Anticipated merger of NTL Incorporated and Telewest Global, Inc

Affected market: Pay TV, telecommunications services (multi-media)

No. ME/2033/05

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 30 December 2005. Full text of decision published 10 January 2006.

Please note that square brackets indicate information excised, or exact figures replaced by a range, for reasons of commercial confidentiality.

PARTIES

NTL Incorporated (NTL) is a US corporation that provides telecommunication, Internet access and multi-channel TV services to business and residential customers within the areas covered by its UK cable network. It supplies some services outside its cabled areas using BT lines, including the 'virgin.net' Internet service. NTL and Telewest jointly control Front Row, a near video-on-demand film service offering multiple showing of films at staggered times. NTL had a turnover of £2000 million in the UK in the year ending 31 December 2004.

Telewest Global Inc (Telewest) is a US corporation that provides telecommunication, Internet access and multi-channel TV services to business and residential customers within the areas covered by its UK cable network. Telewest also produces TV channels through its Flextech and Sit-Up Limited subsidiaries and through joint ventures with BBC Worldwide (UKTV) and NTL (Front Row). Through its Minotaur subsidiary Telewest is active in the distribution of programming and another subsidiary, Interactive Digital Sales Limited, sells TV advertising in the UK. Telewest's UK turnover in the year ending 31 December 2004 was £ [ ] million.

TRANSACTION

NTL and Telewest entered into a merger agreement on 2 October 2005.

The parties notified the transaction to the OFT on 14 October 2005. The 40 day administrative deadline has expired.

JURISDICTION

As a result of this transaction NTL and Telewest will cease to be distinct. The UK turnover of each of NTL and Telewest exceeds £70 million, so the turnover test in section 23(1) (b) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

A number of third parties raised the concerns addressed above, predominantly on potential competition and vertical foreclosure. Others were unconcerned, in particular Ofcom. Several raised concerns unrelated to the merger, such as the cable network not being 'open access', which is not altered by the merger. Others thought there might be horizontal competition for wholesale broadband Internet as Ofcom had previously stated cable constrained BT in this area. However, this does not mean that the parties constrained each other on a national basis and Ofcom had no concerns. Some content providers were concerned that an increase in buyer power would lessen the price they could negotiate for their channels. The CC looked at this issue of transferred rents in relation to the earlier merger and dismissed it. There was also one concern relating to residential telephony, where the parties do not overlap.

ASSESSMENT

Although this is the merger of the remaining two cable operators in the UK, the merger does not lessening existing competition for pay-TV, internet or telecommunications services. The conclusion of the CC in 2000 that as cable networks do not geographically overlap they do not compete directly or indirectly has not been challenged by new evidence. In the two areas where services are provided beyond the cable areas, narrowband internet and telecommunications services - there are a number of significant competitors.

Technology has moved on since the CC considered the issue of potential competition between cable networks, making such competition feasible. Evidence indicates however that the expansion plans of NTL are limited to in-filling such that any overlap with Telewest would have been deminimis. In addition there remains a number of competing DSL operators.

As the parties are the purchasers of a large number of channels and as Telewest owns such a channel provider (Flextech), third parties raised vertical issues relating to foreclosure and co-ordinated effects.

The first of these hypothesised that Flextech channels would not be made available to rivals. Even if they did so Flextech only accounts for [10-15] per cent of viewing on non-premium pay-TV only channels and several similar size competitors remain amongst the considerable number of channels available to rivals. There is no compelling evidence that the absence of Flextech content channels would impede growth and some operators do not have these channels in their business plans, suggesting they are not irreplaceable.

A similar claim was made that the merger would give the parties sufficient buyer power to force exclusivity clauses out of third party channel providers, foreclosing them to DSL operators. In 2000 the CC had rejected concerns relating to buyer power granted by a similar share of pay-TV subscribers as currently enjoyed by the parties. In addition, with respect to the proposed merger in the present case these concerns have not been supported by most third party channel providers or internal documents.

The second foreclosure theory raised by third parties, that the parties will not purchase third party channels that compete with Flextech, is inconsistent with the first theory's assumption that they would negotiate exclusivity with these channel providers. No channel provider saw this as an issue that required addressing by merger control.

Finally one third party suggested the merger increased the incentive and ability of the parties to co-ordinate with Sky resulting in refusal to supply content to rivals. Even if pay-TV exhibited the characteristics of a market suited to co-ordination, there is a considerable imbalance in market power in the supply of content between Sky and Flextech and there is no direct evidence of such behaviour being motivated by the merger.

Consequently, the OFT does not believe that it is or may be 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 33(1) of the Act.

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