The hefty fine imposed recently by the European Commission on the Spanish telecom operator Telefonica goes to show that the Commission has stepped up its tough stance towards an undertaking's abuse of its dominant position on a particular market.
The fine imposed on Telefonica to the tune of €152 million is 12 times higher than previous record fines involving telecom companies and the second highest that it has ever imposed on any undertaking found guilty of infringing EU competition rules.
Telefonica was found guilty by the European Commission of preventing competition in the broadband internet market over a period of five years by charging its competitors exorbitant wholesale prices to access its infrastructure.
Telefonica, a Spanish telecom operator, controls almost all of Spain's telecommunication infrastructure. Wholesale access at national level allows alternative operators to offer retail broadband services throughout the Spanish territory without having to roll out any network by connecting to a single, "national" access point. Wholesale access at the regional level requires that alternative operators roll out a costly network reaching up to 109 "regional" access points. Telefónica is dominant in the provision of both types of access and competitors in the broadband retail market rely on Telefonica's infrastructure to be able to give an economically viable service to consumers.
In the initial complaint filed to the European Commission, one of Telefonica's competitors alleged that Telefonica was charging its competitors wholesale prices for access to its broadband internet infrastructure that were close to the retail prices that Telefonica charged its own customers. Such a practice, commonly known as a "margin squeeze", prevented Telecom's retail broadband competitors from entering the market since if they wanted to enter the market and sought to align their prices with those of Telefonica they would incur losses.
In this way, Telefonica was making it impossible for competitors to be economically viable by ensuring that their presence on the market would not be a sustainable one, to the detriment of consumers and competitors alike. In fact, by engaging in a margin squeeze, Telefonica was able to charge supra competitive retail prices to its consumers which could not be matched by its competitors since the latter relied on Telefonica's wholesale products and the prices charged by Telefonica for such products to be able to give a service to their own consumers. The Commission observed that owing to the lack of competition, Spanish consumers had to pay 20 per cent more for broadband internet access than consumers in most of the EU member states.
The Commission concluded that because of the slight difference in the price charged by Telefonica for wholesale broadband access and that charged by Telefonica at a retail level, no other operator could operate in an economically viable way to provide retail broadband access. Such competitors had no option but to operate at a loss. The Commission maintained that, by sustaining a margin squeeze, Telefonica was abusing of its absolute control of the infrastructure in place in order to keep competitors out of the market.
This is not the first time that the Commission imposed hefty fines in the broadband markets for price abuses. In 2004, Deutsche Telekom and Wanadoo were both found guilty of abusing of their dominant position in the relevant market and imposed fines to the tune of €12.6 million and €10.4 million respectively. In establishing the record-breaking fine imposed on Telefonica, the European Commission noted, that these decisions should have served as a sufficient deterrent to Telefonica from persisting in its abusive behaviour!
• Dr Vella Cardona M'Jur, LLD, is a freelance consultant in EU, intellectual property and competition law. She is also a visiting lecturer at the University of Malta.
The fine imposed on Telefonica to the tune of €152 million is 12 times higher than previous record fines involving telecom companies and the second highest that it has ever imposed on any undertaking found guilty of infringing EU competition rules.
Telefonica was found guilty by the European Commission of preventing competition in the broadband internet market over a period of five years by charging its competitors exorbitant wholesale prices to access its infrastructure.
Telefonica, a Spanish telecom operator, controls almost all of Spain's telecommunication infrastructure. Wholesale access at national level allows alternative operators to offer retail broadband services throughout the Spanish territory without having to roll out any network by connecting to a single, "national" access point. Wholesale access at the regional level requires that alternative operators roll out a costly network reaching up to 109 "regional" access points. Telefónica is dominant in the provision of both types of access and competitors in the broadband retail market rely on Telefonica's infrastructure to be able to give an economically viable service to consumers.
In the initial complaint filed to the European Commission, one of Telefonica's competitors alleged that Telefonica was charging its competitors wholesale prices for access to its broadband internet infrastructure that were close to the retail prices that Telefonica charged its own customers. Such a practice, commonly known as a "margin squeeze", prevented Telecom's retail broadband competitors from entering the market since if they wanted to enter the market and sought to align their prices with those of Telefonica they would incur losses.
In this way, Telefonica was making it impossible for competitors to be economically viable by ensuring that their presence on the market would not be a sustainable one, to the detriment of consumers and competitors alike. In fact, by engaging in a margin squeeze, Telefonica was able to charge supra competitive retail prices to its consumers which could not be matched by its competitors since the latter relied on Telefonica's wholesale products and the prices charged by Telefonica for such products to be able to give a service to their own consumers. The Commission observed that owing to the lack of competition, Spanish consumers had to pay 20 per cent more for broadband internet access than consumers in most of the EU member states.
The Commission concluded that because of the slight difference in the price charged by Telefonica for wholesale broadband access and that charged by Telefonica at a retail level, no other operator could operate in an economically viable way to provide retail broadband access. Such competitors had no option but to operate at a loss. The Commission maintained that, by sustaining a margin squeeze, Telefonica was abusing of its absolute control of the infrastructure in place in order to keep competitors out of the market.
This is not the first time that the Commission imposed hefty fines in the broadband markets for price abuses. In 2004, Deutsche Telekom and Wanadoo were both found guilty of abusing of their dominant position in the relevant market and imposed fines to the tune of €12.6 million and €10.4 million respectively. In establishing the record-breaking fine imposed on Telefonica, the European Commission noted, that these decisions should have served as a sufficient deterrent to Telefonica from persisting in its abusive behaviour!
• Dr Vella Cardona M'Jur, LLD, is a freelance consultant in EU, intellectual property and competition law. She is also a visiting lecturer at the University of Malta.