EU fines Spanish telecom group EUR 151m

(BRUSSELS) - EU antitrust regulators on Wednesday slapped a 151.9-million-euro fine on Spanish operator Telefonica in a crackdown on uncompetitive practices in Europe's communications market.

EU Competition Commissioner Neelie Kroes said she was imposing the fine, worth 206 million dollars, because Telefonica had stifled competition in the broadband Internet market.

Kroes said she wanted to "send a strong signal" to other companies that crush rivals unfairly using dominant market power, especially in key sectors such as telecommunications, energy and transport.

"Let me be perfectly clear -- I will not allow dominant companies to use their market power to close down markets that the European Union has opened," she told a news conference.

The fine is the biggest ever slapped on a telecoms operator in Europe and the second biggest the Commission has imposed for abusing market strength after a hitting Microsoft with a penalty of nearly half a billion euros in 2004.

Describing the ruling as "inexplicable," Telefonica said that it would challenge the decision with an appeal before an EU court.

"Telefonica finds the decision by Brussels to be unjustified and disproportionate, both legally and economically," the company said in a statement from Madrid.

Europe's top antitrust watchdog accused Telefonica of "a very serious abuse of its dominant position" by squeezing margins of rival broadband access providers for over five years in the way it set wholesale and retail prices.

As a result, she said, "Spanish consumers are paying far more than the average for high-speed Internet access and many have chosen not to pay that price."

As the only Spanish telecommunications operator that has a nation-wide fixed telephone network, Telefonica's rivals were obliged to buy wholesale broadband access from it.

However, the Commission accused Telefonica of keeping the wholesale price "artificially high" compared to its own retail price, against which competitors then had to compete.

As a result, competitors saw their margins "squeezed" by what they had to pay Telefonica for wholesale access and what they had to charge clients to be able to compete with Telefonica.

"In so doing, Telefonica weakened its competitors, making their continued presence and growth difficult: competitors were forced to make losses if they wanted to match Telefonica's retail prices," the Commission said in a statement.

Kroes said that the arrangement made Spanish consumers pay 20 percent more than the average in the European Union's oldest member states, stunting the market's growth.

"The margin squeeze that Telefonica imposed on its competitors not only raised their costs, but also harmed customers significantly," Kroes said.

"When consumers and businesses are harmed in such a major market, the entire economy suffers," she added.

The fine against Telefonica comes after EU regulators also levelled smaller fines against Deutsche Telekom and France Telecom's Internet unit Wanadoo in 2003 also for abusing their dominant market power.

"Telefonica's behaviour shows that the Commission's 2003 fines against Deutsche Telekom and Wanadoo for similar behaviour were not a sufficient deterrent," Kroes said. "I hope that today's fine has a greater impact."

Commission anti-trust decision against Telefonica - frequently asked questions