Commission, October 10, 2014, No M.7000

I. THE PARTIES

(1) Liberty Global plc ('Liberty Global' or the 'Notifying Party'), is an international cable operator. It owns and operates cable networks offering TV, broadband internet, fixed telephony and mobile telecommunications services in 12 European countries. Liberty Global is active in the Netherlands primarily through UPC, which owns and operates a cable network in the country. Liberty Global also distributes the Sport1 and Film1 TV channels in the Netherlands. Liberty Global is expanding its mobile telecoms business by launching Mobile Virtual Network Operator ('MVNO') offers across Europe, including in the Netherlands, where Liberty Global recently entered the Dutch mobile telecoms market.

(2) Ziggo N.V. ('Ziggo', together with Liberty Global the 'Parties') owns and operates a broadband cable network that spans more than half of the Netherlands. Ziggo provides digital and analogue cable video, broadband internet, mobile telecoms and digital telephony (Voice over internet Protocol, or 'VoIP') services. Ziggo controls jointly with HBO the full-function joint venture HBO Nederland Coöperatief U.A. ('HBO Nederland'). HBO Nederland operates three HBO-branded Pay TV channels and related Video-On-Demand ('VOD') services, offering films, exclusive TV shows and other entertainment content. These channels are distributed on a wholesale basis to retail Pay TV suppliers in the Netherlands.

II. THE OPERATION

(3) On 14 March 2014, the Commission received a formal notification pursuant to Article 4 of the Merger Regulation by which Liberty Global acquires within the meaning of Article 3(1)(b) of the Merger Regulation, sole control over Ziggo.

(4) Liberty Global is currently the largest minority shareholder in Ziggo with a shareholding of 28,5 %. Pursuant to an agreement between Liberty Global and Ziggo dated 27 January 2014, Liberty Global will launch a public bid for the remaining shares in Ziggo. If the bid is successful, Liberty Global will have sole control over Ziggo.

(5) The merger therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

III. THE PROCEDURE

(6) The transaction was notified to the Commission on 14 March 2014. On 8 May 2014, the Commission found that the transaction raised serious doubts as to its compatibility with the internal market and adopted a decision to initiate proceedings pursuant to Article 6(1)(c) of the Merger Regulation.

(7) On 25 March 2014, the Commission received a request from the Netherlands to refer the whole of the case to the Dutch Authority for Consumers and Markets pursuant to Article 9(2)(a) of the Merger Regulation. After the initiation of proceedings by means of the Article 6(1)(c) decision, the Netherlands sent a reminder of its referral request on 15 May 2014. On 25 June 2014, the Commission adopted a decision pursuant to Article 9(3) of the Merger Regulation, refusing the request.

(8) On 14 July 2014, Liberty Global submitted commitments to the Commission. Following the results of the market test on those commitments, Liberty Global provided a new version of its commitments in order to take account of the comments received during the market test. On 22 August 2014, Liberty Global submitted final commitments that render the transaction compatible with the internal market.

IV. EXPLANATORY MEMORANDUM

A. The relevant product markets

(9) In line with previous Commission decisions concerning the markets for TV (2) and telecommunication services (3) (fixed voice, mobile telecom services and fixed internet access services) and the Notifying Party's view, the relevant product markets can broadly be delineated as follows:

(a) the market for licensing/acquisition of broadcasting rights for individual audio visual content;

(b) the wholesale market for supply and acquisition of Pay TV channels, which can be further segmented into the market for Basic Pay TV channels and the market for Premium Pay TV channels;

(c) the retail market for provision of TV services;

(d) the retail market for provision of fixed voice services;

(e) the retail market for provision of fixed internet access services;

(f) the retail market for provision of mobile telecommunication services;

(g) the possible market for multiple play services.

(10) The details on the definition of the markets listed under (b), (c), (d), (e), (f) and (g) which are primarily and horizontally and/or vertically affected in this case, are set out below.

Wholesale markets for supply and acquisition of Pay TV channels and for supply and acquisition of Premium Pay TV channels

(11) In previous decisions (4), the Commission found that there is a separate wholesale market for the supply and acquisition of TV channels. This is the market on which providers of retail TV services, some acting as channel aggregators, acquire TV channels from TV broadcasters in order to offer these channels to end users via different distribution infrastructures. In previous decisions, the Commission identified also two separate markets for Free-to-Air ('FTA') channels and for Pay TV channels within the overall market for supply and acquisition of TV channels. In its previous decisions, the Commission also examined, but ultimately left open, whether the market for Pay TV channels should be further segmented into wholesale markets for Basic Pay TV channels and Premium Pay TV channels.

(12) In this case, the Commission assessed whether Basic Pay TV channels and Premium Pay TV channels constitute separate markets. Following the results of the investigation in this case, the Commission concluded that given the differences in content offering, pricing conditions and size of audience attracted between Basic and Premium Pay TV channels, and for the purposes of this case, Basic Pay TV channels and Premium Pay TV channels belong to separate product markets.

(13) In line with previous Commission decisions and the Parties' view, the geographic scope of the above markets, that is to say the markets for supply and acquisition of TV channels and of Premium Pay TV channels, is national, that is to say it corresponds to the territory of the Netherlands.

Retail markets for the provision of TV services, fixed voice services, fixed internet services and possible retail market for multiple play services

(14) On these markets, retail providers offer TV services, fixed voice and fixed internet access services to end consumers. The Commission considers that there are distinct retail markets for: (i) TV services; and (ii) fixed telephony/voice services without further sub-segmenting these markets by distribution infrastructure or type of customer. In light of the results of the investigation in this case, the Commission concluded in this case that within the retail market for provision of internet access services separate markets for mobile internet and for fixed broadband internet can be distinguished. The Commission also assessed whether a separate market for the provision of multiple play (5) services exists in the Netherlands but ultimately left the exact market definition open.

(15) In line with previous Commission decisions, the Commission considers that the geographic scope of the relevant retail markets for provision of TV services, fixed voice/telephony, fixed broadband internet and possible multiple play services is national.

B. Competitive assessment

(16) Following the in-depth investigation, the Commission concluded that it no longer has concerns in respect of the market for licensing/acquisition of broadcasting rights for individual audio visual content or the possible market for the licensing/acquisition of Dutch-language audio visual content. The Commission no longer has concerns also as regards the possible coordinated and non-coordinated effects arising on the retail markets for the supply of TV, fixed broadband internet, fixed telephony, and multiple play services.

(17) However, the Commission concluded that the transaction is unlikely to be compatible with the internal market in respect of the markets for the wholesale supply and acquisition of Premium Pay TV (film) channels (supply side) and the markets for the supply and acquisition of Basic and Premium Pay TV channels (acquisition side).

1. Wholesale market for supply and acquisition of Premium Pay TV channels - horizontal concerns (supply side) (18) Post-transaction the merged Liberty Global/Ziggo entity would control three out of the four Premium Pay TV channels in the Netherlands (comprising Film1, HBO Nederland, Sport1 and Fox Sports) and would own the only two Premium Pay TV film channels in the country - Film1 and HBO. The Commission concluded that this would give scope to the merged entity to increase the wholesale price of these two channels towards competing retail TV operators.

(19) In this regard, the Commission found that: (i) the fact that Time Warner/HBO would still jointly control HBO Nederland does not prevent such an increase in wholesale price; (ii) although both Premium Pay TV film channels offer inherently (largely) complementary content, they exert significant competitive pressure on one another; and (iii) the potential competitive pressure exerted by providers of Video on Demand ('VOD') services such as Netflix and RTL's Videoland are not sufficient to constrain the merged entity, as such non-linear services do not currently constitute an adequate substitute to the merged entity's linear Premium Pay TV channels.

2. Wholesale market for supply and acquisition of Premium Pay TV channels - vertical concerns (supply side) (20) The Commission considers that post-transaction the merged entity would have the ability and the incentive to engage in an input foreclosure strategy in relation to its Film1 channel, in particular by refusing to provide access to this channel to its retail competitors (complete foreclosure), or by degrading the conditions at which it is offered to them (partial foreclosure).

(21) The ability to foreclose Film1 results from the merged entity's strong position on the upstream market where it would control the only two Premium Pay TV film channels that are considered 'must-have' inputs by Pay TV retailers. As regards the incentive to completely foreclose, the Commission found that such a strategy is likely to be profitable. The margin currently enjoyed by the Notifying Party at the retail level by far exceeds the margin at the upstream level and a significant part of the demand for Film1 is likely to be diverted to the merged entity in case of foreclosure. Accordingly, the Commission found that only a limited degree of successfully diverted downstream demand would allow off-setting lost upstream profits. Similarly, the Commission's analysis of economic data shows that the merged entity will likely have the incentive to engage in partial foreclosure. Both types of foreclosure would likely increase retail prices both of the merged entity and the competing retail Pay TV operators. As regards partial foreclosure, this is particularly likely given that the Commission established that the proposed transaction is unlikely to allow any significant elimination of double marginalisation that could outweigh potential retail price increases made by partially foreclosed rival providers of Film1.

3. Wholesale supply of Pay TV channels - horizontal concerns (acquisition side) (22) The merged entity's market share on the overall segment for the supply and acquisition of all Pay TV channels in the Netherlands will amount to more than 50 % post-transaction, thus increasing the degree of buyer power currently enjoyed by the Parties individually. The Commission considers that the latter share is even likely to understate the degree of buyer power that the merged entity would have on this segment, given that it would have a far more significant market position downstream, namely on the market for the retail provision of Pay TV services.

(23) The Commission notes that the acquisition of linear Pay TV channels and the provision of overt-the-top audio visual services ('OTT TV') are typically negotiated jointly with TV broadcasters. OTT TV has recently seen significant developments in the Netherlands with the launch of several online VOD services (Netflix, NLZiet, NPO Plus and RTL Videoland). If OTT TV were to further develop into a full substitute to the merged entity's Pay TV offering, final consumers could benefit greatly from the resulting cross-platform competition. The Commission's investigation has however shown that, in some instances, the Notifying Party has concluded with TV broadcasters agreements for Pay TV channels that contain significant restrictions on the broadcasters' ability to provide OTT TV. TV broadcasters have so far been able to resist, to a certain extent, the inclusion of such OTT restrictions, partly because of Ziggo's more lenient policy in this respect.

(24) In these circumstances, the Commission considers that the merged entity's increased market power held as a purchaser of Pay TV channels could allow it to conclude more of such agreements, or agreements that are even more onerous in preventing, delaying or hampering the provision of OTT services. This ability is compounded by the existing ability of each of the Parties to technically degrade the distribution of OTT content on their internet networks. Since OTT offerings constitute important innovations that are likely to exert a growing competitive constraint on the traditional distribution model of cable TV operators, the ability to prevent, delay or hamper such services would lead to higher prices and would deprive consumers from important innovations.

4. Retail markets for provision of Pay TV services, fixed internet access services, fixed telephony and multiple play services - horizontal non-coordinated concerns

(25) The geographic footprint of the cable networks operated by Liberty Global and Ziggo in the Netherlands do not overlap thus preventing any direct customer to switch between the Parties. Despite the lack of direct competition between Liberty Global and Ziggo, the Commission has however investigated whether the Parties still take account of each other's actions when making their commercial decisions, either directly benchmarking their pricing against each other or via a mechanism that involves KPN as a nation-wide competitor.

(26) To investigate these concerns the Commission analysed the pricing data of the Parties to see how their retail prices generally evolve, and in particular whether some form of sequential pricing reaction between the retail prices of the Parties has already taken place recently in the Netherlands. Although there are indications that the competitors on the Dutch retail market closely monitor each other and respond to each other's promotional offers, the Commission concluded that there is insufficient evidence to suggest that the Parties and KPN would consistently price sequentially in a way that could give rise to non-coordinated effects through the elimination of an indirect constraint between the Parties.

(27) The Commission therefore considers that the transaction would not significantly impede effective competition as a result of any possible non-coordinated effects occurring in the retail markets for the provision of Pay TV services, fixed internet access services, fixed telephony and multiple play services in the Netherlands.

5. Retail markets for provision of Pay TV services, fixed internet access services, fixed telephony and multiple play services - horizontal coordinated concerns

(28) The Commission analysed also potential coordinated effects on the markets for retail provision of Pay TV services, fixed internet access services, fixed telephony and multiple play services in the Netherlands.

(29) Given that the cable networks of the Parties do not geographically overlap, the Commission considers that in practice the transaction would have very limited impact on any existing ability of KPN to coordinate its behaviour with Ziggo and Liberty Global and with the merged entity post-transaction. It has been investigated whether the transaction would significantly alter any of the factors generally considered conducive to coordinated behaviour.

(30) Although there are certain elements which suggest that the Dutch retail Pay TV, broadband internet, fixed telephony and multiple play markets may currently be conducive to coordination (such as the existence of a certain degree of transparency on these markets for example) the Commission considers that it is not necessary to conclude on the precise degree to which that is the case since there is not sufficient evidence to conclude that the transaction would create the conditions for coordination or would make coordination easier, more stable or more effective.

C. Commitments submitted by the notifying Party

1. Description of the commitments

(31) In order to address the competition concerns, the Notifying Party submitted a final set of commitments on 22 August 2014 ('the Commitments') comprising the following elements: (i) commitment to divest the Film1 Premium Pay TV channel; and (ii) commitments related to OTT services.

(32) In relation to the commitment to divest the Film1 business, Liberty Global also commits to enter into, with the Purchaser of the Film1 business, a carriage agreement for the distribution of Film1 on the merged entity's Pay TV platform in the Netherlands on reasonable commercial conditions. In addition, Liberty Global commits to exercise reasonable efforts to ensure that the Film1 business is transferred to the Purchaser with all current Film1 main exclusive licences for first and second Pay TV window broadcasting rights.

(33) Under the commitments related to OTT services, Liberty Global commits to no longer enforce and hence effectively terminate restrictive OTT clauses in existing agreements with TV broadcasters relating to the carriage of these broadcasters' linear channels and catch-up services on the Parties' Pay TV platforms. Liberty Global will not enter into or renew any agreements relating to the carriage of TV broadcasters' linear channels and catch-up services on the merged entity's Pay TV platform that contain direct or indirect OTT restrictions.

(34) In addition, in order not to undermine the effectiveness of the OTT commitment, Liberty Global commits to maintain sufficient interconnection capacity for parties seeking to distribute data to its broadband customers by ensuring such parties have at least three uncongested routes into the merged entity's IP network in the Netherlands.

(35) The commitment not to prohibit OTT distribution of content shall, in its entirety, be in force for a period of eight (8) years following the date of adoption of the Commission's current decision.

2. Assessment of the commitments

(36) The divestiture of the Film1 business would remove in its entirety the overlap between the Parties' activities in Premium Pay TV film channels in the Netherlands. It would also remove any putative concern that post-merger, Liberty Global could foreclose its retail Pay TV competitors from having effective access to a Premium film channel.

(37) The Commission considers that the Commitments contain all necessary safeguards to ensure the successful transfer of the Film1 business to a suitable purchaser. In particular, it includes all the assets and personnel which contribute to its current operation or which are necessary to ensure its viability and competitiveness. The Commitments also provide safeguards that the Film1 business will be transferred with the content contracts necessary to its viability and competitiveness.

(38) The Commission concludes that the Commitments are suitable and sufficient to remove the competition concerns expressed prior to a statement of objections according to which the proposed transaction would lead to a significant impediment to effective competition in relation to Premium Pay TV film channels in the Netherlands.

(39) The Commission considers that the OTT commitment effectively de-couples the negotiations relating to the carriage of broadcasters' linear channels and catch-up services on the merged entity's Pay TV platform from any negotiations relating to OTT services. It is a suitable and sufficient remedy to remove the Commission's concerns expressed prior to a statement of objections arising from the merged entity's increased buyer power in the market for wholesale supply and acquisition of Pay TV channels.

(40) The Commitments also address the technical ability of the Parties to degrade the quality of service of competing OTT TV providers. Liberty Global's commitment to maintain sufficient interconnection capacity for parties seeking to distribute data to its broadband customers should ensure that the OTT commitment cannot be immediately undermined through technical means.

V. CONCLUSION

(41) For the reasons mentioned above, the decision concludes that the concentration as modified by the commitments submitted on 22 August 2014 will not significantly impede effective competition in the Internal Market or in a substantial part of it.

(42) Consequently the concentration should be declared compatible with the Internal Market and the functioning of the EEA Agreement, in accordance with Article 2(2) and Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement.

NOTES

(1) OJ L 24, 29.1.2004, p. 1.

(2) Commission's decision of 26 August 2008 in Case COMP/M.5121 - News Corp/Premiere, paragraph 35; Commission's decision of 18 July 2007 in Case COMP/M.4504 - SFR/Télé 2 France, paragraphs 27-36; Commission's decision of 21 December 2011 in Case COMP/M.6369 - HBO/Ziggo/HBO Nederland, paragraphs 18-21.

(3) Commission's decision of 29 June 2009 in Case COMP/M.5532 - Carphone Warehouse/Tiscali UK, paragraph 35; Commission's decision of 20 September 2013 in Case COMP/M.6990 - Vodafone/Kabel Deutschland, paragraph 131.

(4) Commission's decision of 21 December 2010 in Case COMP/M.5932 - News Corp/BskyB, paragraphs 76 and 85; Commission's decision of 21 December 2011 in Case COMP/M.6369 - HBO/Ziggo/HBO Nederland, paragraph 22.

(5) Multiple play offerings comprise a bundle of usually three or more of the following retail services to customers: TV services, fixed telephony services, fixed internet access services, mobile telephony services.