EC, August 4, 1998, No JV.5

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Dear Sirs,

I. INTRODUCTION

1. On 1 July 1998, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064-891 by which the undertakings Cegetel SA, Canal+ SA, America Online, Inc., and Bertelsmann AG acquire within the meaning of Article 3 (1) (b) of the Council Regulation joint control of the undertaking AOL/CIS France SAS. ("AOL/CIS").

2. After examination of the notification, the Commission has reached the conclusion that the notified operation falls within the scope of Council Regulation 4064-89 and does not raise serious doubts as to its compatibility with the Common Market and with the EEA Agreement.

II. PARTIES

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EEC) No 4064-89 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus [...]. Where possible the information omitted has been replaced by ranges of figures or a general description.

3. The parties involved in this transaction are (1) Cegetel, a subsidiary of the Vivendi Group, formerly known as Compagnie Générale des Eaux, is providing a broad range of telecommunications services as well as Internet services in France; Internet services to non- enterprise customers are provided through Havas Interactive On-line Services (HOL) a division of Cegetel Grand Public and Internet services to enterprises are provided through Cegetel Entreprise;

III. THE OPERATION

4. Cegetel, Canal+, AOL and Bertelsmann acquire joint control of AOL/CIS ("the joint venture"). BAOL SNC and CIS SNC will become wholly owned subsidiaries of the joint venture. Cegetel and Canal+ will acquire a [...] interest in the joint venture through C/C+ Holding which is a newly-formed entity in which Cegetel will have a [...] interest and Canal+ will have a [...] interest. AOL and Bertelsmann will each own [...] of the joint venture. Cegetel will wind down and terminate HOL [...] and assign their customer lists to the joint venture. The joint venture's activities will be the marketing, development and provision of interactive services to non- enterprise customers.

IV. CONCENTRATION

A. Joint Control

5. The Board of Directors of the joint venture will consist of four members. Each of the four parties will appoint one Director and each Director will have one vote.

6. Article 4.3 of the Joint Venture Agreement provides that certain decisions require unanimity at the board and at the general meeting. These matters include:

- the increase or decrease of more than [...] for any fiscal year in the budget for the Joint Entities for Two-Step marketing Activities or

- ?any change of more than [...] for any fiscal year in the budget for Direct Marketing Activities for any Business Unit;

- ?and material changes to the business plan.

7. Cegetel and Canal+ have the right to nominate the Chief Executive Officer as well as the Chief Financial Officer. The Chief Executive Officer nominates the Chief Technical Officer in consultation with the Board of Director. Each of AOL and Bertelsmann have the right to reject such nominees, provided that a reasonable basis exists for such rejection.

8. The effect of these provisions is that the Joint Venture cannot act on certain critical issues except with the consent of all the parties. Consequently, the joint venture will be subject to joint control by Cegetel, Canal+, AOL and Bertelsmann.

B. Full function entity

9. The Joint Venture will operate as an autonomous Interactive Service Provider (ISP) performing the functions normally carried out by ISPs. [...] Cegetel and Canal+ will make capital contributions of [...] and [...]. These contributions are expected to enable the Joint Venture to finance its activities through its own financial resources. [...]. The Joint Venture will have direct responsibility for its own marketing and advertising policies. It will hold irrevocable rights to AOL and CompuServe technologies for the duration of its existence [...]. The Joint Venture will have the right independently to develop, create, procure, market, transmit, maintain, enhance, manage and administer their own content and content obtained from third parties. Any content that the joint venture acquires from the parents will be purchased in "arm's length" transactions. The parties have entered into their agreement for an indefinite period. The Joint Venture will accordingly perform on a long-lasting basis all the functions of an autonomous economic entity.

V. COMMUNITY DIMENSION

10. The combined aggregate world-wide turnover of the undertakings concerned in 1997 exceeded 5 billion ECU (comprising Vivendi: 25,272 million ECU, Canal+: 2,055 million ECU, AOL: 1,751 million ECU, Bertelsmann: 11,474 million ECU, AOL/CIS-F: [...]). The aggregate Community wide turnover of Vivendi, and Bertelsmann, based upon 1997 figures, clearly exceeded 250 million ECU (comprising Vivendi: [...] and Bertelsmann: [...]). Not each of the undertakings concerned achieve more than two-thirds of their turnover in one and the same Member State. The operation has therefore a Community dimension. It does not constitute a cooperation case under the EEA Agreement.

VI. RELEVANT PRODUCT MARKET

11. In their notification, the parties identify the provision of interactive services to non-enterprise customers as the sole relevant product market.

12. However, in taking account of the decisions Bertelsmann/Burda/HOS Lifeline2 and Telia/Telenor/Schibsted3 it appears that the Internet can be divided into the following activities which appear to constitute separate markets. They are:

- ?Dial-up Internet Access

- ?Internet Advertising

- ?Paid-for Content Provision

13. This division is based on the assumption that these different activities earn revenue in different ways and from different sources (i.e. dial-up Internet access is paid for by the subscribers to the access provider, advertising is paid for by the advertiser to the providers of web-sites, paid-for content is paid for by the subscribers to the content providers); moreover, the activities are frequently carried out by different undertakings and require substantially different inputs.

14. One third party has suggested that the Minitel system was part of a wider product market of interactive service provision. If this were to be the case, then the notifying parties market shares would be lower on this wider market definition as they have no Minitel activities.

VII. RELEVANT GEOGRAPHIC MARKET

15. According to the notifying parties, the geographic scope for the market for dial-up Internet access is national. This is based on the fact that ISPs still depend on national telecommunication and cable infrastructures. The market for advertising will normally have to be regarded as national, considering the adaptations to which publicity campaigns are subject when used on different national markets.

Regarding paid-for content, ISPs must offer a service with which the user can identify linguistically and culturally, which is normally done on a national basis.

16. The relevant geographic scope of the markets identified above could either be national or extend to all French-speaking regions. However, in the light of the fact that the joint venture does not raise any competition concerns, the relevant market definitions can be left open.

2 Case No IV/M.973

3 Case No IV/JV.1

VIII. COMPETITIVE ASSESSMENT

A. Dominance

17. For the dial-up Internet access, according to the notifying parties, AOL and Cegetel are on the market. AOL, through BAOL SNC and CIS SNC, has a market share in France of [(less than 25%)] and Cegetel, through HOL and Cegetel Internet Grand Public, has a market share of [(less than 10%)]. Both will be contributed to the joint venture. At the moment there are approximately 200 ISPs currently serving French non-enterprise customers through dial-up Internet access. However, following the Commission's investigation, the combined market shares of the parties may be closer to [(less than 40%)]. France Télécom, the current leader in France, has a market share of 26.5% through Wanadoo Oléane. Given the financial strength of France Télécom and the economies of scope it enjoys for the provision of dial-up internet access and the existence of a significant number of smaller competitors accounting for around 23% of the market the notified operation will not lead to the creation of a dominant position despite its substantial market share. Therefore, even on the basis of the more unfavourable market shares for the notifying parties, the formation of the joint venture will not create or strengthen a dominant position.

18. The Commission has found different estimates of the market size for the total market value for internet advertising in France. These vary from FF 12 million to FF 40 million in 1997. The Vivendi Group derived less than [...] from 1997 sales of advertising space on its online services including not only HOL [...] whose customer lists will be transferred to the joint venture but also services such as World Media Live, Cadres On Line, Group Test, Expansion and Courrier International. BAOL SNC and CIS SNC earned [...] from the sale of interactive advertising 1997. Even on the basis of the most unfavourable market size, the formation of the joint venture will not create or strengthen a dominant position.

19. According to information provided by third parties, the size of the market for paid for content is currently extremely small. There is a vast array of information providers that develop content and make content available. No single provider,including the joint venture, accounts for more than a small part of the content available. Therefore, the joint venture will not create or strengthen a dominant position.

20. In the light of the above information, and even based on the most unfavourable market definition, the operation will not create or strengthen a dominant position on any market.

B. Co-ordination of Competitive Behaviour

21. Pursuant to Article 2 (4) of the Merger Regulation a joint venture having as its object or effect the co-ordination of the competitive behaviour of (at least two of) its parent companies has to be appraised in accordance with the criteria of Article 85 (1) and 85 (3) of the EC Treaty. In order to establish a restriction of competition in the sense of Article 85 (1) of the EC Treaty, it is necessary that the co-ordination of the parent companies' competitive behaviour is likely and appreciable and that it results from the creation of the joint venture, be it as its object or its effect.

Definition of candidate markets for co-ordination

22. According to Article 2 (4) of the Merger Regulation, the Commission shall, when making the said appraisal, take into account in particular whether two or more parent companies retain to a significant extent activities in the same market as the joint venture, or in a market which is downstream or upstream from that of the joint venture or in a neighbouring market closely related to this market. Therefore, candidate markets for co-ordination are those on which the joint venture and at least two parent companies are active, or upstream, downstream or closely related neighbouring markets where at least two parent companies remain active.

Relevant product markets

23. The joint venture will be active in the provision of various services linked to the use of Internet (dial up Internet access, advertising over the Internet and paid-for content) which are described above (Section V). As far as these markets are concerned, although the notifying parties consider only the market for Internet advertising as a candidate market for co-ordination, the Commission also identified the market for provision of paid-for content as a market where at least two parent companies are likely to be active.

24. Besides the joint venture markets, the notifying parties identified the following closely related markets: interactive services for enterprise customers, and network distribution services. They submitted that the joint venture would not lead to coordination in any of these markets nor in the joint venture's markets.

The joint venture's markets

Dial up Internet access

25. Concerning the market for the provision of dial up Internet access, none of the parent companies will remain active on this market in France at the time of the creation of the joint venture. Even if Canal+ via CanalSatellite started to provide dial up Internet access services via DTH satellite using TV sets as a platform, as it would be the only parent company to be active on the dial up Internet access market, this market could not be considered as a candidate market for coordination.

Content provision on the Internet

26. All four parties, as well as the joint venture are providing free Internet content, and are therefore on the Internet advertising market.Therefore, this market can be considered as a candidate market for co-ordination.

27. Although, according to the notifying parties, only Vivendi (via its Info On-Line site), has declared its intent to offer paid-for content in France, and has suspended its sole product line earlier this year, it can be stated that after the creation of the joint venture, all four parties and the joint venture are also potential competitors on the paid-for content market, either because they currently develop content or are active in the traditional media market, and are therefore likely to use proprietary content to provide paid-for content. Therefore this market can also be considered as a candidate market for co-ordination.

Closely related markets

Network distribution services

28. ISPs traditionally provide dial up Internet access to individual customers via personal computers connected via a modem to the telephone network. They have therefore in most cases to enter into an interconnection agreement with the local loop telephone operator as well as into an agreement with (a) telecommunications long distance carrier(s) to carry their traffic between the local loop and the Internet gateway. They therefore still largely depend on telecommunication network operators to access individual customers in order to provide their service. However, as the Commission noted in Nortel/Norweb4, alternative means of accessing the Internet, such as cable and other broadband systems (broadband wireless local loop and network, GSM, satellite, digital terrestrial broadcasting etc.) are being developed and introduced. These different alternative means of linking the ISP to the customer can be regarded as constituting a closely related market to that of the dial up access market, possibly divided into different segments.

29. Cegetel is the second long distance carrier on the French telecommunications market, as well as the second French mobile GSM operator. The notifying parties submitted that no other party to the concentration is active in France in the market for network distribution services for ISPs. However, Canal + is active in the broadcasting (both analogue and digital), and the distribution of television services by cable and satellite. CanalSatellite, a general partnership managed by Canal +, has started testing a dial up Internet access service via DTH satellite transmission. NC Numericâble, a subsidiary of Canal +, operates cable networks for the provision of CA-TV in various locations in France. In particular, Télériviera, a company jointly owned by NC Numéricâble and [...], a subsidiary of Cegetel, has experimented a dial up Internet access service via its cable in the Nice area. In any case, cable modems allowing cable networks to be used as local loops have been developed, and although Numéricâble's cable network has not been used for this purpose yet, it is likely to be in the future.

30. Therefore this market can be considered as a candidate market for co-ordination.

Relevant geographical market

31. As discussed in section VI above, the geographic scope for the market for dial up Internet access, for provision of Internet advertising and paid-for content on the Internet are at least national.

32. Regarding network distribution services for ISPs, as the current means of distribution may be limited due to national infrastructures and national licensing schemes, the relevant geographical market is at least national.

4 Case No IV/M.1113 of March 18, 1998

33. However, as the formation of the joint venture does not lead to an appreciable restriction of competition, the candidate market definitions can be left open.

Assessment under Article 2(4)

34. They are no clear indications to prove that the creation of the joint venture has for object the co-ordination of the parent companies' competitive behaviour on any of the markets to be considered here. However, it might be the effect of the operation to give way to co-ordination of competitive behaviour. This question has to be examined separately for the Internet advertising market, the paid-for content market, and the network distribution services market.

Advertising over the Internet

35. In so far as this market is concerned, the possibility that the present concentration will entail a co-ordination between the parties appears remote, given that the sheer number of sites available on the www limits the relevance of any one site as an advertising medium. In any event, the level of the parties' combined market share on the French market for Internet advertising which is less than 10% would not allow the conclusion that there is an appreciable restriction of competition.

Paid-for content

36. As set out above, the size of the market for paid for content is currently extremely small. Even if all four parties were active on this market, given the fact that there is a vast array of information providers that develop and make content available, no single provider accounts for more than a small part of the content available. Therefore, even if the parties were to co-ordinate on this market, it could not lead to any appreciable restriction of competition.

Network distribution services

37. On the network distribution market, only Cegetel is currently active, with a market share of less than 5%. Though Canal + and/or some of its subsidiaries are likely to be active on this market in a near future using satellite distribution, considerations relative to the current market structure, which is largely dominated by France Télécom and its subsidiary Transpac, are relevant when assessing the risk of co-ordination between the two parties, and possible consequent restrictions of competition. Also relevant is the fact that according to the parties, the joint venture will not be the main customer for the network distribution services provided by these parent companies. Their infrastructures are used primarily for telecommunications and TV distribution and not for dial-up Internet access service, respectively, so that they will not create economically meaningful incentives for co-ordination in network distribution services offerings to ISPs.

38. In any event, and given their market position, even if the parent companies were to co-ordinate their activities on the network distribution services for ISPs, this co-ordination could not lead to an appreciable restriction of competition.

39. In the light of the above analysis, on all of the above markets, given that even if there were to be a likelihood of co-ordination, there would be no appreciable restriction of competition and it is therefore not necessary to establish a causal link between the creation of the joint venture and the behaviour of the parent companies outside the joint venture on these related markets.

IX. ANCILLARY RESTRAINTS

40. The parties have notified as ancillary to the concentration a number of provisions included in the Joint Venture Agreement and in the Share Purchase Agreement. These notified possible restrictions are the following:

41. The parties have notified as either integral or ancillary to the concentration obligations by AOL, CIS and Cegetel to license to the joint venture certain technology, content and trademarks and to provide certain related services. Insofar as these obligations are restrictions these are directly related and necessary to the implementation of the concentration.

42. The parties have notified as ancillary to the concentration a clause of the Joint Venture Agreement requiring Cegetel to provide either free of charge or on the basis of most favoured customer terms certain marketing and promotional benefits to the joint venture. These contributions will be made over a period of five years. These benefits will allow a more rapid market penetration of the joint venture and will allow the future development of the joint venture at a lower cost. To the extent that such a clause results in a restriction of competition it would be directly related and necessary to the implementation of this concentration.

43. The parties have notified as ancillary to the concentration a non-competition obligation providing that for a period of five years AOL, Bertelsmann, Cegetel and Canal+, will not offer or provide, other than through the joint venture, within France, PC Access Services falling in the scope of activities of the joint venture. This obligation can be considered to be directly related and necessary to the implementation of the concentration as long as a shareholder retains a controlling shareholding in the company.

44. The parties have notified as ancillary to the concentration provisions in the Joint Venture Agreement and the Joint Purchase Agreement concerning the creation of an interim oversight committee which will review the operations of the joint venture and oversee compliance of the parents with their duties and obligations between the signing date and the date the Agreements become fully effective. These arrangements concern the stage before the establishment of control within the meaning of Article 3, paragraph 1 of the Regulation. They are therefore not directly related to the implementation of the concentration and are not covered by the present decision.

45. As regards the Share Purchase Agreement, the parties have notified as ancillary to the concentration a provision requiring that AOL/CIS France has been and will be managed until the transaction date in the ordinary course of business. In addition, they have notified as ancillary a provision allowing Cegetel and Canal+ to access information about the joint venture before the closing of the transaction. Both clauses relate to the stage before the establishment of control within the meaning of Article 3, paragraph 1 of the Regulation. They are therefore not directly related to the implementation of the concentration and are not covered by the present decision.

X. CONCLUSION

46. It follows from the above that the proposed concentration will not create or strengthen a dominant position as a result of which competition will be significantly impeded in the common market or in a substantial part of it.

47. For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the functioning of the EEA Agreement. This decision is adopted in application of Article 6 (1) (b) of Regulation No. 4064-89 and Article 57 of the EEA Agreement.

(1) OJ L 395, 30.12.1989, Corrigendum OJ L 257, 21.9.1990 as amended by Regulation 1310-97 (together the Merger Regulation)

(2) Canal+ is a French company that provides pay television broadcasting and distributes television services by cable and satellite. Canal+ is also producing and distributing programming; (3) America Online (AOL) is a corporation engaged in the provision of interactive services to individual subscribers throughout the world. AOL operates in France via two national joint ventures with Bertelsmann: AOL Bertelsmann Online France SNC (BAOL SNC) and CompuServe Interactive Services France SNC (CIS SNC);

(4) Bertelsmann is a diversified media group which is publishing books, magazines and newspapers, publishing and distributing music and records and programming for private television (through CLT/UFA); Bertelsmann is also engaged in multimedia.