Telefonica S.A.'s Argentine unit Movistar was ordered to pay the fine as 10-peso ($2.25) compensation to each of about 18 million users and about $1.4 million to the state.
The company's phone and data clients suffered several hours of outage in April, reviving government accusations foreign companies do not invest enough of their profits in building or upgrading capacity. Argentine government officials rejected Movistar's technical explanations and decided instead to impose a hefty fine.
Planning Minister Julio De Vido indicated the fine was intended to set an example and serve as a warning to other wireless providers. Financial industry analysts said the fine could prove to be a major disincentive to investors and could even be a precursor to a government takeover.
YPF faced similar charges of inefficiencies and of not investing enough before it was taken over in April and the appropriation was completed this month after a parliamentary vote.
Neither Movistar nor government officials had any comment on the speculation the company was earmarked for takeover.
De Vido said cellphone service in Argentina has been declining but "we need to have full service, not service that gets worse when you walk a few meters one way or another."
Mobile telecommunications have a huge following in Argentina, with the total number of subscribers exceeding the population by about 14 million. Argentina has a population of about 41 million people and a total number of mobile phone subscriptions in excess of 55 million. It's not unusual in Argentina for one user to have several mobile phones.
Argentine government officials, meanwhile, defended nationalization, saying such action enables them to take direct action to try and improve the service. Critics say the government is putting corporate efficiency at risk by taking on responsibilities of the private sector.
Argentine President Cristina Fernandez de Kirchner said the government's nationalization of public services was not populist but a response to the companies' poor performance.
"It's the disaster caused by the concessionary companies that forces us to intervene," Fernandez said.
The government's takeover of YPF has soured Argentina's relations with Spain, and the EU has warned of retaliatory measures, including loss of preferential privileges currently available to Argentina.
Argentina has not indicated if it will compensate Repsol for the loss of YPF. Instead it has begun inviting foreign investors to buy a stake in the nationalized company.
Argentine Vice President Amado Boudou on a tour of the United States made a similar appeal to U.S. companies to invest in YPF. Repsol has warned it will sue any investor who responds to the Argentine government's offer of part ownership of YPF. The government intends to hold 51 percent of YPF that it seized from Repsol but wants to attract cash in exchange for minority stakes in the company.
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