EC fines Telefónica, Portugal Telecom US$105mn for "non-compete" pact

Wednesday, January 23, 2013

Spanish telco Telefónica (NYSE: TEF) has said it will appeal a 79mn euro (US$105mn) fine imposed by the European Commission (EC) on the telco and Portugal Telecom (PT) (NYSE: PT) for agreeing not to compete with each other in their home markets.

Europe's antitrust commission fined Telefónica 66.9mn euros and Portugal Telecom 12.3mn euros over the pact, it said in a statement on Wednesday.

The parties included a temporary non-compete clause during 2010 negotiations over Telefónica's purchase of Portugal Telecom's stake in the jointly-owned Brazilian mobile operator Vivo.

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Telefónica ended up paying 7.5bn euros in the deal in July that year.

The EC said the telcos had been in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU) which prohibits anti-competitive agreements.

The agreement not to compete was in place from the end of September 2010 and was terminated by the companies in early February 2011 after the commission opened antitrust proceedings.

"We will not tolerate anticompetitive practices by incumbents to protect their home markets, as they harm consumers and delay market integration," the EC's VP in charge of competition policy Joaquín Almunia said.

Telefónica said in a statement on Wednesday that both parties had agreed to eliminate the clause after a legal assessment showed it could not be applied.

The telco protested its innocence saying that at the time the agreement was signed there had been no attempt to make a "secret pact or attempt to conceal it, which ratifies the fact that it was never intended to breach the current legislation."

The company added that the agreements between Telefónica and PT never had any effect on consumers or the market.

The fine comes at an awkward time for Telefónica, when the company is seeking to reduce debt through the sale of non-core or underperforming assets to help it face the complicated scenario in the European market.

Telefónica aggressively pursued PT's stake in Vivo in 2010, seeing it as key to developing its business in Latin America's largest market where it faces fierce competition from the Brazil-owned Oi (NYSE: OIBR) and Carlos Slim's América Móvil (NYSE: AMX), which operates under the Claro brand.

Like Slim, Telefónica foresaw synergies between its Sao Paulo-based fixed-line business Telesp and Vivo.

At the end of December, 2012, Vivo continued to lead the mobile telephony market with a market share of 29.1%, followed by TIM with 26.9%, Claro with 24.6%, and Oi with 18.8%.