Telefónica charged record fine for price rigging

The Commission slapped a fine close to €152 million on Spanish operator Telefónica for preventing competition on broadband internet access over a period of five years by charging its competitors exaggerated wholesale prices. The penalty is twelve times higher than previous record fines involving telecoms companies. 

Addressing journalists in Brussels, Competition Commissioner Neelie Kroes said Telefónica had “deprived consumers and businesses of choice”  by charging its competitors wholesale prices for broadband internet that were close to the retail prices Telefónica charged its own customers. This practice, commonly referred to as ‘margin squeeze’, “made it impossible for competitors to enter the market in an economically viable way”, Kroes said. 

The case was brought up in 2003 by France Télécom subsidiary Wanadoo Spain, which complained against the wholesale prices Telefónica charged for broadband internet access. Kroes said the commission “had to act” because the company was abusing its control of the infrastructure to keep competitors out of the market.

Telefónica, Spain’s incumbent telecom operator, still controls almost all of the country’s telecommunication infrastructure.

The Commissioner justified the exceptionally high amount of the fine – it is the second-highest the Commission has ever imposed and by far the highest in a telecommunication case – by the fact that Telefónica had committed “a very serious abuse of its dominant market position”, which “harmed, consumers, businesses, and the Spanish economy as a whole – and by consequence also the European economy”. 

Kroes said that the fines of €12.6 million and €10.4 million, imposed on Deutsche Telekom and on Wanadoo, respectively, in 2004 were “not a sufficient deterrent” for others not to follow. She added that at this point in time, at the latest, Telefónica could have assessed the risk itself and ended it anti-comptetitve practices.

Kroes went on to demonstrate that Spanish consumers had to pay 20% more for broadband internet access than the EU-15 average. The cheapest fee for a one-month rental ADSL was €45 in Spain in November 2006, as compared to less than ten Euroe in Belgium and the Netherlands. As a result, broadband penetration in Spain was below the EU average.

A spokesman for Telefónica said: “We don’t see any justification for this accusation nor for any type of fine. We have implemented all the requirements imposed by the Spanish regulator”, to which Kroes replied: “It is normal that a national regulator comes to different conclusions than the Commission”. She stressed that “this decision is against Telefónica and not at all against the Spanish regulator. Telefónica alone is responsible for this abuse.”

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