Telefonica fined by the EU

Brussels fines Telefónica 151.8 million euros for blocking free competition in Internet Broadband Connections in Spain

The European Commission has decided to impose exemplary sanctions on various European Telecommunications companies with the Spanish company Telefónica at the top of its list. Telefónica, has been fined 151.875 million euros which is the highest sanction ever given to a telecommunications company by the EU. The sanction was given because of ‘the serious abuse of its dominant position’ in the Spanish telecommunications market and for impeding free competition in fast speed internet broadband connection.

To date Brussels has sanctioned the French company Wanadoo with a fine of 10.35 million euros and the German company Deutsche Telekom with a fine of 12.6 million euros for monopolizing access to the internet.

However, on this occasion the European Commission considered Telefónica’s abuse of power deserved a more serious sanction.

It found that Spanish consumers paid 20% more than the European average for internet broadband connection and that there were 20% less consumers connected and that this sector of the telecommunications market was growing by up to 30% less than in the rest of the EU.

The European Commission indicated that Telefónica deliberately prevented its competitors by making it almost impossible for them to maintain their position in the market and impeding their growth. It also forced them into a situation in which they incurred losses if they wanted to compete on the same level as Telefónica.
Neelie Kroes, the EU Commissioner for Competition said that ‘when consumers and businesses in an important market were damaged then it affected the whole of that country’s economy and that she wouldn’t allow dominant companies to fix prices and ruin the possibility of liberalizing the telecommunications industry’.

This conflict of interest began back in 2001 when Wanadoo denounced Telefónica for taking advantage of its strong position in the market to get rid of its competitors.
The Spanish regulatory organization the ‘Comisión del Mercado de las Telecomunicaciones’ (CMT) allowed Telefónica to offer special prices which damaged competition. However, Kroes pointed out that the sanction was against Telefónica and not the CMT. This has led to complaints by Telefónica that the European Commission is using a European law which conflicts with national legislation is different.

Brussels formally accused Telefónica of practices against free competition in February 2006 and gave it the right to defend itself. The company claims to have acted in good faith and within market regulations and says that it will appeal against the fine before the EU court in Luxembourg although it only has 2 months and 10 days left to do so.

The fine given to Telefónica is the highest ever given by the European Commission in this sector. Only Microsoft has received a higher fine of 467.2 million euros.