On 3 September 2020, the European Court of Justice ("ECJ") ruled that a restriction imposed by an Italian law on acquisitions in the broadcasting and audiovisual sectors is contrary to the fundamental EU law principle of the freedom of establishment enshrined in Article 49 of the Treaty on the Functioning of the EU ("TFEU").
| What you need to know - key takeaways |
- National legislation seeking to prevent the creation of a position that may harm media pluralism in the telecommunications sector must not result in unjustified restrictions on the EU fundamental freedoms;
- Restrictions on the fundamental freedoms may be justified to safeguard the protection of media pluralism, but only where those restrictions are proportionate;
- This ruling comes at a crucial time, as a potential merger between Telecom Italia ("TIM")and OpenFiber is under discussion, which would effectively lead to the recreation of a monopoly broadband network operator in Italy.
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The ECJ's preliminary ruling concerns an acquisition by Vivendi of a minority stake (28.8%) in Mediaset Group in December 2016. Vivendi controls TIM, Italy's former state monopoly telecommunications operator.
Vivendi acquired the minority stake after launching a hostile acquisition campaign. This prompted Mediaset to lodge a complaint with the Italian Communications Authority ("AGCOM")– on the basis that Vivendi had infringed a provision of Italian law (Article 43(11) of Testo Unico dei Servizi di Media Audiovisivi e Radiofonici, or "TUSMAR"). That provision provides that companies that generate more than 40% of the total revenues in the electronic communications sector, including through controlled or affiliated undertakings, may not earn revenue exceeding 10% of the total revenues generated in the so-called integrated communications system ("SIC"). The aim of this provision is to protect media pluralism, a principle enshrined in Article 11 of the Charter of fundamental rights of the EU.
On 18 April 2017, AGCOM found that Vivendi had infringed Article 43(11) of the TUSMAR. In reaching that decision, AGCOM had regard to the fact that:
- Vivendi was affiliated with both TIM and Mediaset on account of it holding more than one fifth of the voting rights at the shareholders' meetings of each of those companies;
- Vivendi had secured more than 59% of the revenues generated in the electronic communications sector; and
- Mediaset had received 13.3% of the revenues generated in the SIC.
As a result, AGCOM ordered Vivendi to terminate its shareholdings in Mediaset or in TIM within 12 months.Vivendi challenged AGCOM's decision before the Italian administrative tribunal, which in turn referred three questions to the ECJ, in order to assess whether Article 43(11) of the TUSMAR was compliant with the EU fundamental freedoms.
In its ruling, the ECJ held that Article 49 TFEU must be interpreted as precluding national legislation which has the effect of preventing a company registered in another Member State, whose revenue in the electronic communications sector is in excess of 40% of the total revenues generated in that sector, from earning revenue which exceeds 10% of the revenues in the SIC.
In reaching that ruling, the ECJ acknowledged that restrictions on freedom of establishment may in principle be justified by an overriding reason in the public interest, namely the protection of media pluralism, provided that it is proportionate to the achievement of that objective. The ECJ, however, found that Article 43(11) TUSMAR sets thresholds which bear no relation to the risk to media pluralism, since those thresholds do not make it possible to determine whether and to what extent an undertaking is actually in a position to influence the content of the media.
The ECJ's finding that the restriction on freedom of establishment was not proportionate was influenced primarily by the following factors:
- The ECJ considered that the 40% threshold provided for by Article 43(11) is derived from an artificially narrow market definition.
- Whether an undertaking meets the 10% threshold concerning the SIC is not, in itself, an indication of the risk of influencing media pluralism, since the SIC includes a wide range of different markets, potentially leading to false positives or negatives.
- The method used to calculate revenue earned in the electronic communications sector or in the SIC is not appropriate, in so far as treating a "controlled company" in the same way as an "affiliated company" for such purposes is likely to lead to double-counting.
The ruling is a timely reminder of the importance of the EU fundamental freedoms, in a period when EU Member States and the European Commission itself are increasing their scrutiny on acquisitions of undertakings and assets by companies from third countries.
The ruling also comes at a crucial time, as commercial discussions between OpenFiber and TIM continue about a potential merger of their respective fibre network assets. If that transaction were to go ahead, it would effectively lead to the recreation of a monopoly broadband network operator in Italy.
