Brazen Noncompete Deal Ends in Heavy EU Fines

(CN) - Spanish and Portuguese telecommunications providers face more than $105 million in fines for agreeing to not compete against each other in the Iberian market.

The noncompete agreement between Spain's Telefonica, which ranks as Europe's biggest telecommunication's firm, and Portugal Telecom lasted from September 2010 through February 2011, the European Commission said Wednesday.

Lawmakers fined Telefonica $89 million and Portugal Telecom $16.3 million for violations of the Treaty on the Functioning of the European Union (TFEU), which prohibits anticompetitive agreements affecting trade in the EU single market.

"The commission is committed to ensuring the creation of a genuine single market in the telecoms sector," said Joaquin Almunia, EU Vice President in charge of competition policy, in a statement. "We will not tolerate anticompetitive practices by incumbents to protect their home markets, as they harm consumers and delay market integration."

Telefonica and Portugal Telecom struck the arrangement while Telefonica acquired sole ownership of Vivo, a Brazilian mobile operator that parties had owned jointly, in July 2010.

During negotiations of the Vivo purchase, the parties inserted a clause in the contract indicating they would not compete with each other in Spain and Portugal come October 2010, the commission said.

"Instead of competing with each other for offering clients the most advantageous conditions, as is expected in an open and competitive market, Telefonica and Portugal Telecom deliberately agreed to stay out of each other's home markets," it said in a statement. "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 companies broke off the agreement in February 2011, after learning that the commission had opened antitrust proceedings.

Regulators said the fines address the four-month duration of the infringement, and its gravity, including the public nature of the conduct.

Portugal Telecom's home state also felt the sting from regulators on Thursday when the commission demanded daily fines over Portugal's failure to follow EU telecom rules in universal service decisions.

Lawmakers say Portugal has failed to comply with a 2010 ruling in which the Court of Justice slammed the Portuguese government for trying to hold a "golden share" that gave it veto power over the country's dominant telecommunications company.

Portugal got the 500 shares after the 1995 privatization of Portugal Telecom and sold 1 billion regular shares on the open market. The golden shares were designated as state property and include veto power over any major company changes.

The commission said Portugal should face a fine of about $7,000 a day for the period between the 2010 Court of Justice decision and the eventual second decision its referral will prompt.

Noting that Portugal has made progress since the commission's previous referral request, from March 2012, the commission said it proposed a reduced lump sum. In the last few months, Portugal has taken steps by publishing invitations to tender, lawmakers said.

EU law requires member states to provide basic services throughout the country, including connection to the telephone network at a reasonable price, public pay telephones and emergency telephone numbers free of charge.

Member states must select universal service provider in an efficient, objective, transparent and nondiscriminatory procedure, the commission said.

"This means that all interested companies should be able to take part in the designation procedure, and no company should be excluded from tendering," it said in a statement. "Despite a 2010 ruling of the EU Court of Justice, Portugal has still not designated its universal service provider(s) in line with EU law."

Portugal was also one of five member states the commission referred to the Court of Justice in May over telecom rules.

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