EU Antitrust Fines Deutsche Telekom

BRUSSELS--The European Commission's antitrust unit is fining Deutsche Telekom AG and its subsidiary Slovak Telekom A.S. a total of EUR69.9 million ($88.4 million) for shutting out rivals from the Slovak market for broadband services for more than five years, in breach of EU antitrust rules, the commission said in a statement Wednesday.

The total consists of two fines: one of EUR38.8 million on Slovak Telekom A.S. and its parent company, Deutsche Telekom AG for refusing to give access to the so-called local loop or "last mile," the final section of the network which joins telecoms cables to subscribers' homes, and an additional EUR31 million fine for Deutsche Telekom alone because it is a repeat offense after similar tactics in 2003 in Germany.

"Slovak Telekom's strategy has distorted competition in the broadband market in Slovakia during more than five years, to the detriment of competition and consumer," Commission Vice-President Joaquín Almunia, in charge of competition policy, said. "It also pursued a margin squeeze policy which made it impossible for alternative operators to use its legacy telephone network infrastructure without incurring a loss."

Slovak Telekom, the incumbent telecom operator in Slovakia, offers, among other things, fixed broadband services over its legacy metallic telephone networks and over fiber networks.

According to the commission, back in 2005, Slovak Telekom set the conditions under which alternative operators could access the local loop--which made it unfeasible. Moreover, Slovak Telecom set prices at such levels that, in order to compete, its rivals would be forced to incur losses.

"Such a practice is abusive, it delayed market entry," an EU spokesman said.

Known as a "margin squeeze," the practice of pricing wholesale broadband access in such a way that rivals would make a loss if they sold their retail service at the same price as the biggest operator has long been on the commission's radar. In 2003 the commission fined Deutsche Telekom EUR12.6 million for doing it, and in 2007, the Spanish incumbent Telefónica S.A. was hot with a EUR151 million fine.

Deutsche Telekom is a majority shareholder of Slovak Telekom, holding 51% of its shares, and can nominate the majority of the Board of Directors. The Commission said its investigation "revealed that Deutsche Telekom did indeed exercise decisive influence notably through overlaps in senior management personnel," and is therefore jointly liable for the main fine.

The former state-owned German telecoms giant said it would appeal the commission's decision--and took a swipe at the way Mr. Almunia has operated during his tenure as the 28-nation bloc's antitrust chief, calling the decision "politically motivated."

"It is difficult to even see why extensive resources of the directorate-general were devoted to a case of this nature in the first place," spokesman Andreas Middel said in an email. "This is completely disproportionate to the amount of effort given to other commission proceedings... Specifically, Commissioner Almunia has devoted the same or even more resources to this case than to the Google case that is running in parallel and being dealt with by the same directorate-general of the European Commission."

Last month Mr. Almunia said Google Inc. must improve its proposal to settle European Union concerns over its search practices or face formal antitrust charges; his agency's handling of its investigation of Google has yet to yield results after almost four years and three attempted settlements.

Write to Frances Robinson at [e-mail]

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