Carphone Warehouse Group plc / Onetel
OFT closed case: Completed acquisition of Onetel by the Carphone Warehouse Group plc
Affected market: Telecommunications
No. ME/2259/06
The OFT’s decision on reference under section 22 given on 10 May 2006. Full text of decision published on 23 June 2006.
data-tables05.pdf edit
data-tables05.pdf edit
Please note that square brackets indicate figures or text which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.
PARTIES
The Carphone Warehouse Group plc (CPW) provides fixed and mobile retail telecommunications services and internet access services to residential and business customers. At the wholesale level, it operates a fixed telecommunications network through its wholly owned subsidiary, Opal Telecom Limited (Opal). In addition, it is the largest independent retailer of mobile communications in Europe with over 1,500 stores in10 countries.
Centrica Telecommunications Limited, Onetel Limited, Telco Holdings Limited, and Awardmodel Limited, (together Onetel) provides fixed and mobile telecommunications services and internet access services to both residential and business users. Its UK turnover for the year ending 31 December 2004 was £285 million.
TRANSACTION
On 19 December 2005, CPW announced it had agreed to acquire Onetel. Completion took place on 30 December 2005 (see [Note 1]).
The OFT administrative timetable expires on the 10 May 2006. The statutory deadline is 11 May 2006.
JURISDICTION
As a result of this transaction CPW and Onetel have ceased to be distinct. The UK turnover of Onetel exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is met. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.
RELEVANT MARKET
Product scope
The parties overlap in the provision of fixed retail telecommunications services to residential and business customers, as well as narrowband and broadband internet access and mobile telecommunications services.
The European Commission defined a series of specific retail and wholesale electronic communications markets in the Commission Recommendation on relevant product and service markets within the electronic communications sector (see [Note 2]). These have been reviewed and to some extent revised by OFCOM in a series of market reviews carried out in 2003 (see [Note 3]).
In view of its expertise in relation to the UK telecommunications sector and the fact that it has conducted detailed market analyses so recently, the OFT has adopted as its starting point for a product frame of reference the approach to market definition taken by Ofcom in its market reviews.
The parties overlap in a number of areas but, on the basis of shares of supply and third party comment, there is only one area where there were preliminary competition issues meriting closer consideration: fixed telecommunications services at retail level. In narrowband and broadband internet access and mobile telecommunications services, irrespective of the frame of reference used, the parties shares were less than 3 per cent (increment less than 1 per cent).
As regards fixed telecommunications services to residential and business customers, the OFT has broadly looked at segments of retail residential exchange lines, retail business exchange lines, retail residential calls and retail business calls, using data presented by Ofcom (see [Note 4]) and the parties. These could be further segmented into different types of calls including: local, national, international, calls to mobiles and assisted calls.
The parties provide retail fixed telecommunications services to residential and business customers via the use of Carrier Pre-Selection (CPS) (to offer calls) or Wholesale Line Rental (WLR) (to offer line rental). The parties are able to offer such retail fixed telecommunications services by purchasing CPS and/or WLR from wholesale suppliers.
CPS and WLR are wholesale products introduced by Ofcom in order to promote competition in the provision of fixed retail call services. CPS services enable a customer connected to a BT line to obtain its calls from another telecommunications operator without having to dial a prefix or install any special equipment at their premises. WLR allows a WLR provider to sell line rental directly to residential or business customers using an existing BT line. An end-customer can purchase separately calls from one provider and line rental from the same or a different provider.
The OFT considered whether new technologies such as Voice over Internet Protocol (VoIP) yet represent a significant competitive constraint on fixed telecommunications services. Services using VoIP provide voice calls and messaging services over a broadband connection rather than over traditional telephone networks (see [Note 5]). The evidence the OFT has found shows that these services are still in their infancy, relative to established technology (see [Note 6]). Therefore, the relevant frame of reference in respect of fixed telecommunications services for the purposes of this case excludes VoIP at retail level.
The OFT also considered the extent to which fixed and mobile telecommunications services were substitutes. The parties, a third party and OFCOM were of the view that that although there was an increasing convergence between fixed and mobile telephony, they were insufficiently close substitutes for them to fall within the same frame of reference. A third party challenged this statement but did not present any evidence (see [Note 7]).
However, as regards fixed telecommunication services, the OFT considers that it is not necessary to reach a final view on the scope of any relevant frame of reference because even on a narrow basis no competition issues arise.
Geographic scope
The role of regulation in the telecommunications sector (as well as the fact that the pricing policies of telecommunications providers is predominantly national) suggests a frame of reference that is national in scope and the OFT has received no convincing evidence to suggest that a different geographic frame of reference would be more appropriate in relation to any of the product segments identified above.
HORIZONTAL ISSUES
In terms of fixed telecommunications services, whichever frame of reference is adopted, the parties’ combined shares do not exceed [10-20] per cent in any segment bar residential international calls. Here the estimated combined share of supply is about 25 per cent with an increment of around 5 per cent. In all segments, the parties will continue to compete with the market leader BT; the cable companies (in those areas where they are active); and several other smaller competitors, such as Toucan, the Post Office or Homecall. Post-merger these rivals will continue to confer sufficient competitive constraint on the merged company.
Although most third parties were unconcerned by the merger, three residential customers were concerned that this merger (together with the earlier acquisition of Tele2) (see [Note 1]) removed CPW’s main competitive constraints for fixed telecommunications services and would allow CPW to increase prices or reduce quality post-merger. The OFT has assessed this theory of harm by, among other means, considering historical comparative pricing data to see the extent to which the parties tracked each others’ pricing decisions and what rivals were offering. Although the parties might have exerted some competitive constraint on each other, there are several other competitors, some of which offer lower prices across a range of different call types and line rental. These remaining competitors are therefore considered by the OFT to be a sufficient competitive constraint on the parties post-merger.
Although not raised by any third party, the OFT also considered whether bundling concerns arise as a result of the merger. Increasingly telecommunication providers are offering a bundle of products such as ‘triple play’, or soon to be expected ‘quadruple play’ (see [Note 8]). The parties to this merger can offer fixed and mobile telecommunication services as well as broadband internet access in a bundled package. However, there are several companies, including BSkyB/Easynet, BT and NTL/Telewest/Virgin offering or in a position to offer similar bundled packages. Consequently, the OFT does not believe that this issue gives rise to any concerns.
VERTICAL ISSUES
The merger does not give rise to substantial vertical issues.
THIRD PARTY VIEWS
Third parties, including Ofcom, were generally unconcerned. Three residential customers were concerned that the acquisition of Onetel (and Tele2) (see [Note 1]) could give rise to horizontal anticompetitive effects. This has been addressed in the section on horizontal issues above.
ASSESSMENT
The parties overlap in the provision of fixed retail telecommunications services to residential and business customers, as well as narrowband and broadband internet access and mobile telecommunications services.
In narrowband and broadband internet access and mobile
telecommunications services the parties combined shares do not exceed 3
per cent. As regards fixed telecommunications services, however the
frame of reference is defined, the parties' combined share of supply
does not exceed [10-20] per cent in any one segment except for
residential international calls (about 25 per cent, with an increment of
about 5 per cent). In all fixed telecommunication services, which is
the only area where any third parties raised concerns, the merged entity
will continue to face a number of competitors. BT (the market leader),
the cable companies and several other smaller competitors will continue
to be a sufficient competitive constraint on the merged company.
Consequently, the OFT does not believe that it is or may the case that
the merger may be expected to result in a substantial lessening of
competition within a market or markets in the United Kingdom.
DECISION
This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.
NOTES
1. On 19 December 2005, CPW announced it had also acquired Tele2 (UK), another fixed line telecommunications provider. The OFT assessed this transaction separately and concluded by that the transaction did not qualify as a relevant merger situation under the Enterprise Act 2002. This assessment takes into account CPW's position after having integrated Tele2.
2. OJ [2003] L114/45.
3. See .
4. See Ofcom Telecommunications Q3 2005, February 2006.
5. See further on .
6. See for example Ofcom Retail Price Control (consultation paper) of 21 March 2006, page 19.
7. This issue is discussed at more length in the of 8 May 2006 with respect to the anticipated acquisition by NTL Incorporated of Virgin Mobile Holdings (UK) Limited.
8. 'Triple play' is the provision of fixed telecommunications, internet and multi-channel TV to a customer by the same supplier as a bundled service. 'Quadruple play' adds mobile telecommunications. 'Quadruple play' is not yet available, but is expected to be available in the forthcoming future.