FRANCE - France Télécom has dismissed concerns that a formal inquiry by the European Commission on the financing of pensions for state employees will have an impact on its financial statements.

The "in-depth" investigation has been launched under the state aid rules of the EC Treaty, and relates to the 1997 reforms of the pension arrangements of state employees working at France Télécom.

The inquiry, announced by the Commission yesterday, intends to focus on whether a reduction in the charges borne by France Télécom following the government reforms "effectively constitutes state aid under EC Treaty rules", and if so whether it is "compatible" with the single market.

Before 1997 France Telecom was obliged to "ensure the financial equilibrium of the retirement scheme" for state employees, which had imposed a growing financial burden on the firm.

Then in 1997 the French authorities claimed the burden had become "excessive" at a time when the company already had to cope with competition resulting from the liberalisation of the telecommunications sector.

As a result, the government passed the reforms which passed the retirement funding obligation for state employee pensions to the French state, although the firm had to pay a contribution "in full discharge of its liabilities", which was calculated to align with contributions paid by rival firms with the same level of total wages and salaries.

In addition, the French authorities also exempted France Télécom from contributions relating to the risk of unemployment, as this risk does not affect state employees.

However the European Commission has now launched an inquiry in response to a complaint from a competing telecommunications operator, which alleged the reduction in France Télécom 's retirement costs and the exemption from unemployment contributions "constitutes incompatible state aid". 

The Commission revealed the French authorities are arguing the reforms "simply removed a structural disadvantage for France Télécom which obliged them to finance the retirement cost of its state employees and that, as such, it does not constitute state aid".

In addition, France Télécom, which also operates under the Orange brand for internet, television and mobile services, claimed the inquiry is simply intended to "avoid any risk of legal uncertainty or of proceedings of inaction" following the "continuance of an old complaint".

It pointed out the €5.7bn payment made by the firm in 1997, together with its ongoing monthly contributions, "comfortably ensure that the pension plan for civil servants employed by France Télécom complies with the rules applicable under community law".

In a statement, the firm also claimed the "financing of this system is not in any way unfavourable to the French state and does not result in any special advantages for France Télécom, either for the period since 1997, or until the day the company sees the last of its civil servant employees retire". 

As a result, France Télécom - which no longer recruits civil servants as employees - said "the group does not expect this procedure to have any impact on its financial statement".

It also confirmed it would continue to cooperate with both the French authorities and the Commission to provide "all the elements necessary to bring these proceedings to a rapid close".

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