Commission Decision of 17/11/1999 declaring a concentration to be compatible with the common market (Case No IV/M.1667 - BBL / BT / ISP-BELGIUM) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

Brussels, 17.11.1999 SG (99) D/ 9240

To the notifying parties

Dear Sirs,

Subject: Case No COMP/M.1667 - BBL / BT / ISP-BELGIUM

Notification of 12.10.1999 pursuant to Article 4 of Council Regulation No 4064/89

1. The above operation involves the creation of a joint venture which will be active in the Internet sector in Belgium. The parents of the proposed joint venture are BT Yucom Holdings Limited, a 100% subsidiary of British Telecommunications plc (BT) and Banque Brussels Lambert, a Belgian bank owned by the Dutch banking group ING.

2. After examination of the notification, the Commission has concluded that the notified operation falls within the scope of the Merger Regulation and does not raise serious doubts as to its compatibility with the common market.

I. THE PARTIES

3. BT's principal activity is the supply of telecommunications services and equipment. Its main services are local and long-distance telephone calls in the UK, the provision of telephone exchange lines to homes and businesses, international telephone calls made from and to the UK and the supply of telecommunications equipment for customers' premises.

4. Banque Brussels Lambert's main activities are banking, activities of travel agencies, insurance brokerage and leasing.

II. THE OPERATION

5. According to the Joint Venture Agreement, the parties will set up a joint venture, whose equity will be held in equal shares by BT and BBL. The joint venture will offer access to the internet and sell advertising space, in addition the joint venture may at a later stage offer paid for content and website hosting services.

III. COMMUNITY DIMENSION

6. The operation has a Community dimension. The worldwide turnover of all the undertakings concerned in their respective last financial year amounted to more than 5000 million EURO. The Community wide turnover of both BT and ING exceeds 250 million EURO. The parties do not achieve more than two-thirds of their aggregate Community wide turnover within one and the same Member State.

IV. CONCENTRATION

Joint control

7. The joint venture will be jointly controlled by BT and BBL. Each party will own half of the shares of the joint venture and appoint three directors each to the board of the joint venture.

Full function

8. Examination of the business plan of the joint venture clearly shows the parties' intention that the joint-venture operate on a long-lasting basis. There is no limitation on the duration of the Joint Venture Agreement. The joint venture will not be dependent on its parents for supplies of inputs, but may outsource certain activities to the parents, where appropriate, on arms length commercial terms. It will be endowed with sufficient financial and other resources including finance, staff, and assets to operate on a long-lasting basis.

9. In conclusion, the joint venture will perform on a long-lasting basis all the functions of an autonomous economic entity.

V. COMPATIBILITY WITH THE COMMON MARKET

Relevant Product Market

10. The parties, in line with previous Commission decisions in the internet sector [1], have identified the following relevant product markets (a) dial-up Internet Access, (b) provision of paid for content, (c) provision of Internet advertising space, (d) web hosting services. In the present case, however, the precise relevant product market definition can be left open since irrespective of the market definition chosen, the proposed concentration does not give rise to the creation or strengthening of a dominant position.

[1] E.g. IV/JV.1, Scandinavian On Line; IV/JV 11, @Home Benelux BV.

Relevant Geographical Market

11. The parties, following the position taken by the Commission in the above mentioned internet decisions, have submitted that the relevant geographic markets for the above indicated product markets are national. The Internet access market is submitted to be national due to the costs of dial-up access across national boundaries. The market for paid for content is submitted to be national due to linguistic and cultural factors. Equally so, the geographical market for Internet advertising is submitted to be national because of linguistic and cultural factors, and demand will be predominantly from Belgian advertisers. For the same reasons the parties consider that the market for web-hosting services is national in scope. In the present case, however, the precise relevant product market definition can be left open since irrespective of the market definition chosen, the proposed concentration does not give rise to the creation or strengthening of a dominant position.

Competitive assessment

12. The markets for Internet services are evolving very rapidly as a result of technical change within an environment based on open global standards. Technology is freely available and barriers to access are low, leading to a rapidly changing and fiercely competitive landscape.

13. The parties have submitted that there are no affected markets because they have no pre-existing share of any of the above mentioned markets. The Commission found that in the market for dial up internet access for residential customers, neither of the parents have any activity at present. In particular, with regard to dial up internet access, the operation is essentially pro-competitive. The transaction will create a new entrant in the Belgian internet market, which is characterised by the presence of five mature internet service providers, of which Belgacom's Skynet and Ping/KPN's UUNET are the market leaders with close to 30% market share. In addition, the joint venture will offer Internet access on a subscription free basis. This will allow customers to reduce their potential Internet access costs as the user will only pay the local call charges (the JV will secure revenues from advertising, commissions on sales and interconnect payments).

14. For the above reasons, the Commission is of the opinion that the concentration will not create or strengthen a dominant position in the EEA territory or a substantial part of it.

VI. ANCILLARY RESTRAINTS

15. The parents have agreed for an initial period of three months from completion not to provide combined portal and free Internet access services exclusively targeting customers in the territory of the joint venture. In addition BT agrees for 12 months not to provide such services with another bank, and BBL with a licensed telecommunications operator. The joint venture agreement contains an active non-solicitation of employees clause of a duration of 12 months following the withdrawal of one of the parents as a shareholder. This clause addresses similar concerns as the non-compete clause by giving the joint venture a reasonable period of time to develop a sufficiently large and skilled workforce. These non-compete clauses aim at ensuring that the shareholders focus their efforts, at least for an initial period of time, only on the on-going viability of the joint venture. Therefore they can be considered as ancillary to the concentration.

16. According to the joint venture agreement, any agreements on the supply of services or goods from BT or BBL are on a preferred suppliers basis. This clause is clearly not in the interest of the joint venture, but of the parents and, therefore, cannot be considered as ancillary to the concentration.

17. The parties have agreed that all intellectual property rights created or otherwise acquired from third parties will be licensed under separate license arrangements on reasonable terms to each of the parents. The Commission considers that this provision is not indispensable for the attainment of the objectives of the joint venture and cannot be treated as ancillary to the concentration.

VII. CONCLUSION

18. For the foregoing reasons, the proposed concentration does not raise serious doubts as to its compatibility with the common market and with the functioning of the EEA Agreement.

For the Commission,