Completed acquisition by Macquarie UK Broadcast Ventures Limited of National Grid Telecoms Investment Limited, Lattice Telecommunications Asset Development Company Limited and National Grid Wireless No.2 Limited

Affected market: Terrestrial broadcast transmission services

No. ME/2982/07

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 comments, assessment and decision.

The OFT's decision on reference under Section 22(1) given on 8 August 2007. Full text of decision published 15 August 2007.

Please note that square brackets indicate figures or text which have been deleted or replaced with a range by the OFT or at the request of the parties for reasons of commercial confidentiality or public interest.

PARTIES

Macquarie UK Broadcast Ventures Limited (Macquarie), a wholly owned indirect subsidiary of Macquarie UK Broadcast Holdings Limited, owns Arqiva Limited (Arqiva). Arqiva is the owner and operator of broadcast and wireless communications infrastructure in the UK. Arqiva's main business is the provision of facilities and services to the media, wireless and public safety communications industries. The business includes a national broadcast transmission and mast network infrastructure, which operates in the UK, and its public safety services operations which operate in the UK and Ireland.

National Grid Telecoms investment Limited, Lattice Telecommunications Asset Development Company Limited, and National Grid Wireless No. 2 Limited (together NGW) is a UK broadcast and telecom infrastructure provider. It operates in three areas: broadcast masts and transmissions, wireless site leasing, and build and broadcast multiplex operation. Its 2006 UK turnover was £ 287 million.

TRANSACTION

Macquarie completed the acquisition of NGW on 3 April 2007. The statutory deadline expires on 31 August 2007 and the administrative deadline expires on 14 August 2007.

JURISDICTION

As a result of this transaction, Macquarie and NGW have ceased to be distinct within the meaning of section 26(1) of the Act. The UK turnover of NGW exceeded £70 million for the 2006 financial year. The turnover test pursuant to Section 23(1) (b) of the Enterprise Act 2002 (the Act) is therefore satisfied. The OFT believes therefore that a relevant merger situation under Section 23(1) of the Act has been created.

ASSESSMENT

As the following summary sets out, the OFT's concerns in this case focus on the fact that the transaction combines the only two vertically-integrated firms competing in the provision of MTS to both national radio and TV broadcasters, and a merger of by far the two largest firms in the provision of MTS to radio at sub-national level.

The parties overlap in the provision of site access for the purposes of (analogue and digital) terrestrial national television transmission; national AM; national FM; DAB and sub-national (further segmented to regional/ metropolitan and local) radio transmission. They also provide managed transmission services for the above and provide site rental and ancillary services to mobile network operators and other wireless communications operators.

The parties own the two complementary parts of the necessary site infrastructure required for terrestrial television and national FM radio transmission and are, as such, operating as two separate geographic monopolies, suggesting there is no competition that could be lost by the merger. Moreover, this sector is regulated by Ofcom which has imposed the requirement to provide site access to all third parties on non-discriminatory and cost orientated terms. There are no overlaps in site access with relation to national AM radio.

There is more flexibility in terms of the sites to be used and the ease of switching (at least at the design stage) in the case of local radio - and also to a more limited extent in the case of regional/ metropolitan radio. Despite the parties' having comparatively large portfolios relative to the remainder of supply being fragmented across numerous independent providers, on the basis of the evidence before it, the OFT concludes that there is no credible theory that the merger will lead to a substantial lessening of competition in this segment because of the ability of customers to choose alternative third-party sites in relevant areas, and relatively low barriers to entry.

The transaction represents a merger to monopoly in the provision of MTS for national radio broadcasting. Radio contracts are shorter in duration than for MTS national television and at least one (for FM services but possibly also two more for AM services) is to be put out to tender in approximately two years' time. Given the high barriers to entry, the merger results in the removal of the only credible competitive constraint existing in this segment and consequently has resulted or may be expected to result in a substantial lessening of competition within the market for the provision of MTS for national radio broadcasters.

The parties are also by far the largest providers of MTS for radio broadcasting at a sub-national level. There are others who can provide these services but these are significantly smaller and their success rate in winning contracts is not comparable to the parties' record; some are also not active in providing all services that are typically included in MTS. This position is further strengthened by the fact that some of the local radio stations are part of larger groups which have a preference for concluding framework agreements (to minimise administrative and search costs). The merger removes the main competitive constraint in this segment and although there might be some alternatives for a limited number of customers, the OFT's overall conclusion is that the merger may be expected to result in a substantial lessening of competition.

The transaction also represents a merger to monopoly in the provision of MTS for national television broadcasters and multiplex operators. The OFT does not dismiss the possibility that bidding opportunities may arise in the near future for more national DTT contracts, given the release of spectrum following the digital switchover). Given the high barriers to entry that appear to be durable for at least the near future if not far beyond that, this post-merger monopoly raises substantial concerns by removing the only foreseeable credible competitive constraint on each party absent the merger. Consequently, the merger may be expected to result in a substantial lessening of competition within the market for the provision of MTS for national television broadcasters and multiplex operators.

NGW and Arqiva also provide ancillary services for MNOs and WCPs mostly in relation to their sites. There was no substantiated concerns with respect to the provision of site rental to MNOs as the market's view was that the network are already nearly rolled out, the demand for new sites therefore is decreasing and this gives the MNOs greater buying power. There were no concerns raised with respect to the provision of ancillary services to MNOs.

The main issue with respect to site access/rental to WCPs arises as they are expected (with the forthcoming implementation or expansion of new technologies, platforms or applications) to require a significant number of sites. The OFT has not found any evidence to meet the high threshold required to support a portfolio theory of harm. The OFT notes that there are other providers building up large portfolios of sites. In any case, as the OFT has already concluded that the merger has resulted or may be expected to result in a substantial lessening of competition in other markets affected by this merger, the OFT does not need to conclude on this issue.

Consequently, the OFT believes that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom that is: the supply of MTS to national radio broadcasters; the supply of MTS to radio broadcasters at a sub-national level; and the supply of MTS to national television and multiplex operators.

DECISION

This merger will therefore be referred to the Competition Commission under section 22(1) of the Act.

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