EU launches probe into Telefónica, Portugal Telecom deal

The European Commission investigates with noncompete agreement breaches EU law

The European Commission on Monday launched an investigation into a Telefónica deal with Portugal Telecom over concerns that the agreement breaks competition rules.

The Commission will examine whether an agreement between the two operators not to compete with each other in their home markets contravenes European Union laws that ban anticompetitive business practices.

The agreement came about last year when Telefónica acquired sole control over Brazilian mobile operator Vivo, previously held jointly with Portugal Telecom. Telefónica and Portugal Telecom agreed not to compete in the Spanish and Portuguese telecom markets until the end of 2011.

The E.U.'s Article 101 prohibits agreements and concerted practices that "may affect trade and have as their object or effect the prevention or restriction of competition."

The Commission will also examine cooperation between the companies prior to the Vivo deal. In 1997, Telefónica and Portugal Telecom signed a cooperation agreement concerning markets outside the E.U. The new probe will investigate whether that agreement affected E.U. markets, in particular Spain and Portugal.

Telefónica bought Portugal Telecom's stake in Vivo for €7.5 billion (US$10.2 billion) after increasing its original offer three times from its initial bid of €5.7 billion in May 2010. The takeover itself is not part of the current investigation.

There is no legal deadline for the Commission to complete inquiries into anticompetitive conduct.

Follow Jennifer on Twitter at @BrusselsGeek or email tips and comments to jennifer_baker@idg.com.

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Jennifer Baker

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