The Brussels competition regulators yesterday vowed to take a close look at the €9 billion government loan to France Télécom to see whether it breaches European rules on state aid.
The European Commission said it expected to decide in the near future whether to open a probe into the bail-out. Brussels can block state aid to companies if it believes it would harm competition.
European Union diplomats said France had failed to win support for proposals that could ease restrictions on state aid and which may have eased the way for the state-backed rescue of France Télécom.
Competition lawyers said the aid could "probably" be approved but only after concessions from the company.
"France Télécom will have to restrict its business, which may mean giving up a \ licence," said Mr Michael Schutte at law firm Freshfields Bruckhaus Deringer.
The Commission's inquiries are set to focus on the Paris decision to channel the funds through a special vehicle that will enjoy unlimited government guarantees on its debt.
The Brussels authorities have taken action against similar guarantees in the past when they concluded that they put rival companies at a disadvantage.
In particular, they forced several German states to scrap debt guarantees for state-owned banks and took action against Electricité de France.
The key to any Commission decision will be whether the Brussels regulators believe that France Télécom is borrowing the money at a market interest rate.
If the Commission found that the French company was benefiting from a lower rate than available to other companies in its sector, it could block the aid or force the French government to raise the interest rate.
Under EU rules on aid to businesses in difficulty, any approval will be conditional on concessions from the company to ensure that France Télécom does not use the funds to attack rivals.
Paris has been pressing EU governments to ease rules on state aid to telecoms groups. Ms Nicole Fontaine, France's industry minister, pushed the case at a telecoms ministers' dinner on Wednesday, following calls for action by President Jacques Chirac in October. - (Financial Times Service)
