British mobile phone companies are charging some users "unfair and excessive" prices, according to the European Commission.
Shares in Vodafone and mmO2 lost value after the EC accused both companies of abusing their positions in the UK market to overcharge for the "wholesale international roaming services" offered to foreign network operators.
The two companies could face heavy fines if found guilty of the charges. Mmo2 said it would defend itself "vigorously" against any allegations of anti-competitive behaviour. Vodafone said it was too early to comment.
Vodafone shares lost 2.25p at 114p in afternoon trade. Mmo2 was 0.5p lower at 85p.
International roaming allows customers to use their mobile phones outside their own country, in areas where their domestic network operator has no coverage.
Each operator needs to establish international roaming agreements with operators in the visited country so that it can charge for non-domestic use of the phone.
The Commission said that Vodafone and O2 had taken advantage of the system, making profits several times higher on their wholesale charges for international roaming, compared with the rates they charge UK-based service providers.
Analysts have predicted that profit margins of as much as 500 per cent are made on the services.
The EC has sent formal "statements of objection" to both companies, warning they are breaking EU competition rules.
The EU's competition commissioner, Mario Monti, said: "Europeans are travelling more and more each year and mobile subscribers are using their phones abroad as frequently as they do in their own home country.
"But the high level of the international roaming prices has made this very expensive. This high level also contrasts sharply with the much lower tariffs applied for domestic calls. I hope that our action today makes a contribution towards rectifying this state of affairs."
An EC investigation found that Vodafone had "exploited its dominant position" between 1997 until at least the end of September, 2003: "The abuse consisted of charging unfair and excessive prices to European mobile network operators," a statement issued in Brussels said.
"The Commission has come to the same conclusions as regards the prices charged by O2, but for the period beginning 1998 and at least up until the end of September, 2003."
Both companies have now been invited to respond to the EC's preliminary findings in writing and at an oral hearing - "but these preliminary findings do not in any way prejudice the outcome of the probe", said the Commission statement.
An EC spokesman said the excessive charging had a direct impact on consumer mobile phone prices - and he hoped retail prices would fall as a result of EC pressure to cut roaming charges.
Vodafone shares had earlier staged a temporary rebound from a ten-month low after the mobile giant beat City forecasts for customer numbers.
Vodafone said that its customer base stood at 139.2 million at the end of June, 4.3 per cent higher than at the end of March, with the increase credited to organic growth and increased stakes in other operators. Arun Sarin, the Vodafone chief executive, said: "Overall we fell we have made a very strong start to this year."
Mr Sarin added that the company may return more cash to shareholders through stepping up a share buyback programme or paying extra dividends. The board is "minded to increase the payout", with the decision dependent on any takeover opportunities which might compete for Vodafone's cash, he said.
However, this morning's results revealed that the company was facing an "increased level of competition" in the UK. While the average revenue the company received from UK callers rose by £5 to £314 over the quarter, all but £1 of the rise was attributed to a "further uplift" from last year's takeover of Singlepoint.
