EU Court Rejects Vtesse Networks Appeal vs State Aid for BT’s Broadband

Fibre optic developer Vtesse Networks, which was only last month gobbled up by Interoute Communications, has lost its appeal at the General Court of the European Union, which challenged the decision to award state aid to BT for its deployment of superfast broadband (FTTC/P) services in Cornwall and Isles of Scilly (England).

The related Superfast Cornwall project, which is a partnership between the EU, BT and Cornwall’s Council, predates the Government’s national Broadband Delivery UK (BDUK) programme. It is funded by £78.5m from BT, up to £53.5m from the European Regional Development Fund (ERDF) and aims to make BT’s “high-speed fibre optic broadband” (FTTC/P) network available to 95% of the area by the end of this year.

However BT wasn’t the only operator bidding for the contract and Vtesse were initially also known to be in the running , although obviously they didn’t win. Shortly after that they began a related complaint concerning the award of the contract to BT and the allegedly unfair business rates on new fibre optic lines (aka – Fibre Tax), which are charged by the Valuation Office Agency (VOA) and can sometimes appear to penalise smaller ISPs.

But in early 2011 Vtesse finally lost its European Court challenge to the controversial Fibre Tax (here), although they continued to lodge a final appeal over the handing of EU state aid in Cornwall to BT.

Vtesse’s Position (Complaint Summary by the EU Court)

– that it is a competitor of BT, the beneficiary of the aid;

– that it was the only surviving telecoms company in the tender process apart from BT when it was obliged to withdraw;

– that it was the only telecoms company other than the actual recipient of the aid which would have been eligible to receive the aid;

– that, in any event, its competitive position on the market has been substantially adversely affected by the grant of the aid, on the ground that the tender process was a very substantial project for it;

– that, moreover, the only recorded complaint in respect of the aid in this case was that of the applicant. By analogy with Case 169/84 Cofaz and Others v Commission [1986] ECR 391, this is a further ground for admissibility.

Unfortunately the EU court ruled on 5th November 2014 that Vtesse’s complaints didn’t pass the necessary tests and hadn’t “proved that its market position is substantially affected by the aid in question“. The judgement also noted that Vtesse’s original bid was actually conducted as part of consortium and not as an individual company.

Court Ruling – Vtesse’s Consortium Status

“Thirdly, the Court must reject the applicant’s assertion that it was the only surviving telecoms company in the tender process and the only telecoms company which would have been eligible to receive the aid. In the first place, as argued in particular by BT, the United Kingdom and the Commission at the hearing, the two surviving participants in the tender process were BT and the Babcock consortium, to which the applicant does indeed belong, and not BT and the applicant.

In the second place, it is apparent from the file and from the submissions made in that regard during the hearing that the applicant was not the only surviving telecoms company in the tender process, since the other members of the Babcock consortium included, inter alia, the telecommunications companies Surf Telecoms and Motorola Inc.

Even assuming that those companies were not tasked with constructing the physical infrastructure and were not the most directly concerned by the main part of the tender as the applicant claims, the fact remains that both companies were concerned by the contested decision. It is apparent, as the applicant indeed acknowledges in particular in its observations of 8 July 2011, that, in the context of the Babcock consortium’s bid, Motorola was involved in the ‘wireless’ part of the bid and Surf Telecoms rented fibre to the applicant. Consequently, it must be found that the applicant is not concerned in a manner which distinguishes it individually from the other companies.”

In the end Vtesse was ordered to bear its own costs and to pay those of the Commission and BT. Meanwhile the rules mean that any Member States which intervened in the proceedings are to bear their own costs (i.e. Poland and the United Kingdom must bear their own costs).

Meanwhile a spokesperson for BT told Computer Weekly that they were “delighted that the EU General Court has upheld the Commission’s 2010 decision approving public funding for the superfast broadband project in Cornwall and the Isles of Scilly.” BT also noted that 92% of premises have now been covered (leaving 3% of the target yet to complete) and 55,000 customers have already subscribed to the related FTTC/P services.

Sadly Vtesse has not offered a comment, although it’s interesting to note that the recent acquisition by Interoute Communications occurred so close to this ruling.