Pension Scheme Hurt|Competition, EU Says

(CN) - Europe's highest court ruled Wednesday that changes made to France Telecom's pension scheme when the company went public 20 years ago gave it an advantage over its competitors.

In 1996, French law converted France Telecom - now known as Orange - into a public limited company ahead of its listing on the stock exchange. Consequently, the company set its contribution to France for employee pensions at the same rate its competitors pay into social security and other benefits taxes, and also made a one-time payment of about $6 billion for future retirement costs.

Years later, the European Commission found the financing measure complied with competition rules, but conditionally: the measure constituted state aid because it temporarily reduced France Telecom's contribution to France during the conversion, and what it did pay was actually less than what its competitors paid into the social security scheme.

Specifically, the financing measure didn't pay into the unemployment scheme since France Telecom employees were considered government employees at the time and couldn't be fired under French law. But the commission ordered France to include financing of risks not shared by France Telecom employees and the competition's employees in order to level the playing field.

France Telecom appealed to the European General Court seeking to annul the commission's finding that the financing measure constituted state aid. The court declined, leading to a final appeal before the European Court of Justice.

In a 9-page ruling issued Wednesday, the Luxembourg-based high court said because the arrangements for France Telecom's retirement pensions - involving civil servants - are different than those of its competitors in the private sector, the funding measure reduced the company's social security costs and conferred an economic advantage.

Furthermore, the high court found the advantage was selective since the law creating the funding measure only applied to France Telecom and could have distorted competition. And as to the $6 billion payment to fund future costs, the court held it wasn't designed equalize the company's contributions and social security costs paid by its competitors and cannot be considered to have done so.

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