Executive Summary:
- The decision to provide funding may not be attributed to a Member State only when it is mandated by the EU, not when EU law allows Member States to decide whether to provide funding.
- Relief from the cost of compliance with regulatory requirements confers an advantage in the meaning of Article 107(1) TFEU.
- The state may amend technical regulations without being liable for the costs incurred by undertakings.
- Subsidising one technology over other technologies that can be used for the same purpose can confer a selective advantage.
- When a public authority assures an undertaking that its investment is eligible for state aid and that undertaking starts work before the aid measure is formally authorised by the Commission, the aid may still satisfy the formal incentive effect.
- When a project can be carried out by an undertaking relying solely on its own resources, i.e. when the project is profitable, state aid lacks a substantive incentive effect.
Table of Contents:
Introduction
The state should intervene in the economy when the market fails to function efficiently or when the market alone cannot deliver equitable outcomes. When there is legitimate reason for state intervention, it is also advisable to consider, first, how the intervention may conform with the relevant state aid rules. Otherwise, the measure that is eventually designed may be at odds with what is allowed by state aid rules.
A recent case in point is a Czech measure that aimed to support the adoption of new technical standards for terrestrial television. The Commission, in decision 2026/962 on measure SA.64153, found it to be incompatible with the internal market on multiple grounds. [1]
In 2016, after receiving complaints, the Commission examined a measure incentivising terrestrial television platform operators to transition from technical standards DVB-T/MPEG-2 to more advanced standards DVB-T2/HEVC. Although, the Czech authorities pre-notified certain measures involving compensation in 2016 and then formally submitted a notification in 2021, the Commission still had serious doubts as to the compatibility of those measures with the internal market and, consequently, launched a formal in investigation in 2022.
The doubts of the Commission arose from the fact that, first, the compensation constituted state aid relieving platform operators from regulatory costs and, second, it did not seem to be compatible with the internal market primarily because it lacked an apparent incentive effect [the operators could have invested in the new technology without aid and they had started work before the relevant regulatory act had been adopted] and the amount of aid appeared to be disproportional.
Due to the length and complexity of the Commission decision, this article is divided in two parts. Part I summarises the objectives of the Czech measure and the Commission’s analysis of the presence of state aid. Part II, that will be published next week, reviews the Commission’s assessment of the compatibility of the measure with the internal market and the reasons why its implementation was prohibited by the Commission.
Part I: Policy objectives and existence of state aid
Objectives of the aid measure
As explained in the Commission decision, “(8) the notified measure concerns financial compensation to be granted to three operators of digital terrestrial broadcasting platforms for the transmission of digital terrestrial TV (‘DTT’) using transitional networks with the more advanced technical standards DVB-T2 and HEVC. The notified measure would cover eligible costs incurred by those three DTT operators covering the periods between 1 March 2017 to 18 March 2020 and 1 July to 31 October 2020. The notified measure is part of the [EU] strategy to release the 700 MHz band by DTT operators”.
“(9) The transitional DTT networks using more advanced standards operated in parallel to the existing DTT networks (simulcasting) using older standards during the period 1 March 2017 – 31 October 2020, in order to facilitate the transition to the newer technologies in the context of the release of the 700 MHz band.”
This transition takes place in the context of EU policy on the management of the radio spectrum and the more general policy on the digitisation of the EU economy.
I should also be noted that the Commission had already authorised state aid to facilitate the transition to new standards in the Czech Republic.
“(10) Czechia had initially foreseen that the transitional networks would be operated until 30 June 2020. Because of the COVID-19 pandemic, Czechia extended their operation until 31 October 2020. In addition, the Commission has approved aid for an extension of the simulcast obligations during the COVID-19 pandemic, under the COVID-19 Temporary Framework by way of Commission Decision of 13 July 2021 in case SA.60062 (‘Decision in case SA.60062’), which covers the compensation of costs for the extension of those obligations for the period from 19 March 2020 to 30 June 2020.”
Form of the aid and budget
The aid was to be provided in the form of direct grants financed by CTO which is the national regulatory authority for electronic communications.
Rather unusually, already incurred costs were also eligible. “(57) The measure covers costs incurred in the period from 1 March 2017 to 18 March 2020 and from 1 July 2020 to 31 October 2020. Costs must have been incurred by the date of switch-off of the DVB-T networks.”
“(59) The three beneficiaries have submitted their applications, and the CTO has completed its audit. The final budget of the aid after CTO’s audit is CZK 473 391 429 (approx. EUR 18 million), which correspond to CZK [0 – 500 000 000] (approx. EUR [0 – 20] million) for Česká televize, CZK [0 – 250 000 000] (approx. EUR [0 – 10] million) for CRa and CZK [0 – 250 000 000] (approx. EUR [0 – 10] million) for DB.”
“(60) Czechia committed to pay the aid only after the notification of a Commission decision approving the notified measure.”
Eligible costs
“(61) The notified measure aims to compensate costs incurred for the operation of the transitional networks during the simulcast phase from 1 March 2017 to 18 March 2020 and from 1 July 2020 to 31 October 2020. The measure does not cover costs incurred after the end of the transitional period, as amended (i.e. 31 October 2020).”
“(62) Eligible costs, in the relevant period, are costs incurred in the operation of the transitional networks during the simulcast period for each transmitter:
(i) capital expenditure (CAPEX) via amortisation costs related to the new equipment for the purposes of constructing and operating the transitional networks, and
(ii) the direct incremental operating costs (OPEX) of the three transitional networks:
(1) As concerns the eligible capital expenditure (CAPEX), the costs for the following items are eligible: (a) transmitters, converters, antenna power supplies, related installation and installation material; (b) multiplexors, data distribution networks, related installation and installation material; (c) head-end (including costs related to HEVC); (d) cooling and its installation; (e) measuring equipment; (f) GPS receivers, uninterruptible power supply.
(2) As concerns the eligible OPEX, the following cost items are eligible: (a) electrical energy; (b) wages and salaries for equipment maintenance and/or repairs; and (c) transmission routes (in case they were rented), uninterruptible power supply (if rented), adjustment of electrical connections by building owner.”
The Commission noted that “(63) CAPEX costs correspond to the amortisation of the assets during the relevant period. Czechia explained that the amortisation reflects the economic useful life of the assets. Czechia indicated that, according to the accounting records of operators, the lifespan and thus the duration of the depreciation varies between 3 and 10 years, depending on the specific asset.”
“(64) Czechia explained that the investments covered by the notified measure for the purpose of the construction and operation of transitional networks would be reused in part for the final networks.”
“(65) The notified measure does not cover either costs for adapting the frequency-related equipment (covered by Decision in case SA.55742), or the costs incurred between 19 March and 30 June 2020 as well as the extraordinary costs that are related to the postponement of the switch-off end date incurred between 1 July and 31 October 2020 (covered by Decision in case SA.60062).”
“(66) According to Czechia, the aid would represent approximately 47% of the total investment and operating costs for setting up the three transitional networks. Czechia preliminary estimated that the total investment costs would amount to CZK 1 007 476 444 (approx. EUR 39 million)”.
Existence of state aid
The Commission, first, established that the measure in question was in fact made up of three individual aid measures, each benefitting an individual DTT operator.
The three beneficiaries were undertakings as they provided services on a market to tv broadcasters.
However, one of the operators contested the initial finding of the Commission that the measure could be attributed to the Czech state on the grounds that the Czech Republic implemented an EU decision on radio spectrum [the so-called EPaC Decision].
The Commission rejected that argument. “(228) The Commission observes that the notified measure in the form of compensation to DTT operators is not imposed on Czechia by the EPaC Decision. In particular, while it is true that the EPaC Decision establishes … obligations for Member States …, the EPaC Decision does not impose an obligation to Member States to provide compensation to DTT broadcasters. The EPaC Decision recognises the discretion of Member States to decide whether adequate compensation should be provided, in particular for end users.* Only when the Member State is under an obligation to implement Union law without any discretion, the measure cannot be considered imputable to that Member State.** … Furthermore, it is also clear that the EPaC Decision does not determine the design of such compensation, be it its circle of beneficiaries, eligible costs or any other conditions. In addition, the EPaC Decision unambiguously states that such compensation may only be provided in accordance with Union law, therefore it does not prejudice the application of State aid rules, which must be observed by Czechia.”
Note *: It is worth noting that Article 6 of the EPaC Decision states that “Member States may, where appropriate and in accordance with Union law, ensure that adequate compensation for the direct cost, in particular for end users, of the migration or reallocation of spectrum use is provided promptly and in a transparent manner in order to, inter alia, facilitate transition to more spectrum-efficient technologies. At the request of the Member State concerned, the Commission may provide guidance on such compensation in order to facilitate the transition in spectrum use.”
Note **: At this point the Commission cites the judgment in case C-460/07, Puffer, concerning VAT deductions, where the Court of Justice ruled that “(70) the restriction of the right to deduct input VAT payable to only taxable transactions is an integral part of the VAT system set up by Community legislation which must be implemented in the same way by all Member States. Consequently, the condition of intervention by the State is not met, meaning that Article [107(1) TFEU] cannot apply.”
Advantage
The Commission found that the compensation conferred an advantage because it relieved the operators from costs they had to bear themselves. It also rejected arguments that the compensation merely offset costs that created disadvantages for the operators.
“(232) The Commission does not agree with the observations received from one beneficiary arguing that there is no advantage resulting from the notified measure and that the regulatory costs that the measure aims at compensating are not inherent in that economic activity. The beneficiary submitted that the measure simply compensates DTT operators for a structural disadvantage … However, the Commission notes that, even if the relevant regulatory obligations only affected DTT operators and complying with these obligations may entail costs for the operators, this does not change the fact that the costs arising from such obligations are inherent in the economic activity of the DTT operators that may imply the compliance with regulatory obligations.”
In response to the argument that the compensation was for financial damage for which the state was liable, the Commission stated that “(236) the argument of the beneficiary that Czechia could have faced damage claims on the grounds of a de facto expropriation is not relevant for the assessment of an advantage linked to the notified measure. The notified measure is a compensation for compliance with a regulatory obligation, i.e. the operation of transitional networks, not a settlement between Czechia and DTT operators as a result of concrete damage claims. Further, rights of use spectrum are not akin to rights of property, on the one hand because spectrum is public property and on the other, because the legislative framework provided already the possibility to modify or withdraw such rights before term. Moreover, the rights of use of the beneficiaries were not actually withdrawn, but prolonged until 2030, providing them regulatory predictability as regards the use of spectrum.”
The Commission also addressed the question what would have happened had the relevant Czech law provided for compensation in case the rights and obligations of the operators would be adjusted by the relevant authorities.
“(237) It could be argued that a change to the authorisations to use radio frequencies … would have entitled DTT operators to a certain compensation. The possibility for such compensation is described in [the relevant Czech law which also] describes the cost categories for which compensation can be requested (prior to the Digital Amendment), including costs of technical adjustments, depreciated costs of decommissioned equipment, costs of dismantling and decommissioning equipment, and the costs of securing the electronic communications services provided through the existing radio frequencies in a different manner, for the time needed to ensure the necessary technical measures to carry out the changes in the use of radio frequencies … Nevertheless, the Commission observes the above categories of costs do not encompass those covered under the notified measure, i.e. are not related to the operation of transitional networks. The operation of transitional networks was not eligible to receive any compensation until the adoption of the Digital Amendment enabling such compensation … Furthermore, the Commission notes that the costs listed in [the relevant Czech law] correspond to costs which in principle have already been covered as part of the measure approved by Decision in case SA.55742 concerning the compensation of spectrum-related equipment.”
Selectivity
The Commission considered that since the measure in question consisted of three individual measures that conferred an advantage to each of the three DTT operators, they were necessarily selective. In addition, it found them to benefit only undertakings in a narrow segment of the broadcasting sector.
“(245) One beneficiary insisted that the Commission must explain why undertakings using DTT should be regarded as being in a factual and legal situation comparable to that of undertakings using other technologies in order to determine whether the measure is selective … According to the case law of the Court a measure is “selective only if, within the context of a particular legal regime, it has the effect of conferring an advantage on certain undertakings over others, in a different sector or the same sector, which are, in the light of the objectives pursued by that regime, in a comparable factual and legal situation” [the Commission cited case C-70/16 P, Comunidad Autonoma de Galicia, Retegal v Commission, para 61].
“(246) Taking into account that the aid is in the form of subsidies (i.e. direct grants), the system of reference in this case are the normal market conditions under which those undertakings operate. The objective of the system of reference cannot be one where subsidies are to be expected, since under normal market conditions, operators should bear their own costs for complying with regulatory obligations. … the Commission considers that the notified measure concerns regulatory costs which are inherent in the normal activity of DTT operators in Czechia. The measure thus constitutes a derogation from the system of reference (i.e. normal market conditions), since it alleviates the normal costs for certain companies.”
“(247) The beneficiaries of the notified measure are therefore favoured compared to all other undertakings in all other sectors and in the same sector, which have to bear their own costs. The measure is therefore prima facie selective.”
“(248) Alternatively, if it could be considered that the system of reference was limited to the sector of transmission of TV broadcasting (which is not the case), and if the aim of that system of reference was considered, it should be noted that, in the sector of transmission of TV broadcasting, there are other competing technological platforms, such as satellite, cable or IPTV … which are not compensated for regulatory costs under normal market conditions. Those operators using other technological platforms are in a comparable factual and legal situation to DTT operators since they have to bear the costs associated with the technological upgrades of their networks and associated simulcast periods. Satellite operators for example are also subject to obligations for the use of spectrum which derive in regulatory costs and their rights of use may be also subject to amendments. Satellite operators also need to finance technological upgrades on their own … The fact that the operators of the different technological platforms for video broadcasting in Czechia have different business models and may not be competing in the same segment … does not put them in a different legal and factual situation in light of the objective of providing transmission of TV broadcasting. The different competing platforms (DTT, satellite, IPTV) are substitutable. All are capable of the transmission of TV services, either FTA or pay-TV, as several examples provided during the investigation demonstrate, e.g. some commercial broadcasters repeatedly announced intentions to encrypt HD versions of their programmes …, Skylink/M7 Group experimented with a pay DTT service …, Telly was considering an IPTV card for FTA services … Further, Czechia has confirmed the substitutability of the services when it argued that the main risk during the transition was the risk of loss of audience in favour of other platforms derived from an uncontrolled migration … In addition, Czechia confirmed that there is no legal impediment for DTT to be encrypted and offer pay-TV services. Thus, the DTT operators have the choice of changing their business model at any time.”
“(249) Even if the release of the 700 MHz band only affected DTT operators, the Commission disagrees that the system of reference can be set narrowly to coincide with the exact circle of beneficiaries, i.e. certain DTT undertakings that operated transitional networks. Accepting that the system of reference only includes the undertakings affected by a regulatory measure would mean that any compensation for a regulatory measure would escape State aid control, since most regulatory measures are addressed to specific segments of the market, taking into account their characteristics (and thus would apply only to certain providers), given that it would not be selective. On the other hand, all market segments are prone to regulatory measures that result in compliance costs for the providers to whom those obligations are addressed. As previously explained, the Commission considers that the effects of the regulatory measures arising from the release of the 700 MHz band are inherent to the activity of DTT operators. Therefore, the system of reference for the purposes of examining selectivity cannot be limited to the undertakings that were subject to a specific regulatory obligation.”
“(250) One beneficiary argued that the compensation may be linked to public service obligations. However, there is no indication that the notified measure is linked with any public service obligations. In any case, it should be recalled that a measure remains selective even when its objective is to favour financially organisations regarded as socially deserving or when they create positive effects on the economy, which go beyond their individual interest. The positive effects of the transition designed by Czechia for the release of the 700 MHz band cannot undermine the conclusion of the selectivity of the measure.”
All remaining criteria of Article 107(1) TFEU were satisfied too, so the Commission concluded that the Czech measure constituted state aid.
notes:
[1] The Commission decision is published in the Official Journal, L 30 April 2026. It can be accessed at:
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202600962
