Why a Spanish state aid decision is making EU governments nervous

In an expansion of our usual repertoire, this post is taking a quick look at the relationship between EU state aid rules and national support for national television platforms. 

The long running Spanish state aid saga, concerning the conversion of analogue television transmission to digital transmission, has reached a decisive stage with a decision by the lower European court, the General Court of the European Union (“the Court”), in 6 joined and similar cases on 26 November 2015.  Although an appeal to the European Court of Justice is technically possible, it seems unlikely.
What is the EU state aid regime?

For those of you unfamiliar with the state aid regime, the rules are set out in the EU Treaties (Article 107 TFEU) and govern (and attempt to limit) when EU member states can use public funds to support domestic industry.  The purpose of these rules, in common with the competition rules, is to level the playing field across the EU for industry.  Consequently, the application and interpretation of the rules are intensely political. 

What was the case about? 
The Court rejected appeals by a number of Spanish regional authorities against an infringement decision of the European Commission and in the process confirmed a number of important state aid principles.  

Principally, the Court upheld the Commission’s decision that the fact that the Spanish government had failed to respect the principle of ‘platform neutrality’, as its digital switchover funding was only available to Digital Terrestrial Television (“DTT”), as opposed to holding a procurement competition in which satellite, cable and internet protocol TV could also bid.  This conferred a ‘selective advantage’ on DTT in relation to its competitors and was therefore state aid. 

What makes this case interesting? 

The case raises questions about the ‘platform neutrality’ of other compensation schemes for DTT.  In particular, it highlighted the issue of whether DTT platform operators should receive compensation for regulatory changes, in this case changes to spectrum position; when this is not available to other (pay) digital television platforms. 

In the UK, the operators of the DTT platform have received public funds to compensate them for moving their channels to other spectrum frequencies.  However, the DTT platform was not selected through a competitive procurement process.  Therefore, this compensation may raise some state aid questions. 

For example, in 2014 OFCOM decided to move the DTT platform from the 700 MHz band to a lower frequency, in order to use the 700 MHz band for mobile data.  The change is estimated to have cost the UK Treasury between £550–660 million.

Equally, other (pay) television platforms do not receive similar compensation for regulatory changes, which could result in extra costs or a loss of income.  For example, the Department of Culture Media and Sport’s (“DCMS”) 2015 proposal to deregulate the Communications Act 2003 (“the Act”) may make it harder for Sky to charge public service broadcasters for ‘technical platform services’. 

How about future implications? 

The Spanish DTT case also suggests that similar compensation schemes for converting analogue to digital radio, using the Digital Audio Broadcasting (“DAB”) system, may be challenged by the Commission, again on the basis of ‘platform neutrality’. 

Unless EU member states hold public procurement competitions to select the technical solution for the provision of digital radio, they could therefore be open to allegations of state aid, as there are a number of competing technical systems to DAB; such as DRM+, HD Radio and DVB-T.

Is ‘big data’ the new frontier for competition law?

Margrethe Vestager, EU Competition Commissioner, addressed Munich’s zeitgeist-setting Digital Life Design (DLD) Conference earlier this month on the question of data, competition and restrictions to market access. 

The Commissioner raised a number of areas of potential competition concern, but she concluded that, to date, the use of ‘big data’ had not raised competition concerns. She also indicated that a number of the privacy issues in relation to data had been rather over-played. 

Is ‘big data’ in the Commission’s crosshairs?
The key theme of her speech was that competition enforcement action could be taken if the control of data was restricted by a small number of companies, such that other companies were driven out of markets. However, to date, the Commission had not found evidence of this. She also emphasised that the Commission should not take enforcement action just because a company holds a lot of data. 

This comment appears to be a riposte to more interventionist voices in the European Parliament (“EP”) and the European Data Protection Supervisor (“EDPS”). A report commissioned by the EP, and endorsed by the EDPS, found that European consumers suffer discrimination online due to lack of attention in the application of competition law, which it argued is demonstrated by an absence of uniform measures for reporting discriminatory practices and the lack of a harmonised approach to collective redress.

The Commissioner also went to some length to explain that any competition assessment of competition issues involving ‘big data’ will examine why competitors could not get hold of equally good information, as was the case in two previous merger cases: Google's acquisition of DoubleClick, and Facebook's purchase of WhatsApp. In neither case did the Commission consider there to be competition concerns in terms of access to data, as other companies would still have access to many sources of useful data.

Interestingly, she placed technology markets in a wider economic context; saying that these markets are no different from others but what is different is the pace of change. Although many online services are perceived as free to consumers, data is the currency with which they pay for these services. According to the Commissioner, this in itself is not a reason to treat such markets differently. 

Are privacy standards being used to kill off the competition?

Positively for data-based businesses, she thought that privacy was an issue for regulation rather than competition enforcement. She also considered that the EU will soon have adequate data protection rules, with the adoption of the new General Data Protection Regulation; which is expected to be agreed later this year by the EP, the European Council and the Commission.

However, she also highlighted that the standardisation of internet privacy protection should not be done in a way that makes it harder for smaller players to compete. 

So can we all move on now?
The Commissioner concluded her speech by observing that the Commission has not, as yet, found competition problems in relation to ‘big data’ and that Europe does not need a new competition rulebook for the ‘big data’ world. 

However, the question of whether the aggregation of ‘big data’ is foreclosing (European) competitors from online markets is a key economic question of the moment and is also intensively political, as demonstrated by the Commissioner’s somewhat barbed comments. Given this wider policy environment, it is almost certain that the Commission will revisit these questions in the future.