Anticipated acquisition by Hospedia Ltd of Premier Telesolutions Limited

Affected market: Supply of free-managed Bedside Entertainment and Communication Systems (BECS) for NHS hospitals

No. ME/3788/08

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, assessment and decision.

The OFT's decision on reference under section 33(1) given on 7 October 2008. Full text of decision published 6 November 2008.

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

PARTIES

Hospedia Ltd (Hospedia) is a newly-formed entity which acquired the Patientline business (Patientline) from Patientline plc immediately after Patientline plc being placed into administration. Patientline was the first company to offer integrated patient bedside entertainment and communications systems (BECS) in the UK. Established in 1993, by 2000 Patientline had installed BECS systems at a total of 25 hospitals. Following the launch of the Patient Power Initiative, installation of BECS accelerated and Patientline's one hundredth site was installed by 2004.

Premier Telesolutions Limited (Premier) is a wholly-owned subsidiary of Pretel Group Limited. The principal shareholders in Pretel are Tim Weil and funds managed by Milestone Capital, with the remaining shares held by the current management team. Premier provides hospital communication and multimedia services in the UK to both patients and hospital staff. Premier has been operating for over 15 years, having originally been established to provide and manage payphone services within the UK healthcare market. With its payphone business, it has contracts with over 50 UK hospitals and supports a base of over 1,800 managed payphones.

Following the introduction of the PPI, Premier extended its activities in 2003 to include the provision of BECS. Excluding payphones, Premier has operations in 40 NHS hospitals and manages 12,050 BECS terminals. In the year ended 31 December 2007, Premier's UK turnover was £6.1 million.

TRANSACTION

Hospedia has agreed to acquire all of the issued share capital of Premier [   ].

The transaction was notified to the OFT on 4 August and the extended administrative deadline for a decision is 7 October 2008.

JURISDICTION

As a result of this transaction Hospedia and Premier will cease to be distinct. The parties overlap in the supply of free-managed BECS to NHS hospitals and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. 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 provision of free-managed BECS to Hospital Trusts.

The OFT has examined the scope for adverse merger effects in relation to three 'contestable markets' - (i) Hospital Trusts without a contract for BECS terminals, (ii) Hospital Trusts that have awarded a contract or preferred supplier status, but where the contract has yet to be fulfilled, and (iii) Hospital Trusts whose BECS contract is coming up for renewal. BECS suppliers negotiate individual contracts with hospitals, allowing them to price discriminate according to the relative strength of that customer's outside options (for example, self-supply of BECS, or foregoing BECS entirely).

Although Patientline [   ], the OFT considers that Premier and Patientline should nevertheless be considered each other's closest competitors for each of these contestable markets going forward, and that the merger will consequently remove the competition that would have been expected to exist for installation of new terminals absent the merger.

Although there are other providers of free-managed BECS services, these are not expected to be of equivalent competitive strength given that they lack Patientline's incumbency position and do not appear to be a dynamic current competitor (as Premier).

In addition to competition for the placement of additional, or replacement, BECS terminals, there is also some limited evidence that the existence of another competing provider may constrain the pricing of installed providers by existing providers competing to avoid being publicly regarded as the highest priced supplier (and hence attracting potentially damaging publicity).

The parties have stressed that Trusts have highlighted the importance of the free-managed business model, but that this is inherently difficult to make profitable.

Given that both Premier and Patientline have been loss making (Patientline having been bought out of administration in August 2008 by Hospedia) the parties argue that in the absence of the transaction [   ]. The parties consider that the merger will maximize the chances of retaining the free-managed business model, as well as improving services and reducing prices for patients.

The OFT acknowledges that there is evidence that the parties have struggled to be profitable based on their free-managed business models. However, it does not follow from this that a merger between them would not be capable of leading to a substantial lessening of competition given the priority a significant number of hospitals currently attach to acquiring BECS services on a free-managed basis. [   ]. However, it remains realistic [   ] that Patientline would seek to compete in the future given its incumbency strength. In addition, it is reasonable to consider that some degree of competitive pressure may be being placed on Patientline by Premier as a result of Premier's efforts to take share from Patientline, which would be lost by the merger.

The OFT, therefore believes that it may be the case that the merger will give rise to competition concerns based on the pre-merger conditions of competition. The parties submitted an alternative counterfactual, as discussed above. The OFT has carefully examined all the available evidence presented by the parties, but has concluded that it is unable to dismiss the realistic prospect that, [   ].

The parties made no offer of suitable undertakings in lieu of reference in this case.

Consequently, the OFT believes that it 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 be referred to the Competition Commission under section 33(1) of the Act.

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