Anticipated acquisition by Arqiva Limited of British Telecommunications plc’s satellite broadcast services business

Affected market: Satellite broadcasting services

No. ME/2758/06

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 14 February 2007. Full text of decision published 22 February 2007.

Please note that square brackets indicate figures or text which have been deleted at the request of the parties for reasons of commercial confidentiality.

PARTIES

Arqiva Limited (Arqiva) is a wholly owned subsidiary of Macquarie UK Broadcast Holdings Limited which is itself owned by a consortium of investors. It supplies satellite distribution services, terrestrial transmission services, content to handheld devices, multi-operator infrastructure services and frontline communications to some of the UK emergency services.
 
British Telecommunications plc's Satellite Broadcast Services business (BT SBS) comprises contracts and assets related to satellite distribution services and Satnet [note 1] business. BT SBS' turnover from satellite distribution and up-linking services for television broadcasting to UK viewers in the financial year ending 2006 was £ [ ].

TRANSACTION

Arqiva proposes to acquire BT SBS. The OFT received a submission on 12 December 2006 and the OFT administrative deadline expired on 8 February 2007. 

JURISDICTION

As a result of this transaction, Arqiva and BT SBS will cease to be distinct. The parties overlap in the supply of satellite distribution services for television broadcast to UK viewers. The share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met since the merging parties' estimated combined share of supply will be more than 25 per cent. 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 large number of customers, competitors and potential entrants were contacted by the OFT. Of those who responded , almost all were unconcerned. The concerns of two on bundled services and one on up-linking are addressed above.

ASSESSMENT

The main area of overlap between the merging parties is the supply to broadcasters of satellite distribution services for television broadcasting to UK viewers of digital satellite television. This comprises three service elements which can be purchased under one contract (bundled services) or separately. The services are: 1) up-linking services; 2) satellite capacity; and, 3) other related services. The bundled service is considered to be the appropriate product scope of the frame of reference for the purposes of this case as the unbundled option was not an adequate alternative for smaller broadcasting customers. The parties also overlap in the provision of stand-alone (unbundled) up-linking services. A cautious view was taken of the geographic scope of the frame of reference, which was limited to the UK for the purposes of this case in respect of both the bundled service and stand-alone up-linking services.

In respect of bundled services, the merger removes one of four existing suppliers. For some broadcasting customers the fourth provider, BSkyB, was not an option as BSkyB is a rival in the downstream retailing of TV channels. For the majority of competitions for satellite distribution services, Globecast was Arqiva's closest competitor, rather than BT. For about a quarter of competitions, BT was considered as a competitor to Arqiva. Although the vast majority of third parties were unconcerned, two customers which saw BT as a significant competitor to Arqiva were concerned. However, Globecast will remain an active competitor post-merger, and potential competitors have the ability and the incentive to enter should Arqiva attempt to raise price or reduce service quality by a significant amount post-merger.

On the basis of the evidence there is sufficient terrestrial teleport and satellite transponder capacity to make entry feasible. The incentive to do so in the event of an increase in price or decline in quality of service form the parties is significant given the current levels of profitability in the supplying of distribution satellite services. Third parties support this view and there is evidence that entry is being contemplated.

In relation to stand-alone up-linking services, customers felt they had countervailing buyer power in the form of sponsored entry or self provision and again there is evidence of entry from competitors located outside the UK.

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.

NOTES

1. Portable telecommunication assets.

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