COMMISSION DECISION of 08.07.1992 declaring a concentration to be compatible with the common market (Case No IV/M.236 - ERICSSON / ASCOM) according to Council Regulation (EEC) No 4064/89

(Only the English text is authentic)

The paper version of the decision is available through the sales offices of the Office of Official Publications of the European Communities.

PUBLIC VERSION

MERGER PROCEDURE

ARTICLE 6(1)(b) DECISION

Dear Sirs,

Subject: Case No. IV/0.0236 - Ericsson/Ascom

<ind> <ind> Your notification pursuant to Article 4 of Council Regulation (EEC) No. 4064/89

1.<ind> The proposed concentration, notified on the 9th June 1992, concerns a joint venture Ascom Ericsson Transmission AG (AET), between a Swedish company, Telefonaktiebolaget LM Ericsson AB (Ericsson), and a Swiss company, Ascom Holdings AG (Ascom).

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

The parties and the operation

3.<ind> Ericsson is a Swedish group which operates in the telecommunications sector and related fields such as public telecommunications, radio communications, business communications, cable and network, electronic components and defence systems.

4.<ind> Ascom is a Swiss electronics group whose ultimate parent company is the Hasler Foundation holding a 54% stake of the former. Ascom is involved in the following electronics and telecommunications business: public telecommunication equipment, private networks (mainly through Ascom Timeplex), personal and business communications, radio communications and service automation.

5.<ind> Ericsson and Ascom agreed to form the joint venture, AET, which will be engaged in the field of public line transmission.

6.<ind> Ascom will transfer all of its assets and goodwill pertaining to its previous transmission division to the new company. This transfer will comprise both tangible and intangible assets associated with that business: machinery, equipment, customer projects, stock, trademarks, trade names, patents, human resources and know-how.

7.<ind> Ericsson will acquire a 40% stake in AET and will have 32.9% of the voting rights. Ascom will hold the balance, i.e. 60% of the share capital and 67.1% of the voting rights.

I.<ind> COMMUNITY DIMENSION

8.<ind> The operation has a Community dimension. The worldwide turnover of the two undertakings concerned, Ericsson and Ascom, amounted to 6,178 million ECU and to 1,724 million ECU respectively in the last financial year.

<ind> The aggregate Community-wide turnover of each party is more than 250 million ECU. They do not achieve more than two- thirds of their Community turnover in one and the same Member State.

II.<ind> CONCENTRATION

<tab> Joint Control

9.<ind> The joint venture agreement between the parties provides for joint control in respect of fundamental decisions regarding the business as well as the management of the new venture.

10.<ind> The approval of the Board of the Directors or of the shareholders is required for the adoption of decisions concerning increasing or decreasing the share capital, approval of the annual accounts and distribution of profits, and any capital and operating budgets (including the allocation of resources for development and manufacturing of products).

<ind> Moreover, the approval of both parties is required for other important decisions such as the granting of licences or any major agreement with any third party. The appointment of the persons empowered to represent AET and their respective powers, including the General Manager, must also have the agreement of both shareholders.

<tab> Full function JV

11.<ind> AET will continue Ascom's activities in the area of public transmission equipment in Switzerland. It will, as before, develop, manufacture and market these products. In addition, it will be engaged in the adaptation and marketing of Ericsson transmission equipment for the Swiss market, and in research and development assigned by Ericsson. For this purpose AET will receive licences from the latter making the required technology available. Outside Switzerland, AET will undertake its own marketing activities but will make use of Ericsson's distribution outlets for sales.

<ind> The new company is thus a joint venture that will perform all the functions of an autonomous entity on a lasting basis.

<tab> Absence of risk of coordination

13.<ind> Ascom will not retain any activities in the field of public line transmission equipment after the transfer to AET. After transferring its know-how and experience, Ascom will not be a realistic potential entrant in the market because of the existing high entry barriers and the financial resources necessary to undertake the R&D required to be an effective competitor in this field.

14.<ind> Ericsson is active in public line transmission in various countries but not in Switzerland.

15.<ind> A "competence center" set up within AET will develop, market and maintain new public line transmission products. AET will undertake these activities based on Ericsson's platforms in close cooperation with product management and development within Ericsson.

<ind> In view of the above the creation of AET will not give raise to coordination of the competitive behaviour of independent undertakings within the meaning of Article 3(2) of the Regulation.

16.<ind> The creation of AET will furthermore not lead to any spill-over effects on the neighbouring market for private networks, where its parent companies Ericsson and Ascom are active.

17.<ind> The principal differences between private network products and public transmission products can be summarised as follows:

<tab> -<ind> private networks can be distinguished from public networks in that the former are accessible only to a closed user group whereas the latter are accessible to any user through a connection that is itself part of the public network;

<tab> -<ind> the technology is considerably different in that public network products have a capacity in excess of the range of private network products;

<tab> -<ind> public network products adhere to common standards whereas proprietary standards are the rule for private network products;

<tab> -<ind> customers in the two markets are different and most of the suppliers differ as well.

<ind> In view of the technical and economical differences between public and private network products any spillover effects from AET into the private transmissions markets in which Ericsson and Ascom will continue to compete are not likely to occur.

18.<ind> Finally, Ascom is an Ericsson licensee for public switching and mobile telephone. This technological subordination will not be changed due to the creation of AET.

19.<ind> In view of the above, there are no grounds to believe that the establishment of AET will result in a coordination of competitive behaviour between the parent companies and the joint venture or between the parent companies themselves.

<ind> Thus, the notified operation constitutes a concentration within the meaning of Article 3 of the Merger Regulation.

III.<tab> COMPATIBILITY WITH THE COMMON MARKET

<tab> Affected Product Market

20.<ind> AET will mainly be involved in the production of public transmission equipment and systems.

<tab> Geographic Reference Market

21.<ind> The proposed operation has its main impact on competition in the public line transmission markets in Switzerland. 75% of Ascom's Transmission Division (the forerunner of AET) sales are to the Swiss telecom operator. The remaining 25% of sales are to telecom operators outside the Community. Competition in the Community may only be affected in the long term, when AET starts to sell its newly developed products to telecom operators inside the EC.

<ind> It can be left open whether the relevant geographic market is pan-European, as the notifying parties submit, the Community or each Member State because the proposed operation does not raise serious doubts as to its compatibility with the common market even on the basis of the narrowest possible market definition.

<tab> Dominance

22.<ind> According to the figures supplied by the notifying parties the overall market for public line transmission equipment in Switzerland and in the Community is estimated at 1.8 billion ECU per annum. It is expected that the demand will increase in the coming years at a rate of more than 6% per annum.

23.<ind> Two factors seem to affect considerably the public line transmission market. On the one hand, the new generation of products and systems introduced into the sector as a consequence of digitalization and new public telecom network structure philosophy and, on the other hand, the rapid changeover from copper and coaxial cables to fibre-optic cables. The resulting effect is a declining demand for traditional transmission products and a rapidly expanding market for digital line transmission products.

24.<ind> Ericsson is present in some Member States markets in the public line transmission sector. Its overall market share in the Community is estimated to be around 7% in a total sales market of 1.681 million ECU in 1991. Ericsson however holds important market shares, of around 61% and 40%, in Denmark and Spain respectively.

25.<ind> As stated before (see paragraph 20), the Ascom Transmission Division has been mainly active in Switzerland in the past. AET may in the longer term become a seller in the Community. Since it is a relatively small manufacturer of telecommunication equipment compared to its competitors with a turnover of less than 100 million ECU, the combination of Ericsson's and AET's business does not give rise to any concern regarding competition.

26.<ind> This is reinforced by the following additional considerations:

<tab> -<ind> Alcatel and Siemens are, among others, important actual competitors of Ericsson and AET in the Community;

<tab> -<ind> strong players like AT&T, Northern Telecom/STC and ECI (Israel) have recently entered Community markets. Fujitsu and NEC (Japan) are further potential market entrants.

IV.<tab> ANCILLARY RESTRAINTS

27.<ind> The joint venture agreement contains a non-competition clause by which Ascom is prohibited from conducting, directly or indirectly, operations in competition with AET, as long as Ascom is bound by the agreement, but in any event during a period of at least five years.

<ind> This non-competition clause is seen as a restriction directly related and necessary to the implementation of the concentration.

V.<tab> FINAL ASSESSMENT

28.<ind> Based on the above findings, the Commission has come to the conclusion that the proposed concentration does not raise serious doubts as to its compatibility with the common market.

<ind> For the above reasons, the Commission has decided not to oppose the notified concentration and to declare it compatible with the common market. This decision is adopted in application of Article 6(1)b of the Council Regulation No. 4064/89.

For the Commission,