The European Union’s top competition regulator has issued formal antitrust charges against Telefónica, alleging that the Spanish telecommunications group has abused its dominant position in the fast-growing market for broadband services.

Though the “statement of objections” sent by the European Commission does not automatically mean the regulator will find Telefónica guilty of violating competition rules, it suggests the Commission has built up a strong case against it.

Brussels alleges that Telefónica, the third biggest listed telecoms group, has undermined competition from rival internet broadband providers in Spain through a so-called “margin squeeze”. This means the wholesale prices Telefónica is demanding from rival operators are so close to retail prices for consumers that other companies are in effect excluded from competition.

“Telefonica would have incurred substantial losses if it had had to pay the wholesale tariffs it has been imposing on competitors,” the Commission said.

The Commission has found that – partly because of this lack of competition – retail broadband prices in Spain are well above the EU average. The country has also fallen behind other EU states in the construction of alternative broadband infrastructure – which has further cemented Telefónica’s position.

Should the Commission’s charges be confirmed, Telefónica faces painful financial penalties. The regulator has the power to impose fines equivalent to 10 per cent of a group’s annual worldwide turnover, though it normally settles for lower penalties.

The Commission’s biggest fine to date was the €497m penalty against Microsoft, which was found guilty of abusing a dominant position in March 2004.

A spokesman for Neelie Kroes, the EU competition commissioner, declined to comment on the Telefónica case.

A Telefónica official on Tuesday night said the company was awaiting “formal notification” from Brussels of the charges. However, he said the Spanish government regulated wholesale and retail tariffs in broadband services, making abuses difficult. “Telefónica has acted correctly,” he said.

Telefónica has been asked to respond to the allegations, which usually happens within one month. It also has the right to seek a hearing in Brussels to plead its case.

Telefónica, which was privatised in stages throughout the 1990s, remains the dominant fixed-line operator in Spain, with 78 per cent of the market.

In Spain, the company is often the subject of complaints by competitors, mainly operators who use its network, about pricing and access. However, judicial rulings against the company have been rare.

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