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Telefónica slapped with €67m anti-competitive fine from EU

Portugal Telecom gets €12m penalty for deal with 'mate'

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Spanish communications giant Telefónica has been fined €66.8m by the European Commission for agreeing not to compete with Portugal Telecom, which was slapped with a lighter €12m penalty by Brussels officials.

The two companies were found to be in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU), which bans anti-competitive behaviour among corporations, the EC said.

A non-compete clause folded into an agreement between the two outfits after Telefónica acquired Brazilian mobile operator Vivo - which had been jointly owned by both companies until 2010 - indicated that the parties would not fight for the same business in Spain and Portugal.

That deal was killed in February 2011 when the commission opened antitrust proceedings against the two firms.

EC competition chief Joaquín Almunia said:

The Commission is committed to ensuring the creation of a genuine single market in the telecoms sector. We will not tolerate anticompetitive practices by incumbents to protect their home markets, as they harm consumers and delay market integration.

Instead of competing with each other for offering clients the most advantageous conditions, as is expected in an open and competitive market, Telefónica and Portugal Telecom deliberately agreed to stay out of each other's home markets.

By preserving the status quo in Spain and Portugal, the agreement hindered the integration process of the EU telecoms sector. Non-compete agreements are one of the most serious violations of EU competition rules, as they potentially result in higher prices and less choice for consumers.

The Commission said it had taken into account the four-month duration of the infringement as well as its severity. The decision to end the non-compete agreement quickly was a mitigating circumstance in how the commission set its financial penalties against the two firms. The fines could have been as high as 10 per cent of revenues.

Telefónica, which owns mobile network operator O2 in the UK, is expected to appeal against the commission's penalty. It currently has a net debt of €58bn, so such a multimillion euro fine will be most unwelcome. ®

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