals only with the switchover on the terrestrial platform. (7) Since the emergence of cable and satellite in the 1980s, the use of terrestrial broadcasting has fallen sharply in Germany. According to data collected by AGF/GfK, the household reception figures for primary television sets in Germany were on 1 January 2006: 4.6% terrestrial, 55.5% cable and 39.9% satellite. 6 According to data collected OJ C 216 of 28 August 2004, p.5. Commission decision C(2005)3903 of 9 November 2005 on the state aid C 25/2004 for the introduction of digital terrestrial television (DVB-T) in Berlin-Brandenburg, see OJ L 200 of 22 July By letters of 2 December 2005, 9 December 2005 and 12 December DVB-T stands for digital video broadcasting via a terrestrial network. COM(2002)263 final, "eeurope 2005: An information society for all", COM(2003)541 final, "Communication from the Commission on the transition from analogue to digital broadcasting (from digital "switchover" to analogue "switch-off")" and COM(2005)204 final, "Communication from the Commission on accelerating the transition from analogue to digital broadcasting". Arbeitsgemeinschaft Fernsehforschung (AGF) is a co-operation of the main German broadcasters to gauge TV viewing behaviour. Contrary to satellite reception which is digital in about 30% of the 2

3 by ASTRA/Infratest, the share of terrestrial households in Germany was at the end of %. 7 ASTRA/Infratest also gives a regional breakdown of television reception. According to these data, the household reception in NRW was at the end of 2005 as follows: 8.2% terrestrial, 48.2% cable and 43.6% satellite. It should be noted that according to this source, the share of terrestrial broadcasting in NRW has increased significantly since DVB-T was launched in NRW in 2004, rising from 4.0% at the end of 2003 to 8.2% at the end of 2005 (see Figure 1). Figure 1: Market share of terrestrial platform country-wide and in NRW 16,0 14,0 12,0 10,0 8,0 6,0 4,0 2,0 Deutschland (AGF/GfK) NRW (GfK) NRW(ASTRA/Infratest) 0,0 1/01/99 1/01/00 1/01/01 1/01/02 1/01/03 1/01/04 1/01/05 1/01/06 (8) The switchover project has been led by the media authority of North Rhine- Westphalia (LfM). According to Section 27(1) of the Media Law of NRW (Landesmediengesetz Nordrhein-Westfalen), 8 LfM has the task of supporting and guiding the switchover from the analogue to the digital transmission ( Die LfM unterstützt und begleitet die Umstellung der analogen auf digitale Übertragung ). It thereby has to ensure the provision of television by means of the interplay of the different transmission networks at appropriate conditions ( durch das Zusammenspiel der verschiedenen Übertragungswege zu angemessenen Bedingungen ). Another of LfM s general tasks consists in the supervision of the commercial service broadcasters. 7 8 German satellite households, cable reception is still predominantly analogue with only about 10% of the cable households receiving digital signals. SES/ASTRA is the largest satellite operator in Germany and publishes, every year, the German Satellite Monitor on the importance of the different TV transmission platforms. In Figure 1, the data collected by ASTRA/Infratest at the end of a each year, e.g. at the end of 2005, are related to the first of January of the subsequent year, e.g. 1/01/2006, to make them comparable with the data collected by AGF/GfK which are collected at the beginning of each year. Landesmediengesetz Nordrhein-Westfalen in der Fassung vom 2. Juli Gesetz- und Verordnungsblatt für das Land NRW vom 30. Juli 2002, Nr. 20, S

4 Phases of switchover process (9) In NRW, LfM decided on 27 November 1998 to launch a DVB-T test project (DVB-T Feldversuch) which took place in Cologne in the years 1999 and LfM was also signatory of an agreement with the Land of NRW, Deutsche Telekom/T-Systems and the public service broadcasters ("PSBs") ZDF and WDR on the introduction of DVB-T in NRW. On the basis of this agreement, a project office for the introduction of DVB-T in NRW was established (DVB-T Projektbüro NRW). It was operated by LfM in cooperation with ZDF and WDR and ceased its activity in May On 20 October 2003, LfM, the three PSBs ARD, ZDF and WDR, 11 the commercial broadcasters ("CSBs") RTL Television ("RTL"), VOX Film und Fernseh-GmbH & Co. KG ("VOX") and ProSiebenSat.1 Media AG ("ProSiebenSat.1") signed an agreement (Grundsatzvereinbarung) on the introduction of DVB-T in NRW. This agreement was complemented by a cooperation agreement (Kooperationsvereinbarung) signed by the same parties on 10 December On 14 November 2003, LfM issued statutes for the allocation of terrestrial transmission capacity for broadcasting (Zuweisungssatzung). LfM tendered the DVB-T broadcasting capacity in the Cologne/ Bonn area and in the Dusseldorf/ Ruhr area by decision of 4 December 2003 published on 30 December On 23 April 2004, the media commission (Medienkommission) of LfM decided on the allocation of the programme channels reserved for CSBs. On the basis of this decision, LfM issued the respective DVB-T licences on 14 May (10) Digital terrestrial transmissions were launched on 24 May 2004 in the Cologne/ Bonn area and on 8 November 2004 in the Dusseldorf/ Ruhr area. The transmission capacity of the DVB-T network comprises in each area six multiplexes conceived to carry a total of 24 programme channels. 13 The analogue terrestrial transmission ("ATT") of the CSBs was halted as of the respective launch dates. The ATT of the PSB channels ARD-Das Erste, ZDF and WDR continued in parallel for about five months (simulcast phase) until it was switched off in the Cologne/ Bonn area on 8 November 2004 and in the Duesseldorf/ Ruhr area on 4 April Taken together, these two areas account for more than half of the population of NRW. 14 On 19 November 2004, LfM issued a directive on the financial support for DVB-T (Förderrichtlinie DVB-T) taking effect retroactively as of 3 May (11) On 29 May 2006, DVB-T transmissions were launched in two more NRW regions (Wuppertal and Ostwestfalen-Lippe). Contrary to the previous DVB-T launches in NRW, the switchover in these regions was carried out without the participation of the CSBs. Moreover, simulcast was limited to only one PSB channel, i.e. ARD-Das At the time, the media authority was still called Landesanstalt für Rundfunk Nordrhein-Westfalen. See letter of German authorities of 29 April 2005, p. 9. ARD stands for Arbeitsgemeinschaft der öffentlich-rechtlichen Rundfunkanstalten der Bundesrepublik Deutschland, ZDF for Zweites Deutsches Fernsehen and WDR for Westdeutscher Rundfunk. See letter of German authorities of 23 March 2004, page 10. A multiplex corresponds to a frequency block which in NRW is used for four programme channels. According to a press release of the project office DVB-T NRW (Projektbüro DVB-T Nordrhein-Westfalen) of 24 November 2004, DVB-T transmissions were available to 14 out of 18 million inhabitants of NRW as of 8 November

5 Erste. 15 The authorities plan to accomplish the full roll-out of DVB-T in NRW by the year (12) In general, digital terrestrial broadcasting concerns two types of operators, which may or may not be integrated: network operators, which take care of the transmission of broadcasting signals, and broadcasters, which package content. The development of digital television requires updating of transmission equipment by the network operator and allocation of frequencies to be used for transmission. The following paragraphs describe the procedures that the German authorities have followed in granting the respective licences to broadcasters and to network operators. Award of broadcasting licences (13) In accordance with Section 52a(1) of the State Broadcasting Treaty (Rundfunkstaatsvertrag), 16 Section 28(1) of the Media Law of NRW states that, for the first allocation of digital terrestrial broadcasting capacity, consideration must be given, as a matter of priority, to the programme channels which are already broadcast in analogue form. The technical transmission capacities for these programmes have to be equivalent relative to the other transmission capacities. (14) As noted above, LfM tendered the DVB-T broadcasting capacity in the Cologne/ Bonn and in the Dusseldorf/ Ruhr area by decision of 4 December 2003 published on 30 December The tender covered the part of the capacity reserved for CSBs. The tender specifications spelled out the selection criteria in case there would be more applicants than programme channels available and a decision would have to be made between the different applicants (Vorrangentscheidung). The criteria included the contribution of a programme channel to a balanced overall channel offer (Programmvielfalt) and to pluralism of broadcasters (Anbietervielfalt) as well as the presence of a broadcaster in the ATT network. 18 The tender did not specify the costs of transmitting a programme channel via DVB-T nor any intention to financially support the switchover. LfM s general intention to support the switchover was mentioned in its agreement with all broadcasters present in the ATT network signed on 20 October The agreement noted that LfM would support the technical infrastructure for the DVB-T distribution in NRW as complementary measure. 19 (15) The total transmission capacity for DVB-T broadcasting consists of six multiplexes. It was allocated as follows: one multiplex to each of the PSBs ARD, ZDF and WDR as well as to each of the commercial broadcasting groups RTL Group and ProSiebenSat.1. Capacity on the sixth multiplex was allocated to individual In one part of the Dusseldorf/ Ruhr area (Oberbergischer Kreis), the switchover was in fact already carried out without the participation of the CSBs. Staatsvertrag über den Rundfunk im vereinten Deutschland of 31 August 1991 (State Broadcasting Treaty), in the version of 1 July 2002, Official Gazette, p Erstmalige Zuweisung von Übertragungskapazitäten für die landesweite digitale terrestrische Verbreitung bzw. Weiterleitung von Fernsehprogrammen und Mediendiensten im DVB-T Standard in Nordrhein-Westfalen, Bekanntmachung der LfM vom 4. Dezember 2003, published in Landesministerialblatt of 30 December The provision that programme channels present in the respective ATT network need to be given priority when awarding licences for DVB-T is based on Section 52a(1) in the State Broadcasting Treaty and on Section 28(1) of the Media Law of NRW. Als unterstützende Maßnahme fördert die Landesanstalt für Medien Nordrhein-Westfalen die technische Infrastruktur für die DVB-T-Verbreitung in Nordrhein-Westfalen. 5

6 programme channels: Viva, Eurosport, CNN and Terra Nova. 20 According to Section 8 of the Media Law of NRW, first-time licences can be awarded for a period of between four and ten years. The Commission is not aware of the period of time for which LfM awarded the licences to CSBs in the DVB-T network. Table 1: Channel coverage in Cologne/Bonn before and after switchover Channel Analogue TV Service area as of 04/04/05 Coverage as of 24/05/04 Coverage as of 08/11/04 Coverage as of 04/04/05 K 05 Sat.1 Erste - Simulcast X X K 26 ZDF country-wide ZDF Bouquet ZDF Bouquet ZDF Bouquet K 29 ZDF D dorf D ZDF Düsseldorf RTL Bouquet RTL Bouquet K 34 VOX ZDF - Simulcast X X K 36 RTL D dorf E RTL Düsseldorf WDR - Simulcast K 43 Das Erste C RTL/ VOX/ ProSieben/ Sat.1 Pro7Sat.1 Bouquet Viva/ Eurosport/ CNN/ Terra Nova Pro7Sat.1 Bouquet K 49 WDR B WDR - Simulcast WDR Bouquet WDR Bouquet K 65 X A ARD Bouquet ARD Bouquet ARD Bouquet K 66 X N24/ Kabel 1/ RTL II/ Super RTL Viva/ Eurosport/ CNN/ Terra Nova Explanation: DVB-T channels K26, K29, K36 and K43 are provided by T-Systems, while Channels K49 and X Award of network licences (16) At the request of the State Chancellery (Staatskanzlei) of the Land of NRW, the Telecommunications and Postal Regulatory Authority ("RegTP") launched an open procedure for frequency allocation (Frequenzzuteilungsverfahren) on 4 February The overall need was broken down into five service areas (Versorgungsbedarfe) (A to E). The relevant legislative act (Verfügung) did not note that there was one additional, country-wide service area which had already been published on 27 November This service area was allocated to T-Systems, a subsidiary of Deutsche Telekom, and serves to transmit the ZDF programme channels. In the NRW allocation procedure, T-Systems applied for the frequencies for the service areas C, D and E, and WDR for the frequencies for the service areas A and B. Since there was only one application for each of the five service areas, RegTP allocated the frequencies through the so-called application procedure and did not need to launch the second stage of the frequency allocation procedure, i.e. the tender procedure. Since T-Systems and WDR were already operators of the ATT network and thus possessed a telecommunications authorisation, this requirement for allocating the frequencies through the application procedure was also met. The rights of use for the DVB-T network were granted for a duration of about twenty years until 31 December Terra Nova is the successor of Onyx which received the original licence. On 15 September 2004, the French Groupe AB replaced its music channel Onyx with the documentary channel Terra Nova. Official Gazette RegTP No 3/2004, Act No 3/2004, p. 82. Official Gazette RegTP No 23/2002, Act No 36/2002, p

7 2.2 The measure in detail (17) The subject-matter of the notification is the financial assistance provided by LfM to CSBs for the digital terrestrial transmission of their programme channels. The legal basis for this assistance is Section 40(1)(2) of the State Broadcasting Treaty (Rundfunkstaatsvertrag) and Section 88(3) of the Media Law of NRW, pursuant to which the Land media authorities and, in the present case, LfM are charged with promoting, among other things, development of the technical infrastructure for broadcasting and projects for new broadcasting techniques out of their share of the licence fee (Rundfunkgebühr). LfM s budget is essentially financed by the 2% share of the licence fee income accruing to NRW (in accordance with Section 40 of the State Broadcasting Treaty and Section 116(1) of the Media Law or NRW). 23 (18) The precise terms of LfM s financial assistance to the CSBs are set out in the directive on the financial support for DVB-T (Förderrichtlinie DVB-T) issued on 19 November The directive specifies that the support is limited to five years. The support is related to the broadcasters transmission fees in the DVB-T network. Over the five year period, the support amounts to on average to 30 percent of the broadcasters transmission fees. In the first year of operation, the assistance amounts to 40 percent of the broadcasters transmission fees. It is reduced by five percentage points in each subsequent year to reach 20 percent in the fifth year. The directive also states that the assistance is reduced by the amount which broadcasters save from the switch-off of their analogue transmissions (Abschaltgewinne). The financial assistance to the CSBs will be granted in the form of non-repayable grants. (19) In the notification, Germany specified that the transmission costs per multiplex amount to 2.7 million per year. The costs for each of the four programme channels on a multiplex thus amount to million per year and to million over the entire five year period of the scheme. 25 Table 2 illustrates the evolution of the financial support per programme channel over the five year period. In the case of the individual programme channels Viva, Eurosport, CNN and Terra Nova, the envisaged financial support corresponds indeed to the scheme as presented in Table 2. Over five years, the total financial support for these four channels thus amounts to a total of % of the share of the licence fee income accruing to NRW is transferred to the NRW film foundation. See paragraph (10). In the notification, Germany has calculated that total transmission costs per programme channel over five years amount to 2.7 million, but this figure is in contradiction to all other information provided. 7

8 Table 2: Transmission costs and subsidy per programme channel Years Transmission costs per programme channel Percentage Financial support 1 st year % nd year % rd year % th year % th year % Total amount (20) In the case of the RTL group, which was allocated one entire multiplex with four programme channels, LfM does not envisage to grant any financial support. The reason is that RTL has considerable costs savings from switching off its transmissions in the ATT network in which it was present with two programme channels (RTL and VOX). The cost savings do not only originate from the analogue switch-off in NRW but also, to some extent, from the analogue switch-off in Northern Germany which is also taken into account in the calculation of the subsidy. According to Germany, in the negotiations, the RTL group refrained explicitly from asking for financial support. (21) In the case of ProSiebenSat.1, which was also allocated one entire multiplex, the envisaged financial support amounts to per year and is the same in all five years. Over the five years, the total financial support for ProSiebenSat.1 thus amounts to As in the case of the RTL group, the calculation of the subsidy takes into account the costs savings from switching off the ATT network in NRW and Northern Germany in which it was present with one programme channel (Sat.1). (22) Based on these figures, LfM s total budget for subsidising the DVB-T transmission of the CSBs is 6.8 million. (23) LfM grants the financial assistance described above only to programme channels of CSBs. The PSBs finance the costs of DVB-T transmission out of the licence fee income accruing to them. According to the information submitted by the German authorities, WDR has at its disposal a project budget of about 40.8 million for the period from 2001 until 2008 to cover the costs of the switchover. In the case of ZDF, the budget to achieve the country-wide switchover to DVB-T amounted for the period from 2001 to 2004 to 36.8 million. 3. Assessment of the measure 3.1 State aid assessment pursuant to Article 87(1) EC (24) The Commission needs to examine whether the measure can be characterised as State aid within the meaning of Article 87(1) EC, according to which "any aid granted by a Member State or through State resources in any form whatsoever which distorts or 8

9 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 common market. " State resources (25) In line with previous case law, the Commission considers that advantages granted by a public or private body designated or established by the State fall within the scope of Article 87(1). 26 After preliminary investigation, the Commission is of the view that LfM may be considered a public body established or appointed by the State which performs a public task and that the advantages granted by this body may be considered state resources within the meaning of Article 87(1). 27 (26) Firstly, the German authorities have argued that for a measure to rank as state resources, it must constitute a burden for the state budget. Since, in the present case, the funding does not represent a financial burden for the budget of the Land of NRW, but is financed from the licence fee (Rundfunkgebühr) collected from TV viewers, the funding does not constitute state resources. Secondly, the authorities have stated that LfM decided independently and according to its status as an institution independent of the State which concrete measures were necessary to promote digital switchover. Accordingly, there was no direct influence by the State. (27) In the Commission s preliminary view, the advantage granted by LfM is granted indirectly through state resources and is imputable to the State. It is funded from LfM s budgetary resources. Irrespective of whether the German licence fee, which provides LfM s budgetary resources, is to be regarded as forming part of state resources, these monies are considered State resources as of the moment they become part of LfM s budget. The fact that these monies are collected from private individuals, as argued by the German authorities, does not, in any event, contradict the finding that LfM s budget may rank as state resources. Clearly, the costs incurred by LfM in conferring the advantage constitute a burden for LfM s budget. (28) Moreover, LfM is a public authority established by the Media Law of NRW. The law defines LfM s organisational structure and assigns to LfM a broad range of public tasks in the field of broadcasting and frequency management. Moreover, LfM is subject to legal supervision by the Land government of NRW (staatliche Rechtsaufsicht) 28 and its annual budget is subject to control by the Court of Auditors of the Land of NRW. 29 The public task of relevance in the present case is laid down in the national State Broadcasting Treaty. It is described as the promotion of the technical infrastructure of broadcasting and of projects of new broadcasting transmission technologies. 30 More specifically with respect to the digital switchover, the Media Law of NRW obliges LfM to support and guide the switchover from analogue to digital transmission Case T-358/94, Air France v. Commission, ECR [1996] II-2109 and C-482/99, France v. Commission, Stardust Marine, [2002] I Media Law of NRW, in particular Sections 87 and 88. Media Law of NRW, Section 117. Media Law of NRW, Sections 113 and 114. See paragraph (17). Media Law of NRW, Section 27(1). 9

10 (29) Finally, Community law cannot permit the rules on state aid to be circumvented merely through the creation of autonomous institutions charged with allocating aid. 32 In spite of allowing for a certain degree of autonomy, the State Broadcasting Treaty and the Media Law of NRW define the public tasks to be performed by LfM and leave limited discretion to it on how to spend its budgetary resources. In particular, LfM s autonomy does not seem to preclude its activities and, more specifically, its use of financial resources from being guided by public policy considerations. The circumstance that LfM s decision are driven by public policy rather than, for instance, commercial considerations appears, for example, from the fact that the funding is given in the form of non-repayable grants with no direct benefit to LfM. At the present stage, the Commission therefore considers that present measure seems to be imputable to the State Advantage (30) The present measure seems to favour two groups of beneficiaries, firstly, the commercial service broadcasters participating in DVB-T as direct beneficiaries and, secondly, the operator of the DVB-T network T-Systems as indirect beneficiary. (31) At the level of broadcasters, the subsidy granted by LfM covers some of the CSBs transmission costs via the DVB-T network for a period of five years. The subsidy thus relieves them of expenses which are part of their normal operating costs. (32) In the notification, the German authorities have maintained that LfM s subsidy is necessary because in particular ProSiebenSat.1 required a compensation for the economic risk of launching DVB-T as a condition for giving up its ATT capacity. Moreover, ProSiebenSat.1 and the RTL Group were willing to participate in DVB-T only to the extent that they would not have to incur any additional costs compared to their costs in the ATT network. At the same time, the German authorities have clarified that the possession and the outstanding duration of the broadcasters ATT licences do not have an influence on the magnitude of the subsidy. 33 The subsidy relates exclusively to the transmission costs in the DVB-T network. (33) There are a number of reasons which cast doubt on the above argument that the subsidy is necessary to launch the DVB-T network. (34) Firstly, the CSBs have been transmitting in the DVB-T network for more than two years without any guarantee of a subsidy. In fact, ProSiebenSat.1 and the RTL group signed agreements with LfM on the introduction of DVB-T in NRW as early as in 2003 long before it was determined that they should receive a subsidy. 34 (35) Secondly, since the switchover was planned several years in advance, LfM could have limited the duration of the ATT licences to the switchover date in order to avoid any potential compensation claims on the part of the CSBs. This approach was followed, for example, in the UK. Section 27(3) of the Media Law of NRW sets out explicitly that broadcasting licences can be limited in order to prepare for the digital switchover Case C-482/99 France v Commission, Stardust Marine [2002], ECR I-4397, paragraph 23 and the references quoted there. See letter of German authorities of 29 April 2005, p. 8. See paragraph (9). 10

11 LfM renewed RTL s and Sat.1 s ATT licences in fact as late as on 11 July 2003, that is less than one year before the start of the switchover. 35 (36) Thirdly, the CSBs which were present in ATT were already, if not completely then at least partially, compensated for the switch-off of their ATT transmission by the allocation of DVB-T channels. RTL Group and ProSiebenSat.1 were, in fact, allocated more DVB-T channels than they previously had in ATT. (37) Fourthly, as regards transmission costs, the subsidy is not designed as temporary support to facilitate the transition during the simulcast phase, but for the five years after switchover. In the case of the CSBs, there was in fact no simulcast at all. 36 More generally, the transmission costs per programme channel are lower for DVB-T than in analogue mode so that, even without any subsidy, the broadcasters achieve per channel cost savings by switching to DVB-T. (38) At the network level, it is not excluded that the network operator T-Systems also receives an indirect advantage stemming from LfM s subsidy. 37 Compared with a situation in which no subsidy is granted, T-Systems may avoid the need to charge endusers for access to DVB-T, as happens, for example, in the Netherlands and Sweden. Moreover, it is not excluded that T-Systems has been able to fix the transmission fees which it currently charges at a level higher than what the broadcasters would be prepared to pay in the absence of the subsidy. (39) As LfM s subsidy to the CSBs is conditional on their use of the DVB-T network, T-Systems has the advantage that more CSBs are interested in using its network, for example ProSiebenSat.1 which is the one of the two major German CSBs in terms of TV advertising revenue and TV viewing. 38 The guaranteed participation of the German CSBs is thus important for T-Systems in terms of guaranteed revenue. (40) The German authorities have invoked the Altmark ruling to argue that the notified measure does not constitute aid because it is intended to compensate for a service of general economic interest ("SGEI"). 39 It is argued that Section 27(1) of the Media Law of NRW assigns to LfM explicitly the task of supporting and guiding the switchover from the analogue to digital terrestrial transmission. 40 With respect to requirement that an overcompensation of the SGEI must be avoided, the authorities note that this criterion can only be applied in cases where it is possible to calculate the costs, revenues and a reasonable profit of an activity. In the present case, other criteria would have to be used because the broadcasters risk of participating in DVB-T, which is meant to be compensated for, cannot be quantified. The authorities maintain that the compensation corresponds nonetheless to the minimum necessary. The reasons are that the broadcasters cost savings in other Länder are taken into account in The ATT licence for VOX seems to have been renewed in See paragraph (10). Even though WDR was allocated part of the DVB-T network (two multiplexes), it cannot be considered a beneficiary because these multiplexes are used only by PSBs which do not receive any subsidy from LfM. Media Perspektiven, Basisdaten: Daten zur Mediensituation in Deutschland 2004, p. 11 and p. 18; AGF/GfK Fernsehforschung and I-Punkt Deutschland based on Nielsen Media Research. Judgement of 24 July 2003 in case C-280/00 Altmark Trans GmbH [2003] ECR I-7747, at See paragraphs (8) and (28). 11

12 calculating the subsidy. Moreover, the subsidy is limited to five years and to the broadcasters additional costs of participating in DVB-T. (41) The Commission is of the preliminary view that the presence of state aid is not called into question by the possible application of the Altmark ruling. Contrary to the view of the German authorities, none of the four criteria (definition and assignment of the service of general economic interest, ex ante determination of parameters for compensation, no overcompensation and choice of efficient provider) seems to be met. With respect to the first criterion, the television programmes of the commercial broadcasters do not seem to have been defined as SGEI. These programmes constitute normal commercial activities which are subject to purely economic considerations. With respect to the second criterion, the Commission notes that the parameters for compensation do not seem to have been determined in an objective and transparent way. It is not, for example, taken into account that ProSiebenSat.1 has in the DVB-T network four times as many channels as in the ATT network. Due to the lack of objective and transparent parameters for compensation, it can also not be excluded that the CSBs are overcompensated. Finally, the Commission has doubts that the broadcasters costs correspond to those of efficient operators because the selection criteria of the tender were not in the first place economic, but meant to enhance pluralism Distortion of competition Award of network licences and broadcasting licences (42) The German authorities have argued that the measure does not distort competition since it does not confer a selective advantage on either the commercial broadcasters or the network operator T-Systems because the respective licences were acquired through open and transparent tender procedures. According to this argument, the tendering has ensured that any broadcaster or network operator could, in principle, have benefited from the funding, so that the measure cannot be regarded as selective. The German authorities argue that it is in particular in the case of indirect beneficiaries that a measure needs to be selective in order to rank as aid. (43) The Commission has doubts that the tender procedures were such as to ensure that the selective economic advantage deriving from LfM s subsidy would be minimised or even eliminated and thus adequate to prevent a distortion of competition. (44) At the level of broadcasters, LfM organised an open procedure which included all 12 DVB-T channels reserved for CSBs. 42 However, priority was, for example, given to programme channels which were already present in the ATT network. This concerned three programme channels. 43 Moreover, the tender specifications did not at all mention that LfM would subsidise the transmission costs. 44 The Commission is therefore of the preliminary view that the tender procedure was not sufficiently transparent to ensure See paragraph (14). See paragraphs (13) - (15). The three channels are RTL, VOX and Sat.1, see Table 1. See paragraph (14). 12

13 that the advantage deriving from LfM s subsidy would be adequately reflected in broadcasters bids, 45 or to exclude any degree of selectivity. (45) At network level, RegTP initiated a first procedure to allocate the frequencies for one national multiplex on 27 November 2002 and a second procedure for five regional multiplexes on 4 February The Commission has doubts whether these tender procedures were such as to rule out a possible economic advantage to the network operator T-Systems as a result of LfM s subsidy which may thus distort competition. Firstly, LfM s financial assistance to broadcasters for using the DVB-T network was not mentioned in the tender specifications, nor was its amount determined at the time the tenders were published. 47 Bidders' knowledge of the existence of the aid could not have been reflected in their bids for the licence. Secondly, T-Systems as the operator and owner of the ATT network and as a participant in the DVB-T project in Berlin-Brandenburg enjoyed a considerable advantage over any new entrants when it came to submitting a bid. Even if competitors could consider renting part of T-Systems terrestrial infrastructure in order to roll out a DVB-T network, T-Systems as the incumbent operator of the terrestrial networks throughout Germany may still be seen to possess a comparative advantage over any new entrant. Moreover, there were only about two months between the deadline for the frequency allocation procedure (17 March 2004) and the launch of the DVB-T operations (24 May 2004) which left little time for new entrants to effectively roll out the network to start DVB-T transmissions in time. 48 Thirdly, RegTP s publication for the allocation of the national multiplex specified that this multiplex must be operated by one and the same network operator, effectively keeping out regional contenders. 49 It also specified that the respective frequencies for this multiplex were in fact not yet known, adding to the uncertainty of the DVB-T launches. Fourthly, T-Systems not only operates the national multiplex, but also seems to partly operate the DVB-T multiplexes formally allocated to the regional public service broadcaster WDR, thereby conferring on T-Systems the additional advantage of operating the part of the DVB-T network reserved for the transmission of the WDR and ARD channels. By operating all three multiplexes reserved for PSBs, which represents half of the total transmission capacity, T-Systems may be able to exploit economies of scale and scope not available to competitors. (46) The tender procedures at network level thus seem to have been characterised by a high degree of uncertainty and opacity coupled with a strong position of the incumbent In a fully transparent and open tender procedure, the bidding broadcasters could be expected to transfer a part or all of the advantage deriving from a subsidy into higher or qualitatively better bids for the licence. See paragraph (16). The German authorities stated in their letter of 25 April 2005, p. 13: Die Förderung der Landesmedienanstalt ist völlig unabhängig von den potentiellen und dem tatsächlichen Netzbetreiber festgelegt worden und spielte für das telekommunikationsrechtliche Ausschreibungsverfahren der RegTP keine Rolle. The Commission is not aware of the date when RegTP took its decision on the frequency allocation. See paragraph (16). 13

14 terrestrial network operator T-Systems. These elements made it difficult for any company other than T-Systems to submit a bid for the operation of the network. Indeed, T-Systems was the only company which submitted a bid for the operation of the relevant multiplexes. As T-Systems was in a favourable position to operate the DVB-T network, it may have submitted an offer that does not fully correspond to the economic advantage derived from the operation of the network. The tender procedures may be therefore considered insufficient to exclude the selectivity of the measure and thus insufficient to prevent a distortion of competition. (47) It may be added that, even if T-Systems submitted a bid during the tender procedure that reflected all direct and indirect economic advantages accruing to the bidder, this would not eliminate the sectoral aid aspects of the measure, which are discussed in paragraphs (51) to (57) below. Different level of public funding for commercial broadcasters (48) At the level of broadcasters, the measure may distort competition in that the share of the transmission costs covered by the subsidy is not the same for all CSBs. At first sight, the differences in the broadcasters subsidies seem to be justified by the differences in the broadcasters cost savings from the ATT switch-off. The Commission, however, needs to examine the transmission costs currently charged by T-Systems to verify whether the different CSBs are indeed treated in an equal manner. The German authorities have stated that the annual transmission costs of per DVB-T channel are based on estimates of the CSBs dating back to the year (49) Any differences in LfM s subsidy to the respective CSBs may distort competition since these broadcasters compete on the same relevant market for free-to-air television broadcasting. The recipients of LfM s subsidy compete more specifically with each other for advertising or other commercial revenue since they are commercially funded. (50) While an element of distortion may be present in the case of the CSBs, the measure does not seem to place PSBs at a disadvantage even though the subsidy is granted to CSBs only. The reason is that the DVB-T transmission of PSBs is financed through the general funding scheme for the PSBs, i.e. the compulsory licence fee. Sectoral aid (51) The Commission also considers that the measure under investigation may be selective in so far as the subsidy is granted to broadcasters who use the DVB-T platform rolled out by T-Systems and does not, for example, support broadcasters who use other transmission platforms. The measure may therefore be regarded as "sectoral aid". (52) At the level of broadcasters, sectoral aid helps operators to reach a wider audience and increases their attraction for advertisers as against other media. In merger cases, the Commission has defined a product market for media buying which includes a large number of different types of media. 51 Media buying is defined as planning and purchasing time and/or space in various media, including television, radio, newspapers, magazines, billboards and the internet. From this perspective, sectoral aid See letter of German authorities of 29 April 2005, p. 3. Commission decision of 4 September 2001 (Case No COMP/M Havas/Tempus; OJ C 319, 14 November 2001, paragraph 9, and the references cited there). 14

15 to broadcasting via DVB-T has the potential to distort competition in a number of other media sectors. (53) At the level of network operators, the measure may distort competition in two ways. Firstly, on the wholesale market, the presence of a subsidy allows the operator of the DVB-T network to charge broadcasters higher transmission prices than under normal market conditions. Secondly and more importantly, on the retail market, the selective funding and "artificial" development of a competing transmission technology may affect the viewers choice between the different broadcasting platforms, in particular DVB-T, cable and direct-to-home ("DTH") satellite. (54) In antitrust and merger cases, the substitutability between the different broadcasting platforms at retail level has been decided on a case-by-case basis. 52 More recently, however, there is a tendency to define a single market for broadcasting services, irrespective of the transmission platform. 53 This reflects inter alia the advent of DVB-T, which has increased the capacity of the terrestrial platform, and the decrease in the prices for reception equipment such as satellite dishes or set-top boxes, which has reduced the "lock-in effect". 54 (55) In Germany, all three platforms offer a large number of free-to-air television channels, which points to a certain similarity of offer. More specifically, the current offer of in total 24 channels in DVB-T in NRW appears comparable to the offer in analogue cable, which is the most common transmission platform in NRW. 55 In particular, DVB-T includes all important programme channels in terms of viewer share and advertising revenue. 56 (56) In the case of Berlin-Brandenburg where the switchover took place between November 2002 and August 2003, there is empirical evidence of the substitutability between the different transmission platforms and, more particularly, of the competitive effect of the DVB-T launch on cable operators. 57 The data collected during and after the switchover in Berlin-Brandenburg show that the position of the terrestrial transmission has been strengthened since switchover and there has been some substitution of cable by terrestrial transmission even though the substitution was initially, i.e. during switchover, stronger in the other direction. 58 During the year 2005, the share of TV households in Berlin-Brandenburg receiving DVB-T increased from For an overview of recent cases, see Commission decision Telenor/Canal+/Canal Digital (COMP/C.2/38.287, 29 December 2003, in particular paragraphs 32 50). See TPS I (IV/36.237, 3 March 1999, paragraph 30), British Interactive Broadcasting/Open (IV/36.539, 15 September 1999, OJ L 312, paragraph 26) and Telenor/Canal+/Canal Digital (COMP/C.2/38.287, 29 December 2003, paragraph 50). A "lock-in effect" exists where households are not ready to make an investment in another form of transmission so that switching between the different platform is unlikely; see Commission Decision MSG Media Service (OJ L 364, , paragraph 42). See paragraph (7) and footnote 6. The 24 channels present in DVB-T in NRW accounted for more 80% of the viewers and for more than 90% of the TV advertising revenue in Germany in 2004; see references in footnote 38. See Case C25/04 DVB-T in Berlin-Brandenburg, cited above. In the short term, cable operators attracted those viewers wishing to maintain analogue reception via cable; this, however, was a one-off effect which ceased after the digital switchover. In the medium term, they have been losing subscribers to the subscription-free DVB-T platform. Source: Emnid-Study 30/04/2003, quoted in Mabb report "Berlin goes digital" and "DVB-T-Region Berlin/ Potsdam: Terrestrik wächst weiter." in: Media Perspektiven 7/2004, p

16 2.8% to 7.4%. 59 There are indications of a similar trend in NRW (see Figure 1). Among the reasons why viewers opt for DVB-T instead of cable, a survey has identified in particular the fact that DVB-T reception is free of charge while cable requires a monthly subscription fee. 60 (57) In view of future applications of the DVB-T network, the distortion of competition may well go beyond the current market structure and affect new markets besides free-to-air television. DVB-T has the potential for supplying pay-tv services, as clearly shown by developments in other Member States. 61 Once the DVB-T network is in place, broadcasting transmission may be combined with other telecommunication services Effect on trade (58) The Commission considers that the measure in question may affect trade between Member States. CSBs like ProSiebenSat.1 are internationally active on the markets for television advertising and for film rights, where they compete with other broadcasters and telecommunications companies. Network operators like Deutsche Telekom s subsidiary T-Systems compete with cable operators and media corporations like UPC (Liberty Media), satellite operators like SES Astra, NSAB and Eutelsat, and others offering infrastructure services to broadcasters. At the same time, there is competition between cable and satellite operators for end-users in different Member States Preliminary conclusion on state aid character of measure (59) For the reasons set out above, the Commission takes the preliminary view that the subsidy granted by LfM constitutes aid within the meaning of Article 87(1). The commercial broadcasters appear to be the direct beneficiaries. T-Systems, the operator of the multiplexes used by the commercial broadcasters, seems to have indirectly benefited from the measure. However, at this stage, it is not clear whether there has been an actual transfer of state resources to T-Systems within the meaning of Article 87(1). 3.2 Compatibility assessment (60) The German authorities have invoked Articles 87(3)(c), 87(3)(d) and 86(2) of the EC Treaty to justify the compatibility of the measure if found to constitute aid Article 87(3) of the EC Treaty (61) The German authorities argue that the measure contributes to the development of the broadcasting sector, firstly, since DVB-T ensures media plurality and a balanced broadcasting landscape including regional and local programmes. The authorities maintain that cable and satellite are not suitable to transmit local and regional programmes in the same manner as the terrestrial platform because terrestrial transmissions can be better targeted to the relevant audience and are needed to feed local and regional programmes into the respective cable networks. Moreover, the Source: ASTRA (2006): Reichweiten in Deutschland: Marktdaten Jahresende 2005: 7.4% (2.8% in 2004) is the weighted average for Berlin with 8.9% (3.6%) and Brandenburg with 5.2% (1.5%). See "Berlin/Potsdam: Erste DVB-T-Region Deutschland", in: Media Perspektiven 12/2003, p Notably in Italy, France, Sweden and the United Kingdom. 16

17 German authorities claim that satellite and cable are insufficient to ensure universal TV coverage of all households. (62) Secondly, the German authorities argue that the measure contributes to the development of the broadcasting sector since it promotes the development of new services such as interactive television services or mobile and portable reception via DVB-T. (63) Thirdly, the authorities maintain that the measure fosters competition between the various modes of digital transmission. (64) The Commission has doubts as to whether the arguments brought forward by the German authorities can justify the alleged aid to within the meaning of Article 87(3)(c). While increasing capacity relative to ATT, the DVB-T network still compares unfavourably with the number of channels available via cable or satellite. Even in analogue mode, both alternative platforms offer more channels than DVB-T. Channel variety can thus barely justify an aid that favours DVB-T over competing platforms that offer even greater variety. Moreover, the channels in DVB-T have been allocated in such a way that incumbent broadcasters have been privileged while market entry has been marginal. (65) The Commission also has doubts as to whether the terrestrial platform is more suitable to ensure pluralism and to transmit local and regional programmes than cable or satellite and whether, in this context, the measure remedies a market failure. In fact, both alternative platforms currently provide for local and regional programmes. Local TV channels transmitted via cable exist in NRW in numerous areas, while there are no local TV channels transmitted via the digital terrestrial platform. With respect to the argument of universal coverage, the German authorities have not provided any data specifying the share of households not able to receive TV via cable or satellite. Instead, the authorities have conceded that, from a technical point of view, practically every building may receive television via satellite. 62 Since the present measure is limited to urban areas, cable may also be widely available. (66) The Commission also has doubts as to whether the measure will serve to promote innovation by offering new services such as interactive television services or mobile and portable reception via DVB-T. Interactive services require a return channel for content. However, as for satellite, DVB-T does not provide for a return channel and has only one channel which carries the signal to the end user. 63 Accordingly, interactivity is not an intrinsic feature of DVB-T. 64 (67) As for other services, it is important to note that in NRW neither the capacity allocation nor the public funding is focused on any innovative media or telecom services in particular. With respect to capacity, it is unclear which frequencies are currently allocated to new media services. With respect to the public funding, only the transmission of television channels is subsidised See letter of 29 April 2005, p. 2: "Technisch gesehen kann nahezu jeder Haushalt in NRW Rundfunk über Satellit empfangen." Interactivity can be achieved only by deploying DVB-RCT (Return Channel Terrestrial), which involves additional costs and a more expensive set-top box, or by conventional return channels like the telephone or an interactive cable connection. Unlike digital cable, which may be upgraded for interactivity to provide a return channel for advanced interactive services, in parallel with the pure transmission of broadcasting signals. 17