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BBC digital-only channels (State aid)

Decision of the European Commission
BBC licence fee (nine new digital-only TV and radio channels), Case N 631/2001
Decision of 22 May 2002 (12 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.

Background

On 13 September 2001 the Secretary of State for Culture, Media and Sport gave notification to the European Commission of approval for the BBC to introduce nine new digital-only channels. The new channels comprised three digital television channels, five radio channels and an extension of the BBC World Service to the UK.

The UK authorities did not consider notification to be entirely necessary, considering the new service not be an alteration of existing aid, but rather part of the existing public service remit (paragraph 2).

The Commission found that the approval did not constitute State aid

The Commission assessed whether the nine new digital channels were State aid under Article 87(1). In structuring its decision, the Commission initially excludes the question of public service obligations and reasons as follows:

(a) Will the digital licences be paid for through State resources?

Yes. The cost of the BBC providing a new channel is covered by the licence fee.

(b) Will there be a distortion of competition?

Yes. The BBC competes with other broadcasters and programme producers.

(c) Will the presence of the BBC in the provision of digital channels affect trade between Member States?

Yes. Because the "aid strengthens the position of the BBC compared to other broadcasters that compete in intra-Community trade and therefore may cause a distortion of trade between Member States" (paragraph 22).

After this preliminary examination of Article 87(1), the Commission proceeds to consider whether the State resources made available to the BBC can be seen as compensation for the fulfilment of a public service obligation. The Commission derives its test from Ferring (State aid), citing the idea that State aid within the meaning of Article 87(1) only exists if the recipient undertaking gained a real advantage over competitors. The Commission refers to the guidance on the assessment of the proportionality of compensation in the Communication on the application of State aid rules to public service broadcasting (2001). The Commission considers the following questions to implement its application of this test:

(a) Are the nine new digital services of general economic interest?

Yes. It is up to the Member State to define general economic interest and the Commission judges that there has not been a manifest error in this decision. The "digital services form a logical part of the public service remit of the BBC" (paragraph 34), fitting within the Amsterdam Protocol.

(b) Is the BBC officially entrusted to provide this service?

Yes. Approval for the proposed services has been granted by the Secretary of State. Despite this finding, the Commission "regrets" the lack of clarity in this remit, noting that the "conditions of the entrustment of the new digital channels haven't [sic] been precisely and clearly defined in the relevant legal documents, being the Agreement and the Charter" (paragraph 36).

(c) Is the funding proportionate to the net costs of provision?

Yes. The answer is based on several points.

First, the financing of the public service is found to be transparent. This is catered for by "The Transparency Directive [which] requires Member States to ensure that the internal account corresponding to public service and non-public service activities are separate and that costs and revenues are correctly allocated" (paragraph 41). The Commission notes, however, that it is not in a position to ensure that this is carried out correctly.

In addition, the Commission finds that there are measures to prevent financing for the public service being used by the BBC in supplying commercial services. The BBC can sell the products of the digital services commercially, but it has to adhere to various safeguards such as the Fair Trading Commitment. For example, BBC Worldwide Ltd which is responsible for selling the BBC's programmes to third parties is obliged to do this at a fair market price.

Taken together, the Commission uses this chain of reasoning to find that the funding of the nine new BBC digital channels did not constitute State aid as defined by Article 87(1), since the compensation was considered proportionate to the net costs of provision of the public service the BBC was entrusted with, and therefore did not provide the BBC with any real advantage over competitors.

The subsequent Altmark judgment, which was followed in the Commission decision on BBC Digital Curriculum, appears to indicate that the Commission's analysis under Article 87(1) was incorrect in this case.

However, this does not affect the compatibility of the aid according to the decision, as the Commission concluded (paragraph 55) that even if the approval for the new services had constituted State aid within the meaning of Article 87(1) this State aid would have been compatible with the Community on the basis of Article 86(2). This is seen to follow from the evidence presented in respect of the Article 87(1) analysis, with the additional point that because the new BBC services would be funded out of the current level of the licence fee, the over-compensation guarantees that are already in place would mean that the development of trade would not be affected to any extent that would be contrary to the interest of the Community.

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Last changed by Franck at 12:36 AM on Monday 12 December 2005.

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Reckon Open "BBC digital-only channels" 2005-12-12T00:36:25
Link within Reckon Open: [[BBC digital-only channels]]