The European Commission ruled on Wednesday that digital TV decoder subsidies handed out by the Italian government in 2004 and 2005 were a violation of European Union rules.
The EC said the incentives, which amounted to more than 200 million euros, were a form of "illegal aid" and that the broadcasters who had benefitted the most should give back the money.
The Italian government, headed at the time by Silvio Berlusconi, subsidised the purchase or rental of TV set-top terrestrial decoders by 150 million euros in 2004 and a further 70 million in 2005 in a bid to promote digital television.
Berlusconi, who now heads the centre-right opposition, came under domestic fire for the subsidies because critics said they were a boon to both his own media empire and a decoder company controlled by his brother, Paolo Berlusconi.
The former premier owns the three-channel private TV network Mediaset while his brother controls Solari, a company which sells terrestrial decoders.
Italy's Anti-trust Authority ruled in May 2006 that the subsidies did not represent a breach of conflict-of-interest legislation for Berlusconi.
It also decided that Solari was not particularly advantaged by the subsidies because its stake in the decoder market amounted to less than 5%.
Mediaset immediately announced that it would fight the EC's ruling.
"The subsidies in question certainly benefitted consumers but they did not benefit in any way the balance sheets of broadcasters who cannot therefore be asked to reimburse any monies," Mediaset said in a statement.
The European Union opened a probe in December 2005 following a complaint from Sky Italia, the Italian satellite TV division of Rupert Murdoch's News Corp. group. Sky Italia protested that the subsidies were unfair since they only benefitted terrestrial broadcasters and excluded satellite operators.
Italy's terrestrial TV broadcasting market is dominated by Mediaset and the three-channel state broadcaster, Rai.
The European Commission agreed on Wednesday that the aid had created an "undue distortion of competition by excluding satellite technology".
It ruled that a third batch of subsidies granted in 2006 for decoders sold or rented in Sardinia and the northern region of Valle d'Aosta were not in breach of EU rules because they applied to both terrestrial and satellite technology. Competition Commissioner Neelie Kroes noted that the 2004 and 2005 subsidies had also enabled terrestrial broadcasters to develop their digital audience, a crucial part of the business for a broadcaster wanting to develop pay-TV services.
Following the introduction of the decoder subsidies, Mediaset and the small commercial La7 channel began making money by offering one-off or multi-match pay cards to view soccer games.
