The opening decision was notified to France on 31 January 2003. After a number of substantive errors had been corrected, a corrigendum was notified to France on 7 March 2003.

France communicated additional information to the Commission by letters dated 4 April 2003, 15 May 2003 and 29 January 2004.

The Commission received comments from interested third parties. The Commission forwarded the comments to France on 16 May 2003. It received France's comments by letters dated 30 June and 29 July 2003.

The Commission sent the French authorities the NERA report of 28 April 2004 (‘the NERA report’), which consists of a legal part and an economic part. On 9 and 21 June 2004, the French authorities submitted comments on the NERA report.

In that regard, the Court found that, in the contested decision, the Commission had not expressed a view on the argument raised by the Bouygues companies in their complaint of 22 January 2003, according to which the declarations from July 2002 constituted, in themselves, State aid.

Next, the Court held that, as State interventions take various forms and have to be assessed in relation to their effects, it cannot be excluded that several consecutive measures of State intervention must, for the purposes of Article 107(1) TFEU, be regarded as a single intervention.

The Court of Justice went on to conclude that, having found that it was necessary to identify a reduction of the State budget or a sufficiently concrete economic risk of burdens on that budget, closely linked and corresponding to, or having as a counterpart, a specific advantage deriving either from the announcement of 4 December 2002 or from the shareholder loan offer of 20 December 2002, the General Court had erred in law by applying a test that immediately excluded those State interventions, depending on their links with one another and their effects, from being regarded as a single intervention. However, the Commission was right in its decision to examine the two measures together, since the first measure was clearly inseparable from the second measure.

The Commission must therefore adopt a new decision concluding the formal investigation procedure provided for in Article 108(2) TFEU, which it opened on 31 January 2003.

The analysis under the State aid rules of a State's conduct must be carried out using the data and information available at the time of each state intervention. Given that the present case concerns events that occurred in 2002, it is essential to set out chronologically the evidence available from the time of publication of the results for the 2001 financial year.

France Télécom was, from June 2002 onwards, a company with serious structural problems and an unbalanced balance sheet. The 2001 accounts showed improved operating results and substantial cash flow generation.

France Télécom was forced to announce, on 21 March 2002, not only a major clean-up of its balance sheet through balance sheet provisions and asset disposals totalling EUR 27,2 billion, but also a substantial increase in the available cash flow to the tune of EUR 14 billion for the period 2002-2005.

On that same day, S&P downgraded France Télécom's rating to BBB-. That downgrade was nevertheless limited to a rating still qualifying as investment grade: any further downgrade would have led to the Company's debt being accorded junk-bond status, as being no longer of investment grade.

In the light of the above, it appears that in July 2002, France Télécom was facing a crisis of confidence. Rating agencies and analysts alike were convinced that France Télécom risked not being able to implement the refinancing plan presented by its management in order to meet its maturities. France Télécom was therefore faced with an acute financing problem linked to its indebtedness. Nevertheless, the agencies had maintained the Company's rating at investment grade on the strength of the State's indications. A downgrading of the rating would have worsened the crisis and lessened the Company's ability to cope.

The action plan is based on the following components: (i) the Total Operational Performance Plan (‘the TOP plan’), whereby France Télécom will have to generate an additional EUR 15 billion of cash flow from its own resources; (ii) EUR 15 billion to be raised from the shareholders to strengthen the Company's capital base; and (iii) EUR 15 billion to be raised from the bond and banking markets.

In terms of own resources, the TOP plan includes internal savings designed to improve the Company's operating performance and increase free cash flow with a EUR 15 billion reduction in debt by 2005. These measures are accompanied by asset disposals. The TOP plan is the main pillar of France Télécom's overall recovery plan. It needs to show that the Company is prepared to make a swift and significant contribution to the efforts required to bring its debt back down to normal levels for this sector by the end of 2005. Regarding the increase in cash flow over three years, the TOP plan consists of the reduction and optimisation of investments (with savings of 40 % to 45 %); a reduction in operating costs (savings of 35 % to 40 %); and an optimisation of the working capital requirement (savings of 20 % to 25 %).

The TOP plan has considerable implications for the Company's management and organisation, particularly in terms of operating expenses, jobs and above all investment. It predicts annual growth in turnover, EBITDA and operational cash flow during the period 2003-2005.

The asset disposal plan is in line with the disposals already undertaken by France Télécom to restructure its operations in 2001. Its aim is to minimise the level of indebtedness without jeopardising the Company's ability to generate increasing free cash flow. Achieving this goal requires the Company to refocus on its core business, without undermining France Télécom's ambition to be a telecommunications operator integrating all telecommunications services.

Strengthening France Télécom's capital base would entail a significant capital increase. The contribution from the State and other private shareholders would be proportional to their shareholding and would be EUR 9 billion and EUR 6 billion, respectively.

To that end, the French Government and France Télécom gathered together a banking syndicate, which agreed to underwrite, when the time came, the portion of the capital increase intended for private investors. Like the Government's decision to invest, the banks' commitment was contingent on the announcement to the market of a credible plan with management measures and strategic changes able to convince the market, as well as cash flow forecasts showing the prospect of satisfactory free cash flow.

The State and private investors participating in the operation to strengthen the Company's capital base, in line with the TOP plan, could expect a rate of return on investment of 16,7 % in 2004 and 21,5 % in 2005, based on France Télécom's operating results of EUR 11,1 billion and EUR 13,9 billion in 2004 and 2005 respectively.

According to the French authorities, the strengthening of the Company's capital base could not take place immediately given the situation on the financial markets, especially as far as telecoms stocks were concerned. There were also other factors to consider, such as the length of time it would take to launch such an operation and the need to call an extraordinary general meeting and prepare financial statements.

The French authorities also stressed that it would be better both for France Télécom and its shareholders that such an operation take place after the market had fully integrated the prospects of operational improvement and had been able to assess its initial results or tangible signs.

In these circumstances, and in order to give France Télécom the necessary room for manoeuvre to enter the market under the best possible conditions, the French State declared that as majority shareholder, it was prepared to make an upfront prepayment towards the capital increase. To that end, it would ensure that a temporary shareholder loan in the form of a credit line was made available to France Télécom, any amount drawn by France Télécom being consolidated when new share capital was issued. The maximum loan that could be made available to France Télécom was EUR 9 billion, which corresponded to the State's future contribution to strengthening the Company's capital base. The conversion of the loan into securities was obligatory upon completion of the operation to strengthen the capital base.

The action plan stipulated that the loan would only be drawn upon to the extent that France Télécom required, considering its cash flow plan. It would also be remunerated at the prevailing market rates and the interest would be capitalised. It would thus appear that the granting and making available of the shareholder loan would not be remunerated as such, and that interest would be charged only on the amount drawn against the loan, at a rate equal to Euribor plus a margin established by reference to the average spread recorded at that time on the four main France Télécom bond lines compared with the corresponding swap rate, plus 1 %. It was also stipulated that, whatever the date on which these drawings were made, the margins applicable to the drawings would be increased automatically by 0,35 % from the sixth month following the date of the first drawing and by 0,7 % from the 12th month following the date of the first drawing. The French authorities pointed out that the terms for launching the December bond issues were more favourable for France Télécom than those granted by the State, as the main shareholder, for making funds available for a potential loan. The French authorities explained that, on comparable terms (floating rate swap), the euro tranche of the bond issue corresponded to Euribor + 290 bp, or around 100 bp below that of the shareholder loan, whereas the bond was due to mature long after the loan.

In order to proceed with the shareholder loan, the French authorities planned to use a vehicle, the Entreprise de Recherches et d'Activités Pétrolières (ERAP), a French public industrial and commercial entity, which would be responsible for holding the State participation in France Télécom and reflected the State's intention to identify clearly the financial outlay being granted by isolating it in a dedicated structure.

The French authorities said that ERAP would initially borrow from the State to subscribe to the capital increase, before turning to the bond markets.

The presentation of the Ambition 2005 plan was accompanied by a press release of the Minister for Economic Affairs and Finance, dated 5 December 2002, in which the Government confirmed its support for the plan, its commitment to take part in the operation to strengthen the Company's capital base and the making available of a shareholder loan in the form of a EUR 9 billion credit line. The relevant paragraphs of the press release are as follows: ‘Francis Mer, Minister for Economic Affairs, Finance and Industry, confirms the State's support for the action plan approved by France Télécom's board of directors on 4 December. (1) The France Télécom group is a coherent industrial entity with a remarkable track record. However, the company is now faced with an unbalanced financial structure and a need for capital and refinancing in the medium term. This state of affairs is due to the failure of past investments, which were carried out badly at the height of the financial “bubble” and, more generally, to the market downturn. The impossibility for France Télécom to finance its growth otherwise than through debt has made the situation worse. (2) The State, as majority shareholder, has asked the new management to restore the company's financial equilibrium while maintaining the group's integrity … (3) In the light of the action plan drawn up by management and the investment return prospects, the State will participate in the EUR 15 billion strengthening of the company's capital base in proportion to its share in the capital, giving an investment of EUR 9 billion. The State shareholder thus intends to act like a prudent investor. It will be for France Télécom to work out the detailed arrangements and precise timetable for the strengthening of its capital base. … To enable the company to launch a market operation at the most opportune moment, the State is prepared to make an upfront prepayment towards the strengthening of the capital base in the form of a temporary shareholder loan, remunerated at market rates, placed at France Télécom's disposal. (4) The State's entire shareholding in France Télécom will be transferred to a public industrial and commercial entity, ERAP. The latter will borrow on the financial markets in order to finance the State's share in the strengthening of the company's capital base.’

France Télécom's share price continued its upward progress with the announcement of the TOP plan and of the new executive board on 5 December 2002, which led to a rise of more than 25 % in two days.

A few days after the presentation of the Ambition 2005 plan, France Télécom launched two successive bond issues on 11 and 12 December 2002 for a total amount of EUR 2,9 billion. The first bond issue was for a total amount of EUR 2,5 billion over seven years, at a fixed rate of 7 %, or Euribor + 290 bp. The second bond issue was placed on the pound sterling (GBP) market for an amount of GBP 250 million at a fixed rate of 8 % over 15 years, or LIBOR + 330 bp. Other issues were made on 15 January 2003 for a total amount of EUR 5,5 billion. On 10 February 2003, that part of the EUR 15 billion syndicated loan which had matured, namely approximately EUR 5 billion over three years at the rate Euribor + 125 bp, was renewed.

On 20 December, the French authorities sent the loan contract initialled and signed by ERAP to France Télécom. France Télécom never signed this contract.

France Télécom ended the 2002 financial year with a loss of approximately EUR 21 billion and a net financial debt of almost EUR 68 billion.

On 4 March 2003, the operation to strengthen the Company's capital base by EUR 15 billion as envisaged by the Ambition 2005 plan was launched. The operation was broadly successful and was terminated on 11 April.

The capital increase largely met the structural needs of France Télécom's financing. Thus, following the operation, France Télécom's credit rating began to improve: on 14 May 2003 S&P raised its rating to BBB, outlook stable (from A-3 to A-2 for its short-term rating) and on 8 August 2003 Fitch raised its rating from BBB- to BBB.

Telecom Italia and WorldCom stress that any aid granted to France Télécom is likely to affect competition in the telecommunications markets, and in the French market in particular. It is therefore essential that the aid granted by the French authorities should be accompanied by compensatory measures aimed at reducing its impact on competition.

Bouygues Telecom points out that the support of the State is the cornerstone of France Télécom's recapitalisation plan, which led to the Company's recovery. Thus, according to Bouygues Telecom, only the French State could restore the markets' confidence and create a virtuous circle enabling it to meet its short-term commitments and launch a huge recapitalisation operation under favourable economic conditions. According to Bouygues Telecom, the statements made by the Minister for Economic Affairs and Finance during the period from 12 July to 4 December 2002 constitute a state guarantee committing the State's resources; likewise, the shareholder loan and the operation to strengthen the Company's capital base commit state resources. These measures constitute State aid. They confer advantages on France Télécom which it would not have obtained under normal market conditions and do not satisfy the test of a prudent private investor operating under normal market conditions.

As regards the statements by the Minister for Economic Affairs and Finance, the repeated support of the State, expressed in a series of announcements from 12 July 2002 to 4 December 2002 and supplemented by a series of measures including the opening of the EUR 9 billion credit line and the irrevocable commitment by the State to participate in a capital increase in proportion to its shareholding in France Télécom, amounts to a commitment on its part, from which it cannot withdraw, to make good by all available means any failure by the Company to meet its financial commitments. Bouygues Telecom stresses here that this commitment constitutes a veritable state guarantee producing legal effects committing the State's resources.

With regard to the shareholder loan and the operation to strengthen the Company's capital base, Bouygues Telecom maintains that, firstly, the opening of a EUR 9 billion credit line for the benefit of France Télécom and, secondly, the irrevocable commitment by the State to participate in any future capital increase in proportion to its shareholding in the Company followed by the recapitalisation operation as such, are the implementation of the state guarantee and are financed by state resources. As a result, the measures at issue are financed by state resources, even if the credit line has ultimately not been used.

As regards the condition relating to the advantage, Bouygues Telecom points out that the occurrence giving rise to the guarantee took place subsequently to the reduction in France Télécom's credit rating by the rating agencies with a view to restoring the market's confidence. The guarantee had the effect of enabling France Télécom to gain renewed access to the financial markets.

As to the prudent private investor test, Bouygues Telecom argues that the support measures do not satisfy that test. Bouygues Telecom takes the view that the State's declarations constitute a firm and unconditional legal commitment which an investor would never have undertaken without entering the slightest reservation. It is therefore an unlimited guarantee granted to a company which is extraordinarily leveraged and fragile in the short term.

Bouygues Telecom argues that, in view of the prolonged crisis in the world economy and more particularly in a telecommunications sector undergoing transition, and bearing in mind the size of the sum in question, no private investor could have envisaged a capital increase of that amount without conditions and only a State of the creditworthiness of France could have coped with such uncertainty. It thus points out that the financing of the strengthening of the Company's capital base, covered entirely by debt without any own funds, would have affected the credit rating of any private investor who behaved in a similar way, whereas a State, on the other hand, can be punished only by its electors, who do not have the same objectives. The creditors and shareholders of the private investor would have asked for the investment to be backed by a business plan containing precise commitments, including the disposal of assets. Bouygues Telecom concludes that, at all events, a prudent investor whose financial capacity was comparable to that of the French State and who issued such a guarantee would not have inspired much confidence in the markets and that it is clear that it was due to the qualification of ‘sovereign debt’ enjoyed by the State's commitments that confidence was restored.

Bouygues Telecom argues that the concomitance principle has not been complied with. Bouygues Telecom points out that the participation of private investors was neither certain nor significant at the time of the announcement by the Government of its participation in the capital increase, even if the date of taking the decision to invest is brought forward to 5 December. Where private investors are prepared to intervene only after the authorities have decided to grant aid, the fact that those investors are then prepared to intervene at the same time is no longer relevant. Such an intervention is the consequence of the support given by the State and not the result of a decision of a private investor. Hence, in the present case, the fact that a banking syndicate undertook to underwrite the transaction cannot be taken as a basis for concluding that the concomitance principle is complied with. The French authorities' decision to invest is firm and unconditional whereas that of the private investors is not, and the private investors made their contribution only after having received, on a number of occasions and with certainty, the assurance that the State would also participate in the transaction and especially that it would take every step to ensure that France Télécom did not have any financing problems.

Cable & Wireless expresses the view that the measures at issue constitute State aid. The market's confidence as a result of the announcement of the granting by the French authorities of the shareholder loan sufficed to confer an advantage on France Télécom. Insofar as a prudent private investor would not have taken the decision to recapitalise a company such as France Télécom, which was clearly inefficient prior to the adoption of the Ambition 2005 plan, the Company enjoyed an advantage which it would not have secured under normal market conditions.

AFORS Télécom (Association française des Opérateurs de Réseaux et Services de Télécommunications) observes that the measures at issue constitute State aid. Through a series of step-by-step decisions taken in the course of 2002 until the opening of a EUR 9 billion credit line made available to France Télécom, the French authorities restored investors' confidence by giving formal status to their support. Moreover, even if the credit line opened by ERAP were never used by France Télécom, it symbolises the guarantee of state support and hence mobilises state resources within the meaning of Article 107(1) TFEU.

The terms on which the credit line was granted and the terms governing its remuneration do not satisfy the tests of the prudent private investor principle. AFORS Télécom argues that France Télécom's financial failings since 2000 could not have happened in the presence of a prudent investor. The State's support has had the effect of preventing any further downgrading of France Télécom's credit rating by the rating agencies, which has made it possible to speed up France Télécom's return to the market and the refinancing of its debt under less onerous financial conditions. Hence, it is the credibility of the French State that determined the conditions of France Télécom's return to the financial markets.

Cégétel maintains that there are two separate measures: the announcement by the French authorities of the granting of a shareholder loan to France Télécom, and the participation by the State in the recapitalisation of France Télécom.

As regards the first measure, Cégétel remarks that the situation of a company with a private reference shareholder and that of a company with a public majority shareholder are not comparable. Cégétel explained that a similar announcement made by a private shareholder would have been received with the greatest circumspection by the rating agencies. Cégétel concludes from this that the mere fact of being backed by the State confers a considerable advantage vis-à-vis investors and prevented any further downgrading of France Télécom's credit rating by the rating agencies despite the fact that the operator appeared to be in an insoluble situation. Cégétel maintains that the French State granted aid to France Télécom even before an agreement for the granting of a EUR 9 billion credit line was signed as the announcement of support was sufficient to render this emergency financing unnecessary. Lenders were thus certain that France Télécom could never default on its payments inasmuch as the State would always be ready to grant it the funds it needed to honour its commitments, and this enabled France Télécom to obtain financing directly on the market. France Télécom has therefore received advantages which it would not have secured under normal market conditions. The recourse to the bond market enabled it to avoid having to resort exclusively to financial institutions in order to cope with its liquidity crisis and suffering all the constraints linked to that type of financing. Cégétel maintains that the terms of grant of the credit line by the French authorities are not in keeping with those that a prudent investor holding such investments would require.

LDCOM identifies a dual mechanism of aid in support of France Télécom, backed by support for staff mobility, the provision of an unlimited guarantee and the granting of a EUR 9 billion credit line.

Concerning the provision of the unlimited guarantee, LDCOM bases its considerations on the content of the declarations by the French authorities which have appeared since July 2002, which seek to reassure the financial markets about France Télécom's situation. These declarations contributed directly to the improvement in France Télécom's credit rating in the markets and helped the Company to face up to the liquidity wall with which it was confronted. According to LDCOM, under French law, an oral declaration may, under certain conditions, constitute a legal act giving rise to a right on the part of its addressee.

LDCOM states that the announcement of the making available of a EUR 9 billion credit line constitutes aid; both from the point of view of its amount and of that of its modalities or its very objective, the State's support is not covered by the prudent investor criterion. Thus, no prudent investor would, in September 2002 (when the State announced that it would be supporting France Télécom financially), have advanced EUR 9 billion under such economic circumstances without basing itself on a restructuring plan.

In LDCOM's opinion, the State's position that a prudent majority investor would not have called into question France Télécom's functional integrity does not stand up to an analysis of the conduct of such an investor under the market conditions prevailing in June-July 2002. Thus, investors who invest an extremely large proportion of their assets in a company threatened with collapse will be the first to demand a radical and immediate review of its strategy, involving, if necessary, a huge sell-off of strategic assets.

LDCOM also stresses that the State cannot go back on its declarations without harming its own financial credibility. In its intervention on the market, the State plays a role of borrower and a role of majority shareholder in a number of companies. This dual role leads to a dual credit rating by the rating agencies, in its capacity as borrower and in its capacity as shareholder through the ratings given to public undertakings. This twofold intervention possibility calls for particular vigilance as any deficiency established in either of these two roles is likely to have consequences for its other role and for its rating. LDCOM further stresses the fact that the credibility of the State is fundamentally different from that of other enterprises in a similar situation which cannot reassure the market. The taking into account of the support given by the State following its entering into direct contact with the rating agencies highlights the credibility of the State's support for France Télécom.

Tiscalinet adds that the declarations made by the State as from 2 July 2002 signal to the market that any compulsory administration of France Télécom is ruled out. At the same time, the State's option for its 2002 dividends to be paid in shares and not in cash is another signal by the State to the market that it supports France Télécom even though a prudent investor would have opted for payment of the dividends in cash.

The European Telecoms Association (ECTA) is of the opinion that the ministerial declarations of July and October 2002, the granting of a EUR 9 billion credit line and the advance commitment by the State to take part in the future capital increase constitute State aid. The aid granted to France Télécom enabled it to continue as an integrated operator while increasing its stake in Orange. ECTA is of the opinion that a company in France Télécom's situation ought to have acted altogether differently, as did France Télécom's competitors in the global telecommunications services market, such as British Telecom and KPN, which had to dispose of strategic assets to reduce their debt.

France Télécom has presented its comments in the form of three reports: (i) a report drawn up by Mr Ehlermann dated 12 January 2004 entitled ‘Opinion for the attention of France Télécom’; (ii) a report drawn up by Mr Galmot dated 6 January 2004 entitled ‘Does the case law of the Court of Justice of the Communities allow the conclusion to be drawn that the “financial measures introduced by the State in support of France Télécom”, regarding which the Commission has initiated the procedure provided for in Article 88(2) of the Treaty, have effected a “transfer of state resources” for the benefit of that company?’; and (iii) a report by HSBC entitled: ‘HSBC Opinion of 6 January 2004’.

The first report analyses the French authorities' conduct in the light of the rules applicable to State aid in general and of the prudent investor test in particular. The report also seeks to show that France Télécom was not a company in financial difficulties within the meaning of the Guidelines at the time the State decided to take part in the recapitalisation and announced its readiness to provide a shareholder loan. It stresses that it is normal and usual for the majority shareholder to grant a loan upfront of its participation in the recapitalisation.

The second report focuses on whether the mere announcement of the making available of a shareholder loan in the form of a credit line can as such constitute a commitment of state resources. According to the report, there is no transfer of state resources because, in the end, there was no opening of a credit line or provision of a guarantee, which would have required authorisation by a finance act. There is likewise no transfer of state resources because, under French law, no oral declaration by a public authority is capable of having any effect whatever on the public finances and of carrying out the slightest transfer of state resources. And in the present case, all that is involved is mere ministerial declarations having no negative impact on the public finances.

The third report focuses on the economic rationale behind the State's conduct between 4 September 2002 (the announcement of the first six months' results) and 15 April 2003 (the carrying out of the capital increase). The report is based on an analysis of France Télécom's situation in September 2002 and draws a distinction between, on the one hand, France Télécom's operational performance (healthy activities with a potential for improving the operational cash flow) and, on the other, the amount of the operator's debt. The report concludes on this point that the time lag between the generation of the group's cash flow and the heavy short-term financial commitments (2003-2005) poses a problem of refinancing but not of solvency.

HSBC also describes the background to the short-term liquidity crisis, worsened as it was by a crisis of confidence on the part of the market vis-à-vis the group. It states that, in a situation such as that, reason demanded that urgent steps be taken and required the introduction of a plan to improve the operational results, an increase in capital, a rescheduling of debt and a targeted policy of disposing of assets. It argues that, in the present case, the Ambition 2005 plan is a complete and rational coherent plan as it permits among other things the generation of a EUR 15 billion cash flow via an operational improvement and a disposal of assets that does not involve any amputation of core businesses. It stresses that a capital increase in support of a company introducing an operational recovery plan is a natural way of rebalancing the accounts. It points out that the oral support of a majority shareholder is also usual and rational and that it is normal practice for reference shareholders to announce their decision before other shareholders do. It also points out that in this case the shareholder loan was a low-risk, profitable and normal transaction — pending a capital increase — aimed at safeguarding the majority shareholder's financial interests at a time (the month of December) when it was not possible to recapitalise the company for reasons of scheduling. It adds that the loan was to be made on market conditions.

The HSBC report mentions also the trend in the price of France Télécom shares on the stock exchange, pointing out that the shares had risen in July 2002 as a result of rumours of nationalisation, only to fall again in September because, although the market had got wind of a possible EUR 15 billion capital increase, the practical arrangements were not as yet clear. It points out that France Télécom's financial projections presage, for the State, a highly satisfactory return: according to the DCF — discounted cash flow — method, the recapitalisation involves an annual rate of return of 25 %, whereas the average rate on the telecommunications market is 9,9 %.

In response to the dispatch of the NERA report, France Télécom notes that the conditions required for the State's responsibility to be incurred for non-compliance with its promise are not met in the present case. In no way does the mere act of making a promise, even to pay certain sums of money, suffice in itself to commit public finances, to ‘immobilise state resources’, without a legal instrument. It concludes on this point that there is nothing in French case law to show that there has been a ‘transfer of state resources’ in the present case due to the conditional promise of a shareholder loan.

According to France Télécom, the State has not placed any credit line at France Télécom's disposal through ERAP. Declarations are not legally binding on the State, either vis-à-vis France Télécom or vis-à-vis third parties. The State, however, cannot commit itself without an act giving rise to a right, carried out in compliance with the rules on competence and on budgetary procedure.

France Télécom emphasises more particularly the context in which the declarations were made, pointing out that this is necessary in order to measure their true scope. An analysis of the declarations in the light of events between late June and December 2002 thus shows that the declarations could not constitute a promise, and does not show that the appropriate measures planned by the State were financial measures. There were differences of opinion within the Government at the time and the Minister for Economic Affairs and Finance did not represent the Government standpoint. A study of the facts reveals that there was no such intention on the part of those responsible, who were at a loss how to solve the problem, and that operators had never said they believed the State had committed itself to one or other solution.

• ‘Analysis of the France Télécom group's situation at the time of the announcement of the results for the first half of 2002 shows that the group has an unbalanced balance sheet and a short-term liquidity problem, but the business's operating results are very good.

• Analysis of the range of measures a prudent shareholder must envisage in a situation of heavy indebtedness indicates that it was rational to introduce a recovery plan, including a recapitalisation, for a group with healthy assets whose intrinsic worth is greater than the sum of its market capitalisation and its net debt.

• Analysis of value creation and profitability prospects suggest that the State is making a very good investment by participating in a capital increase and that it is taking little risk in providing a shareholder loan’.

On the criterion concerning the movement in company capital referred to in point 5(a) of the Guidelines, the French authorities point out that the relevant indicator is, pursuant to Article L225-248 of the Commercial Code, the company capital of France Télécom SA, which has always remained positive and has never fallen by half. France Télécom was therefore not in the situation referred to in the Guidelines in which shareholders' funds fall below the company capital.

France Télécom was not in a cessation of payments situation; there were merely signs of a possible liquidity requirement by the first half of 2003 should the expected market recovery not occur. The French authorities add that France Télécom had anticipated reserves of EUR 6,9 billion as at 31 December 2002 and could have crossed the threshold of the year 2003 without resorting to the financial market. The French authorities indicated that France Télécom had had recourse to the syndicated loan, which was less expensive than the bond market and out of which EUR 4 billion had been made available to the Company.

The French authorities also state that France Télécom was not open to any financial risk owing to the downgrading of its credit rating by the rating agencies as there was no early repayment clause in the covenants.

Moreover, according to the concordant opinion of several banks consulted between June and November 2002, France Télécom was, prior to the announcement of the Ambition 2005 plan and of the majority shareholder's support, able to refinance itself on the bond markets. The French authorities thus indicate that, in July and September 2002 respectively, Barclays and Dresdner Kleinwort Wasserstein offered to refinance, through swap programmes starting in October or November, France Télécom's bond debts maturing between 2003 and 2005.

The French authorities stress that, in the light of the above, the increase in the cash flow and the strengthening of the capital base provided for in the Ambition 2005 plan are components of a strategy that would have been followed by any prudent majority shareholder.

As to the rationality of the TOP plan, the French authorities state that the plan in question represents a considerable effort on France Télécom's part. It is an overall plan for a change of management direction based on specific actions which has already produced its first positive results. The French authorities stress in this connection that the plan is an extremely precise one which makes possible an increase in the Company's profitability with a rate of return on investment (RRI) of 43 % in 2005 for those investors who participated in the April 2003 capital increase, that is, a much higher return than the reference RRI (11 %) expected by a private investor in the telecommunications sector. The TOP plan also includes a staff management optimisation chapter. As to the disposal plan, the French authorities state that the disposal of assets at the end of 2002 made it possible to carry forward any liquidity constraint to the end of 2003 without even having to resort to the financial markets.

The French authorities stress, lastly, that the strategies followed by competing operators are no more prudent and that a plan must be assessed, not in the light of the scope or strategic character of the assets whose disposal is being contemplated, but in that of the rationality of the plan as a whole. Moreover, the success of the December 2002 and January 2003 bond issues confirmed a posteriori the confidence private investors place in France Télécom's operational potential.

With regard to the application of the prudent private investor principle to the announcement by the State of its anticipated participation in the strengthening of the Company's capital base, the French authorities observe that they made their agreement conditional on the presentation, by the new management, of a new, credible rebalancing plan and on participation by the banks.

On compliance with the concomitance principle, the French authorities point out that, from the outset, the State shareholder took every step to ensure the concomitant participation of public and private shareholders and that it took no risk before private investors did. Thus, the announcement of the State's intention to participate in the strengthening of the Company's capital base dates from 12 September 2002, and on that date a banking syndicate had already undertaken to underwrite, when the time came, that part of a capital increase which was intended for private investors alongside the public shareholder, on condition that a credible rebalancing plan was announced to the market. The French authorities stress that this condition was normal in view of France Télécom's unbalanced financial situation, the State's participation also being conditional on the announcement of a plan considered by the market to be credible. If the private investors had not stood as guarantors, the State would not have made such an announcement.

The French authorities also state that the private financing predated the public financing inasmuch as the financial contributions by private investors — in the form of debenture loans and the rescheduling of bank loans between December 2002 and February 2003 — took place in significant proportions. The analysis of any making available of state funds must, in the French authorities' view, be carried out in the light of such private financing.

As regards the expected return, the French authorities state that, as has already been indicated, compliance with the prudent private investor principle is also demonstrated by the high profitability prospects of the TOP plan, as confirmed by the plan's favourable reception by the market.

The French authorities stress that the capital increase was effected as soon as it was technically possible to present to the State and to investors updated data on the Company's operational prospects, which demonstrates the State's choice of high-quality investors motivated by long-term return prospects.

The French authorities maintain that the loan proposal was never signed by France Télécom owing to the excessive cost of the financial terms proposed to it and the fact that the Commission was raising doubts about the measure's lawfulness under the Treaty. Consequently, no state resources were placed at the Company's disposal via the shareholder loan proposal. The French authorities argue that the entry into force of the loan cannot be deduced from the announcement made by the State on 4 December 2002, which concerns only the commitment by the State shareholder to participate in the operation to strengthen the Company's capital base, mention being made only of the ‘possible’ provision of a shareholder loan.

The French authorities observe that, at all events, the loan proposal conferred no advantage on France Télécom.

The French authorities thus make clear that, insofar as it has not entered into force, the loan has not been used by France Télécom and therefore has not been able to postpone the Company's liquidity needs. They maintain that the loan announcement does not constitute a guarantee. French law does not recognise an implicit guarantee: any guarantee provided by the State must be enshrined in a law. It is wrong to treat the announcement of a possible state loan as a guarantee. The French authorities insist that the guarantee which the State provided to ERAP to enable it to finance its participation in the strengthening of France Télécom's capital base must not be equated with a guarantee given to France Télécom. As far as ERAP is concerned, the French authorities state categorically that its role was entirely neutral and that it intervened only for budgetary reasons.

As to compliance with the prudent investor principle in relation to any shareholder loan, the French authorities stress that, when the decision to take part in a capital increase was taken and the conditions therefor were met, it was logical that the State should make an upfront prepayment. The first discussions about the loan proposal date back to November 2002. The French authorities also stress that the legitimacy of such a measure could not be challenged because, as is mentioned above, it was based on a credible, detailed plan the content of which was mostly known at the time of the announcement of the loan proposal on 4 December 2002. Moreover, the State had already received the undertaking, conditional on the presentation to the market of a credible plan, from the banking syndicate and it knew full well at the end of November that that condition would be met given the market's positive reaction to the appointment of the new management. The French authorities stress in this connection that it is not pertinent to assess the amount involved in the present case but that, in accordance with the Alitalia judgment, it is necessary to examine the conformity of the conditions of financing the operation for a company of comparable size.

As to the remuneration of the potential loan, the French authorities stress that it was granted on normal market terms and that it was increased by a premium to reflect its subordinate nature. The proposal provided for a non-utilisation commission and the absence of security was in keeping with the practice of a prudent investor in the case of a short-term loan granted by a shareholder upfront of his subscription to a capital increase. The repayment of the sum in shares was customary and was based on the cash value.

The French authorities stress the context which must be taken into account when analysing the declarations made by the State in its capacity as a prudent shareholder. Thus, between the months of September and December 2002, the State engineered a change in management, the key feature of which was the change in France Télécom's CEO, and closely monitored the drafting of a rebalancing plan while at the same time ensuring the support of private investors with an eye to the launch of a possible capital increase. According to the French authorities, these operational measures had a decisive financial impact, were very well received by the financial markets and led to the recovery in France Télécom's share price.

Concerning the declaration of 2 October 2002, the French authorities argue that this confirmed that the presentation of a credible plan was a precondition for the State's participation.

The French authorities argue that only the operational measures had an impact on France Télécom's share price. Thus, the Company's share price rebounded on 2 October 2002 (up more than 10,4 % on the previous week) following the announcement of the appointment of the new CEO, and the share price's progress continued upwards with the announcement of the TOP plan and of the new executive board on 5 December 2002, which led to a rise of more than 25 % in two days. The declarations of principle made by the State between July and October 2002 were not the determining factor in this increase and as long as there were no operational measures the share price fluctuated, reflecting the market's uncertainty about the Company's situation. This perception led to a fall in the share price, which reached its lowest point on 30 September 2002 following a period of relative stability during the summer in the absence of any specific announcements or rumours. During that period, the State's declarations as to its intention to play fully its role of shareholder did not stop the downward trend in France Télécom's share price.

• ‘the legal report is based on an erroneous (not to say tendentious) interpretation of the facts. In particular, … the report manifestly twists — albeit clear — remarks made by the Minister for Economic Affairs in the course of an interview with a journalist published in July 2002. The French authorities strongly contest that it is possible to propose interpretations as unfounded as these in order to draw legal conclusions and in particular to assert that there exists any guarantee granted by the State to France Télécom’. ‘What is involved here is not even an official communiqué from the Government or from France Télécom, but merely a press article reproducing the text of an interview with the Minister for Economic Affairs in the wider context of the Government's priorities and therefore lacking any probative force’.

• ‘The State as shareholder in France Télécom has not only always intended to behave like a prudent investor with regard to France Télécom but has also chosen to express clearly and publicly that this position would be the point of departure for all of its potential actions in this area …’. The Minister's July 2002 interview makes no mention of any decision being taken.‘… [W]hile remaining confident in the company's viability, the State was merely taking note of the market's doubts about France Télécom's situation and, in its capacity as majority shareholder, was trying to refine its analysis without being able, at that stage, to make an accurate diagnosis or take any decision’. ‘Moreover, there was no reason to suppose a priori that the phrase “appropriate steps” referred specifically to financial measures’.

• ‘The French authorities have also noted numerous inaccuracies in the reasoning set out in the legal report. The report is thus manifestly short on objectivity, adopting highly contestable legal analyses (for example regarding the characterisation of letters of intent and the scope of a unilateral commitment in civil and commercial law) and making an unjustified application to the facts at issue of certain irrelevant legal precepts (this is the case, for example, with the application of the theory of business management or of the rules of public international law in relations between a company and its majority shareholder)’.

• ‘The legal report's finding of the existence of an “unlimited guarantee”, granted by the State to France Télécom, is in any event totally baseless in Community law’. In accordance with the Compagnie nationale Air France judgment34, the remarks in question cannot give rise to any firm and unconditional commitment on the part of the State.

• With regard to the comparison between the Minister's July declarations and a letter of intent, the French authorities stress that ‘(i) firstly, it is of the essence of the letter of intent that it is addressed to a beneficiary; (ii) secondly, and as an extension of the preceding observation, the effectiveness of the method is dependent on acceptance by the said beneficiary; and (iii), lastly, the scope of the commitment given (both as regards its object and as regards the force which its author wishes to give to it) depends exclusively on the terms employed’. ‘Thus … the general — to say the least — character of the Minister's remarks … rules out without doubt any commitment in favour of France Télécom or its creditors, and a fortiori any obligation as to the result to be achieved (and hence any idea of guarantee) as well as any obligation as to the means’. ‘The Minister's reply … only confirms that no decision — other than to act like a “prudent investor” — had as yet been taken by the State shareholder, which, while trusting in the operational quality of the company, was not at that time able to make a sufficiently accurate diagnosis or to take any decision’. ‘The courts have … never held that a guarantee commitment without a specific beneficiary or beneficiaries may thus be relied upon by any person who might have an interest therein. This is not surprising as it is in the nature of a guarantee or of a letter of intent that it is addressed to one or more beneficiaries. Nor is it surprising, since it was not intended for any specific beneficiary, that the alleged commitment was not accepted’. As for the business management hypothesis, this concept is entirely inapplicable to the present case.

• As far as administrative law is concerned, ‘[f]irst of all, mere remarks made to a journalist — such as those made by the Minister for Economic Affairs on 12 July 2002 — do not constitute a “tortious act” capable of giving rise to rights and obligations, and even less a guarantee granted to France Télécom by the State’.

• ‘The legal consultant's conclusions clearly fly in the face of the Commission's decision-making practice and of Community case law in the field of State aid, which make the existence of aid conditional on proof of a firm, precise and unconditional commitment on the part of the State concerned — something which the Minister's remarks of 12 July 2002 could in no way be construed as being’. ‘A state measure, in whatever form, must be sufficiently precise and concrete for the Commission to be able to determine the very existence of an advantage’.

As regards the economic report, the French authorities argue that France Télécom was not a firm in difficulty at the time of the events in question (as it had access to the capital markets and no long-term viability problem) and that the participation by the State shareholder in the plan to rebalance the company's balance sheet was in keeping with the private investor criterion.

The declarations from July 2002 allowed FT's rating to be maintained at investment grade and enabled the financial markets to regain confidence. They made it possible, easier and cheaper for FT to gain access to new loans necessary to refinance its short-term debts for the amount of EUR 15 billion, and ultimately helped to stabilise its fragile financial situation which, in June and July 2002, was on the point of deteriorating substantially.

The State thus retained this trust through successive declarations. In fact, the State's intervention had the effect of preventing any downgrading of France Télécom's credit rating to that of junk bond status, as is, moreover, clearly stated in S&P's press release of 12 July 2002, where the assurances provided by the State are hailed as being a key factor in France Télécom's not being reduced to junk bond status.

In addition, at paragraph 230 of that judgment, the General Court noted ‘a number of relevant factors which effectively determined the French State's decision in December 2002, that is, in addition to restoring the confidence of the financial markets and preserving FT's credit rating, primarily the restructuring and rebalancing measures taken within FT, including the Ambition 2005 plan drawn up by its new management between October and December 2002, which provided in particular for the implementation of a plan, “the TOP plan”.’ It also considered as ‘key factors’ in the case ‘the commitment given in September 2002 by a banking syndicate to underwrite that part of an increase in the capital of FT which was intended for private investors, the sale by FT of some EUR 2,5 billion in non-strategic assets between July and December 2002, the appointment of a new management team for the company in October 2002, and the resolution in November 2002 of the dispute between FT and the German operator Mobilcom. Taken as a whole, those factors brought about a marked improvement in FT's operational prospects and performance during the second half of 2002.’

Consequently, in view of the particular circumstances of the case, there is no inextricable link between the measures that the French authorities took prior to December 2002 and the measures that they took in December 2002. It is necessary therefore to examine whether, between 4 December 2002 (when the State announced its shareholder loan to France Télécom) and 20 December 2002 (when the State sent France Télécom a signed and initialled draft shareholder loan agreement), the conditions for State aid were met, and in particular, whether the State acted in the same way as a prudent private investor in a market economy.

However, a measure is not deemed to constitute an advantage and so does not qualify as State aid if the recipient undertaking could, in circumstances which correspond to normal market conditions, obtain the same advantage as that which is made available to it through State resources. In the case of public undertakings, that assessment is made by applying, in principle, the prudent private operator test.

In December 2002, it appeared that the confidence of the financial markets in France Télécom's future had been largely restored and that France Télécom's credit rating had been preserved, mainly as a result of the restructuring and rebalancing measures taken within FT, including the appointment of new management and their development of the Ambition 2005 plan between October and December 2002, which included the implementation of a plan, the ‘TOP plan’, to improve the Company's operational performance.

In assessing the shareholder loan, it is important to determine whether the participation in the strengthening of the Company's capital base satisfies normal market conditions.