EFTA SURVEILLANCE AUTHORITY Doc. No: 99-9493-1 Ref. No: SAM 030.99.003 Dec. No: 331/99/COL EFTA SURVEILLANCE AUTHORITY DECISION OF 16 DECEMBER 1999 ON A FINANCIAL CONTRIBUTION TO RADIO LIECHTENSTEIN (LIECHTENSTEIN) THE EFTA SURVEILLANCE AUTHORITY, HAVING REGARD TO the Agreement on the European Economic Area 1, in particular to Articles 59 (2) and 61 to 63 thereof, HAVING REGARD TO the Agreement between the EFTA States on the establishment of a Surveillance Authority and a Court of Justice, in particular Article 24 and Article 1 of Protocol 3 thereof, WHEREAS: I. FACTS The notification By letter of 15 April 1999, registered by the Authority on 21 April 1999 (Doc. No. 99-2758-A), the Liechtenstein authorities informed the EFTA Surveillance Authority of a bill regarding a financial contribution to Radio Liechtenstein (Radio L). By letter of 26 July 1999 (Doc. No. 99-5625-A), the Government of Liechtenstein was enjoined to submit additional information on the financial contribution to Radio L. By letter of 26 August 1999, registered by the Authority on 1 September 1999 (Doc. No. 99-6428- A), the Government of Liechtenstein submitted part of the requested information. By letter of 13 September 1999 (Doc. No. 99-6669-D), the Authority acknowledged receipt of the additional information and reminded the Government of Liechtenstein, to submit the missing information by the end of September. On 27 September 1999, a meeting was held between the EFTA Surveillance Authority services and representatives from the EEA Co-ordination Unit. By letter of 8 October 1999, registered by the Authority on 13 October 1999 (Doc. No. 99-7617-A), the 1 Hereafter referred to as the EEA Agreement.
Page 2 Government of Liechtenstein furnished additional information. By letter of 22 October 1999, registered by the Authority on 25 October 1999 (Doc. No. 99-7965-A), the Government of Liechtenstein notified the proposed aid measure in accordance with Article 1 (3) of Protocol 3 of the Surveillance and Court Agreement, and at the same time informed the Authority about an amendment to the bill, which consisted La. of an increase of the financial contribution from CHF^j ^H to CHFI^BB 4Mb. By fax of 13 December 1999, received and registered on the same day (Doc. No. 99-9556-A), the Liechtenstein authorities communicated to the Authority La. an amendment regarding the entering into force of the Parliament's Decision to grant the financial contribution. The aid measure In 1991, the Government of Liechtenstein presented a Media Report to Parliament, proposing the establishment of a Liechtenstein radio station in order to preserve the national and cultural identity of Liechtenstein and to avoid the dominance of foreign media undertakings. Following this, the Radio and Television Ordinance of 10 December 1991 was adopted, laying down the requirements regarding nation-wide broadcasting activities. In 1992, the Government of Liechtenstein carried out a tender procedure with a view to grant a radio licence. Due to the limited UKW frequencies a broadcasting licence for the whole country could be granted to only one radio station. Radio-TV Aktiengesellschaft (Radio L) was selected on the basis that the conditions set out in the Radio and Television Ordinance, and in particular the requirement that the financing was secured, were met. Radio L is a company established under Liechtenstein Company law and located in Vaduz. The State does not own or control shares of the company. Radio Liechtenstein operates the only radio station established in Liechtenstein. On 15 September 1994, the Parliament gave its assent to grant the concession to Radio L. According to Article 18 (2) of the Radio and Television Ordinance of 10 December 1991, which is an integral part of the concession, broadcasters shall focus on the special characteristics of Liechtenstein in their programmes. According to the terms of the radio concession, Radio L shall contribute to preserve and promote the cultural values of Liechtenstein, to foster the spiritual, moral, civic and cultural education as well as to assure information and entertainment (Article 3 of the concession). Furthermore, Radio L is under an obligation to broadcast only own news, culture and entertainment programmes. According to information submitted by the Government of Liechtenstein, Radio L does not acquire foreign radio programmes, except for weather information. The information further shows that the extent to which Radio L's broadcasting activities covered Liechtenstein-related issues, varied between 60% and 80% of its total broadcasting activities (figures for 1999). On 15 August 1995, Radio L started its radio broadcasting activities. The geographic market, as determined by the concession, comprises mainly Liechtenstein, Switzerland and a minor part of Austria (region of Vorarlberg). According to a survey carried out in 1999, Radio L reached 1-2% of the listeners in the region of Vorarlberg. In Germany, Radio L cannot be received. According to figures presented by the Government of Liechtenstein, Radio L's market share in terms of listeners, in Liechtenstein amounted to 50% in 1999 (compared to 34% in 1996), whereas foreign
Page 3 radio stations present on the Liechtenstein radio market, in particular the two Swiss radio stations, Radio Ri and Radio DRS 1, recorded market shares of 6% and 15 % respectively in 1999 (compared to 12% and 20% in 1996), and an Austrian local radio station, Radio Vorarlberg, showed market shares of 8% in 1999 (compared to 9% in 1997). Advertising revenues are mainly achieved in Liechtenstein and Switzerland (1997/98: 70% and 25% respectively, compared to 80% and 20% respectively in 1995/96). Advertising revenues originating in Austria represented 5% in 1997/98 (compared to 0% in 1995/96). No such revenues were obtained from Germany. Following the award of the licence, the Government granted an interest bearing loan amounting to CHF^BHMQfefor the installation of the studio. The maintenance costs of the studio as well as other expenses incurred in its broadcasting activity had to be borne by Radio L. Although the relevant legal provisions required the applicants for a licence to ensure the financing of the radio station, it became apparent from the very first year that Radio L was not capable of raising the necessary revenues. The initial financial plan, submitted with the application for the licence, was based on overestimated advertising revenues. But even if the estimated figure had been achieved, this amount would not be sufficient to cover total costs. Figures presented by the Government of Liechtenstein regarding the financial performance of Radio L since 1995 reveal that advertising revenues amounted on average to only 10% of total costs. Only extraordinary capital injections from the owners of Radio L have prevented the initiation of liquidation proceedings in the past. It is against this background, that the Government proposed a retroactive financial contribution of initially CHF0BM9; later increased to CHF-jBH^HIr to Radio L, designed to compensate its achievements regarding the media environment in Liechtenstein since the beginning of its broadcasting activities in summer 1995 until the end of 1999 (corresponding to CHF^^^per annum, covering 4 l A years). The Government's outstanding claims (amortisation costs of loan, accrued interest and other), which per 30 June 1999 amounted to CHF4HMff will be offset against this contribution. In its plenary session on 24 November 1999, the Parliament adopted the Government's proposal. The act as finally adopted by the Parliament stipulates that its entering into force depends on the final approval by the EFTA Surveillance Authority. The Government of Liechtenstein takes the view that the financial contribution does not fall within the scope of Article 61 (1) of the EEA Agreement given the lack of cross-border trade in the radio market. In addition, it maintained that the aid is justified as a compensation for Radio L's achievements in the general interest. Alternatively, the Government contends that the financial contribution would qualify for an exemption under Article 61(3) (c) of the EEA Agreement. II. APPRECIATION Pursuant to Article 1 (3) of Protocol 3 of the Surveillance and Court Agreement, ["T\he EFTA Surveillance Authority shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid... The State concerned shall not put its proposed measures into effect until this procedure has resulted in a final
Page 4 decision". By "putting into effect" is meant - according to Chapter 3, point 3.3 (2) of the Authority's State Aid Guidelines 2 - not only the action of granting aid to the recipient. It is sufficient that the conferment of powers enabling the aid to be granted without further formality has taken place. The Government Bill as adopted by Parliament, makes the entering into force of the act regarding the financial contribution to Radio L conditional upon its prior approval by the EFTA Surveillance Authority. It can therefore be concluded that the Liechtenstein Government respected its obligations under Article 1 (3) of Protocol 3 to the Surveillance and Court Agreement. Article 61 of the EEA Agreement stipulates: " Save as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between the Contracting Parties, be incompatible with the functioning of the Agreement." The financial contribution amounting to C H F'V B M W t derives directly from the State Budget. Therefore, the public nature of the resources involved in the above measure is evident. Furthermore, the contribution confers on Radio L a gratuitous financial advantage. The Government of Liechtenstein contended that the payment constituted a compensation for services provided by Radio L in the public interest. As to the application of Article 61 (1) of the EEA Agreement, the Authority takes the view that the financial contribution cannot be regarded as a compensation payment for the provision of services in the general interest, which would be deemed not to contain aid. Only if the amount was fixed as a result of an operation of the market (tender), where all interested undertakings were given the opportunity to state the amount of compensation they would require to operate the service on behalf of the State, would the compensation be considered not to constitute aid. In other circumstances there is a presumption of aid. In this respect, it should be noted that Radio L, as well as the other applicants for the radio licence, submitted its application under the condition that the financing was secured without contributions from the State. The Government emphasised that radio broadcasters could not expect financial support from the State. Against this background, it has to be concluded that the amount of the financial contribution cannot be regarded as the market price for the services provided by Radio L. By granting financial support to Radio L, competition is distorted and trade affected between the Contracting Parties. It is established case law that when State aid strengthens the position of an undertaking competing in intra-community trade, competition and trade must be regarded as affected by the aid. 3 It has further been ruled by the ECJ that aid to an undertaking may be such as to affect trade where that 2 Procedural and Substantive Rules in the Field of State Aid, adopted and issued by the EFTA Surveillance Authority on 19 January 1994, published in OJ 1994 L 231, EEA Supplement 03.09.94 No. 32. 3 Judgment of the Court of 17 September 1980, Philip Morris Holland BV v. Commission, Case 730/79, [1980] ECR2671, para. 11.
Page 5 undertaking competes with products coming from other countries, even if the undertaking itself does not export its products. 4 The relevant markets to be taken into consideration are the radio broadcasting, radio programme and advertising markets. In recent decisions concerning State aid to television broadcasting operators the EC Commission defined the relevant market as follows: "Broadcasting in itself cannot be considered as a market in the economic sense of the word, as it does not involve any direct commercial transaction between the provider of the service and the user of it. However, although no direct competition can be envisaged in this area, the broadcasting activity does have an indirect economic relevance. The main source of market revenues for broadcasters is the advertising. Advertisers are interested in reaching the widest number of viewers for their advertising messages. The higher the number of viewers of a certain program is the higher would be the price of the advertising slot. In this sense there exists an indirect competition in the broadcasting activity itself, although it does not give rise to commercial transactions 'stricto sensu'. The presence of State-financed broadcasting undertakings, capable of offering an attractive set of programs to its viewers, and, thus, to retain audience, has a direct effect on the revenues collected by its competitors." 5 On the basis of the information submitted by the Government of Liechtenstein, it becomes, apparent that there is an appreciable degree of cross-border competition between radio operators in the EEA countries. Although Radio L broadcasts mainly within Liechtenstein and its presence is at present limited in Austria (market shares in the region of Vorarlberg amount to 1-2%) and non-existent in Germany, it competes on the Liechtenstein radio broadcasting market with one local Austrian radio station ("Radio Vorarlberg"). The market shares of Radio Vorarlberg in Liechtenstein have dropped from 9% in 1997 to 8% in 1999, whereas the market share of Radio L has increased from 34% in 1996 to 50% in 1999. Although advertising revenues are mainly achieved in Liechtenstein and Switzerland, it is noteworthy that advertising revenues from Austria have increased from 0% in 1995/96 to 5% in 1997/98. Furthermore, and according to the Government Bill, Radio L will undertake efforts in the future to increase its catchment area and thus enable it to obtain more important adverstising revenues. As far as the programme market is concerned, there is apparently no (cross-border) trade since Radio L does not buy foreign radio programmes (except for weather information). According to the conditions of the concession, Radio L is under an obligation to produce all its programmes and is in principle not allowed to have recourse to foreign programmes. Admittedly, the mere fact that certain goods or services are provided across national borders might not always be sufficient to justify the conclusion that competition and trade are effected. It is true that in exceptional circumstances the nature and peculiarities of the "traded" product/service might require a more differentiated approach. Therefore, when it comes to assessing whether trade and competition are 4 Judgment of the Court of 13 July 1988, France v. Commission, Case 102/87, [1988] ECR 4067, para. 19. 5 See in particular State Aid No. NN 166/95 Aid to Spanish public broadcasters.
Page 6 affected on the (radio) broadcasting market, factors such as language, culture and lifestyle as well as the content and the targeted audience of the programmes have to be taken into account 6. In this respect, the Authority notes that there is no language barrier between Liechtenstein and its German-speaking neighbours, and among others, with Austria. According to the terms of the radio concession, including legal requirements under the Radio and Television Ordinance, Radio L shall focus on events from Liechtenstein. However, it is not limited to these activities; Radio L is also providing pure entertainment, an activity in which it is in competition with other radio stations. It cannot, therefore, be concluded that the content of Radio L's programmes is such that it is not competing with other regional radio stations, such as Radio Vorarlberg. Furthermore, in the light of efforts to enhance the catchment area, it cannot be said that the targeted audience is limited to Liechtenstein, in particular given the fact that the Liechtenstein audience might not be enough to ensure sufficient advertising revenues. In the light of the foregoing, it has to be concluded that competition is distorted and trade is affected by the financial contribution to Radio L. However, the financial contribution may be exempted from the prohibition of State aid laid down in Article 61 (1) of the EEA Agreement, since it might be justified under Article 59 (2) of the EEA Agreement. Pursuant to Article 59 (2) "undertakings entrusted with the operation of services of general economic interest...shall be subject to the rules contained in this Agreement, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary of the interests of the Contracting Parties." The EC Court of Justice held that, the grant of a State aid may escape the prohibition laid down in Article 92 of the EC Treaty (now Article 87) provided that the sole purpose of the aid in question is to offset the additional costs incurred in performing the particular task assigned to the undertaking entrusted with the operation of a service of general economic interest, and that the grant of the aid is necessary in order for that undertaking to be able to perform its public service obligations under conditions of economic equilibrium. 7 It should be mentioned at the outset that EFTA States are in principle free to determine the public service remits. This determination is however subject to control exercised by the EFTA Surveillance Authority in order to avoid abuses of that competence. Article 59 (2) would be deprived of its sense if EFTA States would be allowed to consider the whole of the contents of all public - or in the case at issue, private - channels to be a public service. The permissible extent to which States can define services in the general economic interest may vary depending on the circumstances in each case. Therefore, insofar as certain services are not provided by 6 See in this context Commission Decision of 16 September (Case No. IV/M.810 - n-tv), OJ C 366 of 5 December 1996, p. 10. 7 Judgement of the Court of First Instance of 27 February 1997, FFSA and others v. Commission ("La Poste"), Case T-106/95, [1997] ECR11-229, para. 178.
Page 7 other operators, EFTA States are allowed to include these areas within the definition of the public service remit. In this respect, the Authority notes that Radio L is the only radio operator established in Liechtenstein, providing information focused on Liechtenstein. According to information submitted by the Government of Liechtenstein, this kind of information is only sporadically provided by other radio broadcasters (either from Switzerland or from Austria). It is therefore, through the focus on Liechtenstein events etc. that Radio L contributes to preserve media pluralism and to reflect the variety of opinions of Liechtenstein society. In this light, the provision of broadcasting services focusing on Liechtenstein is considered as a service in the general interest. Furthermore, the aid recipient must have a legal obligation to provide these services. In this sense an undertaking is regarded as being entrusted with the operation of services of general economic interest if these obligations are laid down in legislative measures, regulations or through the grant of a concession governed by public law. Under the terms of the concession, Radio L is obliged to focus on news, reports and events regarding Liechtenstein. In addition, it shall broadcast only its own productions. In this sense, Radio L is to be regarded as being entrusted with the provision of these services. Finally, the aid is both necessary and proportional to the attainment of the objectives, namely to ensure the continuity of broadcasting services- in and focused on Liechtenstein. As to the necessity of the aid, it should be noted that due to the limited catchment area Radio L is not able to raise the necessary advertising revenues enabling it to finance its broadcasting activities. Figures regarding the financial performance since 1995 show that advertising revenues constituted on average only 30% of the total costs. Given the fact that advertising revenues were supposed to be the main source of financing broadcasting activities, these amounts are far from being sufficient. At present, Radio L reaches approx. 60 000 listeners, including audience abroad (mainly in Switzerland and to a lesser extent in Austria). According to Swiss legislation concerning State support for regional and local radio stations, a catchment area comprising at least 150.000 inhabitants is necessary to ensure sufficient advertising revenues. Given the circumstances under which Radio L operates, it can therefore be concluded that without State support, Radio L would not be able to finance its broadcasting activities under normal commercial conditions. The prohibition of the financial contribution would therefore in fact obstruct the performance of the particular task assigned to Radio L. The financial contribution of CHF MflBHHA, which is meant to compensate Radio L's services to the amount of CHFVflHBl per annum, is considered to be proportional to the public service obligations performed by Radio L. The Government of Liechtenstein was not in a position to provide figures regarding the additional costs incurred in the provision of these public. service obligations as described above. Nevertheless, the information provided shows that Radio L's broadcasting activities covering Liechtenstein-related issues range between 60% and 80% of the total broadcasting activities. Given the fact that the financial contribution constitutes on
Page 8 average only about 10 % of Radio L's total costs, the Authority has concluded that the amounts involved do not carry the risk of over compensation. The financial contribution is therefore considered to be proportional. Finally, the Authority considers that trade is not affected to an extent contrary to the interests of the Contracting Parties, since the competition on the radio market is very limited due to national or even regional particularities regarding the content of the radio programmes. On the other hand, the aid contributes to maintaining the sole radio station in Liechtenstein, thus ensuring media pluralism. In the light of the foregoing the Authority concludes that the conditions set out in Article 59 (2) are met and that the financial contribution amounting to CHF 4 M B ^IMk is exempted from the prohibition of State aid pursuant to Article 61 (1) of the EEA Agreement. HAS ADOPTED THIS DECISION: The EFTA Surveillance Authority has decided not to raise objections since the financial contribution to Radio L amounting to^mmh^hmi 8 compatible with the functioning of the EEA Agreement. Done at Brussels, 16 December 1999. For the EFTA Surveillance Authority tnut Almestad President lannes Hafstei College Member