EU court says Portugal wrong to wield telecom veto

The veto power held by the Portuguese government in the decisions of telephone operator Portugal Telecom violates EU rules on the free movement of capital, the EU’s top court said on Thursday.

The ruling was linked to a European Commission complaint from 2008, but it coincided with a decision by Lisbon last week to block a bid by Spain’s Telefonica to buy part of the Brazilian firm Vivo held by Portugal Telecom.

The European Union Court of Justice ruled that special “golden shares” owned by the government give it influence in PT’s decision-making which is “liable to discourage investments” from operators in other EU states.

“The Portuguese State’s holding of ‘golden’ shares in Portugal Telecom constitutes an unjustified restriction on the free movement of capital,” the court said.

The Portuguese government decided to use its veto power to block the Telefonica bid even though it had the backing of 73.9 percent of PT shareholders on June 30.

Telefonica, seeing Brazil as essential to its financial development, has offered 7.15 billion euros (8.7 billion dollars) for PT’s 50-percent stake in Brasilcel, which controls Vivo.

Prime Minister Jose Socrates has defended the move, saying “the government did what it had to do to defend the strategic interests of Portugal and Brazil.”