IpsofactoJ.com: International Cases [2002] Part 7 Case 15 [CAEW]


COURT OF APPEAL, ENGLAND & WALES

Coram

BT3G Ltd

- vs -

Secretary of State for

Trade & Industry

LORD PHILLIPS OF WORTH MATRAVERS, MR

LORD JUSTICE HENRY

LORD JUSTICE BROOKE

17 OCTOBER 2001


Judgment

Lord Phillips MR

This is the judgment of the court.

INTRODUCTION

  1. This is an appeal against a judgment of Silber J. dated 21 December 2000 [2001] EuLR 325. The judgment runs to 70 pages in the report and the Judge has devoted immense energy to a meticulous account of the material facts and issues. We shall gratefully incorporate in this judgment, with appropriate adaptation, portions of his judgment which are not in dispute.

  2. The Judge had before him applications for permission to seek judicial review of decisions of the Secretary of State. The Judge granted permission but refused the substantive applications for judicial review.

    THE FACTS

  3. The first application was by One 2 One Personal Communications ("One 2 One"). The second was by BT3G Limited ("BT"). There were also before the Court statutory appeals under Section 1F of the Wireless Telegraphy Act 1949 ("the 1949 Act"). It was accepted by all parties that these raised identical issues to the applications for judicial review and they were not pursued.

  4. The applications concerned the consequence of an auction conducted by the UK Government of licences for the so-called third generation of mobile phones, sometimes known as the "Universal Mobile Telecommunications System" but more commonly described by its acronym "UMTS". The third generation networks will provide mobile phone users with access for the first time to multi-media services, such as video-conferencing, mobile office services, virtual banking, home shopping, internet access and on-line entertainment.

  5. The auction took place in March-April 2000 under rules contained in the Wireless Telegraphy (Third Generation Licences) Notice 1999 promulgated by the Secretary of State on 22 December 1999 ("the Auction Rules"). Following a lengthy consultation process, the Auction Rules had been issued pursuant to the Wireless Telegraphy Act (Third Generation Licences) Regulations 1999 ("the 1999 Regulations"), which themselves were made pursuant to the Wireless Telegraphy Act 1998 ("the 1998 Act").

  6. One 2 One and BT (collectively "the appellants") complain that the operation of those rules has proved to be unfair to them. Their particular grievance relates to the rules which governed when licences were granted and which provided that licences had to be paid for when they were granted. The appellants were successful bidders for two of the five licences offered in the auction and were granted and had to pay for these licences shortly after the end of the auction, in mid-May 2000.

  7. Vodafone Ltd and Orange Personal Communications Services Ltd (which, together with other relevant companies in the Orange group, we shall call "Orange"), were also successful bidders for one licence each. They were associated companies and were not granted their licences immediately because a pre-condition of obtaining them was that they had to cease to be associated and this meant that Vodafone's parent company, Vodafone AirTouch plc had to divest itself of Orange. That divestment was completed on 22 August 2000. Vodafone and Orange were granted and paid for their licences on 1 September 2000. This difference of between fifteen and sixteen weeks, from the time at which the appellants received and, more importantly, paid for their licences and the time at which Vodafone and Orange received and paid for theirs, gave the latter the advantage of a holiday before they had to start to meet the financing costs of paying for the licences. The saving for each company, compared to the position of One 2 One and BT, is said to be in the region of 85 million. The appellants contend that the Secretary of State could and should have avoided this result and that his failure to do so was, and the ensuing increased interest cost that they have had to bear is, irrational, unfair, disproportionate, discriminatory and in breach of EC laws relating to state aid. The appellants contend that all successful bidders should have been required to pay for their licences at the same time.

  8. The effect of the difference in payment dates reflects the gargantuan sums that the successful bidders agreed to pay for their licences. Thus, by way of example, One 2 One agreed to pay 4,003,600,000 for theirs.

  9. The appellants argue that the Secretary of State should have invoked a power, open to him under the Auction Rules, to ignore the Vodafone/Orange association and grant licences to both companies immediately with the result that they would have had to pay for them at the same time as the appellants rather than wait until the association was terminated. Alternatively, the appellants argue that all bidders' payments should have been delayed until such time as Vodafone and Orange were required to make payment. These contentions are disputed by the Secretary of State, whose case is that he properly applied Auction Rules that had been agreed by all concerned and that he acted reasonably in so doing.

  10. Vodafone was given permission to intervene in the proceedings, and have supported the Secretary of State. Neither of the other two successful applicants of the five who were granted licences have adduced evidence or made representations.

    THE BACKGROUND TO THE UMTS AUCTION

  11. This is described in greater detail in Appendix I to our judgment, but can be briefly summarised as follows:

  12. By Directive 97/13/EC of the European Parliament and Council of 10 April 1997 ("the Directive") a framework was provided for telecommunications licensing which was intended to harmonise licensing procedures throughout the European Union. It enabled licences to be granted on an individual basis in certain circumstances and it set out the conditions which could be attached to the authorisation or licence. The second significant piece of European Community legislation was the so-called "UMTS Decision" which was Council Decision number 128/1999 EC and its purpose was stated in Article 1 to be to "facilitate the rapid and co-ordinated introduction of compatible UMTS networks and services in the Community". Member States were required to take all action necessary to allow the co-ordinated and progressive introduction of UMTS by 1 January 2002 in accordance with the Directive.

  13. The British Government decided to hold an auction at which bidders would compete for the UMTS licences which would enable them to use a particular part of the spectrum to transmit the signals by which they could provide third generation mobile services. In other words, the bidders were attempting to purchase the right to transmit information in a specified technical manner on specified radio frequencies. The Department of Trade and Industry published a consultation document "Multimedia Communications on the Move" which made it clear that the policy of the Government would be that if one company controlled more than one licence, this would constitute a failure to exploit the available spectrum in the best interests of the community and the economy.

  14. In early 1998, the Government convened a group to facilitate consultation between industry and Government on third generation mobile licence issues. The purpose of this group, known as UMTS Auction Consultative Group ("UACG"), was to enable there to be continuing consultation between the Government, industry and other interested parties on matters relating to the proposed auction. Both BT and One 2 One had representatives as members of UACG, which held nine meetings between March 1998 and 14 May 1999. Further papers were issued to members and comments were considered until the United Kingdom Spectrum Auction Information Memorandum ("the Information Memorandum") was published on 1 November 1999.

  15. The mode of operation of UACG was that the consultation papers on various topics were published through the Radiocommunications Agency ("the Agency"), which is an executive agency of the Department of Trade and Industry responsible for the management of most non-military radio spectrum in the United Kingdom and, in particular, the auction of the UMTS Rights. The Agency, acting for the Secretary of State, in fact dealt with many of the matters in respect of which complaint is made by the appellants. The UACG meetings included a presentation of the consultation papers by the Agency and a discussion on them by the committee. At the conclusion of each meeting, a further period was given for members to provide written responses to the consultation paper, which were then considered.

  16. On 10 May 1999, following a year of negotiation with UACG, a paper entitled "Putting the Policy into Practice: Regulations and Notice" was published and was discussed at a UACG meeting on 14 May 1999. It consisted of draft regulations under the 1949 Act and a draft notice which was intended to provide the legal basis for the auction and which we shall call "the first draft notice". The purpose of the regulations and the notice was to provide a framework for the auction as well as setting out in detail the mechanism for the auction. As we have said, this was the subject of further and continuing consultation.

  17. From the outset, paragraph 5.1.3 of the first draft notice included provisions which indicated the possibility that different bidders might receive their licences at different times and consequently that the bidders would be liable to make payment for their licence at different times. It was also explicit in the first draft notice that any successful bidder subject to pre-conditions was not entitled to be granted its licence until such time as it notified the Secretary of State that it was no longer subject to any pre-conditions, but this was subject to a back-stop date of 60 business days after the end of the auction which could be extended by the Secretary of State to up to 180 business days. A pre-condition in relation to any bidder was defined in the first draft notice as the bidder

    1. being an associated bidder to any other bidder or

    2. requiring shareholder or competition regulatory approval before the licence was granted

    (paragraph 1.1.4 and 5.1.2). It was also expressly provided that payment would be required on the grant of the licence.

  18. As a result of the comments received on the first draft notice, a second draft notice was circulated to UACG members on 30 July 1999. Paragraph 5.1.3 of the first draft notice remained unchanged but it became paragraph 5.1.4 of the second draft. Comments were received on the second draft notice from both appellants as well as from various other parties.

  19. On 1 November 1999, the Information Memorandum was published including draft regulations and a draft notice, which were a result of the consultation and amendments which we have described. The purpose of the Information Memorandum was to provide information for those parties wishing to bid for a licence for spectrum to support third generation mobile services in the United Kingdom. The draft notice and the Information Memorandum contained paragraph 5.1.4 (previously 5.1.3 in the first draft notice).

  20. It was obvious that from the time of the first draft, there could be situations in which licensees were entitled to their licences at different times because of the existence of unsatisfied pre-conditions. This would necessarily entail payment at different times. None of the consultees then or during the consultation process raised any criticism of or any point about this although many other issues were raised. Indeed in a letter dated 21 October 1999, to the Department, One 2 One confirmed that "generally One 2 One is happy with the rules as they currently stand" subject to issues discussed at the meeting which were put in writing in the letter of 21 October 1999. No comment was made by One 2 One or BT in respect of the pre-conditions and specifically the conditions that no bidder would be entitled to the grant of a licence or be required to pay while there were unsatisfied pre-conditions.

  21. BT appreciated the prospect of different bidders having to pay for their licences on different dates. In a letter to the Government's financial advisers for the auction, NM Rothschild & Sons Ltd, of 8 July 1999, BT expressly acknowledged that it could happen that "due to significant associations between bidders a number of licences were not awarded for at least 6 months or not at all". The concern of BT was not at that time directed to some supposed advantage to a bidder whose payment was delayed, but to the problems that would be faced by associated bidders themselves.

    THE OWNERSHIP OF BIDDERS

  22. The details of ownership of two bidders is an essential part of the background. On 21 October 1999, Mannesmann AG ("Mannesmann") announced an agreed take-over of Orange plc., a prospective bidder. On 19 November 1999, Vodafone AirTouch Plc, the parent company of another prospective bidder in the auction, announced an unsolicited offer for Mannesmann and the formal offer was made on 23 December 1999. On 4 February 2000, Mannesmann recommended Vodafone AirTouch plc's offer to its shareholders and six days later, Vodafone AirTouch plc's offer to acquire Mannesmann was declared unconditional. The consequence was that Vodafone was not only to be a prospective bidder but its parent company was destined to become the owner of another prospective bidder in the form of Orange.

    THE PROBLEM OF VODAFONE OWING ORANGE AND PARA.1.1.6

  23. The difficulty about both Vodafone and Orange bidding and, more particularly, obtaining licences, was that this conflicted with what Mr. Clayton, a director of the Agency, on behalf of the Secretary of State described as a "fundamental provision of the Government's licensing strategy that no one entity should control more than one licence for spectrum to operate third generation services". This meant that no single group of companies could bid successfully for more than one licence. So, it was necessary to ensure that all successful bidders were separate entities.

  24. Under paragraph 3.3.2(c) of the Auction Rules, a prospective bidder could not be a "qualified bidder" and so could not bid if a relevant member of its candidate group was also a relevant member of a candidate group of another bidder. Vodafone AirTouch plc was always a relevant member of the candidate group of Vodafone which was due to take part in the auction. When Vodafone AirTouch plc acquired Mannesmann, the Vodafone and Orange bidders became members of each other's candidate group. So unless a new provision was included in the Auction Rules, neither Vodafone nor Orange would be a qualified bidder and so neither could participate in the auction.

  25. The Secretary of State did not wish to lose the participation of these two important bidders. He addressed the problem by ensuring that when, on 22 December 1999, the Auction Rules were issued in the final form, they included for the first time in paragraph 1.1.6, a power to enable the Secretary of State to disregard certain connections and associations between bidders. By invoking this power, he could enable Vodafone and Orange to bid for separate licences which they could not otherwise do. The Secretary of State also had power under paragraph 1.1.7 of the Auction Rules to revoke a paragraph 1.1.6 notice. The terms of Paragraph 1.1.6 of the Auction Rules, one of the central provisions in this case, are set out in Appendix I.

  26. In brief, the purpose of that provision was to give the Secretary of State power if certain conditions were satisfied to "determine that the Connection or Association [between two bidders] shall be disregarded for all purposes or for such purposes as he may determine" (emphasis added).

    THE AUCTION RULES

  27. The Auction Rules stipulated that the auction process would consist of four stages. The first stage was the "invitation stage" which commenced with the making of the order and dealt primarily with the submission of applications by potential bidders. This was to be followed by the second stage, the "pre-qualification stage". This included the exchange of details of the composition of candidates groups as between bidders, and the evaluation of those groups to determine whether, for example, they were entitled to qualify and therefore bid in the auction.

  28. This led on to the third stage which was the "auction stage", in which bidding for the licences was to take place. This was to be followed by the fourth stage, the "grant stage" which included

    1. publishing of provisional award notices,

    2. the notification by successful bidders of any pre-conditions to receiving the licence and

    3. the issue of licences by the Secretary of State to successful bidders who were not subject to any pre-conditions, who had to pay for the licences at once.

    The grant stage was dealt with in Part 5 of the Auction Rules.

  29. The grant stage was to commence upon the issue of the provisional award notices by which the Secretary of State would notify the successful bidders of the licences which they had been provisionally awarded and of the amount that each bidder had to pay in respect of the licence subject to the satisfaction of any pre-conditions. Within two business days of receipt of a provisional award notice, a bidder was obliged to notify the Secretary of State among other things whether it was an "associated bidder" in relation to any other successful bidders named in the provisional award notice. If the bidder were so to notify the Secretary of State, it would not be entitled to the grant of the relevant licence until such time as it had notified the Secretary of State that it was no longer subject to any pre-conditions (Paragraph 5.1.4 of the Auction Rules).

  30. The Secretary of State was obliged to grant a bidder the relevant licence either on receipt of notification that the bidder was not subject to any pre-conditions or upon receipt of notification that the bidder was no longer subject to any pre-conditions (Paragraph 5.3.1 of the Auction Rules). Upon the grant of a licence, the bidder became obliged to pay the Secretary of State the licence fee less any deposit (Paragraph 5.3.4).

    THE FEBRUARY DETERMINATION

  31. On 3 February 2000, Vodafone AirTouch plc gave to the Secretary of State a written undertaking that it would dispose of Orange as soon as possible and in any event by 30 September 2000. Vodafone AirTouch plc also undertook that it would not "seek to achieve the result that the affairs of the Orange bidder are conducted in accordance with the wishes of Vodafone AirTouch plc". The undertakings are described in greater detail in Appendix II.

  32. The Vodafone AirTouch plc bid for Mannesmann was declared unconditional on 10 February 2000. A determination was then made by the Secretary of State ("the February determination") that he was satisfied that the conditions for the exercise of his discretion under paragraph 1.1.6 were met and that the "connection" and "association" between Vodafone and Orange would be disregarded for certain limited purposes of the Notice. These did not include the grant stage. If the Secretary of State had not made the February determination, neither Vodafone nor Orange could have been "qualified bidders" and so both would have been excluded from the auction.

    THE AUCTION

  33. The auction started on 6 March 2000. On 12 April 2000, the European Commission gave Vodafone AirTouch plc regulatory approval to acquire Mannesmann provided it divested itself of Orange by 16 October 2000 or such other date as might be agreed by the European Commission. Further details are in Appendix II. By 14 April 2000, the bidding for the licences had reached 20 billion with seven bidders left.

  34. On 27 April 2000, the Agency announced the provisional winners. These were the two appellants, Vodafone, Orange and TIW UMTS (UK) Ltd. Of the five licences auctioned, licence A gave the largest amount of spectrum but it had to go to a new entrant into the field and this excluded the appellants, Vodafone and Orange. Licence B was open to all and gave the second largest amount of spectrum while licences C, D and E each gave access to a smaller and identical amount of spectrum. Licence A was secured by TIW UMTS (UK) Ltd, while Vodafone obtained licence B for 5.964 billion. BT, One 2 One and Orange obtained licences C, D and E for 4.0301 billion, 4.0036 billion and 4.095 billion respectively. The total sum raised was in excess of 22 billion while the sum of the reserve prices for all the licences had been a mere 500 million.

  35. Each successful bidder was required to notify the Secretary of State whether or not it was subject to pre-conditions. Vodafone and Orange gave notice that they were because of their mutual association and were informed that they would not be given their licences until the pre-conditions were satisfied.

    THE CONCERNS OF THE APPELLANTS

  36. Concerns were expressed by the appellants just before the announcement of the provisional winners in late April 2000 that Vodafone and Orange (unlike the other successful bidders) would be both obliged and entitled to delay payment. The representations of the appellants on this matter formed the background to the Secretary of State's decision now under review.

  37. One 2 One wrote to the Agency on 20 April 2000 drawing its attention to the fact that if the same payment date was not granted to all bidders, there could be a "significant discriminatory effect" on those bidders who "effectively had their house in order". One 2 One explained that in the light of the vast sums involved, a delay of 180 business days in which to pay the licence fee on present calculations could save those subject to pre-conditions up to 180 million each. One 2 One suggested re-drafting the Auction Rules so that each successful bidder should have the option of paying at the backstop date. On 25 April 2000, the Agency refused to allow One 2 One to delay payment for its licence. On 3 May the Agency required One 2 One to pay the licence fee on 9 May 2000 and they duly did so.

  38. BT wrote to the Agency on 25 April 2000 regarding payment of the licence by Orange and Vodafone and asking for confirmation that Orange and Vodafone would not be permitted to benefit from the advantages of participating in the auction and from the cash flow benefits of late payment. BT said "such a material distortion to the auction would not be acceptable to BT".

  39. The Agency gave a similar answer to that given to One 2 One.

  40. Despite further protests by BT, including submissions made by Sir Peter Bonfield, the Chief Executive of BT, who wrote to the Secretary of State, the latter persisted in his refusal to depart from the regime provided for by the Auction Rules.

  41. On 9 May 2000, BT gave notification to the Secretary of State that it was not subject to pre-conditions and on 16 May 2000, BT was granted and paid for its licence.

  42. On 23 August 2000, Vodafone AirTouch plc completed the sale of Orange to France Telecom SA. On the following day, Vodafone and Orange notified the Secretary of State that they were no longer subject to pre-conditions. They were granted their licences and made payment of the relevant licence fees on 1 September 2000.

    THE APPELLANTS' CONTENTIONS

  43. Each of the appellants made the same basic complaint. The Secretary of State had unfairly discriminated in favour of Vodafone and Orange in a manner which constituted state aid. The unfair discrimination was in requiring BT and One 2 One to pay the prices for their licence some four months earlier than Vodafone and Orange had to pay for theirs. The appellants were not, however, agreed upon the manner in which the Secretary of State should have avoided this.

  44. It is BT's primary case that the Secretary of State should have exercised his power under paragraph 1.1.6 of the Auction Rules to disregard the association between Vodafone and Orange at the grant stage. In the exercise of this power he should have treated each as if subject to no pre-condition and issued to each their licence, coupled with a demand for payment, at the same time as this course was adopted for BT and One 2 One.

  45. One 2 One contends that the Secretary of State should have exercised his discretion to defer calling upon One 2 One and BT to pay for their licences until the time that Vodafone and Orange's pre-conditions were satisfied. Licences should then have been issued and payment demanded simultaneously in the case of all successful bidders.

  46. This divergence of approach was reflected in a passage in the first witness statement of Mr Robin Saphra, a Director of One 2 One, dated 19 May 2000. He stated in paragraph 53 that it was unclear to him how the Secretary of State could have determined that the association between Vodafone and Orange should be disapplied at the grant stage. Nonetheless, Mr Vaughan Q.C. for One 2 One understandably made it clear that his clients would be happy to climb on BT's bandwagon should this course prove beneficial and BT for their part were not loath to adopt Mr Vaughan's case should this be necessary to get them home.

    THE SECRETARY OF STATE'S ROLES AND INTERESTS

  47. In his skeleton argument, Mr Gordon Q.C. for BT stated that Silber J. readily accepted that "the contested decisions were acts of the Government as a regulator, rather than as a market participant". It is correct that Silber J. recognised that the Secretary of State was performing the role of a regulator. It is not correct, however, that Silber J. proceeded on the basis that this was the Secretary of State's only role. It plainly was not.

  48. As regulator, the Secretary of State had a paramount obligation to ensure that competition in the mobile telecommunications market was not distorted. This he had to do in order to comply with the Directive and the UMTS Decision. Article 11 of the Directive required that charges for licences should be 'non-discriminatory and take into account the need to foster the development of innovative services and competition'. Recital 18 of the UMTS Decision required that 'any spectrum pricing method should not adversely impact on the competitive structure of the market, and respect the public interest, while ensuring efficient use of the spectrum as valuable resource'.

  49. In order to ensure competition in the provision of services that made use of the spectrum, the Secretary of State resolved that the spectrum would be divided into five parts, with a licence granted for each, and that no licence holder should have a connection or association with any other. The Secretary of State attached the highest importance to that regulatory objective and no attack has been, or could be, made against him for doing so.

  50. A separate, but related, regulatory objective was to conduct the auction of the licences in a manner which was fair and non-discriminatory. This also was required by the Directive. Thus Article 9 (2) provided : 'Where a Member State intends to grant individual licences: it shall grant individual licences through open non-discriminatory and transparent procedures and, to this end, shall subject all applicants to the same procedures, unless there is an objective reason for differentiation'.

  51. It was no doubt in part in order to satisfy this requirement that the Secretary of State had included in the Auction Rules provisions that would result in one or other of two associated or connected bidders being eliminated from the auction in the first part of the auction stage.

  52. We now turn to the other role and interest of the Secretary of State. The licences that he was granting were of enormous value. He decided to sell them by auction. As vendor he was acting in a commercial capacity. As vendor he had an interest in so conducting the sale of the licences as to maximise the revenue of the state, always subject to his paramount obligations as regulator.

  53. In conducting an auction the Secretary of State was employing contractual techniques in order to achieve at once both his regulatory and his commercial objectives and the Auction Rules were designed to secure both objectives.

    STATE AID

  54. We propose to follow the course adopted by the judge and to consider first the challenge made to the Secretary of State's conduct of the sale of the licences on the ground that this constituted the grant of state aid in contravention of Article 87 (1) of the EC Treaty. We shall then consider the alternative challenge made on the ground that his conduct offended against well established principles of public law.

  55. Article 87(1), formerly Article 92(1), provides:

    Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market.

  56. There is a sizeable body of European case law on the grant of state aid, but we have been referred to no case whose facts remotely resemble those with which we are concerned. The appellants make no complaint of the Auction Rules that were put in place by the Secretary of State. Their complaint is that the Secretary of State failed to take discretionary action to prevent those rules from operating in a manner which advantaged Orange and Vodafone. There is only one reason why the appellants are able to advance an arguable case that the Rules have so operated as to affect trade between member states, and that is that bidders proved to be prepared to pay gargantuan sums in order to purchase licences. This has made it possible to argue that a four month delay in making payment for a licence can prove so financially advantageous as to affect competition within the market.

  57. We have some doubt as to whether the fortuitous effect of the operation of contractual conditions is capable of constituting state aid within Article 87. The grant of state aid has usually, if not universally, consisted of positive action taken by the state in the exercise of a power or discretion. That this is the norm is indicated by Article 88(3) of the Treaty, which provides:

    The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the common market having regard to Article 87, it shall without delay initiate the procedure provided for in paragraph 2. The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision.

  58. Paragraph 2 provides:

    If, after giving notice to the parties concerned to submit their comments, the Commission finds that aid granted by a State or through State resources is not compatible with the common market having regard to Article 87, or that such aid is being misused, it shall decide that the State concerned shall abolish or alter such aid within a period of time to be determined by the Commission.

  59. We asked counsel for the appellants how and when these provisions should have operated on the facts of this case. Neither was able to provide a convincing answer.

  60. Commissioners of Customs and Excise ex p. Lunn Poly Ltd [1999] EuLR 654 was a case about discriminatory taxation. In the course of his judgment and after a review of European case law, Clarke L.J. said this:

    As I see it, that case and indeed the cases which preceded it exemplify what is essentially a pragmatic approach which the Court of Justice has adopted to the question, what is state aid? It looks at the matter broadly. Where the legislation is not fiscal but introduced for, say, employment or social reasons it is likely to hold that no state aid is involved, even if there will be some indirect burden on the state, especially where it can be seen that the aid is inherent in the system being introduced. It will focus on the effects of the legislation, but will also take some account of its aims. I do not however think that it has introduced a requirement, as suggested by the appellants, that the advantage is never state aid if it is objectively justifiable. The question in each case is whether the advantage concerned is aid granted by the state having regard to the purpose of the Treaty as a whole and Art.92 in particular.

  61. Were we to adopt the approach that this passage suggests, we would be likely to conclude that there was no grant of state aid in this case. The provision of the Auction Rules whereby licences had to be paid for as soon as granted was logical and, on its face, unexceptionable. The provision whereby licences could not be granted to associated companies unless and until their association was ended was a logical provision designed to ensure competition rather than to distort it. There was no intention to advantage any bidder and every incentive to the Secretary of State to boost the revenue by obtaining payment for licences as soon as possible. The advantage that was occasioned to Orange and Vodafone was inherent in the system. Finally, having considered the mass of jurisprudence of the European Court with which we have been regaled by counsel for the appellants, this case bears no resemblance to any of the cases of state aid.

  62. Counsel for the appellants however, urged us not to apply the approach that Clarke L.J. appears to have advocated. They submitted that we should adopt a principled rather than a pragmatic approach to the facts of this case. This is what the judge did, but counsel for the appellants contend that he misapplied the principles. We shall accept their invitation to examine his reasoning in order to see whether they are able to make good that contention. We shall consider the issues in the order in which the judge dealt with them.

    IS THE BENEFIT TO VODAFONE AND ORANGE IN NOT HAVING TO PAY FOR THEIR LICENCE UNTIL THEIR PRECONDITIONS WERE SATISFIED "CAPABLE" OF BEING STATE AID?

  63. The judge answered this question in the affirmative. The essence of his reasoning lies in the following passages:

    The effect of not applying para. 1.1.6 to a future debt is the same as that of waiving an antecedent or existing debt because, in both cases, the recipient of the forbearance has the benefit that his liability has been postponed.

    To my mind, the use of the words in Art.87(1) of "any aid .... in any form whatsoever" are sufficiently wide to cover the failure by a government to crystalise or accelerate a potential liability where it had a power to do so. By the same reasoning, a failure to invoke powers under the Auction Rules to delay the obligations of the applicants to pay for their licences until Vodafone and Orange were obliged to pay is capable of amounting to state aid.

    We are not wholly persuaded by this reasoning. It does not seem to us that it is correct to describe the decision not to apply para 1.1.6 to a future debt as a "forbearance". We are, however, content to proceed upon the footing that the judge's conclusion was correct.

    WAS AID GRANTED BY THE BRITISH GOVERNMENT OR THROUGH STATE RESOURCES TO VODAFONE AND ORANGE?

  64. Before addressing this question the judge referred to the provisions of the Directive and the UMTS Decision designed to foster competition. He then went on to consider six criteria which the Secretary of State, supported by Vodafone, had suggested were determinative of whether state aid had been given. These were :

    1. the normal market conditions test;

    2. the privatisation rules;

    3. the general scheme;

    4. objective justification and absence of discrimination;

    5. the pragmatic test; and

    6. the status quo test .

    Counsel for each of the appellants submitted that these six matters were irrelevant to the question of whether the facts of this case amounted to the grant of state aid. Accordingly we propose to consider whether the six matters that influenced Silber J. formed a valid basis for his decision.

    THE NORMAL MARKET CONDITIONS TEST

  65. In explaining this test the judge quoted the following passages from a decision of the European Court in Re Demenagements-Manutention Transport SA (DMT) ("the DMT case") [1999] ECR I-3913, [1999] All ER (EC) 601 at 614:

    It is settled case law that in order to determine whether a state measure constitutes aid for the purposes of art 92 of the Treaty, it is necessary to establish whether the recipient undertaking receives an economic advantage which it would not have obtained under normal market conditions (see the judgment in Spain v European Commission case C-342/96 (1999) ECJ Transcript, 29 April (para 41)).

    [at para 22]

    It is for the national court to determine whether the payment facilities granted by [Government] to [the company] are manifestly more generous than those which a private creditor would have granted. To that end the [Government] must be compared with a hypothetical private creditor which, so far as possible, is in the same position vis--vis its debtor as the [Government] and is seeking to recover the sums owed to it.

    [at para 25]

    The DMT case concerned the grant of a period of delay in making Social Security payments due to the Government. In those circumstances it was logical, when considering whether State aid had been granted, to pose the question whether a private creditor would have been equally generous. Counsel for BT argued before the judge, as he did before us, that it was inappropriate to attempt to apply a similar comparator test in the present case. This was because the Secretary of State was acting as a regulator, so that no comparison could be drawn with a private commercial transaction.

  66. The judge accepted that the fact that the Secretary of State was acting as a regulator made the comparison more difficult. Nonetheless he held that it was appropriate to compare the actions of the Secretary of State with that of a party acting in his own commercial interests. The judge approached the comparison in the following way. He treated the precondition that Orange and Vodafone should bring their association to an end as if it were a pre-condition of vital commercial importance rather than of vital regulatory importance. He then asked himself the question whether a commercial entity would have been prepared to part with the licences before this pre-condition was satisfied. He concluded that a private individual in the position of the Secretary of State would not have been prepared to take this risk. He would have wanted to retain the inducement of the grant of the licences to ensure that the pre-condition was satisfied.

  67. We do not agree with Mr Gordon that the application of the normal market conditions test was inappropriate. At the end of the day, however, the application of that test is no more than a way of asking whether the Secretary of State's decision was rational. That is a question which arises in a number of different contexts once the case is approached, in the manner adopted by the judge, by the application of a number of tests. It lies, we believe, at the heart of this appeal.

  68. In this context counsel for the appellants made the following points:

    1. had the Secretary of State granted Vodafone and Orange their licences before they had broken their association he would

      1. have secured the payments for the benefit of the State four months earlier and

      2. avoided any distortion of competition, which was his primary aim.

    2. the Secretary of State could be absolutely confident that Vodafone and Orange would break their association. The European Commission had made it a condition of regulatory approval of Vodafone's acquisition of Mannesmann that its ownership of Orange should be divested. Furthermore, Vodafone had given the Secretary of State the undertaking set out in Appendix 2. Finally, if for any reason the two companies had remained associated, it would have been open to the Secretary of State to revoke the licence of one or each of them. See section 4(5)(b) of the Wireless Telegraphy Act 1998.

  69. The Secretary of State's response to this argument can be summarised by the adage "there is many a slip betwixt cup and lip". The precondition was of vital importance. So long as he remained in a position to insist upon its performance he was able to ensure not merely that it would be performed but that it would be performed timeously. He was in the position of holding both a carrot and a stick. The sanction of the power to revoke licences was not a satisfactory alternative to the power to insist upon performance of the precondition before granting the licences.

  70. The judge implicitly accepted the Secretary of State's reasoning when holding that the normal market conditions test was satisfied. We agree with the judge's conclusions. If one applies the commercial analogy, huge sums of money were involved and a vital precondition had yet to be satisfied. We do not consider that a rational commercial party would have completed the transaction before that precondition was satisfied in order to receive the licence fees a few months earlier than they would otherwise be paid, however confident the expectation that the precondition would be satisfied in the future.

  71. In reaching his conclusion the judge was influenced by a further consideration. He questioned whether a buyer in the market for an expensive asset, such as a licence for the third generation of mobiles phones, would have been prepared to pay money in advance in circumstances where there would be the threat of having the licence revoked for non-compliance with the conditions. We do not find this consideration compelling. The normal market conditions test involves comparing the position of the State with that of a commercial entity. It does not involve considering the reaction of the recipient of the alleged aid, save insofar as this impacts on the position of the State.

  72. The judge went on to comment that the buyer would have insisted on his contractual right to defer payment and avoid paying interest until the conditions were satisfied. This, as the judge recognised, is a point of greater importance, for it does impact on the comparison that has to be drawn between the conduct of the State and that of a commercial entity.

  73. Vodafone and Orange had taken part in the auction in circumstances where the rules provided that they would not be entitled to the grant of their licences, nor come under the obligation to pay for these, until their mutual association was severed. It is true that the terms of paragraph 1.1.6 purported to entitle the Secretary of State to disregard the association between Orange and Vodafone "at any time". Orange and Vodafone had, however, no reason to anticipate that the Secretary of State would do this at the grant stage, thereby significantly advancing the time at which they would need to have funding in place in order to take up their licences. In these circumstances, had the Secretary of State purported to exercise his paragraph 1.1.6 power at the grant stage, there was every likelihood that this would be met by a legal challenge brought by Orange and Vodafone. This was a matter of legitimate concern to the Secretary of State, as it would have been to a commercial entity.

  74. The course adopted by the Secretary of State enabled the licensing transaction to be completed smoothly and with timely satisfaction of the pre-condition. We consider, as did the judge, that a commercial party in the shoes of the Secretary of State would have been anxious to achieve the same result and that this anxiety would have led him to act in the same way as the Secretary of State.

  75. It is convenient at this point to deal with an argument to which Mr Gordon reverted repeatedly in the course of his submissions. The Secretary of State had permitted Orange and Vodafone to take part in the auction by exercising his power under paragraph 1.1.6 of the Auction Rules. He thereby demonstrated that he was satisfied that, among other matters, the connection or association between Orange and Vodafone would be of a temporary nature. If he was so satisfied, it was irrational on his part not to exercise his paragraph 1.1.6 power at the grant stage.

  76. We consider that this chain of reasoning is flawed. It is true that the Secretary of State could not exercise his paragraph 1.1.6 power unless satisfied that the association between the two companies would only be temporary. That satisfaction, however, could constitute no more than reasonable certainty. To permit Orange and Vodafone to take part in the auction on the basis of that reasonable certainty was one thing. It would at most lead to Orange and Vodafone becoming entitled to licences subject to the precondition of their disassociation. It would be taking a risk of a different order of magnitude to grant each company a licence while they remained associated. There was nothing irrational about the Secretary of State exercising his paragraph 1.1.6 power at the auction stage but declining to do so at the grant stage.

  77. For all these reasons we conclude that Silber J was correct in his determination that the normal market conditions test was satisfied.

    THE PRIVATISATION RULES

  78. The European Commission has published guidelines on what does and does not constitute state aid in the context of privatisation. Those guidelines include the following rules:

    If the company is privatised not by stock exchange flotation but by trade sale, i.e. by sale of the company as a whole or in parts to other companies, the following conditions must be observed if it is to be assumed, without further examination, that no aid is involved.

    (i)

    a competitive tender must be held that is open to all comers, transparent and not conditioned on the performance of other acts such as the acquisition of assets other than those bid for or the continued operation of certain businesses;

    (ii)

    the company must be sold to the highest bidder; and

    (iii)

    bidders must be given enough time and information to carry out a proper valuation of the assets as a basis for their bid.

  79. The Secretary of State contended that the approach set out in these rules fell to be applied, by analogy, to the auction of licences. Mr Gordon contended that no analogy could be drawn between the disposal of licences and a sale of assets under privatisation. The judge did not agree with him, nor do we. We agree with the conclusion of the judge, in paragraph 92 of his judgment, that the UMTS auction had many of the important attributes of a trade sale by competitive tender which, under the rules, precluded the finding of state aid. We find compelling the reasoning set out by the judge in paragraph 93 of his judgment:

    I infer from the privatisation rules that these attributes are considered of definitive and crucial importance in demonstrating the absence of aid. It is noteworthy that the Commission does not regard provisions in auction rules requiring satisfaction of preconditions before payment for licences as being of crucial or any real importance. Put in another way, if instead of auctioning the UMTS rights, the Agency had incorporated five companies, each having as its sole asset the right of licences, A,B,C,D, and E (as described in para.35 above), and then auctioned them on rules identical or similar to the UMTS Auction Rules, such sale would "be assumed without further examination" not to involve aid. It is difficult to see why the result should be different if, instead of using companies, the Agency disposed of the rights in the way that it did and this seems to be the answer to the applicants' submission that there was state aid here. So, the privatisation rules set out by the Commission are applicable to the UMTS auction, at least by analogy, with the result that there was no state aid given here.

    THE GENERAL SCHEME

  80. The judge accepted an argument advanced by the Secretary of State that the auction rules constituted a general scheme, which applied equally to all bidders. The fact that the application of those rules both delayed the time at which Vodafone and Orange received their licences and became obliged to pay for them did not constitute special treatment or favouritism. In these circumstances no question of state aid arose.

  81. Mr Vaughan described the principle of a 'general scheme' as follows. General measures of economic or social policy fall outside the rules governing state aid, subject to an important proviso. If the State retains a discretion as to how those measures are to be applied, and exercises that discretion selectively, so as to favour some but not others, the application of those measures will constitute state aid. He submitted that the Secretary of State could not properly invoke the principle of a general scheme in the present case for two principal reasons. First the scheme of the auction was not a general scheme as understood in EC law. The rules of the auction were specific rules and not rules of general application. Mr Vaughan's second reason was supported and elaborated by Mr Gordon. The Auction Rules included a discretionary power - paragraph 1.1.6. The Secretary of State exercised that power to permit Vodafone and Orange to take part in the auction. This constituted discrimination or selectivity. This would not, however, have resulted in favouring of Vodafone and Orange had the Secretary of State exercised the same discretionary power at the grant stage. He failed, however, to do so. Thus, when viewed overall, the Secretary of State exercised his discretion so as to use the scheme in a manner which benefited Vodafone and Orange and cannot invoke the principle of a general scheme.

  82. We accept Mr Vaughan's submission that the concept of a general scheme, as developed in EC law, has been applied to general measures of economic or social policy - see, in particular, Italy v. Commission [1974] ECR 709, the case cited alike by the judge, Mr Gordon and Mr Vaughan as exemplifying the principle. We are also inclined to agree with Mr Vaughan that the concept of a general scheme is of little assistance, as an independent test, in the present case. The issues debated at some length under this head related to the effect of the discretionary power afforded by paragraph 1.1.6 and the question of whether the use, and non-use, made of this power constituted discrimination in favour of Vodafone and Orange. It seems to us that these issues are better considered under the next head.

    OBJECTIVE JUSTIFICATION AND THE ABSENCE OF DISCRIMINATION

  83. Silber J. referred to passages in the judgments of the Lord Chief Justice and Clarke L.J. in the Lunn Poly case as demonstrating that, when considering whether a measure constituted State aid, it was material to ask both whether there was objective justification for the measure and whether the measure was discriminatory. He went on to observe that Article 9 (2) of the Directive required member states to subject all applicants to the same procedure unless there was an objective reason for differentiation.

  84. Both Mr Vaughan and Mr Gordon submitted that there was no general defence of objective justification to a charge of state aid. Mr Vaughan added that there was no requirement to find discrimination in state aid cases, although many of such cases involved differentiation of treatment.

  85. We consider that the Lord Chief Justice and Clarke L.J. were correct in Lunn Poly to conclude that objective justification could be a relevant factor in deciding whether conduct amounted to state aid. Mr Gordon rightly observed that objective justification was material when applying the normal market conditions test. We have already dealt with that test and concluded that, in that context, there was objective justification for the course taken by the Secretary of State.

  86. So far as discrimination is concerned, the allegation that the approach of the Secretary of State discriminated in favour of Vodafone and Orange, when compared to his treatment of BT and One 2 One, lies at the heart of the case of each of the appellants. The relevance of this complaint in relation to the issue of state aid is a matter to which we shall revert when we consider the alleged effect on competition. It is plainly relevant to the public law challenge on the ground of irrationality. We propose at this stage to consider whether, in fact, there was discrimination.

  87. The case for the appellants can be shortly and simply put. Vodafone and Orange received a substantial financial advantage, when compared to BT and One 2 One, in that their obligation to pay the huge prices for the licences was deferred by about 4 months. The response of Mr Richard Fowler Q.C., on behalf of the Secretary of State, supported by Mr Nicholas Green Q.C. for Vodafone, was that this was an over-simplification. The position of Vodafone and Orange could not be compared with the position of BT and One 2 One having regard solely to the question of when they had to pay for their licences. In the first place each company had to pay for its licence when it received it. BT and One 2 One had the advantage of receiving their licences four months before Vodafone and Orange received theirs. To this argument, the appellants retorted that there was no advantage in receiving their licences earlier because of the lengthy lead time before any use could, in practice, be made of the licences.

  88. Although BT and One 2 One could not make immediate use of their licences, it does not follow that there could be no commercial benefit to them in being granted their licences as early as they were. Nonetheless there was a commercial advantage for Vodafone and Orange in the delay in receiving the unconditional grant of their licences, which carried with it the obligation to pay for them. More persuasive is their argument that by requiring Vodafone to dispose of Orange within a relatively short time scale, the Auction Rules, as applied by the Secretary of State, imposed a potential financial detriment, which might well counter any benefit from the delay in payment for the licence.

  89. Vodafone adduced no evidence that they had, in fact, suffered financial detriment as a consequence of having to dispose of Orange by forced sale. The judge inferred from this that no such detriment had, in fact, been sustained. The fact remains that the operation of the Auction Rules were capable of having both beneficial and adverse effects on any companies denied the immediate grant of licences because of the need to satisfy pre-conditions. In any particular case the final outcome was likely to be fortuitous. The creation of such a situation does not constitute discrimination or favouritism.

  90. The judge gave the following three reasons for rejecting the allegation that the Secretary of State had discriminated in favour of Vodafone and Orange:

    First, the relevant rules were transparent from the very beginning of the consultation period; these .... included the rules (on which there had been wide consultation and no criticism) that no licence would be granted or paid for until satisfaction of preconditions: in consequence, successful bidders might have to pay for their licence at different times. The mere fact that there was no consultation on the inclusion of para. 1.1.6 is irrelevant as no challenge is now being made to its inclusion. There was always a risk that some bidders might become associated during the course of an auction; such associations might have arisen not just through the voluntary acts of the bidders themselves, but also through the acts of predators acquiring shares in the bidders or in the bidders' group of companies.

    Secondly, the rules were not discriminatory, but potentially applicable to all, so that any bidder might have found itself subject to them either because of an association or perhaps because of a regulatory problem or the need to obtain the consent of shareholders. In each case, there would be a precondition that had to be satisfied, and this precluded the grant of the licence and the obligation to pay.

    The final important point which shows why there was no discrimination was that Vodafone and Orange were, as I have indicated, in a materially different position to the other successful bidders and thus they should be treated differently. As I have already explained, Vodafone and Orange were in a different position because they had to cease to be part of the same group before either could be granted a licence, and because unless and until the condition was satisfied they had no absolute certainty that they would or when they would ever obtain licences even in spite of the undertakings. In addition, a party subject to an onerous obligation, such as Vodafone (which had to divest itself of Orange), is manifestly not in the same position as a party which is not subject to such an obligation. Similarly, a party without an accrued right to a licence is manifestly not in the same position as a party which has yet obtained such a right because of the need to satisfy a precondition. Thus, the principle of non-discrimination required Vodafone and Orange to be treated differently. In essence, they were in materially different positions to the applicants.

  91. We endorse this reasoning. To it must be added the fact that there was objective justification for the Secretary of State insisting upon the satisfaction of the preconditions rather than exercising his power under Rule 1.1.6 to disregard the association between the two companies.

    THE PRAGMATIC TEST

  92. We have already referred to the identification by Clarke L.J. of a pragmatic approach to the question of whether a measure amounts to state aid. The judge, in purporting to follow this approach, took what was, in effect, a global view of the conclusions to be derived from the various tests that he had applied. His conclusions, at paragraph 138, were as follows:

    In this case, the alleged aid was not introduced as a result of a fiscal measure but a consequence of a series of rational rules motivated by competition considerations which provide, if anything, a more forceful argument than employment or social reasons for holding that no state aid is involved. These rules, which led to the alleged state aid, were the principles that no licences would be granted or paid for until pre-conditions were satisfied, and that connected parties not be granted licences. These principles were rational, being based on commercial and competition considerations accepted by the parties and mandatory by EC law (i.e. the UMTS Decision) and consistent with that Decision and the Licensing Directive. So, the principle expounded by Clarke LJ gives additional support to the conclusion that no state aid was involved.

    We agree.

    THE STATUS QUO TEST

  93. This test involves considering whether the measure that is alleged to constitute state aid has altered the competitive position in the market. Silber J. had some difficulty in identifying the point of departure for this test, but concluded that because, whatever the point of departure, 'Vodafone and Orange were not entitled to a licence as they were connected. It follows that the decision of the Secretary of State did not alter the competitive position'.

  94. We have not found it easy to follow the reasoning of the judge on this point. It seems to us that it overlaps with that which relates to the next question which he considers, but that it is in conflict with his conclusion on that question. We are about to turn to that question.

  95. For the reasons that we have given, which endorse the reasoning of Silber J., we agree with the final comment of the judge in summary of this portion of his judgment: 'no aid was granted by a member state or through state resources'. Standing back, and taking what Clarke L.J. described as a pragmatic approach, we would summarise the facts of this case as follows. The bidders, including BT, One 2 One, Vodafone and Orange entered into an auction transaction with the Secretary of State which, from their point of view, was purely commercial. For his part, the Secretary of State had to have regard not merely to commercial considerations but to his paramount regulatory duties under European law. No complaint was, or has been, made of the Auction Rules. In the event, the manner in which those rules operated may have resulted in a comparative financial advantage to Vodafone and Orange. If so, that advantage could have been avoided had the Secretary of State exercised the discretionary power that he enjoyed under paragraph 1.1.6 of the Auction Rules. He had, however, objective justification for declining to exercise that power. To have done so would have been to detract from his paramount objective of ensuring that there was no association or connection between licence holders.

  96. These facts are miles away from any established example of state aid. Companies that deal with government authorities and which secure government contracts will often derive, in consequence, financial advantages over their competitors. The appellants' case is based essentially on the fact that the Auction Rules, to which they make no challenge, resulted in a benefit to two of their competitors which the Secretary of State had it in his power to prevent. The Secretary of State had good reason not to exercise that power. His failure to do so did not constitute state aid.

    AID WHICH DISTORTS OR THREATENS TO DISTORT COMPETITION BY FAVOURING CERTAIN UNDERTAKINGS AND WHICH AFFECTS TRADE BETWEEN MEMBER STATES

  97. For state aid to infringe Article 87 it must distort or threaten to distort competition to an extent that affects trade between member states. It was the appellants' case that the 'payment holiday' conferred on Orange and Vodafone resulted in so significant a financial benefit that it did indeed distort, or threaten to distort, competition to an extent that affected trade between member states.

  98. Silber J. considered this issue on the hypothetical basis that, contrary to his findings, Vodafone and Orange received financial advantages as a result of the deferral of their obligations to pay for their licences which constituted state aid. He held that he was satisfied 'by a small margin' that such advantages distorted or threatened to distort competition so as to affect trade between member states.

  99. The evidence which just succeeded in satisfying Silber J. on this point came from both BT and One 2 One. It was to the effect that the benefits to the cash flow of Vodafone and Orange as a result of the 'payment holiday' would give them a competitive advantage over other mobile network operators both within the United Kingdom market and elsewhere in Europe. Austria, Belgium, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain and Sweden were specifically mentioned as relevant parts of the market.

  100. No evidence was adduced in response. The Secretary of State argued that the financial detriment flowing from the forced sale of Orange might have offset any benefit of the 'payment holiday', but, in the absence of evidence from Vodafone, Silber J. rejected this. In his skeleton argument, Mr Fowler sought to revive this issue, but we see no basis for challenging the judge's conclusion.

    A CONUNDRUM

  101. Having regard to the finding by the judge that there was no state aid, this section of his judgment was academic. It occurred to us, however, after conclusion of argument, that it gave rise to a conundrum. It is One 2 One's primary case, and BT's alternative case, that the Secretary of State should have placed One 2 One and BT on the same footing as Vodafone and Orange by waiving his right under the Auction Rules to call for payment for One 2 One and BT's licences until the time that payment was due from Vodafone and Orange. If it were correct that Vodafone and Orange's 'payment holiday' constituted state aid, it seems to us that the proposed waiver would, a fortiori, have constituted state aid granted to BT and One 2 One. There would simply have been four beneficiaries of state aid distorting competition within the market rather than two.

  102. The matter goes a little further. The Secretary of State agreed with BT and One 2 One that, if their attack on his conduct succeeded, he would make payments to them designed to put the other licensees on an equal footing with Vodafone and Orange. Would such payments not also have constituted state aid?

  103. These questions are academic. But they underline, so it seems to us, the unreality of the contention that any financial benefits flowing to Vodafone and Orange as a result of the manner in which the auction rules operated amounted to state aid.

    PUBLIC LAW

  104. We now turn to the attack made on the conduct of the Secretary of State on the ground that it infringed well established principles of public law. Before Silber J. BT and One 2 One contended that the Secretary of State had erred in

    1. wrongly assuming that he had no power under the Auction Rules to act in a manner other than that which he adopted and

    2. failing to give adequate reasons for his actions. Mr Gordon sought to revive these arguments before us.

    It was not clear to us where these arguments led. There could be no question, on the facts of this case, of remitting the matter for reconsideration by the Secretary of State. We asked whether, if the Secretary of State had mis-appreciated his powers, it would not be open to him to justify his conduct by demonstrating that, had he properly appreciated these, he could and would have acted in precisely the same way. After reflection, counsel accepted that it would. It follows that these issues have no significance, and we say no more of them.

  105. It was argued on behalf of BT and One 2 One, before the judge and before us, that the manner in which the Secretary of State conducted the auction of the licences was irrational, discriminatory and unfair. It was the policy of the Secretary of State, as required by the Directive and the UMTS Decision, to ensure that the auction was fairly conducted and that it resulted in the provision of third generation services in a manner that fostered competition. In the event, the Secretary of State permitted the Auction Rules to operate in a manner which conferred on Vodafone and Orange financial benefits which gave them an unfair competitive advantage.

  106. The judge had already dealt with the question of discrimination in the context of state aid. He had found that there was none. At paragraphs 188 to 203 of his judgment he went over the ground again in rather greater detail. He held that Vodafone and Orange were not in a comparable situation to BT and One 2 One in that the former were subject to pre-conditions. Those pre-conditions carried potential detriments. At the grant stage, when it was argued that the Secretary of State should have exercised his power under paragraph 1.1.6, he had no means of knowing to what extent satisfying the pre-conditions would, in fact, prove detrimental to Vodafone and Orange. As there was no comparability of situation, there was no basis for contending that there would be discrimination if Vodafone and Orange were not treated in an identical manner to BT and One 2 One. We endorse this reasoning.

  107. The judge went on to find that there was no difference in treatment of Vodafone and Orange, because any bidder might, in the course of the auction, have become subject to a pre-condition, which would have delayed the grant of the licence and the time for payment. Again, we agree with this conclusion. Vodafone and Orange were, of course, treated differently in being permitted to take part in the auction notwithstanding their mutual association. This was, however, no reason why the Auction Rules should not, thereafter, be applied to them in the same way as to other bidders.

  108. Finally the judge found, once again, that any difference of treatment that had occurred was objectively justified. For the reasons that we have already given, we agree.

  109. The judge considered the rationality of the Secretary of State's conduct. In doing so he expanded on considerations already expressed when applying the normal market conditions test in the context of state aid. The paramount considerations were

    1. his determination that there should be no association or connection between licence holders;

    2. the fact that the Auction Rules expressly made provision for circumstances in which licences would be granted and paid for at different times;

    3. changing the expected payment regime at the grant stage would have been dangerous - the danger, as we understand it, being of a valid legal challenge.

    The judge concluded that the conduct of the Secretary of State was not unfair, irrational or unreasonable in any way. We agree with his assessment.

  110. Finally the judge considered whether, in devising and operating the procedure for the grant of licences the Secretary of State had acted proportionately. He identified eight factors which, individually or cumulatively satisfied him that he had. We think that these are worth summarising, for they also bear on the question of whether the Secretary of State acted rationally and fairly.

    1. The Auction Rules, when taken as a whole, were rational and necessary to achieve the object of safeguarding competition;

    2. The Auction Rules were accepted without objection by all who participated in the auction;

    3. It was necessary to insist on the satisfaction of the pre-condition in order to ensure that no entity had more than one licence and that Vodafone divested itself of Orange as soon as possible;

    4. The precondition had potentially adverse consequences as well as the benefit of deferred payment;

    5. The benefit of deferred payment was not great when considered against the differences in price paid in different auctions for identical licences;

    6. The benefit of deferred payment was no more than about 2% of the licence price;

    7. The alternative courses that it was suggested that the Secretary of State should have adopted were flawed and unlikely to be effective;

    8. The disadvantage to BT and One 2 One of having to pay early was of the same order as a single increase in bidding made by one or other of them in the course of the auction.

  111. We consider that there is force in each of these points.

  112. We are conscious that much of this judgment has been no more than a summary of the more detailed analysis of fact and law carried out by Silber J. Counsel for the appellants have been unable to persuade us that this was at fault. On the contrary, we wish in conclusion to express our admiration of it. For the reasons given by Silber J., which we have endorsed, this appeal must be dismissed.

APPENDIX I

BACKGROUND TO AUCTION AND STATUTORY MATERIAL

The Directive

  1. Directive 97/13/EC (OJ 1997 L 117/15) of the European Parliament and of the Council of 10 April 1997 ("the Directive") provides for a common framework for general authorizations and individual licences in the field of telecommunications services. The recitals to the Directive recognise the need "for rules at Community level, in order to ensure that general authorization and individual licensing regimes are based on the principle of proportionality and are open, non-discriminatory and transparent".

  2. The recitals provides that:

    10.

    Whereas any conditions attached to authorizations should be objectively justified in relation to the service concerned and should be non-discriminatory, proportionate and transparent....

    12.

    Whereas any fees or charges imposed on undertakings as part of authorisation procedures must be based on objective, non-discriminatory and transparent criteria

    25.

    Whereas on the basis of the full implementation of a competitive framework, in order to achieve the essential goal of ensuring the development of the internal market in the field of telecommunications and specifically the free provision of telecommunications services and networks throughout the Community, the adoption of this Directive will substantially contribute to the attainment of this goal, whereas Member States should implement this common framework, in particular through their national regulatory authorities.

  3. Article 1 of the Directive provides, inter alia:

    This Directive concerns the procedures associated with the granting of authorisations and the conditions attached to such authorizations, for the purpose of providing telecommunications services, including authorizations for the establishment and/or operation of telecommunications networks required for the provision of such services.

  4. Article 2 of the Directive defines "authorizations" as

    any permission setting out rights and obligations specific to the telecommunications sector and allowing undertakings to provide telecommunications services and, where applicable, to establish and/ or operate telecommunications networks for the provision of such services, in the form of a "general authorization" or "individual licence"....

  5. Article 3(2) provides that

    authorizations may contain only the conditions listed in the Annex [to the Directive] .Moreover, such conditions shall be "objectively justified in relation to the service concerned, non-discriminatory, proportionate and transparent.

  6. Paragraph 1 of that Annex provides that

    any conditions which are attached to authorizations must be consistent with the competition rules of the Treaty.

  7. Article 7 provides that Member States are entitled to issue individual licences for the purpose of allowing access to radio frequencies.

  8. Article 9(2) of the Directive stated that

    Where a Member State intends to grant individual licences: it shall grant individual licences through open, non-discriminatory and transparent procedures and, to this end, shall subject all applicants to the same procedures, unless there is an objective reason for differentiation.

  9. Article 11 of the Directive is entitled "Fees and charges for individual licences" and provides, in part:

    .... Member states may, where scarce resources are to be used, allow their national regulatory authorities to impose charges which reflect the need to ensure the optimal use of these resources. Those charges shall be non-discriminatory and take into particular account the need to foster the development of innovative services and competition.

  10. Article 25 of the Directive imposed a requirement on Member States to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive not later than 31 December 1997.

    The UK Government's Approach

  11. On 18 May 1998, the Minister at the Department of Trade and Industry in a written Parliamentary reply stated that: -

    The UK has been at the forefront of developing mobile telecommunications in Europe, and I am determined that it should retain that position. Third generation mobile - also known as UMTS or Universal Mobile Telecommunications Systems--offers exciting prospects for new jobs, new services and new investment, and I aim to ensure that the UK benefits fully from this new technology.

    To that end, we intend to hold an auction of UMTS licences in the summer of 1999, subject to market and other developments and to final decisions nearer the time. This timetable takes account of responses to the Government's consultation document 'Multimedia Communications on the Move', further discussions with industry, and advice from N M Rothschild and Sons.

    In offering through an auction licences to use specified frequencies for the delivery of UMTS, the Government's overall aim is to secure, for the long-term benefit of UK consumers and the national economy, the timely and economically advantageous development and sustained provision of UMTS services in the UK.

    Subject to this overall aim, the Government's objectives are to (i) utilise the available UMTS spectrum with optimum efficiency, (ii) promote effective and sustainable competition for the provision of UMTS services, and (iii) subject to the above objectives, design an auction which is best judged to realise the full economic value to consumers, industry and the taxpayer of the spectrum.

    In developing detailed auction proposals, my Department will continue fully to consult industry.

  12. Thus, from the outset, one of the Government's core objectives was to "promote effective and sustainable competition for the provision of UMTS services". By Section 3(1) of the 1949 Act a licence was required for use of the spectrum.

    The UMTS Decision

  13. On 14 December 1998, the European Parliament and the Council of the European Union issued decision number 128/99/EC ("the UMTS decision") which dealt with the co-ordinated introduction of third generation mobile and telephone communication systems in the Community.

  14. The recital to the UMTS decision recorded that "licences should be granted on the basis of objective, non-discriminatory, detailed and proportionate criteria, regardless of whether or not individual applicants for licences are existing operators of other systems" (Recital 11).

  15. Recital 19 provided that the UMTS decision did not prevent Member States imposing appropriate forms of national roaming between authorised operators on their territory "to the extent needed to ensure balanced and non-discriminatory competition".

  16. By Article 3 of the UMTS decision, Member States had to take all actions necessary to allow a co-ordinated and progressive introduction of the UMTS services on their territory by 1 January 2002 at the latest and in particular should establish an authorisation system for UMTS no later than 1 January 2000. By Article 13, Member States had to take all measures necessary by law for the provisions in the decision to be implemented.

    The Domestic Legal Framework

  17. In the United Kingdom, the Directive has been implemented by the Wireless Telegraphy Act 1998 ("the 1998 Act") and amendments to the Wireless Telegraphy Act 1949 ("the 1949 Act"). The 1998 Act makes provision relating to the grant of and sums payable in respect of licences under the 1949 Act.

  18. Sections 1(D) and 1(E) of the 1949 Act were inserted by the Telecommunications (Licensing) Regulations 1997 (SI 1997/2930), regulation 4(2).

  19. Section 1D provides

    (1)

    This section and sections 1E and 1F apply to wireless telegraphy licences which -

    authorise the establishment or use of any station, or the installation or use of any apparatus, for wireless telegraphy for the purpose of providing a telecommunications service involving the conveyance of signals by wireless telegraphy; and

    are not television licences or licences to broadcast programmes for general reception.

    (2)

    In subsection (1) "telecommunications service" means a service falling within paragraph (a) of the definition of "telecommunication service" in section 4(3) of the Telecommunications Act 1984.

    (3)

    An application for the grant of a licence shall be determined in accordance with procedures established by the Secretary of State, details of which shall be set out in a notice given by him.

    (4)

    The procedures specified under subsection (3) shall include time-limits for dealing with the grant of licences, requirements which must be met for the grant of a licence, and particulars of the terms, provisions and limitations to which licences which may be issued are to be subject.

    (5)

    Where the person applying for a licence fails to provide any information which the Secretary of State reasonably requires in order to satisfy himself that the applicant is able to comply with the terms, provisions and limitations in the licence the Secretary of State may refuse to grant the licence.

    (6)

    Where the Secretary of State proposes to refuse a licence he shall give to the person applying for the licence the reasons for the proposed refusal and shall specify a period of not less than 28 days within which representations with respect to the proposed refusal may be made.

    (7)

    The Secretary of State shall give a notice of any proposals that he may have to limit the number of licences that he grants, for the purpose of ensuring the efficient use and management of the electro-magnetic spectrum

    (8)

    A notice under this section shall be published in such manner as the Secretary of State considers appropriate for the purpose of bringing the matters to which the notice relates to the attention of those likely to be affected by them, and a reference to such notice shall also be published in the London, Edinburgh and Belfast Gazettes

    (9)

    In granting a licence and in determining any terms, provisions or limitations that a licence which may be issued is to be subject the Secretary of State shall ensure that the requirements of Articles 7 (scope) and 8 (conditions) of Directive 97/13/EC of the European Parliament and of the Council on a common framework for general authorisations and individual licences in the field of telecommunications services are complied with.

  20. Section 3 of the 1998 Act provides

    (1)

    Having regard to the desirability of promoting the optimal use of the electro-magnetic spectrum, the Secretary of State may by regulations provide that, in such cases as may be specified in or determined by him under the regulations, applications for the grant of wireless telegraphy licences must be made in accordance with a procedure which-

    (a)

    is set out in a notice issued by him under the regulations, and

    (b)

    involves the making by the applicant of a bid specifying an amount which he is willing to pay to the Secretary of State in respect of the licence.

    (2)

    Regulations under this section shall

    (a)

    make provision with respect to the issue of notices by the Secretary of State for the purposes of subsection (1)(a),

    (b)

    provide for the matters to be dealt with in any such notice, and

    (c)

    require any such notice to be published in such manner as may be prescribed.

    (3)

    Regulations under this section may make provision with respect to the grant of the licences to which they apply and the terms, provisions and limitations subject to which such licences are issued and may, in particular-

    (a)

    require the applicant's bid to specify the amount which he is willing to pay-

    (i)

    as a cash sum or by reference to a variable to be determined in accordance with the regulations (such as, for example, his income attributable wholly or in part to the holding of the licence), and

    (ii)

    as the amount of a single payment or as the amount of a periodic payment,

    (b)

    specify requirements (such as, for example, technical or financial requirements, requirements relating to fitness to hold the licence and requirements intended to restrict the holding of two or more wireless telegraphy licences by any one person) which must be met by applicants for a licence,

    (c)

    require any such applicant to pay a deposit to the Secretary of State,

    (d)

    specify circumstances in which such a deposit is, or is not, to be refundable,

    (e)

    specify matters to be taken into account by the Secretary of State (in addition to the bids made in accordance with the prescribed procedure) in deciding whether, or to whom, to grant a licence,

    (f)

    specify the other terms, provisions and limitations subject to which any licence is to be issued,

    (g)

    make any provision referred to in section 1(3), and

    (h)

    enable provision (including provision falling within any of paragraphs (a) to (g)) to be made by the Secretary of State in a notice for the purposes of subsection (1)(a).

    (4)

    Except to the extent that regulations under this section or a notice issued for the purposes of subsection (1)(a) otherwise provides, the issue of such a notice in respect of a particular licence does not bind the Secretary of State, on the completion of the procedure specified in the notice, to grant the licence.

    (5)

    A wireless telegraphy licence granted in accordance with regulations under this section shall specify, or specify the method for determining, the sum or sums payable in accordance with the applicant's bid for the licence; and those sums shall be paid to the Secretary of State by the person to whom the licence is issued in accordance with the terms of the licence.

    (6)

    Subsection (4) of section 1 shall apply in relation to sums that will or may become payable under regulations under this section subsequently to the issue of a licence.

    (7)

    Section 1(2) of the Wireless Telegraphy Act 1949 (powers of Secretary of State in relation to grant of licences) and regulations under section 3 of that Act (regulations as to wireless telegraphy) shall have effect subject to regulations under this section.

    (8)

    In this section "grant", in relation to a licence, includes renewal.

  21. Section 4(5) of the 1998 Act provides:

    Notwithstanding any terms or provisions included in a wireless telegraphy licence in accordance with this section, the Secretary of State may at any time by a notice in writing served on the holder of the licence, revoke the licence or vary its terms, provisions or limitations, if it appears to him to be requisite or expedient to do so - in the interests of national security, or for the purposes of complying with a Community obligation of the United Kingdom or with any international agreement or arrangements to which the United Kingdom is a party.

    The Regulations

  22. The Secretary of State for Trade and Industry made the Wireless Telegraphy (Third Generation Licences) Regulations 1999 SI 1999 No 3162 ("the Regulations") on 24 November 1999. The Regulations came into effect on 19 December 1999.

    These Regulations are made pursuant to sections 3 and 6 of the 1998 Act. They make provision for a procedure for the grant of five UMTS licences.

  23. Regulation 4(1) and (2) of the Regulations provides:

    4.

    (1)

    Notice 4(1) Applications for the grant of the licences shall only be made in accordance with a procedure which is set out in a notice issued by the Secretary of State under these Regulations

    (2)

    A notice issued pursuant to paragraph (1) above shall 

    (a)

    invite any body corporate to make an application to the Secretary of State to bid for a licence, in accordance with a specified procedure;

    (b)

    specify criteria by which the Secretary of State shall determine whether an applicant is qualified to participate in a bidding procedure;

    (c)

    specify criteria by which the Secretary of State shall determine which of the qualified applicants may bid for which of the licences;

    (d)

    specify a procedure by which a qualified applicant who is associated, in accordance with specified criteria, with one or more other qualified applicants, may submit prescribed bids to determine whether he shall be entitled to participate in the bidding procedure refer to in sub-paragraph (f) below

    (e)

    specify other criteria to determine which of any qualified applicants who fall within sub-paragraph (d) above shall be entitled to participate in the procedure referred to in sub-paragraph (f) below

    (f)

    specify a procedure by which qualified applicants may submit bids for licences

    (g)

    specify reserve prices for each of the licences;

    (h)

    provide for the Secretary of State to determine minimum and maximum bids for each of the licences during the bidding procedure referred to in sub-paragraph (f) above

    (i)

    provide for payment of a deposit on submission of an application and for the payment of one of more additional deposits before a qualified applicant may submit a bid for a licence above a specified sum

    (j)

    provide for the payment of interest on the deposit and on any additional deposits;

    (k)

    provide for the circumstances in which all, or part, of any deposit, and all, or part, of any interest which accrues to a deposit, is not to be refunded;

    (l)

    specify the conditions which must be satisfied before a licence may be issued to a qualified applicant who submits the highest valid bid for a licence;

    (m)

    provide for a qualified applicant who submits the highest valid bid for a licence to elect whether he wishes to pay such sum- as a single cash sum on issue of the licence; or

    as one half of such sum on issue of the licence with the balance payable as periodic sums calculated in accordance with a specified formula;

    (n)

    specify a guarantee which a qualified applicant who elects to pay the licence fee other than as a single cash sum is to provide to the Secretary of State on issue of the licence;

    (o)

    provide for the other terms, provisions and limitations subject to which each of the licences is to be issued; and

    (p)

    provide for the other conditions with which qualified applicants must comply to participate, or continue to participate, in the procedures referred to in sub-paragraphs (d) and (f) above.

    5.

    Refund

    The Secretary of State may, in such cases as he thinks fit, refund, in whole or in part, sums which have been paid to him in accordance with any provision of the licences.

    The Notice

  24. The Notice, ("the Auction Rules"), was issued on 22 December 1999 pursuant to the Regulations and in exercise of the Secretary of State's powers conferred by section 1D(3) of the 1949 Act.

  25. Section 6(2) of the 1998 Act requires the Secretary of State to permit at least 28 days for representations to be made to him with respect to regulations which he proposes to make pursuant to section 3 of that Act. Such consultation was carried out before the Regulations came into effect.

  26. The Secretary of State also consulted on the draft Regulations in May and June/July 1999.

  27. The Secretary of State published a draft of the Notice as Appendix J to the United Kingdom Third Generation The Next Generation of Mobile Communications Information Memorandum (the "Information Memorandum") on 1 November 1999.

  28. The introduction to the Information Memorandum provided:

    Recipients should note that the Regulations and Notice are not yet in final form. The Regulations are currently undergoing statutory consultation before being made and laid before Parliament. The Notice will only be issued once the Regulations have come into force, which is expected to be by 20 December 1999. The Radiocommunications Agency (the "RA") expects that the Notice will remain materially unchanged from that shown in the draft Notice at Appendix J, except as described in Section 4.6....

  29. Paragraph 1.1.6 of the Notice provides:

    1.1.6

    Notwithstanding any other provision of this Notice, where the Secretary of State determines that, in relation to circumstances which cause or would cause

    a Bidder to be a Candidate in relation to another Bidder, or a person who is a Relevant Member of a Bidder's Candidate Group to be a Relevant Member in relation to the Candidate Group of another Bidder (the "Connection"); or

    a Bidder to be an Associated Bidder in relation to another Bidder (the "Association")

    all of the following conditions are satisfied

    (a)

    the Connection or Association arises or would arise as a result of a transaction or series of transactions (constituting or forming part of merger or acquisition activity) which have taken place no earlier than 1st November 1999, or which have not taken place;

    (b)

    the Connection or Association is, or would be, of a temporary nature;

    (c)

    the purpose or principal purpose of the transaction or series of transactions is not to bring about the Connection or Association; and

    (d)

    arrangements satisfactory to the Secretary of State have been made or will be made such that:

    (aa)

    neither of the Bidders referred to in sub-paragraph (i) or in sub-paragraph (ii) of this paragraph 1.1.6 ("Bidder A" and "Bidder B" respectively) is or will in practice be able to achieve the result that the affairs of one such Bidder are conducted in accordance with the other's wishes;

    (bb)

    no person who is a Connected Person in relation to either or both of Bidder A and Bidder B, is or will in practice be able to achieve the result that the affairs of both Bidder A and Bidder B are conducted in accordance with his wishes;

    (cc)

    there is no appreciable risk that Confidential Information relating to Bidder A has been obtained or will be obtained by Bidder B, or vice versa; and

    (dd)

    there is no appreciable risk that both Confidential Information relating to Bidder A and Confidential Information relating to Bidder B has been obtained or will be obtained by any person who is a Connected Person in relation to either or both of Bidder A and Bidder B;

    then the Secretary of State may at any time, if he thinks fit, determine that the Connection or Association shall be disregarded for all purposes, or for such purposes as he may determine, under this Notice.

  30. The relevant definitions in the Notice are as follows:

    "Associated Bidder" means a Bidder falling within the definition in paragraph 3.7.9;

    "Backstop Date" means the date calculated in accordance with section 5 of Part 5;

    "Backstop Date Extension Notice" means the notice specified in paragraph 5.5.2;

    "Bidder" means a body corporate who has made an Application and has not been notified of his exclusion from the procedure specified in this Notice and has not notified his withdrawal in accordance with section 4 of Part 2;

    "Candidate" in relation to a Bidder means a person (other than the Bidder) who is a member of the Candidate Group in relation to the Bidder;

    "Candidate Group" in relation to a Bidder means the Bidder and any person who is a Connected Person in relation to that Bidder;

    "Connected Person" means a person who

    (a)

    controls a Bidder;

    (b)

    is a Participant in a Bidder and is concerned with that Bidder's application for a Licence;

    (c)

    has an Economic Interest of more than 10 per cent. in a Bidder and is concerned with that Bidder's application for a Licence;

    (d)

    controls, or is controlled by, a person falling within (a), (b) or (c) above;

    (e)

    is controlled by a person who controls a person falling within (a), (b) or (c); or

    (f)

    is controlled by a Bidder;

    "Connection" shall have the meaning given in paragraph 1.1.6;

    "Grant Stage" means the stage specified in Part 5;

    "Pre-Condition" means, in relation to a Bidder, that the Bidder is

    (a)

    an Associated Bidder; and/or

    (b)

    requires Prior Regulatory Approval;

    "Relevant Group" means, in relation to an undertaking-

    (a)

    any parent undertaking of the undertaking;

    (b)

    any subsidiary undertaking of the undertaking;

    (c)

    any subsidiary undertaking of any parent referred to in (a) above;

    (d)

    a shareholder or partner in the undertaking which beneficially owns (directly or indirectly) shares in the undertaking in circumstances where there is one other shareholder or partner in the undertaking which beneficially owns (directly or indirectly) the remaining shares in circumstances where neither shareholder nor partner has control;

    (e)

    any other undertaking of which the undertaking beneficially owns (directly or indirectly) shares in circumstances where there is one other shareholder or partner in that undertaking which beneficially owns (directly or indirectly) the remaining shares in circumstances where neither shareholder nor partner has control;

    (f)

    any other undertaking in circumstances where two or more of its shareholders or partners which acting in concert together beneficially own (directly or indirectly) more than 50% of the shares or voting rights in that undertaking, acting in concert together beneficially own (directly or indirectly) more than 50% of the shares or voting rights of the undertaking; and

    (g)

    any other undertaking of which the undertaking beneficially owns (directly or indirectly) together with one or more undertakings acting in concert more than 50% of the shares or voting rights of that undertaking;

    "Relevant Member" means a member of a Candidate Group other than a member who-

    (a)

    has no interest, whether direct or indirect, in the share capital of the Bidder;

    (b)

    possesses no voting power in the Bidder; and

    (c)

    possesses no Confidential Information relating to the Bidder.

    Part 5 of the Auction Rules

  31. Notification of any Pre-Conditions

    5.1.2

    Within 2 Business Days of receipt of a Provisional Award Notice the Bidder shall notify the Secretary of State:-

    (a)

    whether it is an Associated Bidder in relation to any other Bidder specified in the Provisional Award Notice;

    (b)

    whether it is subject to a Prior Regulatory Approval; and

    (c)

    the details of any associations or Prior Regulatory Approval notified in accordance with paragraph (a) or (b) above.

    5.1.3

    A Bidder who notifies the Secretary of State under paragraph 5.1.2 that he is not subject to any Pre-Conditions shall be entitled to a grant of the relevant Licence in accordance with paragraph 5.3.1.

    5.1.4

    Subject to section 5 of this Part, a Bidder who notifies the Secretary of State under paragraph 5.1.2 above that he is subject to one or more Pre-Conditions shall not be entitled to grant of the relevant Licence until such time as has notified the Secretary of State that he is no longer subject to any Pre-Conditions.

    5.1.5

    on notifying the Secretary of State in accordance with paragraph 5.1.4 the Bidder shall provide written evidence that the Pre-Conditions notified by that Bidder have been satisfied.

    5.1.6

    A Bidder who notifies the Secretary of State in accordance with paragraphs 5.1.2 or 5.1.4 above that he is not, or is no longer, an Associated Bidder, shall at the same time submit the Bidder Association Certificate specified in Appendix 3.

    5.1.7

    Subject to paragraph 5.1.8 a Bidder who fails to notify the Secretary of State in accordance with paragraph 5.1.2 above shall be subject to a daily Penalty of 10,000.

    5.1.8

    A Bidder who fails to notify the Secretary of State in accordance with paragraph 5.1.2 above within 7 Business Days of receipt of a Provisional Award Notice shall not be entitled to the grant of a Licence and all of that Bidder's Deposit shall be forfeit as a Penalty.

    Section 3 Grant of Licences

  32. Grant of Licence to Bidders

    5.3.1

    Subject to paragraph 5.3.2 below, within 20 Business Days of either: -

    (a)

    receipt of notification from a Bidder in accordance with paragraph 5.1.2 that he is not subject to any Pre-Conditions; or

    (b)

    receipt of notification from a Bidder in accordance with paragraph 5.1.4 that he is no longer subject to any Pre-Conditions,

    the Secretary of State shall grant that Bidder the relevant Licence.

    5.3.2

    If, after the Bidder has notified the Secretary of State in accordance with paragraph (a) or (b) of paragraph 5.3.1 above, such Bidder notifies the Secretary of State that he has become an Associated Bidder, the Secretary of State shall not grant the relevant Licence to that Bidder, unless, subject to section 5 of this Part, the Bidder subsequently notifies the Secretary of State that he is no longer an Associated Bidder.

    5.3.3

    The Secretary of State shall give a Bidder at least 3 Business Days notice of the date on which he intends to grant the Bidder a Licence.

  33. Duties of Bidders on Grant

    5.3.4

    Subject to paragraph 5.3.6, on the grant of a Licence to a Bidder who has made an election in accordance with paragraph 5.2.1(a) that Bidder shall pay to the Secretary of State a sum which shall be equal to the Licence Fee less either-

    (a)

    the Deposit; or

    (b)

    if the Deposit has been subject to the deduction of Penalties, a sum representing the balance of the Deposit, if any.

    5.3.5

    Subject to paragraphs 5.3.7 and 5.3.8, on the grant of a Licence to a Bidder who has made an election in accordance with paragraph 5.2.1(b) that Bidder shall

    (a)

    pay to the Secretary of State a sum which shall be equal to the Initial Licence Fee unless either-

    (i)

    the Deposit; or

    (ii)

    if the Deposit has been subject to the deduction of Penalties, a sum representing the balance of the Deposit, if any; and

    (b)

    ensure that the Secretary of State receives on the same day a Guarantee in the form specified in Schedule 3 given by one or more of the Qualifying Banks.

    5.3.6

    If the Deposit referred to in sub-paragraph (a) of sub-paragraph 5.3.4, or the sum calculated in accordance with sub-paragraph (b) of paragraph 5.3.4, as the case may be, is greater than the Licence Fee, the Secretary of State shall deduct an amount equal to the sum of the Licence Fee and shall, at the end of the Deposit Period last determined by him, pay to the Bidder an amount equal to the Deposit remaining on that date less the Licence Fee.

    5.3.7

    If the Deposit referred to in sub-paragraph (i) of paragraph 5.3.5, or the sum calculated in accordance with sub-paragraph (ii) of paragraph 5.3.5, as the case may be, is greater than the Initial Licence Fee, the Secretary of State shall deduct an amount equal to the sum of the Initial Licence Fee and shall, at the end of the Deposit Period last determined by him in, pay to the Bidder the balance of such sum.

  34. Date of Backstop Date

    5.5.2

    The Secretary of State may on one or more occasions and, at any time before the date determined in accordance with paragraph 5.5.1. above or, if later, the date most recently determined in accordance with this paragraph, extend the period so specified by issuing to each of the Bidders a Backstop Date Extension Notice, provided that any such extension does not extend beyond the date which is 180 Business Days after the Auction Stage Completion Date.

APPENDIX II

UNDERTAKINGS BY VODAFONE AIRTOUCH PLC

  1. On 3 February 2000, Vodafone AirTouch plc gave written undertakings to the Secretary of State to dispose of the entire interest (direct or indirect) in Orange as soon as practicable and in any event by 30 September 2000 (or such later date as the Secretary of State in his absolute discretion may agree being no later than 180 business days after the Auction Stage Completion date) without any interest (other than inter alia one approved by the Secretary of State) being retained by Vodafone AirTouch plc or any person in which Vodafone AirTouch plc has a 10% or more interest (direct or indirect) or which was a 10% or more interest (direct or indirect) in Vodafone AirTouch plc.

  2. Vodafone AirTouch plc also promised not to seek to ensure the affairs of Orange are conducted in accordance with Vodafone AirTouch plc's wishes. There were a number of undertakings given to satisfy the test of "no common control of two bidders". Vodafone AirTouch plc also undertook that no person connected with its bid would have any confidential information relating to Orange's bid. There was also provision for the appointment of a custodian to assist in ensuring that the companies were kept separate.

  3. On 24 February 2000, after correspondence from BT the Secretary of State obtained a further written undertaking from Vodafone AirTouch plc that neither it or any company within the Vodafone group would enter into discussions with any potential third party purchaser of Orange regarding the sale of Orange until after the Auction Stage Completion Date. Vodafone AirTouch plc also undertook not to enter into negotiations with any third party purchasers on Vodafone AirTouch plc's behalf.

  4. On 12 April 2000, Vodafone AirTouch plc gave written undertakings to the EC Commission in return for which the Commission did not oppose its merger with Mannesmann. The main undertaking relevant to this application was that Vodafone AirTouch plc would procure the disposal of all shareholdings in Orange held by Mannesmann as soon as practicable and in any event by 16 October 2000 or such other date as may be agreed by the European Commission. There were provisions in the undertaking to ensure this took place.


Cases

Commissioners of Customs and Excise ex p. Lunn Poly Ltd [1999] EuLR 654; Re Demenagements-Manutention Transport SA [1999] ECR I-3913, [1999] All ER (EC) 601; Italy v. Commission [1974] ECR 709

Legislations

Wireless Telegraphy Act 1949: s.1F

Wireless Telegraphy (Third Generation Licences) Notice 1999

Wireless Telegraphy Act (Third Generation Licences) Regulations 1999

Wireless Telegraphy Act 1998: s.4(5)(b)

EC Treaty: Art.87(1), Art.88(3)

Authors and other references

United Kingdom Spectrum Auction Information Memorandum, published 1 Nov 99

Putting the Policy into Practice: Regulations and Notice

Representations

David Vaughan, QC and Mark Brealey (instructed by Simmons & Simmons for the Second and Third Appellants)
Richard Gordon, QC, Alan Maclean and Ms Kelyn Bacon (instructed by Ashurst Morris Crisp for the First Appellant)
Richard Fowler, QC, Jonathan Crow and Clive Lewis (instructed by the Treasury Solicitor for the Respondents)
Nicholas Green, QC and Andrew Henshaw (instructed by Linklaters for Vodafone an Interested Party)


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