EUROPEAN COMMISSION PUBLIC VERSION











To the notifying parties: Subject:Case M.8284 – Deutsche Telekom / Orange / BuyIn

Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004 and Article 57 of the Agreement on the European Economic Area Dear Sir or Madam, (1)On 6 February 2017, the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which the undertakings Deutsche Telekom AG ('DT') (Germany) and Orange S.A. ('Orange') (France) convert their existing non-full-function joint venture, BuyIn SA/NV ('BuyIn') (Belgium) into a joint venture performing on a lasting basis all the functions of an autonomous economic entity, within the meaning of Article 3(4) of the Merger Regulation (the 'Transaction'). DT and Orange are designated hereinafter as the 'Parties'. 1.The parties (2)DT is an integrated telecommunications and information technology service provider with activities worldwide in more than 50 countries. DT offers fixed and mobile telecommunication services, Internet and IPTV products as well as IT products to consumers mainly in Europe and the US. In addition, DT provides telecommunications services to other carriers and Internet service providers ('ISPs') on wholesale level as well as information and communication technology ('ICT') solutions for medium and large-sized customers around the world. (3)In the European Union, DT operates companies offering fixed and mobile telecommunications services in Austria, Bulgaria, Croatia, Czech Republic, Germany, Greece, Hungary, the Netherlands, Poland, Romania and Slovakia. (4)Orange is a global telecommunications operator active in around 30 countries worldwide. Orange also provides telecommunications services to multinational companies under the brand Orange Business Services. (5)Orange provides a whole range of mobile telecommunications services in several European countries, including Belgium, France, Luxembourg, Poland, Romania, Slovakia and Spain. Orange also provides various fixed telecommunications services in Belgium, France, Poland, Romania, Spain and Slovakia. (6)BuyIn is an existing non-full function 50/50 joint venture between DT and Orange, set up in 2011. BuyIn is entrusted, on behalf of DT and Orange, with the task of negotiating with suppliers, framework agreements for a range of products and services used by DT and Orange in their respective telecommunications businesses. BuyIn merely handles negotiations but does not itself purchase products and services for the Parties' groups nor does BuyIn offer own activities on the downstream telecommunications markets. 2.The concentration (7)By resolution adopted on 16 December 2016, the Parties decided to extend the scope of BuyIn's activities to enable it to provide procurement-related services to third parties as well. As a result, BuyIn will fulfil all the conditions of a full-function joint venture for the reasons set out below.

(8)First, BuyIn will have sufficient resources to operate independently on the market, as it will have its own management dedicated to its day-to-day operations and access to sufficient financial means, employees (300), and other assets. (9)Second, BuyIn will exercise functions that go beyond one specific function for its parents, as it will (i) organise and coordinate the entire procurement process up to the final negotiations and conclusions of framework agreements with the suppliers on behalf of third-parties; and (ii) provide various studies and counselling to third-parties on telecommunications sourcing-related topics. (10)Third, regarding the relationship with its parents, BuyIn's business plan foresees that the revenues generated from activities with third-parties will increase over the next [coming] years to reach [>20%] of BuyIn's total revenues by […]. The fees that BuyIn charges to its parents and to third parties are calculated according to the same methodology, [margin calculation]. [The price structure] does not put into question the fact that BuyIn will deal with the Parties at arm's length on the basis of normal commercial conditions. Moreover, BuyIn's business plan indicates that BuyIn appears truly committed to increasingly attract business from third-parties. (11)Finally, BuyIn will be created on a lasting basis, since, with the new plans to open up BuyIn to third-parties, the Parties intend to run BuyIn beyond […], the currently foreseen end date of the cooperation. (12)As a result, the Transaction constitutes the creation of a full-function joint venture and, as such, a concentration within the meaning of Article 3(4) of the Merger Regulation. 3.EU DIMENSION (13)The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million (DT: EUR 69 228 million; Orange: EUR 40 232 million). Each of them has an EU-wide turnover in excess of EUR 250 million (DT: EUR […] million; Orange: EUR […] million), but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. The notified operation therefore has an EU dimension. 4.Relevant markets (14)There is no horizontal overlap between the activities of BuyIn and the activities of the Parties. (15)BuyIn is active in the supply of procurement-related services for certain products, namely network technology, digital home & platform ('DHP'), customer equipment, IT products and services (together, hereinafter 'Equipment'), which are used by DT and Orange in their respective telecommunications businesses. (16)DT and Orange are both active in the upstream markets for the purchase of the different types of Equipment, which they source with the assistance of BuyIn ('upstream purchasing markets'). (17)Moreover, DT and Orange have activities in a number of downstream markets (for the purpose of which they source Equipment through BuyIn), including but not limited to the provision of mobile and fixed telecommunications services, both at retail and wholesale level ('downstream supply markets'). 4.1.Supply of procurement-related services 4.1.1.Relevant product market 4.1.1.1.Parties' view (18)The Parties submit that BuyIn is active in the supply of procurement-related services for certain products which are used by DT and Orange in their respective telecommunications businesses. BuyIn does not purchase the Equipment, but solely negotiates framework agreements with suppliers of Equipment, which fix the terms and conditions under which the Parties themselves can place orders directly with the suppliers. The actual supplier agreements are entered into directly by each of Orange and DT (or their respective subsidiaries in the various Member States) following a second round of bilateral negotiations with the relevant supplier. (19)The Parties do not take any specific view on the possible product market definition regarding the supply of procurement-related services offered by BuyIn. 4.1.1.2.Commission's assessment (20)There are no Commission precedents examining the potential markets for the provision of procurement-related services for products used in the downstream telecommunications markets. (21)During the market investigation conducted in the present case, the vast majority of telecom and IT services providers indicated that, in the EEA, they procure network equipment by using their own in-house procurement services (as opposed to an external provider or a procurement alliance similar to BuyIn).

(22)As outlined by the Parties, the Commission also notes that, similarly to the Parties, other telecommunication providers have developed joint purchasing strategies. This is for instance the case of Telefónica in the framework of the Telefónica Partner Program or of the Vodafone Procurement Company. (23)In light of the above, for the purpose of this Decision, the Commission considers that the exact product market definition of the supply of procurement-related services can be left open, since the Transaction does not raise serious doubts as to its compatibility with the internal market with respect to the supply of procurement-related services irrespective of the relevant product market definition. 4.1.2.Relevant geographic market 4.1.2.1.Parties' view (24)The Parties submit that BuyIn is active on a worldwide basis to be able to provide the best conditions to its parents and its (future) third party customers. Likewise, the sourcing process of the Parties' competitors takes place on a worldwide basis. (25)The Parties do not take any specific view on the possible geographic market definition of the supply of procurement-related services offered by BuyIn. 4.1.2.2.Commission's assessment (26)The procurement-related services are offered by BuyIn for the purpose of the acquisition of Equipment on the upstream purchasing markets. Accordingly, the geographic scope of the supply of procurement-related services is likely to be the same as the one for the upstream purchasing markets. In line with its precedents relating to the upstream purchasing markets, the Commission considers that the geographic scope of the supply of procurement-related services is likely to be at least EEA-wide if not worldwide. (27)For the purpose of this Decision, the exact geographic market definition of the supply of procurement-related services can be left open, since the Transaction does not raise serious doubts as to its compatibility with the internal market with respect to the supply of procurement-related services under any alternative geographic market definition. 4.2.Upstream purchasing markets 4.2.1.Relevant product markets 4.2.1.1.Parties' view (28)The Parties submit that the relevant purchasing markets are all the markets in which the Parties procure services and/or products through BuyIn. These markets are divided into four broad categories of equipment and services: network technology; DHP; customer equipment; and IT products and services. (29)For each product category, the Parties define the relevant product markets by referring to previous Commission decisions. (30)Within network technology, the Parties consider that, from a purchasing perspective, the segments access networks, transport equipment, core network and network services may be distinguished. (31)In the segment of access networks, the Parties consider a sub-segmentation into the purchasing for the radio access networks ('RAN') – which can be further segmented by network generations (2-2.5G, 3G, 4G and the future 5G) – and the purchasing for the fixed access networks ('FAN') – in which one may distinguish between broadband access on the one side and cables and connections on the other side. (32)In the segment of transport equipment, the Parties make a distinction between the synchronous digital hierarchy ('SDH') technology, the wave division multiplexing ('WDM') technology and the microwave technology. (33)In the segment of core network, the Parties examine, from a purchasing perspective, the following possible sub-segments: packet core equipment for mobile network purposes (with a possible subdivision between 2G-3G – Traditional Packet Core and 4G – Evolved Packet Core); routers (which, from a purchasing perspective can be segmented between core routers and edge routers), mobile switching systems (with a possible split between wireless softswitch, and wireless media gateway), IP multimedia subsystems ('IMS', including the components IMS Call Session Control Function ('IMS CSCF') and IMS Home Subscriber Server ('IMS HSS')) and Core Network Accessories. (34)In the segment for network services, the Parties consider a possible segmentation between (i) delivery, installation and integration services; (ii) maintenance services; and (iii) managed services. (35)In relation to DHP, the Parties submit that DHP procurement markets can be sub-divided into (i) real time services; (ii) messaging services; (iii) data enablers; (iv) multimedia services platforms; (v) vertical and life services; (vi) SIM cards; (vii) home gateways; (viii) set-top boxes; and (ix) fixed telephone equipment.

(36)With regard to customer equipment, the Parties submit that, following the purchasing logic of BuyIn, certain pieces of customer equipment are classified under DHP. As a result, the Parties only consider under customer equipment the product markets that have not been listed above, namely cell phones – which includes smartphones and feature phones – and tablet-PCs. (37)Within IT-products and services, the Parties distinguish between standard hardware, standard software and IT-attendance. Within IT-hardware, the Parties consider the following sub-segments: storage, PCs and monitors, printers, notebooks and maintenance and support. In relation to software, the Parties consider a segmentation of the market for software in (i) infrastructure software, (ii) middleware, (iii) application software and office software, and (iv) operating/browser software. Finally, with regard to IT-attendance, the Parties submit that BuyIn's sourcing activities in relation to network and other IT hardware as well as of software as described above include maintenance services. For the rest, BuyIn's activities comprise sourcing of (i) IT outsourcing, (ii) IT consulting, and (iii) custom software development and implementation. (38)In any event, for any of the markets and the possible segments listed above, the Parties submit that there is no need to determine the precise scope of the relevant product markets since the Transaction does not raise competition concerns on any conceivable delineation of any of these markets. 4.2.1.2.Commission's assessment (39)In past cases, the Commission examined the mobile telecommunication equipment markets. In Nokia/Siemens and Nokia/Motorola, the Commission considered that RAN and Core Network Systems ('CNS') could constitute separate product markets, given that RAN and CNS equipment can be purchased independently from one another, but ultimately left the precise product market definition open. (40)In relation to RAN, in Nokia/Alcatel-Lucent, while the Commission considered that the RAN equipment market may be segmented by technology standards and/or between macro-cells and small-cells equipment and that the Single RAN ('SRAN') equipment may constitute a separate market segment, it ultimately left the precise product market definition open. (41)With regard to CNS, in Nokia/Alcatel-Lucent, the Commission considered whether a distinction should be made between (i) wireless packet core, including a possible segmentation into 'traditional packet core' and 'evolved packet core' and a further sub-segmentation of these two products into 'serving GPRS support node' ('SGSN') and 'gateway GPRS support node' ('GGSN') and into 'mobility management entity' ('MME') and 'packet data node gateway' ('PGW') respectively; (ii) carrier IP telephony products, including a possible segmentation of these products into softswitch products (and their further segmentation into wireless and wireline), media gateway products (and their further segmentation into wireless and wireline), 'session border controller' ('SBC'), 'voice application server' ('VAS'), IMS Core (including further segmentation into CSCF and HSS); and (iii) 'operations support system' ('OSS') / 'business support system' ('BSS') including whether decentralised and centralized 'self-organizing network' ('SON') solutions constitute separate markets or market segments. However, the precise product market definitions were left open. (42)In its previous decisions in Nokia/Siemens, Nokia/Motorola and Nokia/Alcatel-Lucent, with regard to network-related services, the Commission considered a distinction between deployment, delivery and installation services and maintenance and care services, ultimately leaving the precise scope of the relevant product market open. (43)In relation to the products enumerated by the Parties as sub-segments of the DHP procurement markets, the Commission refers to the product market definitions and the possible segmentations that were examined in its previous decisions. (44)In Lenovo/Motorola, the Commission examined the market for smart mobile devices and assessed whether smartphones and tablets belong to separate product markets, but ultimately left the exact product market definition open. In past decisions, the Commission took the view that basic and feature phones may not fall into the same product market as smart mobile devices. (45)In the present case, for the purpose of defining the relevant upstream purchasing markets in IT-hardware, IT-software and IT-services, the Commission refers to its previous decisions, in which it examined the relevant product markets and their possible segmentations. (46)For the purposes of this Decision, the exact product market definitions for each of the upstream purchasing markets can be left open, since the Transaction does not raise serious doubts as to its compatibility with the internal market with respect to the upstream purchasing markets under any alternative product market definition. 4.2.2.Relevant geographic markets 4.2.2.1.Parties' view (47)The Parties submit that BuyIn is active on a worldwide basis to be able to provide the best conditions to its parents and its (future) third party customers. Likewise, the sourcing process of the Parties' competitors takes place on a worldwide basis. Against this background, the Parties submit that the relevant upstream purchasing markets are worldwide in scope. 4.2.2.2.Commission's assessment (48)In previous decisions, the Commission considered whether the geographic scope of the upstream purchasing markets at stake is at least EEA-wide if not worldwide, but ultimately left the exact market definition open. (49)For the purpose of this Decision, the exact geographic market definitions for each of the upstream purchasing markets can be left open, since the Transaction does not raise serious doubts as to its compatibility with the internal market with respect to the upstream purchasing markets under any alternative geographic market definition. 4.3.Downstream supply markets 4.3.1.Relevant product markets

4.3.1.1.Parties' view (50)The Parties identify a number of relevant downstream markets where they are active including by deploying the products and/or services that they procure through BuyIn. These markets fall within the following six product categories: (a) mobile telecommunications services, (b) fixed telecommunications services, (c) global communications services, (d) wholesale internet connectivity, (e) TV services and (f) IT services. (51)For each product category, the Parties define the relevant product markets by referring to previous Commission decisions. 4.3.1.2.Commission's assessment (52)In its past decisions, the Commission identified several relevant product markets for each of the categories of downstream supply markets in which the Parties are active. On the basis of previous Commission decisions, the following markets and possible segments can be considered to be relevant product markets for the purposes of the present case: (a)As regards mobile telecommunications services: (i) retail mobile communications services; (ii) retail bulk sms services; (iii) seamless pan-European mobile communications services; (iv) wholesale mobile access and call origination, (v) wholesale call termination services on mobile networks; and (vi) wholesale international roaming services; (b)As regards fixed telecommunications services: (i) retail fixed telephony services (including Voice over Internet Protocol, "VoIP"), (ii) retail fixed internet services, (iii) retail multiple play services, (iv) retail fixed business connectivity services, (v) wholesale call termination on fixed networks, (vi) wholesale domestic call transit services, (vii) wholesale services for termination and hosting of calls to non-geographic numbers, (viii) wholesale services for end-to-end calls, (ix) wholesale call origination services on the public telephone network at a fixed location, (x) wholesale access to fixed internet services, and (xi) wholesale access to leased lines; (c)global telecommunications services; (d)wholesale internet connectivity; (e)as regards TV services: (i) retail TV services and (ii) wholesale access fixed networks for the provision of TV services; (f)as regards IT services, see paragraph (45) above. (53)In past decisions, the Commission also examined possible segmentations within the markets listed above. However, for the purposes of this Decision, the exact product market definition for each of the downstream supply markets can be left open, as the Transaction does not raise serious doubts as to its compatibility with the internal market with respect to the downstream supply markets under any alternative product market definition. 4.3.2.Relevant geographic markets 4.3.2.1.Parties' view (54)For each of the relevant product market identified, the Parties define the relevant geographic scope by referring to previous Commission decisions. 4.3.2.2.Commission's assessment (55)In its past decisions, the Commission defined the geographic scope of most of the markets listed above as national, with some exceptions. (56)For the purpose of this Decision, the exact geographic market definitions for each of the downstream supply markets can be left open, since the Transaction does not raise serious doubts as to its compatibility with the internal market with respect to the downstream supply markets under any alternative geographic market definition. 5.Competitive assessment 5.1.Supply of procurement-related services

(57)As neither BuyIn nor the Parties are currently active in the supply of procurement-related services to third-party customers, the Transaction does not give rise to any affected markets in this area. (58)The market investigation did not reveal any concerns as regards the effects of the Transaction on the supply of procurement related services. The vast majority of telecom and IT services providers indicated that, in the EEA, they procure network equipment by using their own in-house procurement services (as opposed to an external provider or a procurement alliance similar to BuyIn). Some of the providers of telecommunications and IT services who replied to the market investigation pointed out that the Transaction will entail the entry of a new player, which will not negatively impact their own capacity to source Equipment. (59)The Commission considers that the only change brought about by the Transaction consists of making BuyIn's procurement-related services available to interested third-party customers. These customers are likely to include telecommunication or IT services providers who need to source Equipment to be used for offering services on the downstream supply markets where they are active and who, for this purpose, may be willing to entrust BuyIn with the negotiation of framework agreements with the relevant suppliers. As a result, the Transaction has the effect of increasing the range of options available to telecom and IT services providers to source the Equipment needed for their respective downstream activities. (60)In light of the above, the Transaction as such is unlikely to raise competition concerns in relation to the supply of procurement-related services. 5.2.Upstream purchasing markets 5.2.1.Parties' view (61)Given that DT and Orange are integrated telecommunications and information technology service providers, the Parties submit that their activities overlap in all relevant purchasing markets in which BuyIn offers its procurement-related services. (62)However, DT's and Orange's combined market shares on the telecommunication procurement markets are low in almost all markets/segments, with the exception of (i) the purchasing market for SDH technology and (ii) the purchasing market for SIM cards. In both purchasing markets, the Parties' combined market shares exceeded 20% in the EEA in 2015. The Parties submit that at a worldwide level, their combined market shares are very low, namely [0-5]% (DT: [0-5]%; Orange: [0-5]%) in the purchasing market for SDH technology and [0-5]% (DT: [0-5]%; Orange: [0-5]%; EE: [0-5]%) in the purchasing market for SIM cards. (63)In addition, the Parties submit that both the SDH and the SIM card are fading technologies: the end of service of the SDH will take place in […] and the Parties expect the introduction of the eSIM technology to change the SIM market. 5.2.2.Commission's assessment (64)Given the overlap in the Parties' activities on the upstream purchasing markets, there are two horizontally affected markets, namely the purchasing market for SDH technology and the purchasing market for SIM cards. (65)That said, the market investigation sought to obtain the views of telecom and IT services providers' and of equipment suppliers' as to the impact of the Transaction on each product category of equipment for which BuyIn offers its procurement-related services (namely network technology, DHP, customer equipment, and IT products and services). (66)As regards telecom/IT services providers, the results of the market investigation revealed that the vast majority of these respondents expect the Transaction to have a neutral impact on the following upstream purchasing markets: (i) purchase of network equipment; (ii) purchase of DHP; (iii) purchase of customer equipment and (iv) purchase of IT products. Moreover, a few market participants indicated that the impact of the Transaction would be positive on the upstream purchasing markets for DHP, customer equipment and IT products since, through the creation of a new player on these markets, BuyIn may be able to generate higher pricing pressure on OEM suppliers and to obtain lower prices. Only a minority of respondents among the telecom/IT services providers considered that the impact of the Transaction would be negative on the upstream purchasing markets for network equipment, DHP and customer equipment. (67)As regards the equipment suppliers, around half of the respondents to the market investigation considered that the impact of the Transaction on suppliers in the upstream markets would generally be either neutral or uncertain at this stage. According to these market participants, the impact of the Transaction will largely depend on BuyIn's ability to successfully attract a significant number of third-party customers in the future. These equipment suppliers also acknowledged that they do not have any insight into BuyIn's potential to succeed in attracting third-party customers. (68)With regard more specifically to the supply of customer equipment and of IT products, more than half of the equipment suppliers who responded to the Commission's market investigation expect the impact of the Transaction to be neutral or uncertain. (69)With particular regard to the impact of the Transaction on the supply of network technology and on the supply of DHP, approximately half of the equipment suppliers who responded to the market investigation expressed concerns that, for the supply of some products, the Transaction would result in a large number of telecom operators sourcing equipment jointly through BuyIn, thus increasing the telecom/IT operators' bargaining power vis-à-vis suppliers and exposing suppliers to stronger pricing pressure and ultimately margin erosions. (70)However, for the reasons set out below, the Commission considers that the concerns put forward in the market investigation are not merger-specific. (71)Inasmuch as the Transaction simply consists of making available BuyIn's procurement-related services to interested third-party customers, the Transaction as such is unlikely to have an impact on any upstream purchasing markets. Indeed, the Transaction in itself does not add any new assets or other activities to the benefit of BuyIn or to the Parties. Accordingly, it does not create any new horizontal overlaps between the Parties' activities or between any of the Parties' and BuyIn's activities on any of the upstream purchasing markets, nor does it strengthen any existing horizontal relationships between them involving any of those markets. (72)While post-Transaction BuyIn may enter into agreements with third parties that could potentially influence the bargaining power of the telecom/IT operators – party to any such agreements vis-à-vis suppliers – these agreements would not be a structural consequence of the conversion of BuyIn into full-function joint venture. While, to the extent that these agreements would amount to cooperation agreements between competitors, they could give rise to competition concerns on the upstream purchasing markets, whether or not any such agreements will actually raise competition concerns will depend on the specific circumstances of each case, which are unknown at this stage. In any event, any such agreements will be subject to Article 101 TFEU and will therefore have to be assessed on a case-by-case basis. 5.3.Downstream supply markets