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Neelie Kroes

European Commissioner for Competition Policy

Press conference on Telefónica decision – introductory remarks

Press conference
Brussels, 4th July 2007

Today the European Commission has fined Telefónica 151 875 000 euros for impeding competition on the Spanish broadband internet access market for more than five years, and so depriving consumers and business of a choice of broadband suppliers.

In particular, Telefónica has committed a very serious abuse of its dominant position on the Spanish broadband market by structuring its wholesale and retail prices in such a way that the margin between them did not allow competitors to compete on the market without making losses.

Through this so-called 'margin squeeze', Telefónica insulated itself from the rigours of competition by making it impossible for alternative broadband suppliers to enter the market on a commercially-viable basis.

Without competition, there is no incentive to lower prices, to promote investment in infrastructure, or to introduce innovative services, not just for the dominant company, but also for competitors on the market as a whole.

Telefónica's conduct harmed Spanish consumers, Spanish businesses and the Spanish economy as a whole, and by extension Europe's economy.

The fact is that small businesses and consumers in Spain are paying about 20% more than the EU-15 average for high-speed Internet access.

Many have chosen not to pay that price: Spain has a broadband penetration rate below the EU average. Consumers have been put off from exploring the new services that broadband internet allows.

And because communications, like other industries such as energy and transport, is one of the main arteries of the Internal Market – then if these arteries are constricted, the whole body of the Spanish economy suffers.

Opening the telecommunications markets to competition is one of the great success stories of the European Union.

Thanks to EU liberalisation, hundreds of millions of consumers all across Europe have a choice of more, and more innovative, telecommunications services. Prices have fallen dramatically.

But the Commission has a particular responsibility to ensure that the liberalisation that it initiated works in practice, and opening these markets has not been without problems. The Commission, national competition authorities, and national regulators, have repeatedly had to intervene.

We have had to intervene because the incumbents still control the fixed local access networks built when they had exclusive rights, and this control gives them the ability and the incentive to exclude competitors from related markets, such as broadband internet access.

This is precisely what Telefónica has done.

For more than five years, from September 2001 to December 2006, Telefónica kept wholesale prices artificially high compared to its retail prices.

Because potential competitors in Spain were largely dependent on Telefónica's fixed telephone network to provide broadband access, through ADSL technology, Telefónica's price structures raised its competitors' costs, restricted competition on the retail market, and made consumers pay the price.

Telefónica could have ended this abuse itself. It did not do so.

I am well aware that Telefónica is unhappy with today's decision: it has lobbied the Spanish press and the Commission intensively.

But the Commission has an obligation to defend the interests of Spanish broadband users against illegal anticompetitive practices, and this obligation takes precedence over the narrow interests of one company that violates the antitrust rules.

I am also aware that Telefónica has tried to blame the Spanish telecoms regulator for the situation. But the fact remains that Telefónica, and Telefónica alone, is responsible for this abuse.

And it is thanks to the Spanish telecoms regulator, and not Telefónica, that the abuse was ended in December 2006, when the regulator set new wholesale prices in.

Telefónica should be grateful: were the abuse continuing today, the fine could have been yet higher.

Telefónica's behaviour shows that the Commission’s 2003 fines against Deutsche Telekom and Wanadoo for similar behaviour were not a sufficient deterrent. I hope that today's fine has a greater impact.

Let me be perfectly clear - I will not allow dominant companies to use their market power to close down markets that the European Union has opened.

I will not allow dominant undertakings to reserve for themselves the broadband markets whose importance will only grow with more and more services – commercial, non-commercial and governmental - going on line every day.

I will not allow dominant companies to weaken competition and harm consumers.

Today's decision concerns broadband internet access, but the same principles apply to other products and services.

I want to send a strong signal to dominant undertakings in all sectors that could be tempted to engage in similar practices that I will not tolerate such behaviour.

We have heard much in recent weeks about Europe's citizens deserving protection. I could not agree more.

Today's decision shows that sometimes the threats to the economic well-being of Europe's citizens and businesses can be found close to home.

Protecting citizens from these threats – wherever their source - is precisely what the European competition rules, and this decision, are all about.

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