Telefonica, Portugal Telecom Fined $105 Million by EU Agency

Telefonica SA and Portugal Telecom SGPS SA, the biggest telephone companies in Spain and Portugal, were fined 79 million euros ($105 million) by European Union regulators for agreeing not to compete in each other’s home country.

The European Commission told Telefonica to pay 66.9 million euros and fined Portugal Telecom 12.3 million euros for an illegal non-compete contract clause, regulators said in an e-mailed statement today. The companies agreed not to rival each other in Spain and Portugal when Telefonica decided to buy Portugal Telecom’s stake in Brazil’s Vivo Participacoes SA in September 2010. They ended the pact in February 2011.

“We will not tolerate anticompetitive practices by incumbents to protect their home markets as they harm consumers and delay market integration,” EU Competition Commissioner Joaquin Almunia said in the statement.

Telefonica and Portugal Telecom are struggling with declining revenue from their recession-hit home markets. Telefonica’s net debt at the end of the third quarter was 2.84 times earnings before interest, tax, depreciation and amortization, according to data compiled by Bloomberg. That’s exceeded only by Portugal Telecom with 7.8 billion euros in net debt, or 3.49 times its Ebitda.

Telefonica denied that the agreement broke EU rules and said it will appeal the ruling, according to an e-mailed statement. The accord with Portugal Telecom didn’t have an impact on consumers or alter market developments, the company said.

Portugal Telecom said in a filing that its fine was unjustified and that it will consider challenging the decision at the European Court of Justice.

Four Months

The companies escaped a larger punishment because their agreement lasted only four months and wasn’t kept secret, the EU said. The non-compete clause concluded between the two companies originally ran from September 2010 to the end of 2011.

Its cancellation in early 2011 didn’t “erase the fact that the agreement existed in the first place,” the Brussels-based antitrust regulator said when it sent the companies a complaint listing concerns with the pact linked to their former joint venture in the Brazilian mobile operator.

Telefonica’s purchase of the stake in Vivo for 7.5 billion Euros isn’t part of the EU probe, the commission said.

The Madrid-based company lost a legal challenge to the EU’s 152 million-euro antitrust fine last year. The EU’s General Court said the Brussels-based commission rightly held that Telefonica had abused a monopoly in Spain with deliberate low pricing of wholesale services to hurt rivals.

Telefonica was also fined 46.5 million euros by Spain’s competition regulator in December for abusing a monopoly over text-message services.

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