Brussels, 04/07/2007 (Agence Europe) - On Wednesday 4 July, the European Commission fined the incumbent Spanish telecommunications operator, Telefónica, €151,875,000 for a very serious abuse of its dominant position on the Spanish broadband internet access market. By squeezing the margins between the wholesale prices charged to competitors and the retail prices charged to its own customers, the company weakened its competitors, making their continued presence and growth difficult.
According to Competition Commissioner Neelie Kroes, this practice is alleged to have brought about a 20% increase in retail prices compared to the EU average, with the effect of dissuading Spanish consumers from subscribing to broadband internet. Telefónica, for its part, has already challenged the “legal, economic and commercial analysis of the decision” and has declared its intention of bringing an appeal to the European Court of Justice.
This is an example of a phenomenon known as a “tariff scissor”, in which a company holds a dominant position on the wholesale market for a product or service, whilst at the same time being involved in the retail market. This configuration allows it artificially to inflate wholesale prices, keeping retail prices at a low level. The margin losses on the “retail” side are made up for by profit on the “wholesale” side. But retail competitors, which are obliged to purchase from the same wholesaler, do not have this option, and are therefore priced out of the market. “This behaviour by Telefónica [between 2001 and 2006] has harmed Spanish consumers, businesses and the economy as a whole and, by extension, the economy of Europe”, Ms Kroes told the press. The fine, which is 15 times higher than the one handed down to Wanadoo for a similar scenario in France in 2003 (EUROPE 8506), is justified by the serious nature of the abuse, and also by the fact that lower fines did not appear to have any deterrent effect.
The actions of the Commission, however, are not completely in line with those of the Spanish regulator, the Comisión del Mercado de las Telecomunicaciones (CMT), which had closed its investigation of 2003 (triggered by a complaint by Wanadoo in Spain), having noted that Telefónica had stuck to the tariffs recommended by the CMT itself in 2001. “As president of the CMT, I do not appreciate [the Commission's initiative]”, explained Reinaldo Rodríguez, speaking to the Spanish daily newspaper El País. “We know the sector better [than Brussels]”. If the Commission takes the view that action must be taken, he said, then this action should be taken against the CMT. The commissioner replied that she has no problem in principle with the actions taken by the CMT, but that she is obliged to note that this is a situation which is likely to cause confusion. “People have to know who the regulator is, and be able to trust that regulator”, put in Miguel Garzon of Telefónica, “otherwise it's a shambles, for investors and for everybody”. Telefónica plans to table its appeal with the Court in the next few days. If applicable, the proceedings will then be opened at the Court of First Instance within a few months. (cd)