ECJ rules against Portugal over ‘golden’ telecoms shares
Court says state’s control over Portugal Telecom is incompatible with EU rules.
The European Court of Justice today (8 July) ruled that the Portuguese government’s ‘golden share’ in phone company Portugal Telecom is incompatible with EU rules on free movement of capital.
The court said this meant that “approval of a considerable number of important decisions” concerning Portugal Telecom were dependent “on the agreement of the Portuguese state”.
It rejected arguments put forward by the Portuguese government that this was necessary to protect “public security”.
“Public security may be relied on only if there is a genuine and sufficiently serious threat to a fundamental interest of society,” the court said. “Such a justification cannot be upheld [in this case].”
The ruling confirms a decision by the European Commission in 2006 that the Portuguese government’s stake in Portugal Telecom contravenes EU law.
“We are confident that the Portuguese government will take the necessary measures to fully comply with the judgement as quickly as possible,” a spokesperson for the Commission said.
She said that the Commission was opposed to golden shares “except in very limited and exceptional cases” because they are “against the internal market and against the principle of the freedom of circulation”.
The ruling is expected to facilitate Spanish telecoms company Telefónica’s attempt to acquire sole control of Vivo, Brazil’s largest mobile phone operator.
Vivo is jointly owned by Telefónica and Portugal Telecom. Portugal Telecom’s regular shareholders approved a buy-out offer from Telefónica on 30 June, but the deal was then vetoed by the Portuguese government.
The Portuguese government said that its decision to veto was in “the national interest”.
The government was concerned that the loss of Vivo would leave Portugal Telecom without a major overseas asset, potentially jeopardising its future as an independent company.
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Portugal Telecom was created in 1994 as part of a privatisation of the telecoms sector. The company’s articles of association provide for the existence of 500 golden shares, the majority of which must be held by the Portuguese state or other public sector bodies. The golden shares grant special rights, including veto power over decisions on mergers and divestments.