EU fines telefonica record €151.9 mln

The European Commission said Telefonica's wholesale prices to other Internet providers were too high compared with its own retail prices, a margin squeeze that meant rivals made losses when they resold the access to consumers. “Telefonica's conduct harmed Spanish consumers, Spanish businesses and the Spanish economy as a whole, and by extension Europe's economy,” Competition Commissioner Neelie Kroes told reporters. “I want to send a strong signal to dominant undertakings in all sectors that could be tempted to engage in similar practices that I will not tolerate such behavior,” she said, referring to the energy market, dominated by former state monopolies.
Telefonica said it would immediately appeal the “unjustified and disproportionate” decision, arguing it was following market rules on pricing as set by Spain's telecoms market commission CMT, and that the EU was overruling the national competition office.

The fine is the highest set against a telecoms firm and the second-highest the European Union's top antitrust regulator has levied in an “abuse of dominance” case, beaten by almost half a billion euros Microsoft had to pay in 2004. CMT, which had dropped a similar case against Telefonica, on Tuesday criticized the Commission for stepping on its turf, adding that the EU executive should start a case against CMT if it was unhappy with the national telecoms regulator's actions. Shares in the company were little changed, trading 0.4% up at €16.51 by a.m.11:41 (GMT).

“The fine sets a precedent in terms of size although it's small change for Telefonica, but the decision does seem a little unusual,” said a telecoms analyst at one London investment bank. The EU complaint was originally filed by Wanadoo, an Internet service belonging to France Telecom's Orange. “The EU's decision confirms the arguments used that Orange made against the serious issues affecting competition in the Spanish ADSL market,” Orange said in statement. The Commission said CMT's pricing was based on Telefonica's forecasts, which “were not matched by its actual data”. “Telefonica's business plan and cost accounts show that the company could not have been unaware that it was engaging in a margin squeeze,” the EU executive said. It added CMT regulated only Telefonica's regional wholesale prices - 30% of its prices. CMT significantly lowered the prices after the Commission opened its formal investigation in February 2006.

The fine covers the period between 2001 and 2006. Analysts backed Telefonica's arguments that it was merely following CMT's guidelines. “What Brussels should be looking at is whether the national regulator has favored Telefonica... This decision will have consequences...it doesn't make any sense,” said Nahum Sanchez of brokerage Caja Madrid Bolsa. Telefonica is the only company in Spain with country-wide fixed-line telephone facilities carrying high-speed Internet over asymmetric digital subscriber lines (ADSL). With the exception of cable operators such as ONO, others wanting to compete must buy some of the ADSL service wholesale from Telefonica and resell it.

According to CMT data, Spain had 5.76 million ADSL lines by the end of April. Four million of those were Telefonica's retail lines while the rest, although on Telefonica's network, were operated by its rivals. The Commission said Spanish consumers paid 20% more than the average of the 15 'old' members of the EU, while broadband penetration was 20% below the EU-15% average. Kroes' warning shot at other sectors was aimed chiefly at dominant energy companies, which control both the supply of energy and the network through which it is transported. Competitors often need to buy access to this network if they want to supply their own consumers. Kroes has already opened antitrust investigations into Germany's RWE and E.ON and wants firms to spin off their networks. (informationweek.com)