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Home - Articles - EU slaps Telefónica instead of CMT

2007/07/10 - Daniel Rodríguez Herrera - Libertad Digital

EU slaps Telefónica instead of CMT

They are certainly giving me plenty of work. Once again, Brussels has put me in the mood to defend Telefónica, something that makes any web surfer feel more than a little guilty. And it isn't just me. The Association of Internet Users, of which I am a member, got its start years ago as the "Platform for a Flat Rate," holding Internet connection strikes to try to force the monopoly to offer a fixed rate Internet plan. Well, the Association has also had to come out against Brussels and in favor of the dominant telephone company.

The European Commission's reason for imposing a €151.8 million fine on Telefónica was that between 2001 and 2006 the wholesale prices for broadband access it charged to other companies was too high and the retail price it charged to customers too low. They call this a "margin squeeze." According to the authorities in Brussels, this squeeze kept competitors from dropping their retail prices enough to challenge Telefónica.

The small detail this administrative sanction forgot to keep in mind is that broadband prices were controlled by the CMT, the Spanish telecommunications regulatory agency, during the period in question. If these really were bad prices, as they most certainly were considering no regulator possess the necessary knowledge to perform such a job correctly, Brussels should sanction the CMT and make it pay the fine. Naturally, Telefónica will appeal, for this reason and because previous fines handed to other telephone operators were between 10 and 15 times less.

Still, it isn't even clear Telefónica (or, to be more precise, the CMT) really squeezed the margins. As the Association of Internet Users argues, Spain has not developed many alternative networks, suggesting the wholesale price is too low. On the other hand, there has been an explosion of companies dedicated to reselling Telefónica's broadband service, suggesting the retail margin is quite wide.

What is clear is that the European Commission, probably to test the strength of national regulators, has decided it can fine companies for obeying as well as disobeying the CMT. It is as if Brussels told Telefónica what the anti-trust authorities told Tom Smith and his incredible bread machine in the fable by R.W. Grant:

You're gouging on your prices if
You charge more than the rest.
But it's unfair competition if
You think you can charge less!

A second point that we would make
To help avoid confusion...
Don't try to charge the same amount,
That would be Collusion!

And what have those in the government responsible for the CMT done? Wash their hands of the matter. Nor does the government appear up to the task of eliminating what is really hindering competition in Spain: the one to two months users must go without an Internet connection whenever they try to change from one provider to another. This is why I don't even look at offers from other Internet service providers.

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