Brussels to fine Telefónica over broadband margins

Telefónica, Spain’s leading telecoms group, will next month be punished and fined by the European Commission for abusing its dominant position in the market for broadband services.

The Brussels antitrust watchdog issued formal charges against the group last year, accusing Telefónica of operating a “margin squeeze” on competing groups.

The Commission found that the wholesale cost of accessing Telefónica’s broadband network was so close to prices charged consumers that rivals were unable to earn a sufficient margin, effectively shutting them out of the broadband market.

According to people familiar with the case, the charges have been confirmed in a draft decision set to be approved by the Commission at a meeting on July 4.

The ruling was last Friday presented to national competition regulators, who gave broad backing.

The Commission has yet to determine Telefónica’s fine, but under EU rules it can impose a penalty of up to 10 per cent of the group’s annual global turnover.

The case has raised questions about the system used by Spain’s Telecoms Market Commission (CMT), the domestic regulator, to calculate wholesale broadband charges.

Its investigation found that they left scope for competition, and Telefónica has repeatedly pointed to the regulator’s approval in its defence against the Commission accusations.

At the same time, the CMT and Telefónica are at loggerheads over sanctions against the group related to the alleged abuse of its dominant position in fixed-line services.

In two cases involving margin squeezes in the telecoms sector – against France Télécom’s Wanadoo and Deutsche Telekom in 2003 – Brussels opted for relatively low fines of €10.4m ($14m) and €12.6m respectively.

But since Neelie Kroes took over as EU competition commissioner in 2004, the regulator has drastically increased fines for antitrust abuses, making it unlikely Telefónica will escape as lightly as its German and French rivals.

Last year the Commission imposed fines of €1.85bn, a record that is certain to be topped in 2007, which has so far seen the regulator clock up just over €2bn in fines.

Telefónica stands accused of operating the margin squeeze since 2001.

Linking the alleged abuse to the wider problems affecting the broadband market in Spain, Brussels said last year that “retail broadband prices in Spain are high and well above EU average”.

The Commission stressed that the roll-out of broadband infrastructure to compete with Telefónica’s network was happening more slowly than in other European markets.

The group, which has always denied wrongdoing, is likely to appeal against any decision in front of the European Court of First Instance, the EU’s second-highest court.

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