TEF Let Off the Hook

11:30 AM -- Right, let's see who can spot why I have an issue with today's news that Telefónica SA (NYSE: TEF) has been fined for abusing its dominant position in the Spanish broadband market.

The European Commission has been investigating the Spanish giant since February 2006, and has just reached the conclusion that the carrier was guilty of "very serious abuse of its dominant position in the Spanish broadband market" from September 2001 to December 2006. (See EC Fines Telefónica .)

Wow, that's a long time. So what did Telefónica do?

Well, it has been found guilty of a classic "margin squeeze," charging its DSL wholesale customers almost the same price as it was asking from its own retail customers.

That, notes the EC, "weakened its competitors, making their continued presence and growth difficult: competitors were forced to make losses if they wanted to match Telefónica's retail prices."

So what's the outcome of the guilty verdict? Well, the EC has the power to fine companies up to 10 percent of their revenues for such market abuse. As the Spanish giant generated revenues of €52.9 billion ($72 billion) and net income of €6.2 billion ($8.4 billion) in 2006, Telefónica had been facing a bill for anything up to €5.29 billion ($7.2 billion).

And in announcing its decision, the EC states: "In view of its gravity and duration, Telefónica's abuse warrants a severe sanction."

So, has Telefónica been hit with a whopper of a fine? Of course not.

Instead the EC has fined Telefónica €151.9 million ($207 million) for this "very serious abuse" over five years. That's 0.29 percent of the carrier's 2006 revenues.

And the EC, with a seemingly straight face, adds: "Today's decision should deter other incumbents from similar conduct." You have got to be kidding!

This will come as no great surprise to all the competitive carriers across Europe who know that being shafted by the incumbent carrier is part of daily working life.

But it's still a reminder that the EC, while making significant progress in some areas, such as mobile roaming tariffs, is still capable of making decisions that are little short of scandalous.

— Ray Le Maistre, Angry Editor, Light Reading

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