Iberian telcos in hot water over non-compete agreement

Telefonica and Portugal Telecom face antitrust charges from the European Commission

Iberian telecommunications companies Telefónica and Portugal Telecom have been accused by the European Commission of anticompetitive practices.

The Commission has sent a list of objections to the two companies regarding their non-compete agreement. Telefónica and Portugal Telecom reached a deal not to compete with each other in July 2010 as part of Telefónica's takeover of the Brazilian mobile operator Vivo, previously jointly owned by both parties.

The companies repealed the non-compete agreement in February 2011, but the Commission says this does not erase the fact that the agreement existed in first place, and it is continuing with its antitrust investigation.

"Non-compete clauses are one of the most serious violations of fair and healthy competition," said the Commission. The regulator believes that the object of the agreement was to partition markets, resulting in potentially higher prices and less choice for consumers. Article 101 of the Treaty on the Functioning of the European Union prohibits agreements that "directly or indirectly fix purchase or selling prices" and "share markets or sources of supply."

Telefónica and Portugal Telecom have two months to reply and can also request an oral hearing. However if the Commission concludes that there is sufficient evidence of an infringement, it can impose a fine of up to 10 percent of a company's annual worldwide turnover.

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

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