Anticipated acquisition by Tiscali UK Holdings Limited of the Broadband and Voice Division of Pipex Communications plc

Affected market: Internet access and fixed line telephony

No. ME/3177/07

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 views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 17 August 2007. Full text of decision published on 31 August 2007.

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

PARTIES

Tiscali UK Holdings Limited (Tiscali UK) is a wholly owned subsidiary of Tiscali S.p.A., an independent European telecommunication company incorporated in Italy. Tiscali UK principally provides retail broadband and dial-up internet access services and voice telephony services to residential and business customers.

Pipex Communications Plc (Pipex) is the parent company of Pipex Internet Limited, Pipex Homecall Limited, Toucan Residential Limited, Toucan Residential Ireland Limited and Switch2 Telecoms Limited (together, the Pipex Broadband and Voice Division) [see note 1]. Pipex Broadband and Voice Division's principal activity in the UK is the supply of retail broadband and dial-up internet access and voice telephony communications services, operating under the following brands: Bulldog, Nildram, Pipex, Toucan and Freedom2Surf. Pipex Broadband and Voice Division's UK turnover for the year ended 31 December 2006 was £231 million.

TRANSACTION

Tiscali UK (or its subsidiary nominee, Tiscali UK Limited) proposes to acquire the entire issued share capital of Pipex Broadband and Voice Division, including all of the subsidiaries, pursuant to a share sale and purchase agreement.

The parties filed a complete merger notice with the OFT on 20 July 2007. The OFT's 20 working-day statutory deadline is 17 August 2007.

JURISDICTION

As a result of this transaction Tiscali UK and Pipex Broadband and Voice Division will cease to be distinct. The UK turnover of Pipex Broadband and Voice Division 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.

ASSESSMENT

The parties overlap in the supply of retail broadband internet access services, narrowband internet access services and fixed-line rental and voice telephony services. The OFT has considered each of these services separately in its analysis, however, as no competition concerns arise on any given frame of reference, it has been unnecessary for the OFT to conclude on the precise product markets in respect of these services.

In broadband, the parties are currently the fourth and sixth largest suppliers. The increment resulting from the merger will leave the combined entity as the fourth-largest provider behind BT, Virgin Media and Carphone Warehouse but there is also significant fragmentation of smaller internet service providers. Further concentration in what is already a concentrated market at the top end may give rise to concerns over unilateral effects, however, consumer survey data appears to show that the majority of customers are well-informed and perceive switching between suppliers to be easy.

In both narrowband and voice telephony services, the parties have relatively low shares of supply with small increments arising from the merger. Evidence obtained by the OFT suggests switching is feasible and no third party raised concerns regarding either of these services. The OFT therefore believes that no unilateral effects will arise in relation to either narrowband or voice telephony services.

Barriers to entry are not particularly high, as evidenced by the amount of entry in recent years. The availability of off-the-shelf wholesale access products (WLR, CPS) has facilitated entry and is likely to continue to do so in the future.

Third parties were generally unconcerned with this merger. One third party commented that there may be concerns regarding the wholesale acquisition of particular retail customers. However, the OFT believes that customers are able to switch easily between different internet service providers.

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.

NOTE

1. The Pipex Broadband and Voice division also contains the following subsidiaries: Freedom to Surf Limited, Freedom to Surf Registration Services Limited, Freedom to Surf Consumer Services Limited, AccentUK Limited, Nildram Limited, Trinite Limited, Trinite Services Limited, Pipex Broadband Limited, HighwayOne Limited, Pipex Networks Limited, Pipex Communications Services Limited, GX Networks Twelve Limited, Homecall (UK) Limited and Homecall Payment Services Limited (together, the subsidiaries).

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