Anticipated acquisition by Arqiva of Digital One Limited and other entities controlled by Global Radio Group

Affected market: Multiplex operators

No. ME/4089/09

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 5 June. Full text of decision published 19 June 2009.

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

PARTIES

Arqiva is a wholly owned indirect subsidiary of Macquarie UK Broadcast Ventures Limited. Arqiva is active in the ownership of broadcast assets, provision of managed transmission services (MTS) and network access (NA) [see note 1] to terrestrial television and radio broadcasters (both analogue and digital), has control of two of the three non-public service broadcast digital terrestrial television (DTT) multiplexes, [see note 2] control of the local digital audio broadcasting (DAB) multiplex licence for Ayr, a 25 per cent interest in MuxCo which has interests in nine local DAB licences which have not yet launched, a 37 per cent share in the Digital One national DAB licence and provides multiplexing services [see note 3]  to DTT and DAB multiplexes.

Macquarie UK Broadcast Ventures Ltd (MUKBV) is a wholly owned indirect subsidiary of Macquarie UK Broadcast Holdings Ltd (MUKBH), which is owned by a consortium of investors. The largest shareholder in MUKBH, Macquarie Communications Infrastructure Group (MCIG), is a fund listed on the Australian stock exchange. Following the OFT's approval decision of 21 May 2009, MCIG will be acquired by the Canada Pension Plan Investment Board ('CPPIB'), a federal non-agent Canadian crown corporation created by a Canadian Act of Parliament in December 1997 to invest on behalf of the Canada Pension Plan. This CPPIB acquisition of MUKBH had no impact on the current transaction.

Global Radio Group (Global) was formed by the merger between Global Radio UK Limited and GCap Media plc. Global has a broad portfolio of national and local radio stations. Global controls a number of DAB multiplexes, specifically:

a) Digital One: Global holds a 63 per cent share in Digital One. Digital One is the only operational national DAB multiplex licence for commercial radio

b) Now Digital entities: Global wholly owns Now Digital Limited and Now Digital (Southern) Limited, owns a 67 per cent stake in South West Digital Radio and an 80 per cent stake in Now Digital East Midlands. In total, Now Digital entities own 18 local DAB licences that have been launched and four local DAB licences that have not yet been launched, and

c) MXR [see note 4] : Global holds a 63 per cent majority shareholding in MXR which owns five regional DAB licences.

The combined turnover of Digital One and Now Digital is approximately [  ].

TRANSACTION

The transaction envisages the acquisition by Arqiva of the remaining 63 per cent of Digital One and Global's interests in other entities which currently hold DAB multiplex licences. Arqiva will take control of Global's national and local DAB multiplex businesses and will acquire a minority shareholding in Global's regional DAB multiplex business. Specifically:

a) the acquisition of Global's shareholding in Digital One

b) the acquisition of Global's shareholding in the Now Digital entities, and

c) the acquisition of a non-controlling stake in MXR. [see note 5]

The OFT has not concluded on whether Arqiva will have obtained material influence over MXR as (a) it is unable to do so given that the transaction has not been finalised; and (b) its conclusions in respect of the transaction remain the same (under present circumstances) regardless of whether Arqiva will be able to exert material influence on MXR. The OFT has assessed this transaction on the most conservative basis, that is, that Arqiva does have material influence over MXR for unilateral effects theories of harm and that Arqiva does not have material influence over MXR for coordinated effects theories of harm.

The OFT accepted the parties' submission as satisfactory on 7 April 2009 and the administrative deadline is 5 June 2009.

JURISDICTION

As a result of this transaction Arqiva, Digital One and Now Digital will cease to be distinct. The UK turnover of Digital One and Now Digital does not exceed £70 million, [see note 6] so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is not satisfied.

However, Global and Arqiva overlap in the ownership of local multiplex licences. Global wholly owns or holds majority shareholdings in 18 of the 40 launched local DAB licences and Arqiva wholly owns one additional licence, giving the parties a combined share of 47.5 per cent of all local DAB licences. On this basis, the share of supply test under section 23(1)(b) of the Enterprise Act 2002 is satisfied.

THIRD PARTY VIEWS

OFCOM raised no concerns in respect of this transaction.

Several third parties commented that in the short-term they preferred the situation where the multiplexes are held by a facility provider rather than a broadcaster, but that in the long-run it would be better if the multiplex licences weren't held by a provider of multiplexing services and MTS/NA. However, no concrete theories of harm or evidence were provided to the OFT to support the assertion that Arqiva could in any way leverage its market power in the DAB supply chain to raise multiplex access prices.

Passion Radio Oxfordshire raised a concern about Arqiva's incentives to delay the launch of the local multiplexes. However,  the OFT considers that this may in the medium term increase the number of digital stations to the benefit of customers.

ASSESSMENT

There is limited horizontal overlap between the parties in the ownership of operational local DAB licences. Global wholly owns or has a shareholding in 22 licences and Arqiva owns one local licence. Given the limited increment and lack of customer concerns we do not consider the acquisition gives rise to horizontal competition concerns in relation to operational local multiplex licences.

Arqiva also has a stake in Muxco which in itself has stakes in nine local multiplex licences which are still to be launched. The transaction would also give Arqiva control of four additional multiplex licences which are still to be launched. In light of the uncertainty as to whether these licences are in fact to be launched and the fact that the OFT's market investigation is consistent with local multiplex licences being local monopolies rather than substitutes for one another, the OFT does not consider that the acquisition gives rise to horizontal competition concerns in relation to local multiplex licences that will be launched even if Arqiva's stake in Muxco were considered to grant it material influence.

The main activities of the parties are at different levels of the supply chain. Pre-merger, Global controlled a number of DAB multiplexes (national, regional and local) and owned a broad portfolio of radio stations. Arqiva, on the other hand, owned a single multiplex licence, but had a strong position in several of the other inputs required to broadcast digital radio, specifically multiplexing services, MTS and NA.

The transaction involves the transfer of Global's interests in multiplex licences, with Global retaining its radio stations. The OFT considers that Arqiva's interest in the downstream levels of the supply chain will give it the incentive to increase multiplex capacity utilisation by reducing access prices in order to increase the number of customers (radio stations) requiring these downstream services. In comparison, Global would have had a reduced incentive to increase DAB capacity utilisation as new stations may have been potential competitors with its own stations. Given Arqiva's incentives to increase multiplex capacity utilisation, the existing undertakings given to the CC from the Arqiva/NGW case (which will remain in place) and the lack of customer concerns, we do not consider that the proposed acquisition will result in vertical concerns in the short to medium term.

In light of the above, 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.Transmitter networks comprise of MTS (including installation of transmitters, network monitoring, signal quality assurance and maintenance) and Network Access (to sites and masts), which transmit content to people's homes/cars.

2. A multiplex or mux is a group of channels/stations that are mixed together for broadcast over a digital TV/Radio channel. Digital multiplexes vary in the number of channels that can be transmitted, based on the bandwidth available. In order to transmit digital radio to the public, radio stations need to enter into an agreement with a multiplex owner to obtain access to part of the multiplex capacity (bandwidth). Multiplex owners are awarded the licence to the multiplex - and therefore the ability to sell capacity on the multiplex to new channels - by OFCOM.

3. Multiplexing (known as muxing) is a process where multiple analogue message signals or digital data streams are combined into one signal over a shared medium.

4. The remaining shareholders of MXR are: [  ]

5. The parties have informed the OFT that there has, in principle, been an agreement on the minority shareholding in MXR, with Arqiva acquiring a 12 per cent interest and Global retaining a [  ] per cent stake ([  ] holding the remaining shares).

6. UK turnover would remain below £70 million if MXR were to be included.

Back to top