The European Court of Justice has issued a ruling on 7 Jan 2004 which determines that the Spanish government has not correctly applied the EU rules on tariff rebalancing, and has thereby distorted the telecommunications market.

The Court stated specifically that:

By requiring Telefónica to maintain a tariff structure which harmed its competitors, distorting their financial calculations and maintaining over a long period tariffs which were inconsistent with the underlying costs, the Spanish authorities created a situation detrimental to the development of competition, specifically in the context of unbundled access to the local loop.

The Court considered this to represent a failure to adopt the laws, regulations and administrative provisions necessary to comply with Article 4(c) of Directive 90/388/EEC of 28 June 1990 on competition in the markets for telecommunications services, as amended by Commission Directive 96/19/EC of 13 March 1996.

The full text of the ECJ ruling can be accessed by clicking here.