European court upholds 152-million-euro fine against Telefónica

The European Union General Court on Thursday rejected an appeal by Telefónica against a 152-million-euro fine imposed by the European Commission on the leading Spanish telecommunications operator for trying to stifle competition in the broadband market.

The Commission imposed the fine, the second-highest ever, after claiming that between 2001 and the end of 2006 Telefónica charged wholesale rates for use of its high-speed internet-access network that were so high that it made it impossible for rivals to compete in the market without making losses, a practice known as a margin squeeze.

The fine followed an investigation sparked by a complaint by one of Telefónica’s rivals in the broadband ADSL market. During that period, Telefónica had an 84-percent share of the ADSL market.

At the time, the then-European commissioner for competition, Neelie Kroes, said: “I will not allow dominant companies to use their market power to close down markets that the European Union has opened.”

Kroes said the ultimate victim was the Spanish consumer, who ended up paying considerably more for ADSL services than consumers in other European countries.

“The General Court dismisses the actions \[by Telefónica\], holding that the Commission rightly held that Telefónica had abused its dominant position,” the court said in a statement.

The Court also rejected an appeal by the Spanish government, which had sided with Telefónica in the dispute. Telefónica argued that it had complied with the pricing regulations laid down by the domestic regulator, the Commission for the Telecommunications Market (CMT), which had cleared the company of wrongdoing. Telefónica had charged the maximum rate allowed by the CMT.

The Court ruled that the fact it had been cleared by the CMT did not protect it against action by the Commission. It also rejected Telefónica’s argument that it could not gauge the impact of its pricing policy.

“As regards the determination of the fine, the General Court rejects the arguments of Telefónica that it was not reasonably able to predict the anti-competitive nature of its conduct,” it said.

Telefónica said it was in “complete and profound disagreement” with the ruling and would appeal the decision with the European Court of Justice.