Commission Fines Telefónica 151.9 Million Euros

BRUSSELS, July 5: The European Commission has levied a fine
of more than 151 million euros against Spanish telco giant Telefónica for five
years of unfair pricing in the broadband market.

The fine, of 151.9 million euros, is for what the Commission
refers to as a “very serious abuse of its dominant position in the Spanish
broadband market.” The Commission maintains that Telefónica squeezed the margin
between the wholesale prices it charged competitors and the retail prices it
charged its own customers. Wholesalers were forced to keep their prices high in
order to be able to turn some profit, and at the same time match Telefónica’s
retail price. The Commission says that Spanish consumers pay 20 percent more
than the average broadband access fee in Europe, and the broadband penetration
rate is nearly 20 percent below the EU average.

Competition Commissioner Neelie Kroes commented: “Spanish
consumers are paying far more than the average for high-speed Internet access
and many have chosen not to pay that price. The margin squeeze that Telefónica
imposed on its competitors not only raised their costs, but also harmed
customers significantly. When consumers and businesses are harmed in such a
major market, the entire economy suffers. I will not allow dominant companies
to set prices that undermine telecoms liberalization."

As the only Spanish telecommunications operator that has a
nation-wide fixed telephone network, Telefónica controls the entire ADSL value
chain in Spain. More than 80 percent of broadband connections in Spain are via
ADSL. As such, retail broadband services have no option but to purchase
wholesale broadband access products from Telefónica.

The fine is significantly greater than those levied onto
other companies for similar infractions in the past; Deutsche Telekom received
a 12.6 million euros fine, while Orange (then Wanadoo) faced a 10 million euros
penalty.

“Telefónica was at all times free to end this margin squeeze
by lowering its wholesale prices on its own initiative,” the Commission said.
“Telefónica's business plan and cost accounts show that the company could not
have been unaware that it was engaging in a margin squeeze. In view of its
gravity and duration, Telefónica's abuse warrants a severe sanction. The abuse
had a very negative impact, in the form of obstacles to the entry of
competitors in this important market. The associated harm for customers was
considerable.”