Bundeskartellamt prohibits planned Liberty Media/KDG merger

The Bundeskartellamt has prohibited Liberty Media’s planned acquisition of Deutsche Telekom AG’s (KDG) broadband cable networks. The merger would strengthen dominant positions in the supply market for broadcasting signals to final customers (final customer market: cable television), the market for feeding signals into broadband cable networks (input market) and the market for the supply of network level 3 signals to operators of network level 4 (signal supply market).

The President of the Bundeskartellamt, Ulf Böge, stated: “The merger would considerably worsen competitive structures in the German cable markets. It would strengthen Liberty’s market position without at the same time creating any improvements in other markets. As a result Liberty’s acquisition of the broadband cable networks would make the overall competitive situation worse for the consumer than if Deutsche Telekom were to continue to own the network for the time being. For this reason the project had to be prohibited.”

From the consumers’ point of view, terrestrial or satellite reception of TV signals and reception via broadband cable are not interchangeable and thus have to be assigned to different markets. To begin with, many consumers have no alternative to broadband cable reception anyway since legal provisions and actual circumstances prevent reception by satellite.

The acquisition of the broadband cable networks would not just mean that the dominant company Deutsche Telekom AG would be replaced by Liberty which would be neutral under cartel law and thus not raise competition concerns. Liberty is both programme content provider and at the same time already active in the final customer market for cable television (supply of television signals to households) via the cable network operator EWT/Primacom which it dominates. It is thus at least a potential competitor of Deutsche Telekom. Liberty’s business concept is based on the idea of either acquiring as many operators at network level 4 as possible or cooperating with them on an exclusive basis.

Liberty’s planned distribution of decoders or set-top boxes would tie customers to Liberty as the owner and operator of the signal-decoding devices because the decoders would still be owned by Liberty and they can only decode signals from Liberty. This would block any chance of open competitive cable access right from the outset.

KDG’s dominant position in the market for feeding content into the cable network would be strengthened as a result of the combination with Liberty’s activities in the content sector. Since Liberty would supply around 60 per cent of all broadband cable customers in Germany and use the network for distributing its own content, the merger would also strengthen Liberty’s dominant position in this respect.

Under the so-called balancing clause, a concentration which is expected to create or strengthen a dominant position shall be cleared if the participating undertakings prove that the concentration will lead to improvements of the conditions of competition, and that these improvements will outweigh the disadvantages of dominance (Section 36 (1), 2nd partial sentence, of the ARC). In this respect it is left to the companies to offer suitable commitments. It is not the task of the Bundeskartellamt to make demands on the companies.

In the market for broadband Internet access, upgrading the network to 510 MHZ may improve the conditions of competition since this would put Deutsche Telekom under certain competitive pressure. In the Bundeskartellamt’s view there is insufficient proof that the merger would actually produce the improvements in the voice telephony market as stated by Liberty. Consequently, the balancing clause was not applicable since no overriding improvement of competition could be established. Liberty was unwilling to consider the options of acquiring fewer than six regional network operators and thus less than 60 per cent of the German cable network or leaving the upgrading of the broadband cable network for voice telephony to a third party.