Bundeskartellamt intends to clear merger projects Iesy / Ish and BC Partners / Ish (broadband cable networks)

The Bundeskartellamt has received applications for the acquisition of control of Kabelnetz NRW HoldCo GmbH (Ish), Cologne, both from Iesy Repository GmbH (Iesy), Hamburg, and BC Partners Holdings Ltd. (BC Partners), Guernsey.

Both proposals are the subject of separate merger control proceedings referred to the Bundeskartellamt by the European Commission. The decision by the owners of Ish as to whom the company should be sold is independent of the examination by the Bundeskartellamt and still pending.

According to the Bundeskartellamt’s current estimation none of the two merger projects would result in the creation or strengthening of a dominant position of the participating companies in the affected markets. On 1 June, in the due process of law, the Bundeskartellamt informed the parties to the proceedings that it intends to clear the merger project. The parties have the opportunity to comment up to 15 June 2005.

The time limit for a final decision by the Bundeskartellamt ends on 28 June 2005 in the Iesy / Ish case (after extension), on 4 July 2005 in the BC Partners / Ish case.

Ish operates the former broadband cable network of Deutsche Telekom in North Rhine-Westphalia and at the so-called network level 3 supplies approx. 4 million households with TV signals. Iesy operates the broadband cable network in Hesse and at network level 3 serves approx. 1 million households. With its subsidiary TeleColumbus BC Partners is one of the largest operators (approx. 2.5 million households throughout Germany) at network level 4, which covers cable network operations within the house itself.

Both takeover projects fundamentally affect three markets: Firstly, the market for feeding in TV signals by programme suppliers into broadband cable networks (input market), secondly the market for supplying TV signals to end customers (end customer market) and thirdly, the market for supplying TV signals from network level 3 to network level 4 (signal supply market). However, the effects on competition are different in each case.

In the input market a merger between Iesy and Ish would lead to the loss of potential competition between two operators at network level 3 and due to the extension of the range of operation would lead to a transfer or extension of Ish’s current scope of action to the area operated by Iesy. On the basis of current information the Bundeskartellamt however assumes that these negative effects will be compensated by the improvement in competitiveness compared to the largest cable network operator, Kabel Deutschland (KDG) achieved by the merger. One positive factor would be the structurally beneficial increase in size of the two operators compared to the KDG. Secondly, and in particular, Iesy would be able to detach itself from the technical platform for digital programmes dominated by KDG. The existing contracts between Iesy and KDG pose a significant hindrance to competition in the networks, e.g. via the supply of network islands in KDG’s area of operation (infrastructure competition) or via transmission competition.

If a housing company does not operate its own cable head station or satellite system, a contractual agreement between the house owners / trustees and the cable network operator (so-called licence agreements) is necessary in order for TV signals to reach the end customers (end customer markets). In view of the current competition in the tendering for licences the Bundeskartellamt does not expect the strengthening of any possible market domination by Ish or Iesy in these markets.

The project would not affect the important infrastructure competition in the signal supply markets by level 4 operators developing their own network level 3 systems. Insofar neither are any notable strengthening effects to be expected in the signal supply markets.

Other than in the Iesy / Ish case or in the KDG / Ish / Iesy / KBW merger project examined in 2004 the BC Partners / Ish case does not involve a horizontal merger of competitors on network level 3, but the first significant case of vertical integration on network levels 3 and 4 since the Bundeskartellamt’s decision in the Liberty / KDG case in 2002. The Bundeskartellamt does not visualize a strengthening effect in the input market in this specific case since the ensuing loss of infrastructure competition from BC Partners or its subsidiary TeleColumbus by the construction of their own network level 3 systems, is estimated to be very negligible. There is also no indication in the case under examination of a worsening of structural conditions in the end customer markets since the significant competition for licence agreements will not be affected due to the loss of TeleColumbus as an exclusively network level 4 operator. Finally, in the Bundeskartellamt’s view any relevant securing of sales opportunities by Ish in the signal supply markets is unlikely due to the possibility of competitors to supply end customers directly via licence agreements and in view of TeleColumbus’s already limited opportunities to switch to alternative areas.

The President of the Bundeskartellamt, Dr Ulf Böge, stated: “The Bundeskartellamt’s current assessment of a possible merger between BC Partners and Ish is limited to this specific case. Basically however in future mergers between network levels 3 and 4 the Bundeskartellamt will also concentrate on protecting infrastructure and in particular quality competition. Those responsible for this competition are primarily the integrated operators of network level 4, which already possess a considerable number of own cable head stations on network level 3. Mergers between such companies with regional companies could pose a problem for competition in future and have to be subjected to exact examination on a case by case basis.”