EC fines Telefonica $206 mil

Telco guilty of anti-trust activities

MADRID — In a polemical decision, the European Commission announced Wednesday that it had fined Spanish telco Telefonica Euros 151 million ($206 million) for anti-competitive practices in Spain’s broadband Internet market.

Justifying its fine, the commission argued that Telefonica has been charging wholesale prices to competitors for use of its broadband network that are almost as high as retail prices charged to customers. The squeezed margins made it difficult for broadband rivals to turn a profit.

According to EU competition commissioner Neelie Kroes, Telefonica, once a state-owned monopoly in Spain, is guilty of “very serious abuse” of its dominant position in Spain’s fixed line telephony business. The fine is aimed to send “a strong signal” to incumbent telecoms not to follow Telefonica’s example.

According to the EC, Spanish consumers pay 20% more than the European average in the 15 core member states before 2004 enlargement, and broadband takeup is 20% below their average.

But, for Spanish commentators at least, the fine raises suspicions of political bias.

The EC moved to fine Telefonica after a complaint filed by broadband operator Wanadoo, owned by France Telecom.

Wanadoo and Deutsche Telekom were fined much lower sums — $14.2 million and $17.2 million respectively in 2003 — for anti-trust practices in Spain.

The fine also offers a bizarre case of the EC moving to punish a private operator for anti-trust activities when it is the responsibility of Spain’s CMT regulator, not Telefonica, to decide if any company abuses competitive practices in Spain.

The commission accuses Telefonica of not facilitating adequate information regarding its margins to the CMT.

Though the fine is chicken feed for Telefonica — its net income for this year is meant to come in at $10.3 billion — its could deter its commitment to largescale broadband development in the future.

“The fine’s worrisome. It creates a legal and judicial entanglement. Telefonica is meant to be rolling out a high-speed VDSL network across Spain. It might now think twice if, once it’s cleared its actions with Spain’s regulator, the EC could step in two-to-three years later and declare its strategy illegal,” said Fabian Lares, an analyst at Espirito Santo Investment.

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