The German authorities maintain that the financing does not constitute an economic advantage to the commercial broadcasters which receive funding under the measure. In the first place, they claim that the funding does not constitute an advantage because it merely compensates the broadcasters for the economic risks involved in their participation in DVB-T. Second, they argue that the measure only covers the ‘additional costs’ of digital terrestrial broadcasting as compared to the analogue mode.

At the same time, the information submitted by the German authorities indicates that the measure subsidises the transmission fees paid by the commercial broadcasters to the network operator. These costs are inherent in the commercial operation of the broadcasters. By covering part of the fees, the measure relieves the broadcasters from expenses which are part of their normal operating costs. Therefore, independently from whether it is intended to compensate for ‘economic risks’ or alleged ‘additional costs’, the Commission considers that the envisaged public funding constitutes an economic advantage to the recipients.

Moreover, the Commission notes that contrary to the argument put forward by the German authorities, the measure cannot be considered to cover genuine ‘additional costs’ of broadcasters in relation to DVB-T. On the one hand, this argument has not been substantiated concerning those broadcasters which have not been previously present on the analogue terrestrial platform and therefore did not incur costs in the analogue terrestrial transmission in NorthRhine-Westphalia. In their case, no cost comparison has been made and the German authorities have not provided any justification for the share of transmission fees covered by the measure.

Third, the German authorities also put forward that the subsidy is a compensation for those broadcasters which renounced their analogue licences before the expiry date in order to allow for the launch of DVB-T. The Commission notes, in the first place that this argument cannot be applied to those broadcasters which have previously not been present on the analogue platform and were not in the possession of analogue licences.

The Commission notes that this argument contradicts those made by Germany concerning the presence of an economic advantage to the network operator, and has not been substantiated by the German authorities. As explained under recitals 80 to 88 below, the Commission considers that the network operator T-Systems would be able to draw an indirect benefit from the measure. However, there is no indication that this would imply a complete transfer of the economic advantage of the broadcasters arising from the direct financing of their normal operational expenses. Therefore, in the Commission’s view, this argument cannot be accepted either.

In addition, the Commission notes that the procedure for the allocation of the broadcasting licences described in recitals 24 to 28 cannot be considered as having eliminated or even reduced the economic advantage granted to commercial broadcasters. The tender announcement did not contain any reference to the funding. In the general agreement of 20 October 2003 between LfM, the PSBs and the commercial broadcasters present in the analogue platform, only a vague reference was made to possible support measures, without giving any details as to the envisaged financial assistance. Therefore, there was no possibility for the broadcasters to take the amount of financing into account when submitting their licence applications.

In the circumstances of the present case, the German authorities argue that the measure does not necessarily enable the network operator T-Systems to charge higher transmission fees to the broadcasters than the market price. They maintain that the level of the transmission fees depends on a number of other factors and that in any case, the regulator (BNetzA, previously RegTP) controls any eventual misuse in relation to the transmission fees. In addition, linked to their previous argument concerning the advantage to broadcasters, the authorities argue that as broadcasters only receive compensation for ‘additional costs’ due to the switchover, they have no interest in paying higher transmission fees than the market price.

The German authorities also contest that the measure would lead to guaranteed revenue for T-Systems. In their view, the ‘guaranteed revenues’ follow from the use of the network infrastructure which results from the attribution of broadcasting licences and not from the funding. Moreover, they also maintain that even if there was more interest for the use of the network due to the measure, the resulting additional revenues would be offset by the additional costs of the network services incurred by T-Systems.

Contrary to the arguments put forward by the German authorities, the Commission considers that T-Systems would be able to draw an indirect advantage from the measure, taking into account that the measure subsidises directly the transmission fees paid by the commercial broadcasters to T-Systems, it is conditional upon the use of the DVB-T platform and specifically targeted to promote the platform operated by T-Systems.

In the present case, the Commission considers that the funding of the transmission fees payable by the commercial broadcasters changes the conditions under which they operate, and enables them to bear eventually higher transmission fees. As outlined in recitals 73 and 74, the funding cannot be considered as covering real additional costs of commercial broadcasters in relation to the introduction of DVB-T. Although the level of the transmission fee indeed depends on a number of factors, the ability of commercial broadcasters to bear higher costs certainly constitutes one of the key commercial considerations from the point of view of the network operator for defining the level of the transmission fees. In line with the German Telecommunications Law (Telekommunikationsgesetz), BNetzA only exercises control over transmission fees charged by operators with significant market power. As indicated in recital 36, T-Systems has so far not been considered by BNetzA to have a significant market power with regard to terrestrial television transmission. Therefore, it remains free to fix the amount of transmission fees for commercial broadcasters on the DVB-T platform.

With respect to the argument that the ‘guaranteed revenues’ for T-Systems arise from the attribution of the licences and not from the measure, the Commission acknowledges that the interest of the commercial broadcasters to be present on the platform and their willingness to bear the corresponding costs is already demonstrated by the high number of applications for the licences. However, the Commission considers that funding of part of their operational costs for a period of five years increases their willingness to pay even higher costs to be continuously present on the platform. Thereby, the measure may provide for additional revenues for T-Systems deriving form the transmission fees from commercial broadcasters. These revenues cannot be considered as fully offset by the network service provided in return without leaving any profit margin to the network operator which operates under market conditions.

Based on the above, the Commission considers that T-Systems would be able to draw an indirect benefit from the support measure. The State funding of part of the transmission fees would enable T-Systems to obtain higher revenues as compared to a situation where no aid is present.

In addition, the Commission notes that the procedure for the allocation of the network licences organised by RegTP cannot be considered as eliminating or even reducing the indirect advantage possibly arising from the measure for the network operator T-Systems. The relevant procedure did not make any reference to the funding measure envisaged by LfM. Therefore, T-Systems could not take into account the availability of such funding to commercial broadcasters when submitting its application for the network licence. In addition, T-Systems, the incumbent operator and owner of the analogue terrestrial network throughout Germany appears to have had a competitive advantage over potential new entrants for the allocation of the network licence. In a procedure launched in 2002, it has been already allocated a licence for operating a nation-wide DVB-T multiplex. 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 potential new entrants to roll-out the network to start DVB-T transmissions on time.

In accordance with the first Altmark criterion, it has to be assessed whether the beneficiary undertakings have clearly defined public service obligations to discharge.

Based on the above, the Commission considers that the present measure envisages support to normal business activities of commercial undertakings rather than a compensation for costs incurred in discharge of public service obligations. It follows that the first Altmark criterion is not fulfilled.

As regards the second Altmark criterion, the Commission finds that the parameters of the alleged ‘compensation’ have not been established in advance in an objective and transparent manner. The directive on the financial support was issued on 19 November 2004 (with a retroactive effect as of 3 May 2004), whereas the licences were allocated by order of 14 May 2004. Therefore, it cannot be considered as an advance definition of the parameters of the funding. Moreover, the Directive does not make clear how the funding would be calculated in the case of those broadcasters previously present on the analogue platform, which is only known to the Commission from the notification. Consequently, the parameters have not been established in a transparent manner. Furthermore, in the Commission’s view, the calculation cannot be regarded as objective, given that the determination of the financial support for individual commercial broadcasters does not take into account the increase in the number of programme channels of those broadcasters previously present on the analogue platform and the potential additional advertising revenues from the presence on the terrestrial platform (see also recital 123). Therefore, the Commission considers that the second Altmark criterion is not met.

As regards the third Altmark criterion which foresees that the compensation shall not exceed the costs incurred in discharging the public service obligations, the German authorities take the view that this criterion is only applicable in those cases where the costs, revenues and a reasonable profit can be calculated. They claim that in situations like the present case, when a start-up financing is granted to reduce the economic risks of the market participants, other criteria should apply to decide whether the measure constitutes State aid. In this context, they claim that the present measure is limited to the minimum necessary and forms part of a technology neutral policy.

In the view of the Commission, the requirements of the Altmark judgment cannot be replaced by other considerations as outlined by the German authorities. As pointed out in recital 97 above, the envisaged public funding is not determined on objectively established criteria, taking into account the relevant revenues of the broadcasters and the funding does not correspond to genuine additional costs incurred by the commercial broadcasters (see recital 73 and 74 above).

Finally, as regards the fourth Altmark criterion, the Commission notes that in view of the lack of clearly defined public service obligations, it cannot be established whether the level of compensation for the public service obligation corresponds to the costs of a typical, well run undertaking. The Commission notes that the German authorities have also not put forward any arguments in this respect. In fact, the subsidy covers part of the transmission fees fixed by the operator of the network for commercial broadcasters, T-Systems. Given that the network licences have been attributed without tender in the application procedure, the level of these transmission fees cannot be considered as having been subject to a competitive tender procedure.

Based on the above, the Commission considers that none of the four criteria of the Altmark judgment is met in the present case.

The German authorities maintain that the measure does not distort competition because the respective broadcasting and network licences were attributed following open and transparent procedures in accordance with the relevant legal requirements at national level. 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.

Regarding the attribution of the broadcasting licences, the German authorities argue that the priority treatment of broadcasters previously present on the analogue platform was a compensation for the return of their analogue licences and as such necessary to realise the switchover.

Indeed, LfM organised an open procedure for the attribution of the broadcasting licences for all DVB-T channels reserved for commercial broadcasters, as described in recitals 24 to 28. The selection criteria referred to the plurality of programmes and the plurality of broadcasters, and foresaw a priority treatment of those broadcasters previously present on the analogue platform. In line with this priority treatment, ProSiebenSat.1 and RTL group have received entire multiplexes for a set of programmes. Out of the 21 applications received in response to the announcement, six applications have been retained.

Concerning the attribution of the network licences, the relevant procedure was organised by RegTP, as described in recitals 29 and 30. Since only one application was received for each of the five service areas defined in North Rhine-Westphalia (T-Systems for the areas concerning private broadcasters and WDR for the areas concerning the members of the ARD Group), the licences were attributed in the application procedure, without launching the tender procedure.

Similarly to the allocation of the broadcasting licences, the Commission considers that from a State aid point of view, the procedure for the attribution of the network licences cannot be considered as excluding the selectivity of the measure. The procedure concerned specifically the operation of the DVB-T network in North Rhine-Westphalia. Moreover, T-Systems, as the incumbent operator, was in a particularly advantageous position to apply for the network licences.

In the opening decision, the Commission took the preliminary view that the measure constitutes a sectoral aid to broadcasting via DVB-T insofar as the subsidy is only granted to broadcasters using the digital terrestrial platform and does not, for example, support the transmission over other transmission platforms.

The German authorities maintain that the measure does not distort competition between cable, satellite and terrestrial transmission. They claim that these means of transmission are only to a limited extent in competition. In their view, terrestrial transmission is rather complementary to cable and satellite, as it also covers areas not served by cable, enables the transmission of regional and local programmes and can serve as a basis to develop mobile reception.

They submit that given the high market share of cable and satellite and the low proportion of terrestrial television, the promotion of DVB-T could not affect the market position of the other platforms. According to the authorities, on the one hand, in view of its low share, terrestrial television is not able to attract broadcasters from the other platforms. On the other hand, the measure would also not affect the choice of consumers, in particular as there are technical, legal and financial obstacles to switch from one means of transmission to another. At the same time, they also argue that instead of replacing cable or satellite, the promotion of DVB-T will exercise a ‘positive competitive pressure’ on the other means of transmission, foster infrastructure competition and thereby facilitate the digitisation of other platforms too.

The Commission considers that the considerations in recitals 110 to 112 do not call into question the qualification of the measure as sectoral aid which selectively supports broadcasters on the DVB-T platform and may also entail an indirect benefit selectively for the operator of the network T-Systems. The envisaged measure is specifically related to one sector of activity, the transmission of broadcasting signals and it selectively supports digital terrestrial transmission in particular. It is selective both as regards the demand side, the commercial broadcasters operating on the DVB-T platforms, as well as the supply side, i.e. the operator of the digital terrestrial network, T-Systems.

The Commission is of the opinion that the different means of transmission of broadcasting signals, i.e. cable, satellite, terrestrial transmission and increasingly also IPTV are in direct competition. Even if the different transmission platforms have their strengths and weaknesses, they serve essentially the same function, i.e. the transmission of broadcasting programmes, and there is substitutability between them both at wholesale level from the point of view of the commercial broadcasters and from the point of view of the viewers at retail level. In Germany, cable, satellite and terrestrial platforms all offer a large number of free-to-air channels which points to a certain similarity of offer. More specifically, the current offer of a total of 24 digital terrestrial television channels appears comparable to the offer in analogue cable, which is the most common transmission platform in North Rhine-Westphalia, although digital cable is developing quickly.

The relatively low share of terrestrial television as compared to cable and satellite in Germany in general and in particular in North Rhine-Westphalia does not eliminate the competitive relationship between the different transmission platforms. The information submitted by the cable operators indicates that the number of cable customers was affected by the launch of DVB-T in North Rhine-Westphalia. In addition, the cable operators note in their submission that there was a slight increase of cable customers following the switch-off of the analogue terrestrial network which also appears to show substitutability from the point of view of the end-users. When the German authorities claim that the measure will exercise a ‘positive competitive pressure’ on the other platforms and foster infrastructure competition, they themselves implicitly recognise the competitive relation between the different means of transmission. The fact that the cable infrastructure has also benefited from State support in the past, as well as the presence of certain regulatory advantages does not reduce the selectivity and the distortion of competition arising from the present measure.

The distortion of competition inherent in the present measure may also affect other markets beyond television transmission. From the point of view of the broadcasters, the present sectoral aid measure helps to reach a wider audience and helps to attract advertisers. By attracting advertisers from other media, the promotion of DVB-T has also the potential to affect a number of companies in other media sectors.

Moreover, with respect to the network operator, the promotion of the DVB-T network may also affect new markets. DVB-T has the potential for supplying pay TV services as shown by the developments in other Member States such as Italy, France, Sweden and the United Kingdom.

In the opening decision, the Commission considered that the measure may distort competition among the different commercial broadcasters present on the DVB-T platform in that the share of the transmission costs covered is not the same for all CSBs.

The German authorities maintain that the measure does not distort competition between the commercial broadcasters because the principles for defining the amount of the subsidy are the same. They claim that the differences in the funding are due to the different position of the broadcasters and the different burdens they have to bear as a consequence of the switchover to digital television.

As described in recitals 34 to 40, the calculation of the subsidy is different for those broadcasters previously present on the analogue platform (the RTL group and ProSiebenSat.1 which have respectively four digital programme channels) and those broadcasters which only started transmitting over the terrestrial platform using DVB-T, which have one programme channel each.

Concerning the broadcasters previously not present on the analogue platform, the financial assistance amounts to on average 30 % of the transmission fees per channel for five years, decreasing by 5 % each year from 40 % in the first year to 20 % in the fifth year. This applies in the same manner to all the four commercial broadcasters concerned.

In the case of the RTL group and of ProSiebenSat.1, the subsidy is calculated based on the difference of their overall costs in analogue and digital terrestrial transmission in North Rhine-Westphalia as well as in the Länder of Northern Germany (see Table 3 and recitals 35, 39 and 40). According to the German authorities, the RTL group is not considered eligible because the decrease of its overall transmission costs in digital mode in the other Länder of Northern Germany covers the overall cost increase in North Rhine-Westphalia. Moreover, the German authorities maintain that RTL also did not ask for funding.

The Commission considers that the method for the calculation of the subsidy cannot be considered objectively justified given that it is not based on a thorough account of the broadcasters’ costs and the revenues in relation to the transmission over the digital terrestrial platform. Moreover, as already outlined in recital 74 above, for those broadcasters previously present in the analogue platform, the calculation method used cannot be considered as an objective way of calculating potential additional costs of digital transmission, given that it does not take into account the increase in the number of programme channels which are driving these costs. Furthermore, the calculation depicted in Table 3 is also arbitrary as the RTL group and ProSiebenSat.1 had a different number of analogue programme channels in North-Rhine Westphalia and in Northern Germany, with different costs due to different geographic coverage. In fact, as also shown by the figures provided by the German authorities, in the present case, transmission costs per channel are lower in digital mode than on the analogue platform (see Table 4). As the German authorities have indicated, ProSiebenSat.1 and RTL have had the possibility to receive entire multiplexes in the procedure for the allocation of the broadcasting licences in view of the priority treatment granted to broadcasters present in the analogue platform, and as a compensation for the return of their respective analogue licences before the expiry date. In addition, the funding provides them with the possibility to broadcast more channels in North Rhine-Westphalia for more or less the same amount of overall costs as in analogue mode. The German authorities have not provided any explanation why the share of costs covered is different in the case of ProSiebenSat.1 and those broadcasters previously not present on the analogue platform.

Based on the above, the Commission is of the opinion that the advantage arising from the allocation of the broadcasting licences for those broadcasters previously present on the analogue platform and the calculation of the subsidy which is not objectively justified introduces a distortion between those broadcasters previously present on the analogue platform and those which started transmission over the terrestrial platform only with the launch of the DVB-T platform.

As explained in the general considerations above, the Commission agrees insofar as the transition from analogue to digital broadcasting is to be considered as an objective of common interest. However, as also highlighted in Switchover communication and subsequent Commission policy documents related to the switchover, this does not provide a universal justification why only the digitisation of the terrestrial platform should be supported. On the contrary, the starting point is, as referred to above, that the transition must be led by the market and that in principle, each network should compete on its own strengths. In order to safeguard this principle, any public intervention shall aim at being technology neutral. The requirement for technology neutrality is not met in the present case.

In their submissions, the German authorities have called into question the appropriateness of the principle of technology neutrality for the purpose of the State aid assessment and claimed that technology neutrality cannot be achieved at the level of an individual State aid measure. They maintain that the overall policy of the German authorities is also technology-neutral and indicate that if it was necessary, they might also provide support to other platforms. However, they consider that the satellite technology does not need support for realising the switchover and the digitisation of cable is not sufficiently advanced to justify concrete support measures. At present, the Commission has not received any concrete information from the German authorities indicating that public funding would be foreseen for other means of transmission as well.

The Commission considers that these general arguments concerning the non-applicability of the principle of technology neutrality cannot be accepted. There is a difference between, on the one hand, financial support for the switchover from analogue to digital transmission and, on the other hand, measures which are merely supporting the digital terrestrial platform as such. Subsidies provided selectively to one of the directly competing transmission technologies introduce a strong distortion of competition among these technologies.

In accordance with Article 87(3)(c) and the applicable case law, such a distortion may only be accepted if it targets a specific market failure or equity problem and is at the same time necessary, appropriate and proportionate to the objectives pursued. In accordance with the State aid rules, this assessment has to be carried out individually for each measure.

Besides the overall objective of promoting the switchover, the German authorities have put forward that the measure aims at maintaining the terrestrial platform by means of promoting the launch of DVB-T. They claim that this contributes to strengthen competition both among broadcasters and at the level of the infrastructure transmission, promoting the achievement of a number of objectives of general interest.

In particular, they argue that the digitisation of terrestrial transmission contributes to media plurality, allowing commercial broadcasters to transmit their programmes in NRW over 12 channels instead of three in analogue mode. They claim that the terrestrial platform is better suited for the transmission of regional and local programmes than cable or satellite. Moreover, they argue that the measure contributes to ensuring universal coverage. The authorities also argue that the topology of the covered areas in North Rhine-Westphalia is such that the coverage of rural and remote areas is more costly and hence less attractive for the commercial roll-out of DVB-T than the territory of, for example, Berlin-Brandenburg. They argue that the measure would be a first step, acting as an incentive for the introduction of DVB-T in these zones at a later stage.

In addition, they emphasise the innovation potential of digital terrestrial television, claiming that only DVB-T allows for the development of digital mobile reception.

The Commission acknowledges the general interest objectives put forward by the German authorities. However, as demonstrated below, it considers that the aid is not specifically targeted to promote media plurality, regional and local content, universal coverage, to stimulate the provision of services in rural areas, or innovation and is not necessary, appropriate and proportionate to achieve the objectives pursued.

The German authorities maintain that the envisaged measure is necessary to achieve the above mentioned objectives and to overcome specific market failures. Moreover, as a matter of principle, they claim that the Commission has no right to call into question the decision made by the Federal Government and the Länder to maintain the terrestrial platform and to carry out its digitisation. They also argue that the Commission is not entitled to consider whether other measures would have been more appropriate for achieving the same objective.

Above all, the Commission wishes to clarify that the present decision concerns specifically the measure notified by the German authorities for the introduction of DVB-T in North Rhine-Westphalia, and not the political decision of the German authorities to maintain the terrestrial platform. In the framework of the present procedure, the Commission is bound to assess under the State aid rules whether the State aid supporting the operational costs of commercial broadcasters is both necessary and proportionate to achieve the general interest objectives pursued by the German authorities in the circumstances of the case.

An analysis of the appropriateness of the State aid measure forms an inherent part of this assessment. The Commission considers that, apart from a proof of the necessity of a measure, the choice of State aid as a policy instrument should be motivated by the appropriateness of this particular instrument of State intervention to deliver the objective of common interest. In cases in which State aid is not an appropriate instrument to tackle a particular efficiency or equity concern, it might create unnecessary distortions to competition and trade that could be avoided by using another policy tool, such as regulatory instruments.

In the following, the Commission assesses, one by one, whether the present measure can be considered necessary and appropriate to address the general interest objectives put forward by the German authorities to justify the present measure and to remedy possible market failures which may hinder the achievement of these objectives. Furthermore, it evaluates whether the present measure can be considered proportionate to overcome these difficulties.

Therefore, the Commission considers that the measure cannot be considered compatible with the common market on the basis of Article 87(3)(c) of the EC Treaty.