Anticipated acquisition by Cable and Wireless plc of Chelys Limited (Owner of the Energis Group)

Affected market: Telecommunications

No. ME/1917/05

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.

Please note that square brackets indicate information excised, or exact figures replaced by a range, at the parties' request.

The OFT's decision on reference under section 33 given on 25 October 2005. Full text of decision published 3 November 2005.

PARTIES

Cable & Wireless (C&W) is an international telecommunications company. In the United Kingdom (UK), its principal operations are in the business-to-business market: fixed lines telecoms services; data and Internet Protocol services and managed hosting solutions.

Chelys Limited is the ultimate parent company of the Energis group of companies (Energis). Energis provides telecommunication services to businesses in the UK and Ireland. It includes basic telephony, advanced voice and data and Internet related services. Its turnover for the financial year ending 31 March 2005 was £745 million.

TRANSACTION

C&W proposes to acquire the entire issued capital of Energis.

A satisfactory submission was received by the OFT on 16 August 2005. The OFT's administrative deadline is 20 October 2005.

JURISDICTION

As a result of this transaction, C&W and Energis will cease to be distinct. The UK turnover of Energis exceeds £70 million, so that 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 contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

Extensive third party comments were received. The majority were unconcerned or saw the potential pro-competitive effects (speeding up the investment in next generation infrastructure, strengthening competition, innovation and sustainable competition) resulting from this transaction as outweighing any concerns they had. A minority had concerns relating to specific sectors, which are addressed above.

Ofcom expressed no competition concerns about this merger.

ASSESSMENT

The parties overlap in the supply of a number of wholesale and retail telecommunications services to the business sector. In most of these the parties have low shares and no concerns were raised by third parties. The four exceptions are: wholesale carrier voice services; wholesale and retail number translation services (Telebusiness); national leased lines; and, retail business data communications.

Within the wholesale IDA segment of wholesale carrier voice services, the merger will create a market leader with a share of supply of around 30 per cent but there are several other competitors with shares of 10 per cent or more. Nevertheless, two customers argued that for larger contracts the impact on competition would be greater than these shares of supply might suggest as only a few providers had sufficient capacity to meet their needs and offer an acceptable price. An examination of the parties' bidding data in relation to large contracts revealed that there would remain on average three bidders post-merger, and, as large contracts represent a substantial proportion of most suppliers' revenue, customers appear to have sufficient choice from among the pool of post-merger bidders so as to discipline a price rise by the merged entity.

Although there was one recent bidding example from one complainant to support the argument that the parties' were each other's closest competitors, the notion that this was a good guide to future post-merger competition was outweighed by the body of evidence that rivals are credible alternatives, with either available capacity in the near future, or the ability to expand incrementally to serve customers needs. Finally, competition may be further boosted by deregulation and a change in bidding incentives on the part of BT.

As regards the other three segments where third parties identified the merger as giving preliminary cause for concern, the evidence showed that in all but one (Telebusiness), the merged entity will have a share of supply of no more than 20 per cent, compared to BT's share of around 60 per cent. In the Telebusiness segment, the merged entity may, on one view, be the largest player with a share of supply of [20-25 per cent] but there will remain a number of significant players and customer switching appears to be widespread. In all three segments, the particular concern raised by the third party was not substantiated by evidence.      

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 33(1) of the Act.

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