Anticipated acquisition by BSkyB Broadband Services Limited of Easynet Group plc

Affected market: Telecommunications, internet and pay-TV

No. ME/2117/05

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 on 13 January 2006.

Please note that square brackets indicate information excised for reasons of commercial confidentiality.

PARTIES

BSkyB Broadband Services Limited is a wholly-owned subsidiary of British Sky Broadcasting Group plc (BSkyB). BSkyB is a holding company for a number of subsidiaries whose main activities relate to television broadcasting and retailing in the UK and Ireland, including: the creation of channels; the wholesale supply of channels to closed-access cable operators; and the retail distribution of channels via Direct-to-Home (DTH) and digital-subscriber-line (DSL) services.

Easynet Group plc (Easynet) is a pan-European broadband company offering wholesale and retail broadband internet access services via DSL, as well as business data communications services. In the UK Easynet operate DSL through local loop unbundling (LLU ), covering 18 per cent of UK homes. It offers retail and wholesale broadband Internet access services; retail narrowband Internet services; IT services; and business data communications services. Easynet's UK turnover in the year ending 31 December 2004 was £77.73 million.

TRANSACTION

On 21 October 2005, BSkyB Broadband Services Limited announced a recommended cash offer to acquire the entire issued and to be issued share of capital of Easynet.

The parties notified on 28 October 2005. The 40 day administrative deadline is 23 December 2005.

JURISDICTION

As a result of this transaction BSkyB and Easynet will cease to be distinct. The UK turnover of Easynet 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 expressed concerns about the merger as set out above.  These are actual or potential competitors to Sky.  Ofcom has also given its view on the merger, stating that [its stakeholders have raised a number] of potential competition problems relating to Sky's potential ability to wield vertical or horizontal leverage, particularly as a result of holding the rights to certain types of premium content, [both in connection to the merger and more widely.  However, it thinks] that these issues exist independently of the proposed acquisition, and that the acquisition in itself does not increase potential competition problems.

ASSESSMENT

Sky will through the merger acquire a position in DSL more speedily than via organic growth and facilitate its provision of triple play services in competition with other providers, from which consumers may benefit. At the same time, the merger raises no horizontal issues as the competition between the parties is insignificant.

The focus of the OFT's merger assessment is to consider the impact of the merger, rather than to analyse more broadly whether the relevant markets are working well for a competition standpoint; the latter is the domain of CA98 and other enforcement mechanisms. Third parties have understandably raised foreclosure concerns given Sky's market power in premium content provision and its significant buyer power in non-premium content. However, Sky already has the ability to foreclose DSL rivals and the merger does not materially heighten its incentives to do so. In short, the OFT does not believe that consumers would be significantly worse off as a result of any foreclosure effects that might be attributable to 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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