EC investigates Telefonica, PT ‘non-compete’ agreement; 10% worldwide revenue fine mooted

27 Oct 2011

The European Commission (EC) has sent a Statement of Objections (SO) to Spanish telecoms giant Telefonica and Portuguese incumbent Portugal Telecom (PT) regarding their alleged ‘non-compete’ agreement, under which the two behemoths agreed not to compete within one another’s domestic telecoms markets. The EC has adopted a preliminary view that the agreement hinders competition in breach of European Union (EU) antitrust rules that prohibit restrictive business practices. The EC indicates that the sending of an SO is a key, but not the final step, in antitrust proceedings. The companies have two months within which to reply, and they have also the right to access the file and to request an oral hearing amongst other procedural rights.

In January 2011 the EC started an investigation into the agreement – inked in July 2010 – whereby Telefonica and PT agreed not to compete with each other in the Iberian market. The agreement was concluded as part of Telefonica’s 2010 acquisition of sole control over the Brazilian mobile operator Vivo, previously jointly owned by both parties. Although Telefonica and PT repealed the non-compete agreement in February 2011 – after the EC commenced antitrust proceedings against them – the move failed to disguise the fact that the agreement existed in the first place. The non-compete clause was originally set to run from September 2010 to the end of 2011; the Brazilian deal itself is not affected by the investigation.

At this stage of the investigation, the EC believes that the object of the agreement was to partition markets, resulting in potentially higher prices and less choice for consumers. If, after the parties have exercised their rights of defence, the EC concludes that there is sufficient evidence of an infringement, it can issue a decision prohibiting the conduct and impose a fine of up to 10% of a company’s annual worldwide turnover.

Portugal, Spain, PT Portugal (MEO), Telefonica