| |Brussels, 25-I-2005

SG-Greffe(2005) D/200326

To the notifying party

Dear Sir/Madam,

Subject : Case No COMP/M. 3641 - BT/INFONET Notification of 13/12/2005 pursuant to Article 4 of Council Regulation No 139/2004[1]

1. On 13/12/2004, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 by which the undertaking British Telecommunications plc (“BT”) acquires within the meaning of Article 3(1)(b) of the Council Regulation control of the whole of the undertaking Infonet Services Corporation (“Infonet”) by way of purchase of shares. BT and Infonet are hereinafter referred to as “the Parties”.

THE PARTIES

2. BT , a company organised under the laws of England and Wales, is a provider of telecommunications services on a worldwide basis. Its principal activities include local, national and international telecommunications services, internet products and services and IT solutions. Among other things, BT provides global telecommunications services (“GTS”) to multinational corporations (“MNCs”) with global operations. Its principal operations are located in Belgium, France, Germany, Ireland, the Netherlands, Spain, the UK, USA and Asia Pacific on a dispersed regional basis.

3. Infonet is a Delaware company and its shares are listed on the New York Stock Exchange. Infonet’s main shareholders are Swisscom, TeliaSonera, KDDI, KPN, Telefonica and Telstra, which together hold approximately 97% of the voting rights. The rest of the shares is held by other smaller shareholders. Infonet provides GTS to a range of multinational corporations on a global basis. Unlike BT, it has a comparatively strong presence in the Americas and in the Asia Pacific region. Infonet provides its services through its worldwide network, including broadband, wired and wireless services, IP Video VPN, and integrated security services.[2] Unlike BT, Infonet is a "pure play" GTS provider, since it does not provide other services such as basic telephony services.

THE OPERATION

4. Upon completion of the transaction, a Delaware corporation wholly-owned by BT will merge with Infonet. The merged entity will survive as a wholly-owned subsidiary of BT.

5. The proposed operation enable the Parties to combine their network reach by adding Infonet’s strong presence in the Americas, especially in the US, and in Asia so as to create an operator with locations in 64 countries with network access in [100-200] countries, thus further enhancing BT’s capacity and reputation to provide services on a world-wide basis. […]. It is expected that BT will continue to operate BT and Infonet services independently for a period of around […] years, after which formal integration of both distribution systems may be put in motion.

CONCENTRATION

6. As a result of the operation, BT will acquire sole control of Infonet. The operation thus constitutes a concentration within the meaning of Article 3(1)(b) of Council Regulation (EC) No 139/2004.

COMMUNITY DIMENSION

7. The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 billion (BT: EUR 26.666 million; Infonet: EUR 529.779 million)[3]. Each of BT and Infonet have a Community-wide turnover in excess of EUR 250 million (BT:[…]; Infonet: […]), but they do not achieve more than two-thirds of their aggregate Community-wide turnover within one and the same Member State. The notified operation therefore has a Community dimension.

RELEVANT MARKETS

Relevant product market

8. The Parties consider the relevant product market to be the market for GTS and refer to a number of previous decisions where the Commission confirmed the existence of a specific market for GTS[4]. In MCI WorldCom/Sprint , the Commission defined GTS as: "telecommunications services linking a number of different customer locations, generally in at least two different continents and across a larger number of different countries. They are generally purchased by MNCs with presence in many countries and a number of continents. The services provided are enhanced services - going beyond the provision of simple services such as basic voice and fax - to provide customers with package solutions including virtual private networks for both voice and data services and advanced functionalities".

9. An analysis of the market reveals that although there are some views suggesting that the GTS market could be segmented by product or by industry sector, they would not appear to rebut the presumption based upon the Commission’s position in previous cases, that there is one, overall, global market for GTS services. However, for the purposes of this transaction, the Commission is of the opinion that a further elaboration would be of no consequence with respect to its final conclusion.

Relevant geographic market

10. The Parties are of the opinion that the relevant geographic market is global based on demand and supply-side considerations, referring to the cases BT/AT&T , MCI WorldCom/Sprint and France Telecom/Equant . There are no market developments that would justify a different approach at this stage, according to the Parties. The Parties also point to the increased liberalisation of telecommunications around the world and the increased globalisation of the economy. Furthermore, it is proposed that multinational companies require telecommunications services with cross-border and cross-continental span.

11. Market analysis from both the supply and the demand side would suggest that the relevant geographic market is global notwithstanding a minority perspective that might prefer a regional focus. However, as the competitive assessment does not depend on the exact geographic market definition, this may be left open for the purpose of this decision.

COMPETITIVE ASSESSMENT

12. Both BT and Infonet offer customised telecommunications services, generally with a global reach, that fall within the scope of GTS. Based on information that the Parties have submitted[5], the combined entity’s market share in 2003 was [10-20]% on a global level (BT: [10-20]%; Infonet: [<10]%) and on a regional European level their share was [10-20]% (BT: [10-20]%; Infonet: [<10]%). In 2002, the market share of the combined entity was [<5]% lower on a global level (BT: [10-20]%; Infonet: [<10]%), whereas on a European-wide basis its market share remained the same from 2002 to 2003 (BT: [10-20]%; Infonet: [<10]%).

13. The combined entity will have a number of competitors who are also active in the market for GTS. On a global level, AT&T is market leader with a market share of [30-40]% (2002: idem.), followed at some distance by MCI ([15-25]%; 2002: [15-25]%) and T-Systems ([10-20]%; 2002: [10-20]%). A number of other competitors have significantly smaller positions, including C&W ([<10]%; 2002: idem.), Equant and Global Crossing ([<10]% each; 2002: idem.) and Colt ([<10]%; 2002: [<10]%). On a European scale, T-Systems is the largest player ([20-30]%; 2002: [20-30]%), closely followed by MCI with a [15-25]% share (2002: [15-25]%). The third largest player is Equant ([10-20]%; 2002: [10-20]%).

14. Quite a number of competitors indicated in the Commission’s market investigation that that there is little published data in relation to the GTS market, a lack of reliable market share data, that they did not track this data or believed that it would not be possible to estimate market shares in the GTS market. However, some competitors have provided their best estimates of such market shares. For example, one competitor considered that BT and Infonet would have a combined market share of [15-25]%, Deutsche Telekom a share of [5-15]% and AT&T would represent [10-20]% of the European market. Another competitor considered that the Parties’ combined share in the GTS market could exceed [35-45]% of the total supply to the Global 500 companies. Yet another competitor pointed to the fact that there are numerous suppliers of GTS to MNCs and added that in their view none has a market share above [10-20]%.

15. According to the Parties, the market for GTS is a bidding market which is highly competitive, and competition has significantly increased due to: (i) the emergence of US players (MCI and Global Crossing); (ii) the dismantling of global alliances and consequent re-emergence of additional market players; (iii) the entrance of “virtual” operators (which buy-in capacity from other providers and offer customised services to business customers); (iv) the increasing significance of non-traditional suppliers such as systems integrators and IT companies (e.g. IBM) and (v) increased customer self-provisioning.

16. Market analysis has generally confirmed that the GTS market, or any subsection of it, is a bidding market. In such markets the level of market shares is less relevant than the ability of customers to choose alternative suppliers. Customers in the Commission’s market investigation stated that the notified operation, once completed, would not affect their ability to obtain competitive offers for the products in question. Moreover, customers have indicated that switching to alternative suppliers is not financially prohibitive. In addition, the results of the market investigation and the bidding data provided by the Parties did not show that BT and Infonet were close competitors. The outcome of the market investigation leads the Commission to conclude that the proposed merger would not adversely affect effective competition.

17. A small number of competitors, however, have expressed concerns regarding their ability to effectively compete with the combined entity following the merger, in particular with respect to the UK. These third parties have, inter alia made allegations that BT could combine regulated and non-regulated services in their commercial proposals, thereby increasing the possibility of abusive cross-subsidies between profitable and loss making services, creating unfair competition. It has also been argued that BT could be able to leverage its alleged dominant position in the British telecommunications markets to engage in discriminatory behaviour when providing transatlantic connectivity services to competing suppliers, to the benefit of its potential new subsidiary, Infonet.

18. The Commission notes that, based on the evidence gathered in the market investigation, it cannot be concluded that following the merger BT’s ability and incentives will change in such a way that the proposed concentration will significantly impede effective competition in the common market as opposed to the pre-merger situation. Even assuming that discriminatory behaviour by the incumbent provider in the UK exists today and considering that BT is already present in the GTS market today and that the proposed transaction would not result in a significant incremental market share, it cannot be concluded that the proposed merger will alter the combined entity’s ability or incentives to discriminate against its competitors significantly; in any event not to such an extent that the proposed transaction would lead to dominance or a strengthening of dominance or any other significant impediment to effective competition in the provision of GTS.

CONCLUSION

19. For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of Council Regulation (EC) No 139/2004.

For the Commission

signed Neelie KROES Member of the Commission

[1] OJ L 24, 29.1.2004 p. 1.

[2] IP stands for Internet protocol and VPN for virtual private network.

[3] Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice on the calculation of turnover (OJ C66, 2.3.1998, p25). To the extent that figures include turnover for the period before 1.1.1999, they are calculated on the basis of average ECU exchange rates and translated into EUR on a one-for-one basis.

[4] Case N° IV/JV 15 - BT/AT&T; Case N° COMP/M.1581 - AT&T/Unisource/AUCS; Case N° COMP/M.1741 - MCI WorldCom/Sprint; Case N° COMP/M.2803 - Telia/Sonera; Case N° COMP/M. 2257 - France Télécom/Equant; and Case N° COMP/M.2648 - KPNQwest/Ebone/GTS.

[5] Extracted from “MNC providers in Europe – 2004” by OVUM dated October 2004. The Parties have explained that they have calculated each competitor’s market share in the GTS market on the basis of the revenues which are contained in the OVUM report in the form of a graph. The Parties are not aware of any other publicly available market studies that provide figures on the GTS market.

PUBLIC VERSION

MERGER PROCEDURE

ARTICLE 6(1)(b) DECISION

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description.