PARIS -- The European Commission has just announced that it considers incompatible with the European Community Treaty the French State's declarations and measures taken regarding France Telecom in December 2002 and the business tax (taxe professionnelle) regime established by the law of 2 July 1990. With regards business tax, the Commission has called on the French State to obtain the reimbursement of an amount that, after 18 months of procedures and despite multiple assessments, the Commission itself is unable to quantify.

The Commission appears to have made its decision without precision, in a climate of confusion fuelled by many leaks, rumours and public announcements that have been premature to say the least.

In reality, today's decision lacks any economic or legal basis: France Telecom has not received any State aid . In particular, it should be noted that the incriminated business tax regime established 14 years ago and practised until 2002 has globally led to the massive over-taxation of France Telecom, in excess of 1.7 billion euros. This was several times indicated in written by the French authorities to the Commission.

These decisions therefore contradict economic reality and amount to a serious violation of EU law. They endanger several principles essential to the common market's legal security, in particular the principle of neutrality between private and public property established by article 295 of the Treaty, the principle of prescription and the principle of legitimate expectation. They go against European case law, as confirmed in a very recent ruling of the Court of First Instance of Luxembourg (Salzgitter ruling of 1 July 2004), which once again repealed a Commission decision on State aid for its misappreciation of the principle of legal security.

Confident of its rights, France Telecom will take all possible measures to protect the interests of the Group and its 1.4 million shareholders. As already indicated, France Telecom will refer the case to the Court of First Instance of Luxembourg to have the European Commission's decisions repealed.

France Telecom is pleased to note that, for its part, the French State has decided to appeal against the decisions taken today by the Commission.

France Telecom SA