The European Commission has ruled that France Telecom did receive "illicit aid" from the French government and ordered the telco to pay the money back.

The investigation centred on the tax that the telco paid between 1994 and 2002. The EC believes the French government gave France Telecom an illegal tax break of between €800m and €1.1bn. The Commission will work out exactly how much is owed, plus interest, during the recovery process.

Mario Monti, the Competition Commissioner, said: "This decision shows that to be effective and fair the monitoring of state aid must cover all the different – and in some cases highly imaginative – arrangements used by states to support firms by providing aid that is incompatible with the European competition rules.” France Telecom is taking the case to the Luxembourg Court of First Instance to have the decision annulled.

In an almost poetic statement France Telcom said: "The Commission appears to have made its decision without precision, in a climate of confusion fuelled by many leaks, rumours and public announcements that have been premature to say the least."

Monti also ruled that positive statements by the government between July and December 2002 amounted to illegal state help for the telco. The French government effectively said it would not allow France Telecom to fail and a €9bn credit line would be open to them. The credit line was never used but helped maintain investor confidence.

The statement says: "The statements created expectations and confidence on the financial markets and helped maintain France Télécom’s investment rating. If the statements had not been made, no reasonable investor would have offered a shareholder’s advance in these circumstances and assumed alone a very large financial risk."

But France Telecom will not be liable for payments for this dubious practise because it is the first time the Commission has investigated this kind of state aid.

But the Commission rejected a complaint by Bouygues Telecom that the auction process for 3G licences was unfair. ®

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