Europe fines Telefonica over broadband prices

Spanish telecoms company Telefonica, which owns O2 in the UK, has been fined a record €152m by the European Commission.

The penalty has been levied because the EC believes Telefonica’s broadband wholesale pricing strategy stifled competition.

The €152m fine is the highest ever levied in the telecoms sector and the second largest ever imposed by EU regulators. Microsoft’s fine of €497m is the largest.

Telefonica was accused of abusing its market position in Spain because of the high fees it charged competitors in the broadband sector for its wholesale product.

Compared with the company’s retail prices, the wholesale broadband fees were considered excessive.

The EC believed that the fees stifled competition by preventing Telefonica’s rivals in the broadband market from making a sufficient margin when reselling high-speed internet services to consumers.

According to Neelie Kroes, the European Union competition commissioner, small businesses and consumers in Spain pay approximately 20 per cent more than the EU average for high-speed internet.

Telefonica had the opportunity to rectify the situation when a complaint from Wanadoo prompted the launch of the inquiry in late 2003.

The size of the fine is intended to act as a deterrent to other dominant companies who might consider setting prices that undermine telecoms liberalisation.

Telefonica plans to appeal to the European Court of Justice against the European Commission’s ruling, as it believes the fine is ‘wholly unjustified and disproportionate’.