BBC Digital Curriculum (State aid)
Decision of the European Commission
BBC Digital Curriculum, Case N 37/2003
Decision of 1 October 2003 (13 pages, PDF)
Article 87(1): State aid; Article 86(2): undertaking entrusted with a public service
Article numbers refer to the 1997 consolidated version of the EC Treaty.
News, 14 March 2007: BBC Trust suspends BBC Jam
This decision was prompted by allegations of non-compliance with the State aid conditions described below.
Background
In January 2003 the UK authorities notified the European Commission of the approval by the Secretary of State for Culture, Media and Sport of a new Digital Curriculum service to be provided by the BBC. The intended purpose of the BBC Digital Curriculum would be to provide interactive learning materials free to homes and schools over the Internet.
In February 2003 19 companies providing ICT software, services and infrastructure to UK schools, colleges and universities, made a formal complaint to the Commission about the BBC Digital Curriculum.
The Commission found that the funding for the BBC Digital Curriculum was State aid, but would be compatible with the Treaty because it was justified under Article 86(2) provided that some conditions were made. Research Machines plc seemed content with the restrictions imposed by the Commission.
This page summarises the reasoning contained in the Commission's published decision.
Funding for the BBC Digital Curriculum was found to constitute State aid
(a) Is the funding provided to an undertaking?
Yes. The Commission begins with the question of what is an undertaking. It refers to case law that an undertaking is an entity which is carrying out an economic activity, before declaring that:
“for an activity offering goods and services to be considered as not economic one should be able to exclude the existence of a market for comparable goods and services” (paragraph 19).
The same kind of services as the proposed Digital Curriculum were also provided by private firms and so the funding was seen as being provided to an undertaking.
(b) Does the funding of the Digital Curriculum use State resources?
Yes. The BBC is funded by the licence fee and the Secretary of State's permission was required for licence fee income to be used for the Digital Curriculum. "The compulsory legal nature of the licence fee and the express approval by the State for the financing of the service from the licence fee unequivocally establish the use of State resources" (paragraph 21).
(c) Does the receipt of State resources lead to an economic advantage?
Yes. The Commission assessed whether the BBC Digital Curriculum met the Altmark criteria:
(i) Does the undertaking have clearly defined public service obligations?
(ii) Is compensation calculated in an objective and transparent manner?
(iii) Is the compensation no more than necessary for the provision of the public service obligations?
(iv) If the provider of the public service is chosen without a public procurement procedure, are costs determined by an analysis of the costs which a typical undertaking, well run and adequately provided with means to meet the necessary public service requirements, would have incurred in discharging those obligations?
The Commission found that (iv) was not satisfied on the evidence available. There was no tendering process, the BBC had arrived at its costs by using its own estimates, and the UK authorities had provided no additional information to the Commission on these costs. Thus the funding was taken to be State aid within the meaning of Article 87(1), following the Altmark judgment (which had been issued a few months before the decision).
(d) Would the funding distort competition?
Yes. This was because a market for the distribution of electronic educational material was already in existence: "The BBC's brand coupled with free availability of material to the user threatens to distort competition in a market where there are incumbent, commercial players" (paragraph 24).
(e) Will the Digital Curriculum affect trade between Member States?
Yes. BBC's competitors in the UK market sold similar services in other Member States, and ownership of these competitors could lie outside the UK.
The aid was considered new aid rather than existing aid
Having found that the funding of the BBC Digital Curriculum constituted State aid under Article 87(1), the Commission turned to assess whether it should be considered new aid or existing aid. The UK Authorities had argued that is was part of existing aid, which would have meant, amongst other things, that it did not require prior notification to the Commission under Article 88.
The Commission found that the aid did not qualify as existing aid because the BBC had previously limited its education purpose to television and radio, and the Digital Curriculum represented "a digression from the various markets within which the BBC has been active":
“The provision of educational material over the Internet may be considered to be within the 'existing aid' nature of the scheme to the extent that it remains closely associated with the BBC's 'television and radio services'. If however, the proposed 'ancillary service' sheds this close association it can no longer be considered as one offering continuity within the existing scheme. The use of funding to enter markets that are already developed and where the commercial players have had little or no exposure to the BBC as a competitor cannot be considered as maintaining the status quo regarding the nature of the scheme” (paragraph. 36).
The State aid was found to be justified under Article 86(2)
The Commission found that the State aid for the BBC Digital Curriculum was compatible with the EC Treaty because it satisfied the conditions for exemption under Article 86(2). The Commission's reasoning is as follows.
(a) Is the service of general economic interest and is it clearly defined as such?
Yes. It is left to the Member State to define general economic interest and the Commission considered that there had not been a manifest error. The complainant had argued that the definition of the Digital Curriculum was vague as to its content and the amount of time it would be in place for. This had led the UK authorities to make further clarifications. The Digital Curriculum was to be reviewed every 5 years and with any spending greater than £150 million subject to further State aid notifications.
(b) Is the undertaking officially entrusted to provide that service by the Member State?
Yes. Whilst the definition of "ancillary services" is vague in the Charter, the power to produce the Digital Curriculum are entrusted to the BBC by the Secretary of State.
(c) Would the application of Article 87(1) prevent the existence of the entrusted service?
Yes. "Under its public service remit the BBC is not able to charge homes and schools for the delivery of the new service. It is therefore clear that these services cannot be provided without adequate financing from the State" (paragraph 50).
(d) Is the State aid proportionate?
Yes. The BBC asked for £170 million to provide the Digital Curriculum, but after a Government review the Secretary of State had granted £150 million. But the focus of the Commission's examination is on whether there were measures in place to ensure that resources provided by the State to the BBC would not "leak out" to fund commercial services that were outside the scope of the services of general economic interest that the BBC is entrusted with. The Commission finds the following measures:
1). The BBC complies with the obligation of the Transparency Directive in keeping separate accounts for public and private activities.
2). Non-public service activities and commercial subsidiaries of the BBC have their accounts published in accordance with the UK Companies Acts.
3). The Charter establishes the role of the Board of Governors to ensure that the BBC behaves in accordance with the Charter, the Agreement and the Fair Trading Agreement. Part of this requires that the BBC fund an Audit Committee.
4). The Office of Fair Trading in the UK regulates the non-public service activities of the BBC.
5). The accounts of the BBC are audited and submitted to the Secretary of State and the Parliament.
6). The BBC's Fair Trading Commitment obliges the BBC to ensure that public funds are not diverted to commercial activities.
7). The Fair Trading Commitment and the Commercial Policy Guidelines require that the commercial subsidiaries have to pay fair charges for inputs they receive from the BBC's public service entities. Fair meaning that they are in line with the external market price. The BBC has to prove that this is the case "from time to time" (paragraph 57).
This structure of supervision was seen by the Commission as sufficient to ensure that the compensation would remain proportionate, preventing State funds being used to finance non-public service activities.
(e) Is the application of Article 86(2) in this case contrary to the interest of the Community?
No. The explanation given is rather limited. The Commission notes that UK Government had already introduced other projects such as the Electronic Learning Credits, as part of Government policy to encourage the growth of a market in this area. It also points to the Community interest in the development of quality education.
In conclusion, the Decision states that:
- The Digital Curriculum constitutes state aid that should have been notified to the Commission for approval before taking effect. This State aid is new aid because "the Digital Curriculum is a digression from the various markets within which the BBC is active".
- The Commission requires that any funding of the Digital Curriculum in excess of £150m or any funding beyond 5 years must be the subject of a new state aid notification by the UK authorities.
- The distortion of competition caused by the Digital Curriculum in England is only mitigated by the existence of Electronic Learning Credits at their current level, underlining the need for Electronic Learning Credits to continue for the entire duration of the Digital Curriculum. This gives greater visibility on funding. The Decision also clarifies that Electronic Learning Credits are to be used exclusively on genuine educational software.
- The BBC is required to publish a fixed 5 year commissioning plan for the Digital Curriculum, 15 months in advance of the launch of the Digital Curriculum, which will indicate areas where the BBC is excluded from producing educational software — the plan must have "explicit criteria for the exclusion providing clarity for users and commercial providers of the subjects and learning outcomes that will not be provided by the BBC." This will give greater certainty on opportunities for commercial providers within the UK educational software market. The Commission states that this commissioning plan must provide the parameters within which the BBC will be allowed to operate and that any divergence from the scope of the plan will be a breach of the DCMS approval given in January 2003.
- The BBC must not use the publicly funded Digital Curriculum to cross subsidise its commercial operations in any way and that the BBC must comply with the Transparency Directive.
Links
- European Commission decision (13 pages, PDF)
- Becta, a UK Government agency, produces reports for the DCMS on the amenability of curriculum subjects to be taught through information and communications technologies, and on the compliance of the BBC's plans with a rule that they must not cover more than half of subjects that are deemed amenable.
- The BBC Digital Curriculum was launched in late January 2006 as BBC Jam (warning: sounds on front page; Macromedia Flash and patience required).
- 14 March 2007: BBC Trust suspends BBC Jam on market impact grounds
This page is managed by Reckon LLP. Users are encouraged to contribute relevant views and links. Use the "Edit this page" or "Add a comment" button above to edit the text or to add comments and notes. Advice on making contributions (including trackback) is in the Guidelines.
Last changed by 90.202.83.253 at 9:49 PM on Friday 14 March 2008.