|EUROPEAN COMMISSION |

Brussels, 20.9.2013

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 Where possible the information omitted has been replaced by ranges of figures or a general description. C(2013) 6258 final PUBLIC VERSION

MERGER PROCEDURE

To the notifying party: | |

Dear Sir/Madam,

Subject: Case No COMP/M.6990 – VODAFONE/ KABEL DEUTSCHLAND Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004 [1]

1. On 16 August 2013, the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which the undertaking Vodafone Group Plc. ("Vodafone", United Kingdom) acquires within the meaning of Article 3(1)(b) of the Merger Regulation control of the whole of the undertaking Kabel Deutschland Holding AG ("Kabel Deutschland", Germany) by way of purchase of shares. Vodafone is designated hereinafter as the "Notifying Party" and Vodafone and Kabel Deutschland as the "Parties" to the proposed transaction.

Table of Contents

1. THE PARTIES 4

2. THE OPERATION 4

3. EU DIMENSION 4

4. RELEVANT MARKETS 5

4.1. Television services 6

4.1.1. Licensing/ acquisition of broadcasting rights for TV content 7

4.1.2. Wholesale/ acquisition of TV channels 9

4.1.3. Retail supply of TV services 12

4.1.4. Wholesale TV signal transmission 13

4.1.5. Intermediary market for signal delivery 16

4.1.6. Retail supply of signal transmission 17

4.2. Fixed telephony and internet network services 22

4.2.1. Wholesale provision of fixed call termination services 22

4.2.2. Retail supply of fixed voice services 24

4.2.3. Wholesale leased lines 28

4.2.4. Wholesale broadband access 29

4.2.5. Global telecommunication services 31

4.2.6. Wholesale Internet Connectivity 32

4.2.7. Retail supply of fixed Internet access services 33

4.2.8. Internet hosting services 35

4.3. Mobile Services 37

4.3.1. Retail supply of mobile telecommunication services to end customers 37

4.3.2. Wholesale access and call origination services on mobile networks 39

4.3.3. Wholesale provision of mobile call termination services 41

4.3.4. Wholesale market for international roaming 42

4.4. Multiple play 43

4.4.1. Product market definition 43

4.4.2. Geographic market definition 45

4.4.3. Affected market 45

5. COMPETITIVE ASSESSMENT 46

5.1. Television services 46

5.1.1. Acquisition of pay TV channels 46

5.1.2. Retail supply of pay TV services 48

5.1.3. Wholesale signal transmission 50

5.1.4. Retail supply of signal transmission to MDUs 52

5.1.5. Retail supply of signal transmission to SDUs 53

5.1.6. Retail supply of signal transmission to MDUs and SDUs 56

5.2. Fixed telephony and Internet services 56

5.2.1. Retail supply of fixed voice telephony services 56

5.2.2. Retail supply of fixed Internet access services 58

5.3. Mobile services 58

5.3.1. Retail supply of mobile services 58

5.3.2. Wholesale supply of call termination services 60

5.3.3. Wholesale supply of mobile access and call origination services 60

5.4. Multiple play 62

5.4.1. View of the Notifying Party 62

5.4.2. The Commission's assessment 62

6. CONCLUSION 65

1. THE PARTIES

2. Vodafone is the holding company of a group of companies that globally, including in Germany, operate mobile telecommunications services, including voice telephony, messaging, data and content services. In Germany, Vodafone also offers retail fixed line voice and Internet services and retail television signal transmission services (through IPTV technology) [2] notably by using Deutsche Telekom AG's ("DTAG") access network.

3. Kabel Deutschland is the holding company of a group of companies that operate cable networks in 13 out of the 16 German Federal States. [3] As the largest German cable operator with 7.6 million direct subscribers, it provides television and telecommunication services, such as analogue and digital cable TV, broadband Internet and fixed line voice services via cable, as well as mobile services as a Mobile Virtual Network Operator ("MVNO") on [information about Kabel Deutschland's contract partner] network in Germany.

2. THE OPERATION

4. On 30 July 2013, Vodafone made a public take-over bid for the entire issued and to be issued ordinary share capital of Kabel Deutschland. Upon implementation of the proposed transaction, Vodafone will own up to 100% of the share capital of Kabel Deutschland. Vodafone will thus acquire sole control over Kabel Deutschland and the proposed transaction constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

5. According to Vodafone, the main commercial rationale for the proposed concentration consists of the significant network cost savings that will result from the complementarity of the Parties’ assets. It submits that the integration of Kabel Deutschland’s cable network and Vodafone’s mobile infrastructure would enable the merged entity to offer a full range of fixed and mobile telecom, Internet and TV services throughout Germany on a more cost-efficient basis.

6. The proposed concentration would also satisfy, according to the Parties, an increasing customer demand for higher bandwidths to transport larger data volumes for streaming, cloud and video applications. Kabel Deutschland’s cable infrastructure would provide higher capacity mobile backhauling, which will increase capacity on Vodafone's mobile network to provide Long Term Evolution (LTE) mobile communications.

3. EU DIMENSION

7. The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million [4] [Vodafone: EUR 54 507 million, Kabel Deutschland: EUR 1 829.9 million]. Each of them has an EU-wide turnover in excess of EUR 250 million [Vodafone: EUR […], Kabel Deutschland: EUR […]], but Vodafone did not achieve more than two-thirds of its aggregate EU-wide turnover within one and the same Member State.

8. The proposed concentration therefore has an EU dimension within the meaning of Article 1(2) of the Merger Regulation.

4. RELEVANT MARKETS

9. The proposed concentration gives rise to certain horizontal overlaps and non-horizontal relationships between the Parties’ activities in a number of relevant markets along the value chain for the distribution of audio visual TV content and the provision of telecommunication services (fixed and mobile telephony and broadband Internet) in Germany.

10. In particular, the proposed concentration would combine the following assets and businesses of the Parties:

· Kabel Deutschland's cable TV business (based on its own cable network) and Vodafone's IPTV business (based essentially on DTAG's DSL [5] access network);

· Kabel Deutschland's and Vodafone's fixed telephony and fixed broadband businesses (based respectively on its own cable network and essentially on DTAG's DSL access network);

· Vodafone's mobile communications business (based on its own network and licences) and Kabel Deutschland's more limited activities as Mobile Virtual Network Operator ("MVNO") (based on [information about Kabel Deutschland's contract partner] network).

11. In the following sections, this decision addresses each of the relevant markets in turn.

4.1. Television services

(...PICT...)

12. As regards the TV-related markets, and with respect to the licensing and distribution of content and channels, the Commission has in previous decisions [6] made a distinction between the following market levels:

- Licensing/acquisition of broadcasting rights for TV content;

- Wholesale/acquisition of TV channels; and

- Retail supply of TV services.

13. Moreover, with specific respect to the infrastructure side (as opposed to the content side) of the TV sector in Germany, the Commission has also identified the following market levels: [7]

- Wholesale TV infrastructure services market;

- Intermediary TV infrastructure services market; and

- Retail TV infrastructure services markets.

14. This section first addresses the above identified three relevant content-related market levels, and then the three above identified relevant infrastructure-related market levels.

4.1.1. Licensing/ acquisition of broadcasting rights for TV content

15. Audio visual TV content comprises "entertainment products" (films, sports, TV programmes, etc.) that can be broadcast via TV. [8] The broadcasting rights generally belong to the creators of the content. These rights holders (which constitute the supply side of this market) license them to: (1) broadcasters which then incorporate them into linear TV channels (where programmes are broadcast at scheduled times) or (2) content platform operators which retail the content to end users on a non-linear basis, that is to say Pay-Per-View ("PPV") or Video-On-Demand ("VOD") (which, together, comprise the demand side of this market).

16. Kabel Deutschland is active as purchaser of broadcasting rights to TV content for its VOD and PPV services over cable, and Vodafone as purchaser of broadcasting rights for its VOD and PPV services over IPTV.

4.1.1.1. Product market definition

View of the Notifying Party

17. The Notifying Party does not take a position on the exact delineation of the product market for the licensing/acquisition of broadcasting rights for TV content, and considers that for the purpose of the present decision, the precise market definition can be left open.

Commission's assessment

18. In previous cases, the Commission has first of all distinguished between separate markets for the licensing of broadcasting rights for pay TV and Free-To-Air ("FTA") individual audio visual TV content. [9]

19. The Commission has also previously sub-divided the market for the licensing of broadcasting rights for audio visual TV content into TV content for linear and non-linear broadcast. [10] In other cases, the Commission considered a more detailed breakdown based on the different exhibition windows, namely: (1) VOD; (2) PPV; (3) first pay TV window; (4) second pay TV window (where applicable); and (5) FTA TV. [11]

20. As regards content type, the Commission has previously defined different product markets for: (1) exclusive rights to premium films, (2) exclusive rights to football events that take place every year where national teams participate (for example national league, national cup, UEFA Cup and UEFA Champions League), and (3) exclusive rights to other sport events. [12] In HBO/Ziggo/HBO Nederland, the Commission assessed, but ultimately left open whether the licensing of broadcasting rights for: (1) films, (2) sport events and (3) other TV content constitutes separate product markets. [13]

21. In this context, the Commission also notes that in Liberty/ KBW, the Federal Cartel Office (the National Competition Authority in Germany, "FCO") did not discuss in detail a division of the market for the licensing/ acquisition of broadcasting rights for TV content, as this market was not affected by that transaction. The FCO referred to the existence of a market for broadcasting rights for television programmes (including films and TV series) and for events (in particular sport events). [14] The FCO also explained that there are further distinctions by content (premium films, sport events, archive material or short-lived content), by platform (cable, satellite, DVB-T and IPTV) and by type of broadcast (linear or non-linear). [15] Moreover, in line with the Commission precedents, the FCO distinguished this market from the markets for the wholesale/acquisition of TV channels and for the retail provision of TV services. [16]

22. The results of the market investigation conducted for the purpose of the present transaction did not contradict the past findings of the Commission on the market for the licensing/ acquisition of broadcasting rights for TV content.

23. In any event, for the purposes of the present decision, it is not necessary to conclude on the exact product market definition as the proposed concentration does not raise any competition concerns under any alternative product market definition.

4.1.1.2. Geographic market definition

View of the Notifying Party

24. The Notifying Party does not take a position on the exact geographic delineation of the market for the licensing/acquisition of broadcasting rights for TV content, but notes that in SFR/Télé 2 France, the Commission found that this market was national in scope. [17]

Commission's assessment

25. The Commission has previously considered that the market for the licensing of broadcasting rights for audio visual TV content is either national in scope or potentially comprises a broader linguistically homogeneous area. [18]

26. In a similar way as the Commission, the FCO has regarded the markets relating to TV content as either national in scope or as comprising the German speaking area. [19]

27. The results of the market investigation conducted for the purpose of the present transaction did not contradict the past findings of the Commission on the geographic scope of the market for the licensing/ acquisition of broadcasting rights to TV content.

28. In any event, for the purposes of the present decision, it is not necessary to conclude on the exact geographic market definition as the proposed concentration does not raise any competition concerns under any alternative geographic market definition.

4.1.1.3. Affected market

29. Based on the Notifying Party's estimates, the market share of the combined entity in the acquisition of broadcasting rights for TV content is below 5% on all possible market segments (including the narrowest market segments for the acquisition of broadcasting rights for each of films, sports and/or other TV content for VOD and/ or PPV services in Germany and/ or in the German-speaking area). Moreover, neither Party is active as a supplier in the downstream market for the wholesale of TV channels. As a result, this market (and/ or its possible segments) are not affected by the proposed concentration and will no longer be discussed in this decision.

4.1.2. Wholesale/ acquisition of TV channels

30. TV channel broadcasters acquire or produce individual audio visual content and package it into TV channels. These TV channels are then broadcast to end users via different distribution infrastructures (for example cable, satellite, internet, mobile, etc.) either on a FTA basis or on a pay TV basis (individually or as part of so-called "channel bouquets"). Hence, the supply side of this market comprises TV channel broadcasters and its demand side comprises TV retailers, which either limit themselves to "carrying" the TV channels and make them available to end users, or also act as channel aggregators (FTA or pay TV platforms), which also "package" TV channels and provide them to end users.

31. In the present case, both Vodafone and Kabel Deutschland are active as purchasers of (pay) TV channels for inclusion into their respective (pay) TV platforms. Indeed, in Germany, only pay TV channels (and not FTA channels, with the limited exception of some private broadcasters for their HD channels) charge retailers of TV services a license fee to broadcast their channels.

4.1.2.1. Product market definition

View of the Notifying Party

32. The Notifying Party does not take a position on the exact delineation of the product market for the wholesale/ acquisition of TV channels, and considers that for the purpose of the present decision, the precise market definition can be left open.

Commission's assessment

33. In previous decisions, as a starting point, the Commission identified a wholesale market for the supply of TV channels, in which TV channel broadcasters and retail TV suppliers negotiate the terms and conditions for the distribution of TV channels to end users. [20]

34. Within this market, the Commission further identified two separate product markets for FTA channels and for pay TV channels. This distinction was mainly justified based on the differences between the financial models of these channels: the FTA channels are chiefly financed by advertising revenues (public channels may also be financed by public funds) whereas pay TV channels are mainly financed by the fees paid by pay TV distributors and end users. [21] The difference in remuneration as regards pay TV channels and FTA channels have an impact on the wholesale negotiations between TV broadcasters on the supply side and the TV distributors on the demand side, as TV distributors have to bear a cost only for distribution of pay TV channels, since distribution of the free channels costs them nothing. [22]

35. Within the market for the wholesale supply of pay TV channels, the Commission has also previously indicated that there is a differentiation between "basic" and "premium" pay TV channels (for example premium sports and movies channels). However, it was left open whether these two categories of pay TV channels constitute separate product markets. [23]

36. In previous decisions, the Commission also examined, but ultimately left open, whether the market should be further segmented by genre or thematic content (such as films, sports, news, youth channels, etc.). [24]

37. Finally, the Commission has not further distinguished between the different means of infrastructure used for the delivery to the viewer (cable, satellite, DVB-T and IPTV). [25]

38. In this context, the Commission also notes that in Liberty/ KBW, the FCO held that the market for wholesale supply of pay TV channels encompasses all distribution infrastructures, but did not discuss a division of this market based on genre or content. [26]

39. A large majority of competitors and suppliers as well as the federal association of consumer organisations [27] agreed with the Commission's past finding that pay and FTA TV channels constitute two separate product markets, particularly in light of the fact that, with some limited exceptions, only pay TV channels charge TV retailers a licence fee to broadcast their programs. [28]

40. The results of the market investigation were mixed as regards the question whether a further distinction should be made between premium and basic pay TV channels and/ or on the basis of genre.

41. In light of the above and for the purposes of the present decision, the Commission considers that the wholesale supply of FTA and pay TV channels constitute separate product markets. However, the question whether these markets should be further segmented can be left open since the proposed concentration does not raise competition concerns under any alternative product market definition.

4.1.2.2. Geographic market definition

View of the Notifying Party

42. The Notifying Party does not take a position on the exact geographic delineation of the market for the wholesale/ acquisition of TV channels, and considers that for the purpose of the present decision, the precise geographic market definition can be left open.

Commission's assessment

43. With respect to the geographic market definition, previous Commission [29] decisions considered the market to encompass either the German-speaking area [30] or at least Germany. The Commission notes that in its decisions, the FCO adopted the same approach. [31]

44. In the present case, a majority of the respondents to the market investigation agreed with these previous findings as to the geographic scope of the market. They explain that negotiations typically take place on a national basis and that agreements are concluded for the whole of Germany or even the entire German-speaking area. [32]

45. In any event, for the purposes of the present decision, it is not necessary to conclude on the exact geographic market definition as the proposed concentration does not raise any competition concerns under any alternative geographic market definition.

4.1.2.3. Affected market

46. The market for the wholesale/ acquisition of pay TV channels is an affected market and the impact of the proposed concentration on this market is assessed in paragraphs 270 to 280.

4.1.3. Retail supply of TV services

4.1.3.1. Product market definition

47. On the retail market for the supply of TV services, the suppliers of linear and non-linear TV services on the supply side, serve end-customers who wish to purchase such services on the demand side. Both Vodafone and Kabel Deutschland operate on this market as suppliers of linear and non-linear pay TV services.

View of the Notifying Party

48. The Notifying Party does not take a position on the exact delineation of the product market, and considers that for the purpose of the present decision, the precise market definition can be left open.

Commission's assessment

49. The Commission has in the past identified separate markets for the retail supply of FTA and of pay TV services. [33]

50. In its previous decisions, the Commission has not further segmented this market on the basis of the traditional technical means of delivery (cable, satellite, DVB-T or IPTV). [34] The Commission has, however, so far left open whether the emerging TV services via mobile telephony platforms form part of this overall market. [35] The Commission has also left open the question whether linear and non-linear services constitute separate product markets. [36]

51. In the light of the results of the market investigation [37] , the Commission retains its previous finding, for the purposes of the present decision, that there is a separate market for the retail supply of pay TV services. As regards the retail provision of pay TV services, it is not necessary to further conclude on the exact product market definition as the proposed concentration does not raise any competition concerns under any alternative product market definition.

4.1.3.2. Geographic market definition

View of the Notifying Party

52. The Notifying party considers that this market should at most be national in scope.

Commission's assessment

53. The Commission has in the past concluded that the geographic scope of the market for the retail supply of TV services is not broader than national since suppliers compete on a nationwide basis for the business of end-customers. [38]

54. Certain respondents to the market investigation indicated that the geographic scope of this market is regional and, in particular, limited to the geographic footprint of Kabel Deutschland's cable network. [39]

55. For the purposes of the present decision, it is not necessary to conclude on the exact geographic market definition as the proposed concentration does not raise any competition concerns under any alternative geographic market definition.

4.1.3.3. Affected market

56. The market for the retail supply of TV services is an affected market and the impact of the proposed concentration on this market is assessed in paragraphs 281 to 292.

4.1.4. Wholesale TV signal transmission

57. On the market for wholesale TV signal transmission ("Einspeisemarkt"), TV broadcasters, on the demand side, negotiate the terms and conditions of the transmission of the TV signal for their channels with the infrastructure operators (namely the cable, satellite, DVB-T and IPTV operators) on the supply side. In other words, the market players on this market are the same as on the market for the wholesale/acquisition of TV channels, but the demand and supply sides of the market are reversed compared to that market.

58. Kabel Deutschland is active in this market as a cable operator and Vodafone as an IPTV operator. On this market, each of them negotiates with TV broadcasters the terms and conditions for access to their networks.

4.1.4.1. Product market definition

View of the Notifying Party

59. The Notifying Party does not take a position on the exact delineation of the product market for the wholesale transmission of TV signals, and considers that for the purpose of the present decision, the precise market definition can be left open.

Commission's assessment

60. While the Commission ultimately left the issue open, the results of the market investigation in LGI/ KBW highlighted that cable, satellite, IPTV and DVB-T are not substitutes, but rather complements from the point of view of TV broadcasters in Germany. [40]

61. In this context, the Commission also takes note that in assessing the market situation in Germany, the FCO found that, from a supply side perspective, the market comprises both the transmission of analogue and digital signals into the broadband cable network [41] and that no distinction needs to be made between the transmission of free-TV and transmission of pay TV. [42] From a demand side perspective, terrestrial and satellite transmission have been found not to belong to the wholesale signal transmission market. [43]

62. Furthermore, the Commission notes that with regards to IPTV in Germany, the FCO found in Iesy/ Ish and Kabel Deutschland/ Orion that this technology was also not part of the market. [44] In Liberty/ KBW, the FCO found that the wholesale signal transmission market does not include satellite, terrestrial transmission or IPTV, noting that these technologies are not substitutable with broadband cable from the TV channel operators' perspective, but are rather complementary to cable. [45] This view was again confirmed in the FCO's Kabel Deutschland/ Tele Columbus decision of 2013. [46]

63. The Commission assessed these distinctions based on its own market investigation in this case. In this case, it was called upon to assess whether the wholesale TV signal transmission via cable (where Kabel Deutschland is active) is in a separate market from the wholesale TV signal transmission via IPTV (where Vodafone is active).

64. The vast majority of respondents to the market investigation expressed the view that from the point of view of TV broadcasters, IPTV and cable are not substitutes, but rather complements. [47] This complementarity of different transmission modes stems from the fact that TV broadcasters need to reach a maximum number of viewers. For public broadcasters, this results from their statutory mission which is also reflected by respective must-carry status of their programs. Private free TV broadcasters likewise need to ensure that their channels can be received by a maximum number of viewers, given that their financing model is based on revenues from advertising. Moreover, pay TV broadcasters have the same incentives, as they need to recoup higher content costs for creating attractive pay TV content that viewers are willing to pay additional fees for.

65. Based on the above, the Commission considers that, from the perspective of TV broadcasters, cable and IPTV are complements rather than substitutes. Accordingly, and in line with its previous decisions, the Commission concludes that the wholesale signal transmission via cable (where Kabel Deutschland is active) constitutes a separate product market from, at least, the wholesale signal transmission via IPTV (where Vodafone is active).

4.1.4.2. Geographic market definition

View of the Notifying Party

66. The Notifying Party does not take a position on the exact geographic delineation of the market for the wholesale TV signal transmission and considers that for the purpose of the present decision, the precise market definition can be left open.

Commission's assessment

67. While ultimately leaving open the exact scope of the geographic market, previous Commission decisions considered that in case the product market is limited to cable infrastructure, the geographic scope is the coverage area of the cable network. The scope would be national if other transmission modes available on a Germany-wide basis (and in particular IPTV) would belong to the relevant product market. [48]

68. In this context, the Commission notes that the FCO's decisions, the scope of the geographic market has been found to be confined to the territory covered by each regional cable network. [49]

69. In the present case, a majority of suppliers responding to the market investigation expressed the view that the relevant geographic market is regional in scope if the product market is confined to cable and IPTV. [50]

70. In any event, it is not necessary to conclude on the exact scope of the geographic market in this case as the proposed concentration does not raise any competition concerns under any alternative geographic market definition.

4.1.4.3. Affected market

71. There is no horizontal overlap between Kabel Deutschland's activities in the market of wholesale TV signal transmission via cable, and that of Vodafone in the market for TV signal transmission via IPTV. There are also no vertical relationships between their activities. Hence, these markets are not affected.

72. Nonetheless, some respondents to the market investigation have raised concerns in relation to the possible impact of the proposed concentration on these markets. These concerns are discussed in paragraphs 294 to 305, for the sake of completeness. In adopting a prudent approach, the Commission made its assessment on the next narrowest possible market, which is the market for wholesale TV signal transmission via cable and IPTV.

4.1.5. Intermediary market for signal delivery

73. The cable network in Germany is separated into a network level 3 (which runs from the cable head-end at which the TV signals are fed into the network to the boundary of a given real estate property) and a network level 4 (which runs within a real estate property).

4.1.5.1. Product market definition

74. Referring to previous Commission and FCO decisions, the Notifying Party explains that the suppliers of signal transmission services to the end-customers at level 4 ("Level 4 Operators") need to connect to a level 3 network in order to receive the TV signal.

75. In the past, the Commission defined as the intermediary signal delivery market the market on which the negotiations between the Level 4 Operators, on the demand side, and the operators of the Level 3 network ("Level 3 Operators"), on the supply side, takes place. [51] On the supply side, the market is limited to Level 3 Operators, such as Kabel Deutschland) and does not include operators of non-cable infrastructures (for example IPTV operators, such as Vodafone). In this context, the Commission notes the FCO's finding that for technical reasons, a Level 4 Operator cannot receive signals through a broadband cable. [52]

76. There are no reasons to deviate from this product market definition in the case at hand.

4.1.5.2. Geographic market definition

77. The Notifying Party limits itself to referring to the Commission's and the FCO's precedents as regards the geographic scope for the intermediary market for signal delivery.

78. In several past decisions, the Commission found that the intermediary market for signal delivery was regional in scope, comprising the network area of the relevant Level 3 Operator. [53] In a more recent decision, it was, however left open whether the intermediary market for signal delivery is national or regional in scope. [54]

79. For the purposes of the present decision, it is not necessary to conclude on the exact scope of the geographic market as the proposed concentration does not raise any competition concerns under any alternative geographic market definition.

4.1.5.3. Affected market

80. While Kabel Deutschland is active on this cable-specific market as a supplier, Vodafone is not active on this market either as a supplier or as a customer.

81. As both Kabel Deutschland and Vodafone are active in the downstream market for the retail supply of TV signal transmission with a combined share in excess of 25%, this market is vertically affected on a pure technical basis. However, because Vodafone is not active either as a supplier or as a customer on this market, the proposed concentration cannot have any impact on Kabel Deutschland's ability and/or incentive to foreclose its competitors and/or customers on the intermediate market for signal delivery via cable. This market will therefore no longer be discussed in this decision.

4.1.6. Retail supply of signal transmission

82. On the market for the retail supply of signal transmission, end customers looking for the supply of television signal on the demand side negotiate with infrastructure operators for the transmission of television signals mainly via cable, satellite, DVB-T and IPTV on the supply side.

83. A characteristic of the German market is that housing associations often negotiate and conclude basic TV supply contracts on behalf of their tenants and then pass on the fees as part of the monthly rent. While these fees are usually much lower than the fees payable by individual households for comparable services, tenants of multiple dwelling units are thus often not free to choose the supplier of basic free-TV services delivered to their apartment.

4.1.6.1. Product market definition

View of the Notifying Party

84. In presenting its views on the competitive impact of the proposed concentration in the retail supply of TV signals, the Notifying Party distinguishes between the retail supply of signal transmission to individual households/ single dwelling units ("SDUs"), and a market for the retail supply of signal transmission to multiple dwelling units ("MDUs)", usually housing associations.

85. As regards distribution modes, the Notifying Party is of the opinion that at least satellite systems operated by the housing associations ("Eigenversorgung") should be included in the market (together with cable and IPTV). It submits that housing associations, especially the larger ones, have developed significant know-how in the operation of their own satellite systems and that this has become a competitive constraint on Kabel Deutschland as a retail supplier of TV signals. It explains that some housing associations even have dedicated subsidiaries that build and operate satellite reception systems and supply the TV signal to their own dwellings and, against remuneration to those of other housing associations.

86. As regards the SDUs market, the Notifying Party submits that all transmission modes of TV signal at the retail level, including cable and IPTV, but also satellite and DVB-T, belong to the relevant product market. This is because end customers who are not supplied with a TV signal via a multiple user contract can freely choose between cable, satellite, DVB-T and IPTV.

Commission's assessment

87. Past Commission [55] distinguished between a market for the retail supply of signal transmission to SDUs and a market for the retail supply of signal transmission to MDUs, usually housing associations. [56]

88. In this context, the Commission notes that past FCO decisions made the same distinction. [57] The Commission also takes note of the fact that however, in the annulment proceeding against the FCO's clearance decision regarding the acquisition of KabelBW by Liberty Global (FCO case B7-66/11), the Higher Regional Court of Düsseldorf decided to reject a distinction between individual and multiple user contracts as applied by the FCO. Instead, the Court only defined one single retail market for both kinds of customers. [58]

89. As regards a possible segmentation between the different technical modes of signal transmission, the Commission, in LGI/ KBW, regarded the market for the retail supply of signal transmission to MDUs to comprise cable and potentially satellite transmission, but not IPTV or DVB-T. [59] The Commission takes note that conversely, the FCO previously considered that the market comprised only cable and IPTV, but not satellite and/ or DVB-T. [60]

90. The Commission further notes that as regards the SDUs market, previous decisions by the FCO considered the relevant market to be limited to two transmission modes: cable and IPTV. They excluded satellite and DVB-T from this market because essentially end-users do not "purchase" access to satellite and DVB-T from infrastructure operators, as they do from cable and IPTV operators, but rather buy themselves the necessary decoders and/or satellite dishes from third parties other than the satellite and DVB-T infrastructure operators. [61]

91. In Kabel Deutschland/ Tele Columbus, the FCO disagreed with the then notifying party's argument – also submitted by the Notifying Party in the present case – according to which monetary compensation would arise from the increasing demand for HD version of TV channels, for which satellite providers charge an annual fee, and continued to consider that satellite transmission was not part of the market for the retail supply of signal transmission to individual households. [62] Furthermore, as regards DVB-T, the FCO considered that the scope of TV channels offered through DVB-T is not sufficiently interchangeable and that popular FTA private TV channels are not part of the DVB-T offer in all regions. [63]

92. In the present case, respondents to the market investigation broadly expressed the view that the markets for the retail supply of signal transmission to SDUs and to MDUs are separate from each other. [64]

93. With respect to the types of infrastructure to be included in the relevant market for MDUs, respondents to the market investigation largely considered that cable continues to be by far the infrastructure of choice for housing associations. [65]

94. As regards IPTV, almost all housing associations stated that they see technical, quality and practical problems with this mode of transmission. However, some housing associations stated that they would consider offers from IPTV providers or the installation of a satellite system as an alternative to cable. DVB-T was not considered as a suitable alternative by the vast majority of housing associations, [66] which can be explained by the limited range of TV channels receivable over DVB-T.

95. As regards the SDUs market, a majority of the respondents confirmed that cable and IPTV are interchangeable. [67] The results of the market investigation were mixed as to the question whether cable and IPTV are interchangeable with satellite. [68] Finally, a large majority of the respondents confirmed that DVB-T is not interchangeable with cable and IPTV. [69] Most respondents explained that the number of TV channels available via DVB-T is too limited compared to other means of signal transmission.

96. For the purposes of the present decision, it is not necessary to conclude on the exact scope of the product market as the proposed concentration does not raise any competition concerns under any alternative product market definition.

4.1.6.2. Geographic market definition

View of the Notifying Party

97. The Notifying Party does not take a position on whether the geographic scope of the market for the retail supply of TV signals to MDUs is national or regional, along the cable network operator's regional footprint. It considers that the precise geographic market definition can be left open for the purpose of the present transaction.

98. The Notifying Party submits that the market for the retail supply of TV signals to SDUs is national in scope.

Commission's assessment

99. The relevant geographic market for both MDUs and SDUs can be defined either as national or as regional, the latter corresponding to the cable network operator’s regional footprint (in this case, the 13 Bundesländer covered by Kabel Deutschland's network).

100. As regards the market for the retail supply of TV signals to MDUs, the Commission concluded previously that the market appears to be national, but ultimately left open the precise definition. [70] In this context, the Commission notes that the FCO, in turn, defined the geographic scope as national, noting that a regional cable network operator could expand its activities to areas outside of its network, for example by leasing lines. [71] Furthermore, the Commission notes that in the previously mentioned annulment proceeding against the FCO's clearance decision regarding the acquisition of KabelBW by Liberty Global (Case B7-66/11), the Higher Regional Court of Düsseldorf considered that the relevant geographic market had to be limited to the regional area covered by the network of the respective cable operators.

101. In the present case, the market investigation provided indications that the relevant market is regional in scope. [72]

102. As regards the market for the retail supply of TV signals to SDUs, the Commission left the precise definition open in the referral case LGI/ KBW. [73] The Commission notes that the FCO subsequently defined the market as regional. [74]

103. In the present case, the market investigation provided indications that the relevant market is regional in scope. [75]

104. For the purposes of the present decision, it is not necessary to conclude on the exact scope of the geographic market as the proposed concentration does not raise any competition concerns under any alternative geographic market definition.

4.1.6.3. Affected market

105. The possible market for the retail supply of signal transmission to MDUs is not affected by the proposed concentration since Vodafone is not active on this market and/or on any market that is vertically related to this market. However, some respondents to the market investigation expressed concerns about the impact of the proposed concentration on this possible market. These concerns will be discussed in paragraphs 308 to 316, for the sake of completeness.

106. The possible over-encompassing market for the retail supply of signal transmission to all types of dwelling units, as well as the possible market for the retail supply of signal transmission to SDUs are, however, affected and the impact of the proposed concentration on these markets is discussed in paragraphs 317 to 333.

4.2. Fixed telephony and internet network services

(...PICT...)

107. As regards fixed network services (telephony and broadband Internet), a distinction can be drawn between telephony markets and Internet markets.

108. Within the telephony markets, further distinctions can be made between wholesale markets, including the wholesale provision of fixed call termination services, where both Parties are active, and retail markets, including the retail provision of fixed voice services, where both Parties are also active.

109. Within the Internet markets, a distinction can also be made between wholesale markets, including the wholesale of leased lines, wholesale broadband access, wholesale GTS international carrier services and wholesale Internet connectivity, in all of which only Vodafone is active, and retail markets, including the retail provision of Internet access and of hosting services, where both Parties are active.

110. Each of the relevant markets within the telephony and the Internet markets are discussed in the following paragraphs.

4.2.1. Wholesale provision of fixed call termination services

111. Call termination services are provided when calls originate from one network and terminate on another network (that is to say when the calling party and the called party do not use the same network) and thus allow users of different networks to communicate with one another. For such calls, the operator on which network the call terminates, routes the call and connects it to the called party. This service is provided at wholesale level between the network operator of the called party on the supply side and the network operator of the calling party on the demand side.

112. Both Parties offer wholesale call termination services on their respective fixed networks.

4.2.1.1. Product market definition

View of the Notifying Party

113. The Notifying Party submits that the Commission regarded each individual network as a separate market, as customers of a network can only be reached with the supply of call termination services of the respective network operator.

The Commission's assessment

114. In previous decisions, the Commission held that there is no substitute for call termination on each individual network since the network operator transmitting a call outgoing from his network to another network can reach the recipient only through the respective other network operator. [76] Furthermore, the market for fixed call termination services has been defined by the Commission's Recommendation for Member States on relevant product and service markets [77] as the market for call termination on individual public telephone networks provided at a fixed location.

115. In this context, the Commission notes that in accordance with the above mentioned recommendation, the German Federal Network Agency ("BNetzA") also defined individual markets for termination services to each individual network ("netzweiter Markt für die Anrufzustellung in das einzelne öffentliche Telefonnetz"). [78]

116. The market investigation in Vodafone/ Cable&Wireless showed that there is no substitute for call termination services on each individual network. [79] The market investigation conducted for the purpose of the present case does not provide any element that would substantiate a change in this product market definition.

117. Accordingly, as regards wholesale call termination services, the Commission considers that each individual network constitutes a separate product market.

4.2.1.2. Geographic market definition

View of the Notifying Party

118. The Notifying Party considers the market to be national in scope.

The Commission's assessment

119. In previous decisions, the Commission considered the geographic market to be national in scope. [80]

120. The market investigation does not provide any element that would substantiate a change in the geographic market definition.

121. The Commission therefore concludes that the wholesale market for fixed call termination services is national in scope.

4.2.1.3. Affected Markets

122. As the parties are active on the separate markets for fixed call termination services over their respective networks, there is no horizontal overlap and hence no affected market. The market share of the merged entity in the downstream retail market for fixed telephony services is below 25% (see paragraph 341 below). Therefore, this market is not vertically affected either.

4.2.2. Retail supply of fixed voice services

123. On the market for retail supply of fixed voice services, operators on the supply side provide fixed voice services to end-customers on the demand side. In line with previous Commission decisions, these services include the provision of connection services or access at a fixed location or address to the public telephone network for the purpose of making and receiving calls and related services. [81]

124. Both Parties are active on this market. They offer fixed voice services as a separate service and bundled together with fixed broadband Internet access.

4.2.2.1. Product market definition

View of the Notifying Party

125. The Notifying Party submits that the exact product market for retail fixed-line telephony services can be left open. However, the Notifying Party takes the view that there is a single market for the provision of fixed voice services to business and private consumers. According to the Notifying Party, the distinction between business and private offers is blurred by the fact that (i) there is no strict division in the retail fixed voice market between residential and business customers and (ii) small businesses commonly purchase residential offers. Furthermore, according to the Notifying Party, the relevant product market should comprise domestic and international calls.

The Commission's assessment

126. The Commission has previously considered drawing a distinction between residential and non-residential customers and between local/ national and international calls, but left the product market definition open. [82] The Commission has also considered that managed Voice over Internet Protocol (VoIP) services may be substitutable with fixed-line telephony services. [83]

127. In Carphone Warehouse/ Tiscali UK, the market investigation indicated that a distinction between local/national and international calls as well as between residential and non-residential customers may not be relevant and that managed VoIP services are likely to be substitutable with fixed telephony. [84]

128. The Commission's Recommendation for Member States on relevant product and service markets refers to one retail market for "Access to the public telephone network at a fixed location for residential and non-residential customers". [85]

129. In this context, the Commission notes that the BNetzA does neither distinguish separate markets for business and residential customers. [86] The BNetzA argues, inter alia, that the Federal Administrative Court of Germany (Bundesverwaltungsgericht) upheld the decision of the Administrative Court of Cologne not to distinguish different markets based on different customers. [87]

130. Virtually all respondents to the market investigation in the present case [88] expressed the view that the retail market for the provision of fixed voice services through traditional fixed telephony lines and through managed VoIP services are interchangeable and therefore part of the same market. The market investigation did not provide any other indication that the product market definition should be changed.

131. The Commission concludes that traditional telephony and VoIP are interchangeable within the market for the retail supply of fixed voice services. With regard to other aspects of the product market definition, there is no need to take a definitive view for the purpose of the present case as the proposed concentration does not raise any competitive concern under any possible market definition.

4.2.2.2. Geographic market definition

View of the Notifying Party

132. The Notifying Party considers the market to be national in scope, based on the Commission and FCO precedents.

The Commission's assessment

133. In Telefonica/ Hansenet Telekommunikation, the Commission defined the German retail market for fixed telephony services as national in scope. [89] In Carphone Warehouse/Tiscali UK, the Commission also came to the conclusion that the relevant product market was national in scope, given the continuing importance of national regulation in the telecommunications sector, the supply of upstream wholesale services which works on a national basis, and the fact that the pricing policies of telecommunications providers are predominantly national. [90]

134. In this context, the Commission notes that the BNetzA regards the market for the retail supply of fixed voice services as national. [91] The FCO shares this view with the BNetzA. [92]

135. The market investigation in the present case did not provide any argument as to why the geographic market should not be regarded as national. Only Deutsche Telekom considered in its reply that, as the number of the competing operators differs significantly depending on the geographic area (that is to say that in densely populated areas, there are more operators than in rural areas), the analysis of the market has to be differentiated on a regional level. [93]

136. The Commission does not consider Deutsche Telekom’s concerns to be founded for a number of reasons. First of all, according to the Commission notice on the definition of relevant market for the purposes of Community competition law, [94] a relevant geographic market comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those areas [95] . The only reason Deutsche Telekom states why regional distinctions might be required is the different number and size of competitors in densely populated areas compared to rural areas. The Commission considers that the availability of competitors as a supply source is more relevant for market definition than their current sales presence. Accordingly, the Commission has consistently defined this market to be national in scope. Furthermore, the Commission notes that against this background, the BNetzA discusses objections raised by Deutsche Telekom in favour of a regional market at length. [96] The BNetzA states that there are strong nation-wide players and that there are no indications they have different strategies (regarding products, prices or rebates) for different regions within Germany. In fact, according to the BNetzA, the prices for individual fixed line products are the same within Germany. [97] Finally, no other respondent to the market investigation shared Deutsche Telekom’s claim. In light of the above, the Commission finds that competition still takes place to a large extent on a national basis given the presence of strong nation-wide players, such as Deutsche Telekom itself.

137. For these reasons, the Commission concludes that there is no reason to modify previous geographic market definition of the German retail market of fixed voice services and that the respective market is national in scope.

4.2.2.3. Affected Markets

138. The following table shows the market shares of the Parties by revenue and by minutes:

Table 1: fixed telephony services market shares

|Vodafone |Kabel Deutschland |Combined |

|Revenue |Minutes |Revenue |Minutes |Revenue |Minutes |

Total Market |[5-10]% |[10-20]% |[0-5]% |[5-10]% |[10-20]% |[20-30]% |

Residential |[5-10]% |[10-20]% |[0-5]% |[5-10]% |[10-20]% |[20-30]% |

Business |[5-10]% |[10-20]% |[0-5]% |[0-5]% |[5-10]% |[10-20]% |

Source: Notifying Party based on market data by IDC, EMEA Telecom Services Database, 1Q13

139. The Notifying Party claims that traffic volume (in minutes) is not an adequate measure in order to evaluate the market position given that flat rate tariffs are commonly used. Therefore, the Notifying Party claims, revenues provide a more reliable measure of market positions.

140. In this context, the Commission notes that the BNetzA regards revenue shares as crucial for the determination of market shares for fixed voice services. [98]

141. In the Telefonica/ Hansenet Telekommunikation decision, the Commission assessed the market shares of the combination in the market for fixed-line telephony services based on minutes. [99]

142. The Commission Notice on the definition of the relevant market for the purposes of Community competition law provides that: "As a rule of thumb, both volume sales and value sales provide useful information. In cases of differentiated products, sales in value and their associated market share will usually be considered to better reflect the relative position and strength of each supplier." [100]

143. Given the differentiated products on the market for fixed voice services in Germany (in particular flat rate tariffs versus pay-per-call tariffs), the Commission regards the market shares by revenue as particularly important to assess whether the market is affected. According to these market shares, the combined undertakings of the Parties would result in a share of [10-20]% of the market.

144. If the market were to be further distinguished into a market for residential customers and a market for business customers, there would be no overlap in the latter as Kabel Deutschland is not active in such market. The combined market share in a potential market for residential customers amounts to only [10-20]% as well.

145. If the market share of the Parties is measured in revenue rather than minutes, the retail market for fixed voice services is not affected by the proposed concentration. For the sake of completeness the Commission assesses the competitive effects of the proposed concentration on this market based on minutes in Section 5.2.1.

4.2.3. Wholesale leased lines

146. Wholesale leased lines are lines with high capacity that allow communication providers to connect their own networks to end user sites for the supply notably of business connectivity services.

4.2.3.1. Product market definition

View of the Notifying Party

147. The Notifying Party does not take a view on the exact definition of the product market.

The Commission's assessment

148. Telecom regulators sometimes segment the wholesale leased lines between the element that can be considered to be customer access or backhaul (terminating segments) and that which can be considered part of the core network (trunk segments). In its recommendation on market definitions in the electronic communications sector, the Commission considers a separate market for terminating segments for leased lines. [101]

149. In Vodafone/Cable&Wireless, the Commission left open whether the market for wholesale leased lines should be divided into trunk and terminating segments. [102]

150. In the present case, there is no need to decide on the exact definition of the product market as the proposed concentration does not raise any competitive concern under any possible market definition.

4.2.3.2. Geographic market definition

View of the Notifying Party

151. The Notifying Party considers the market to be national in scope.

The Commission's assessment

152. The Commission previously held that the market is national in scope. [103]

153. In the present case, there is no need to decide on the exact geographic scope of the market as the proposed concentration does not raise any competitive concern under any possible market definition.

4.2.3.3. Affected market

154. Vodafone is active in the wholesale leased lines market. However, Kabel Deutschland is not active as a supplier of wholesale leased line services. According to the Notifying Party, Kabel Deutschland neither has the organisation to market and administer respective activities, nor is its fibre of particular interest to third parties as it has been built to its own needs and often connects Kabel Deutschland's headends [104] with amplifier points instead of end customers.

155. With respect to its mobile activity, Kabel Deutschland could in theory be a purchaser of wholesale leased lines services. However, Kabel Deutschland does not own any mobile infrastructure and is therefore not a purchaser of wholesale leased lines services. Accordingly, there is no vertical link between the Merging Parties in relation to wholesale leased line services.

156. For these reasons, the market for wholesale leased lines is not affected by the proposed concentration and will no longer be discussed in this decision.

4.2.4. Wholesale broadband access

157. Wholesale broadband access includes different types of access that allow Internet service providers to provide services to end customers. It comprises notably physical access at a fixed location such as local loop unbundling and non-physical or virtual network access such as bit stream access at a fixed location.

4.2.4.1. Product market definition

View of the Notifying Party

158. The Notifying Party argues that there are two wholesale segments: a segment for wholesale local access, where an internet service provider on the demand side negotiates with the operator of local infrastructure on the supply side for the use of the "last mile" to the customer (i.e., the internet service provider establishes a connection to the respective local exchange of the infrastructure operator by itself) and a segment for wholesale access to the entire local infrastructure, including the connection to the local exchange (so called "bitstream access"), with an internet service provider on the demand side and the operator of local infrastructure or a third party with access to the local infrastructure on the supply side.

159. However, the Notifying Party points out that the precise market definition can be left open.

The Commission's assessment

160. In the market investigation for the Carphone Warehouse/Tiscali UK decision, the Commission found significant differences in the characteristics, price, performance and service between different types of wholesale broadband access. [105]

161. In the present case, there is no need to decide on the exact definition of the product market as the proposed concentration does not raise any competitive concern under any possible market definition.

4.2.4.2. Geographic market definition

View of the Notifying Party

162. The Notifying Party considers the market to be national in scope.

The Commission's assessment

163. Although the Commission previously found that there are several arguments supporting a national geographic market definition from a merger control perspective in the decision Carphone Warehouse/Tiscali UK, the exact geographic scope has been left open. [106]

164. In the present case, there is no need to decide on the exact geographic scope of the market as the proposed concentration does not raise any competitive concern under any possible market definition.

4.2.4.3. Affected market

165. Kabel Deutschland is not active in the wholesale broadband access market. According to the Notifying Party, wholesale access to cable networks is technically feasible, through a bit stream offer, but associated with significant development expenses within a […] year development period. [evaluation of the wholesale broadband access market by Kabel Deutschland]. Even if Kabel Deutschland were to start offering a bit stream access product, there would be no horizontal overlap as Vodafone is not active as a supplier of bit stream access products. Moreover, wholesale bit stream access services, in particular DTAG's access products, are regulated by the BNetzA [107] .

166. For these reasons, the market for wholesale broadband access is not affected by the proposed concentration and will no longer be discussed in this decision.

4.2.5. Global telecommunication services

167. Global Telecommunication Services (GTS) are 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 multinational corporations 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. [108]

4.2.5.1. Product market definition

View of the Notifying Party

168. The Notifying Party does not take a position on the precise market definition.

The Commission's assessment

169. The market investigation for the Vodafone/Cable&Wireless decision indicated that there is uncertainty as to whether a distinction between GTS and carrier services is appropriate. However, the Commission did not decide on the precise product market definition. [109]

170. In the present case, there is no need to decide on the exact definition of the product market either as the proposed concentration does not raise any competitive concern under any possible market definition.

4.2.5.2. Geographic market definition

View of the Notifying Party

171. With reference to a recent decision of the Commission, the Notifying Party considers the market to be global in scope.

The Commission's assessment

172. Based on findings of the market investigation for the Vodafone/Cable&Wireless decision, the Commission previous concluded that the market for international carrier services is global. [110]

173. The market investigation in the present case did not bring up any argument that speaks in favour of reconsidering the geographic scope of the market. The Commission therefore concludes that the market for international carrier services is global.

4.2.5.3. Affected market

174. According to the Notifying Party, the market share of Vodafone in the European wholesale international carrier services market amounts to approximately [0-5]%. Data on the global market have not been provided. However, the Notifying Party estimates that the market share of Vodafone would be much smaller, given that more than […]% of Vodafone's revenues in this market are located within Europe and that American and Asian providers achieve significant revenues outside the Europe.

175. Kabel Deutschland is not active in the wholesale market for international carrier services. Hence there is no horizontal overlap with Vodafone's activities in this market. The market for international carrier services is vertically related to fixed and mobile wholesale and retail markets. As described in this decision, the Parties have a combined market share of more than 25% in certain of these vertically related markets. Therefore, this market could potentially be considered to be vertically affected.

176. However, with regard to mobile markets, Kabel Deutschland as MVNO has no direct contractual relations to international carrier service providers. [information about Kabel Deutschland's contract partner and details regarding the contractual relationship]

177. Moreover, no foreclosure concerns in relation to the global market for international carrier services market can arise. According to market data, the top-10 carriers offering international carrier services each have a market share between 7 and 11 percent in the European market. Almost all of these carriers have vertically integrated businesses (e.g., France Telecom, AT&T, Telecom Italia, Telefónica, Deutsche Telekom and KPN). Competitors will still be able to purchase international carrier services from other carriers. This market is therefore no longer discussed in this decision.

4.2.6. Wholesale Internet Connectivity

178. The Internet works as a network of networks. A local Internet Service Provider (ISP) that wants to offer Internet services to end-customers has to connect with other networks in order to allow his end-customers to exchange traffic with other end-customers/content providers beyond its own local network. In order to reach networks in far distance, an ISP has to connect to larger networks which can link both ISPs to each other.

4.2.6.1. Product market definition

View of the Notifying Party

179. The Notifying Party submits that the exact definition of the product market can be left open.

The Commission's assessment

180. In the MCI/Verizon decision the Commission upheld the distinction made in previous decisions between (a) top-level (or universal) Internet connectivity, i.e., Internet connectivity providers that are capable of delivering complete Internet connectivity entirely or in the great majority through their own network or under mutual traffic transit agreements with other top-tier providers, on the one hand and (b) secondary Internet connectivity by second-tier providers that supplement the reach of their own network by purchasing transit rights from top-tier Internet connectivity providers on the other hand. [111]

181. The present case does not require a decision whether or not this market definition is still applicable today as the proposed concentration does not raise any competitive concern under any possible definition of the wholesale Internet connectivity market.

4.2.6.2. Geographic market definition

View of the Notifying Party

182. The Notifying Party considers the market to be either global in scope or EEA wide.

The Commission's assessment

183. The Commission previously concluded that the market for Internet connectivity is global. [112]

184. The exact definition of the geographic market can be left open in the present case as the proposed concentration does not raise any competitive concern under any possible geographic definition of the market.

4.2.6.3. Affected market

185. Vodafone but not Kabel Deutschland is active in the wholesale market for Internet connectivity. However, Kabel Deutschland purchases wholesale Internet connectivity for its fixed Internet access services.

186. Nevertheless, the market is neither horizontally nor vertically affected as neither Vodafone as supplier nor Kabel Deutschland on the demand side have significant market shares.

4.2.7. Retail supply of fixed Internet access services

187. As regards the retail provision of fixed Internet access services, operators on the supply side provide fixed Internet services to end-customers on the demand side.

4.2.7.1. Product market definition

View of the Notifying Party

188. The Notifying Party submits that there are strong arguments to consider that narrow band access services [113] are part of a same product market as broadband services. Narrow band services constitute merely a negligible part of the German retail market according to the Notifying Party.

189. The Notifying Party submits that the different infrastructures – DSL, cable and fibre – are all part of the same retail fixed broadband Internet access market.

190. In contrast, the Notifying Party submits that mobile broadband should not be considered to be part of the market. The Notifying claims that mobile broadband is still underdeveloped in terms of speed and quality of service compared to fixed broadband. It also submits that customers do not currently substitute between mobile and fixed broadband offers but rather use the mobile access as a complement.

191. Eventually, the Notifying Party notes that the Commission previously considered separate markets between residential and small business customers on one hand and large business customers on the other hand. The Notifying Party submits that this point can be left open as it does not change the competitive assessment.

The Commission's assessment

192. In the Carphone Warehouse/Tiscali UK decision, the Commission concluded that mobile broadband is more expensive and slower, so it may constitute a separate market, but the question was ultimately left open. [114]

193. Furthermore, in the Carphone Warehouse/Tiscali UK decision the Commission distinguished between (i) residential and small customers and (ii) large business customers [115] based on their need for Internet services.

194. For the purpose of the present decision, there is no need to take a definitive view on the precise product market definition as the proposed concentration does not raise any competitive concern under any possible market definition.

4.2.7.2. Geographic market definition

View of the Notifying Party

195. The Notifying Party considers the market to be national in scope in line with the Commission's decisions.

The Commission's assessment

196. The analysis in section 4.2.2.2 applies, with the necessary changes being made to this market as well. The market investigation did not provide any indication that would justify a change in the geographic market definition.

197. The Commission therefore concludes that there is no reason to modify its previous geographic market definition of the German retail market of Internet access services, i.e. that the market is national.

4.2.7.3. Affected market

198. Both Parties are active in the retail provision of fixed Internet access. They offer fixed Internet access as a separate service and bundled together with fixed telephony services. On a national level, the merged entity’s combined market share in the overall fixed Internet access market in 2012 amounts to [10-20]% by revenues (Vodafone: [5-10]%, KDG: [0-5]%) and to [10-20]% by subscribers (Vodafone: [10-20]%, KDG: [5-10]%). The impact of the proposed concentration on this market will be assessed in paragraphs 346 to 349.

4.2.8. Internet hosting services

199. Internet hosting service providers operate Internet servers and offer organisations and individuals to serve content to the Internet via these servers. By using internet hosting services, organisations outsource their internal IT applications and infrastructure.

4.2.8.1. Product market definition

View of the Notifying Party

200. The Notifying Party submits that the exact definition of the product market can be left open.

The Commission's assessment

201. In the KPNQWEST / EBONE / GTS decision, the Commission considered four market segments within the general web-hosting sector, based on the range of different services and products offered: (a) the local (limited to the area where the web-hosting centre is located) supply of basic co-location services such as connectivity, power, and the facilities; (b) the national supply of shared and dedicated hosting consisting of hosting a customer's web-site on the web host's servers and providing the necessary support applications; (c) the national, possibly cross-border regional, supply of managed services to outsource complex enterprise applications and support infrastructure, including "front-end" and "back-office" applications hosted on the providers' platforms (so-called ASP), and (d) the national supply of content delivery services (CDS) such as Streaming Content Delivery Services and Static Content Delivery Products. [116] However, the Commission did not conclude on the exact market definition.

202. For the purpose of the present decision, there is no need to take a definitive view on the precise product market definition as the proposed concentration does not raise any competitive concern under any possible market definition.

4.2.8.2. Geographic market definition

View of the Notifying Party

203. The Notifying Party regards the market to be at least national in scope and possibly as wide as the EEA or worldwide.

The Commission's assessment

204. In previous decisions, the Commission did not conclude on the exact definition of the geographic market for Internet hosting services. [117]

205. As the proposed concentration raises no concerns under any geographic market definition, it is not necessary to conclude on the precise definition for the purpose of the current decision.

4.2.8.3. Affected market

206. The Notifying Party offers various hosting services in France, Germany, Ireland, Malta and the UK. Kabel Deutschland offers a limited number of Internet hosting services to its customers in Germany. According to the Parties` estimates, the market share of Vodafone in any Member State is below [10-20]% and much lower in Germany, while the market share of Kabel Deutschland is less than [0-5]%.

207. Because the combined market share of the Parties is less than [10-20]% and the increase of the Notifying Party`s market share by the proposed concentration is minimal, the market for Internet hosting services is not affected by the proposed concentration and will no longer be discussed in this decision.

4.3. Mobile Services

(...PICT...)

208. The relevant markets for the assessment of the proposed concentration are (1) the retail market for the provision of mobile telecommunication services to end customers and (2) the wholesale markets for services that are used as an input for these retail services, namely wholesale access and call origination on mobile networks, mobile call termination and international roaming.

4.3.1. Retail supply of mobile telecommunication services to end customers

209. Mobile telecommunication services to end customers, or "retail mobile services," encompass services for national and international [118] voice calls, SMS (including MMS and other messages), mobile Internet with data services, access to content via the mobile network and retail international roaming services. [119]

210. These services are provided on 2G [120] /GSM, [121] 3G/UMTS [122] and 4G/LTE [123] networks with the 2G network historically having better coverage and the 3G network being better adapted for larger amounts of data and faster download speeds. 4G/LTE that has only recently been launched, is a mobile technology which increases the speed and capacity of the network and is adapted for improved voice quality and high speed data transmission from wireless devices (for example, to stream video, Internet TV and to use broadband Internet).

211. While Vodafone operates on this market as an MNO, that is to say as a fully-fledged network operator, Kabel Deutschland is active on this market as an MVNO. The following table shows the market shares of the Parties by revenue and by number of subscriptions:

Table 2: Market shares in the retail supply of mobile services

|Vodafone |Kabel Deutschland |Combined |

Market shares based on revenues |[30-40]% |[0-5]% |[30-40]% |

Market shares based on the number of subscriptions |[20-30]% |[0-5]% |[20-30]% |

Source: Notifying Party based on market data by IDC, EMEA Telecom Services Database, 2013

4.3.1.1. Product market definition

View of the Notifying Party

212. The Notifying Party submits that this market comprises all calls (national and international [124] ) and related services (SMS, MMS, data services, access to content via mobile Internet, and roaming services [125] ). The Notifying Party submits that these services are invoiced or charged together to end consumers and it would therefore not be practical to make a distinction in the product market definition.

213. The Notifying Party submits that all different network technologies (2G/GSM, 3G/UMTS and 4G/LTE) should be considered as belonging to the same product market because it is impossible to distinguish between the services that are provided by these network technologies. 3G phones have the ability to use 2G and 3G networks and 4G phones can use 2G, 3G and 4G networks.

214. Moreover, the Notifying Party submits that private and business customers would not constitute separate markets for two reasons: (1) the services offered are substantially the same and (2) people often use business phones for private calls as well as business calls, which blurs the distinction between the two categories.

Commission's assessment

215. Previous decisions from the Commission in cases regarding other Member States ultimately left open the precise definition of the relevant product market. [126] The market investigation was equally inconclusive as regards the possible segmentations on this market.

216. For the purpose of the present decision, there is no need to take a definitive view on the precise product market definition as the proposed concentration does not raise any competitive concern under any possible product market definition.

4.3.1.2. Geographic market definition

View of the Notifying Party

217. The Notifying Party considers that the market should be considered national in scope in line with previous Commission's decisions.

Commission's assessment

218. The Commission has consistently found that the markets for retail mobile services provided to end consumers are national in scope. This includes the German market. [127]

219. The market investigation did not provide indications that the geographic market definition has recently changed and should be anything else than national. The Commission therefore concludes that there is no reason to modify its previous market definition and finds that the relevant market is the German market for retail mobile services.

4.3.1.3. Affected market

220. The market for the provision of mobile telecommunication services to end users (and its possible segments) is an affected market. The impact of the proposed concentration on competition in this market is discussed in section 5.3.1.

4.3.2. Wholesale access and call origination services on mobile networks

221. Mobile call origination services enable operators without a mobile network, that is to say MVNOs, to operate on the retail market.

222. As an MNO, Vodafone is active as a supplier on this market in Germany, as well as elsewhere in the EEA, while, as an MVNO, Kabel Deutschland is active on this market as a customer only in Germany.

4.3.2.1. Product market definition

View of the Notifying Party

223. The Notifying Party submits that the Commission has previously considered wholesale access and call origination by MNOs to belong to the same relevant product market. This market also includes all technologies and voice, text and data as they are generally purchased together in one MVNO access agreement.

Commission's assessment

224. Previous decisions from the Commission have defined a product market for mobile access and call origination services. [128]

225. The market investigation did not provide any indication that the product market definition should be modified.

226. The Commission considers that the product market should be defined as the wholesale market for mobile access and call origination services.

4.3.2.2. Geographic market definition

View of the Notifying Party

227. The Notifying Party considers that the market should be considered as national in scope in line with previous Commission's decisions.

Commission's assessment

228. Previous decisions from the Commission considered that the market is national in scope [129] .

229. The market investigation did not provide any indication that market conditions have changed to such an extent that the geographic market definition should be changed.

230. The Commission therefore considers that the relevant geographic market is national.

4.3.2.3. Affected market

231. The market for the provision of wholesale access and call origination on mobile networks is not horizontally affected since only Vodafone is active on this market. However, since each of Vodafone and Kabel Deutschland are active in the downstream retail market and their combined share is in excess of 25% (as is Vodafone’s share at the wholesale level), this market is vertically affected. The impact of the proposed concentration on competition on this market is discussed in paragraph 5.3.2.

4.3.3. Wholesale provision of mobile call termination services

232. Call termination services are provided when calls originate from one network and terminate on another network. For such calls, the operator on which network the call terminates, routes the call and connects it to the called party. This service is provided at wholesale level between two network operators.

233. Vodafone, as an MNO, is active on this market in Germany and in other EEA territories with a share of 100% on call termination services on its network, while Kabel Deutschland, as an MVNO, is not active on this market. However, Kabel Deutschland is active in the downstream market for the retail provision of mobile voice services in Germany.

4.3.3.1. Product market definition

View of the Notifying Party

234. The Notifying Party submits that there is no substitute for call termination on each individual network since the operator transmitting the outgoing call can reach the intended recipient only through the network to which the recipient is connected. Accordingly, the Notifying Party submits that the Commission has previously defined that each individual network constitutes a separate relevant product market.

235. The Notifying Party also notes that the termination market is regulated at EU level.

Commission's assessment

236. For the termination of a call, there can be no substitute other than the access to the network to which the called party belongs. Accordingly, the Commission has previously defined each individual network as a separate product market for call termination services. [130]

237. The market investigation did not provide any indication that the product market should be defined in a different manner.

238. The Commission therefore concludes, in line with previous decisions, that each individual mobile network constitutes a separate product market.

4.3.3.2. Geographic market definition

View of the Notifying Party

239. The Notifying Party considers that the market should be considered as national in scope in line with previous Commission's decisions.

Commission's assessment

240. Previous decisions from the Commission have defined the markets to be national in scope [131] .

241. The market investigation did not provide any indication that the geographic market definition should be changed.

242. The Commission therefore concludes that the markets for call termination of mobile calls are national.

4.3.3.3. Affected market

243. While the market for the wholesale provision of mobile call termination services is not horizontally affected since Kabel Deutschland is not active on this market, it could potentially be considered to be vertically affected since Vodafone is active on this market (with a 100% share on call termination services on its network) and Kabel Deutschland is active on the downstream market for the retail provision of mobile services. The competitive assessment is done in section 5.3.2 below.

4.3.4. Wholesale market for international roaming

244. For a provider of retail mobile services to be able to provide its end customers with telecommunication services outside their home countries, it enters into wholesale roaming agreements with providers of wholesale international roaming which are primarily active in other national markets.

245. Roaming agreements can be concluded with a preferred foreign operator which offers tailor-made service conditions, as can be seen in particular in the creation of international roaming alliances, such as the Freemove Alliance or the Vodafone partners. [132]

246. The roaming market is regulated within the EU. Prices are capped at EU level by the Roaming Regulation [133] . Under the Roaming Regulation, retail prices for making and receiving calls as well as sending SMS are capped for EU customers when using their mobile phones abroad, while receiving SMS is free. At the wholesale level, prices for voice roaming charges, SMS, and data roaming are equally capped for operators from EU Member States.

247. Vodafone is active on the wholesale market for international roaming by providing foreign MNOs with wholesale roaming services on its network. Kabel Deutschland is not active on the wholesale roaming market. At the retail level, Kabel Deutschland only acts as a reseller [information about Kabel Deutschland's contract partner and details regarding the contractual relationship].

View of the Notifying Party

248. The Notifying Party does not submit any product market definition that would depart from the Commission's previous definition of the wholesale market for international roaming.

Commission's assessment

249. In the case at hand, the Commission retains its previous product market definition of a separate wholesale market for international roaming comprising both terminating calls and originating calls.

4.3.4.1. Geographic market definition

View of the Notifying Party

250. The Notifying Party agrees with the Commission's previous decisions that the relevant geographical scope of the market for the supply of wholesale international roaming is national.

Commission's assessment

251. In previous decisions, the Commission found the wholesale markets for international roaming to be national in scope, given that wholesale international agreements can be concluded only with companies which have an operating licence in the relevant country and licences to provide mobile services are restricted to a national territory. [134]

252. In the case at hand, the Commission retains its previous' geographic market definition and considers the respective market to be national in scope.

4.3.4.2. Affected market

253. The wholesale market for international roaming is not horizontally affected since Kabel Deutschland is not active on this market. There is an indirect vertical link between the downstream retail market for mobile telecommunication services to end customers in Germany, on which Kabel Deutschland is active to a limited extent as reseller of [information about Kabel Deutschland's contract partner], and the upstream wholesale markets for roaming services in the EEA countries where Vodafone operates outside of Germany. As previously mentioned, Kabel Deutschland does not directly buy these services. Instead they are [information about Kabel Deutschland's contract partner and details regarding the contractual relationship]. Therefore, the Commission considers that the wholesale market for international roaming is not affected in the present case.

4.4. Multiple play

4.4.1. Product market definition

254. “Multiple play" offerings comprise a bundle of three or more of the following services to end-customers: fixed telephony services, mobile services, Internet access services and TV services. Such packaged offers may consist of so-called "triple play" comprising three services or even "quadruple play" comprising all the above services.

View of the Notifying Party

255. The Notifying Party submits that multiple play offerings do not constitute a separate product market as multiple play strategies have so far not taken hold in Germany.

256. First, as regards triple play offers, the Notifying Party explains that these are not standard commercial propositions in Germany. While operators would try to cross-sell the different services, there would usually be no discounts for customers purchasing a "package" of Internet, TV and telephone. Most of the cable operators (including Kabel Deutschland) only offer double play packages combining fixed telephony and Internet, while selling TV services separately.

257. Secondly, as regards quadruple play offers, the Notifying Party submits that there would be no real demand by customers in Germany. All service providers operating in Germany experienced that cross-selling between fixed and mobile services has been difficult, due to the different nature of purchasers (mobile services are bought by individuals while fixed line services are bought by households) and the different nature of sales channels (mobile services are primarily sold through shops, while fixed line services are primarily sold online or as telesales).

258. Moreover, the Notifying Party points out that 2012 Eurobarometer data suggests that only 2% of German households purchase quadruple play offers and a total of 12% purchase any variation of triple or double play packages that involve mobile telephony. In addition, a study by Analysys Mason estimates that fewer than 10% of households in Germany will have subscribed to a quadruple play package by 2017. In this context, the Notifying Party points out that these figures are in line with the findings by the German Federal Network Agency ("BNetzA"), according to which the vast majority of end customers in Germany did not purchase telephone services, Internet access and TV services as a bundle, but as stand-alone products.

Commission's assessment

259. Previous Commission decisions ultimately left open whether there is a market for multiple play that is separate from the markets for each of the components of the package. [135]

260. According to the results of the market investigation, customers in Germany purchase triple play offers combining either (i) TV, fixed telephony and fixed Internet or (ii) fixed telephony, fixed Internet and mobile telecommunication services. [136] The results of the market investigation were, however, mixed as to the extent to which German customers today purchase quadruple play offers combining mobile, fixed telephony, Internet and TV services. Consumer associations were of the view that today there is no demand for quadruple play, [137] whereas the majority of competitors indicated that quadruple play offers are already purchased today or will be increasingly purchased in the near future. [138] However, only one respondent indicated that it markets quadruple play offers already today. [139]

261. In any event, for the purpose of the present decision, the question whether the different types of multiple play constitute separate relevant markets from each of the markets of their components can be left open, as the proposed concentration does not raise competition concerns under either product market definition.

4.4.2. Geographic market definition

View of the Notifying Party

262. As the Notifying Party submits that multiple play offers do not constitute a relevant product market, it does not make any submission as regards the geographic scope of a possible market for multiple play offers.

The Commission's assessment

263. Previously, the Commission considered that a possible market for triple play services was national in scope due to regulatory barriers. However, ultimately, the exact geographic market definition was left open. [140]

264. As regards the geographic scope of the respective services to be bundled in multiple play offers, in the case at hand, the Commission considers the markets for fixed line telephony, Internet access and mobile communication services to be national in scope. The Commission ultimately leaves open whether the retail market for TV services is national or regional in scope.

265. For the purpose of this case, the impact that this has on the exact geographic market definition and hence the definition itself, can be left open as the proposed concentration does not raise competition concerns under any alternative definition.

4.4.3. Affected market

266. Vodafone currently markets triple play offers combining fixed and mobile telephony and Internet access. In Vodafone's financial year 2012/ 2013, the number of subscribers of these triple play offers amounted to around [non-public information about Vodafone's number of customers]. Furthermore, Vodafone also has a small number of subscribers of quadruple play offers (around [non-public information about Vodafone's number of customers] in its financial year 2012/2013). In order to provide triple and quadruple play services, Vodafone uses its own mobile network and fixed telephony and broadband on the basis of wholesale access to DTAG's network.

267. Kabel Deutschland currently only markets dual play bundles of fixed Internet and telephony, whilst offering cable TV as a separate service. Although it offers mobile telephony services on an MVNO basis, it currently does not offer mobile products bundled with its TV and/ or Internet and/ or fixed telephony services.

268. The Parties' activities do not overlap on the possible market for multiple play or in its different segments, that is to say in the provision of triple play, and quadruple play. Nevertheless, some respondents to the market investigation expressed concerns about the impact of the proposed concentration on this market. Furthermore, there are conglomerate links between the possible market for multiple play and the wholesale markets for the different components that are bundled in multiple play. As Vodafone holds a market share in excess of 25% on the market for the wholesale supply of mobile access and call origination services, the possible market for quadruple play would be affected in a conglomerate sense.

269. The impact of the proposed concentration on a possible market for multiple play, as well as on the markets for its components is therefore discussed in Section 5.4.

5. COMPETITIVE ASSESSMENT

5.1. Television services

5.1.1. Acquisition of pay TV channels

5.1.1.1. View of the Notifying Party

270. The Notifying Party submits that in the market for the acquisition of pay TV channels, the increment brought about by the proposed concentration is very limited. In the narrowest possible hypothetical relevant market (limited to cable and IPTV), the increment would be [0-5]%, leading to a combined market share of [30-40]% (the merged entity’s share would not materially change if the market were to be segmented between basic and premium pay TV channels). In the Notifying Party’s view, the addition of Vodafone’s very small customer base of approximately [non-public information about Vodafone's number of customers] subscribers will not increase the merged entity’s negotiating power vis-à-vis TV channel broadcasters, which enjoy a very strong bargaining power.

271. Moreover, the Notifying Party submits that, post transaction, the TV channel purchasing market will continue to be dominated by Sky with a share of 55-60% in the acquisition of pay TV channels for distribution via all type of infrastructure.

5.1.1.2. Commission's assessment

272. The Parties’ market shares in the acquisition of pay TV channels in Germany are, respectively, [20-30]% for Kabel Deutschland and [0-5]% for Vodafone if the relevant market were to be considered as including all distribution infrastructures. [141] If, conversely, separate product markets were to be identified for each type of distribution infrastructure, the proposed concentration would not give rise to any horizontal overlaps, since Kabel Deutschland operates a cable infrastructure and Vodafone an IPTV infrastructure. On the narrowest possibly affected market, that is to say the market for the acquisition of pay TV channels by cable and IPTV operators in Germany, the Parties’ respective market shares would be [30-40]% for KDG and [0-5]% for Vodafone. In other words, depending on the relevant product market definition chosen, either the proposed concentration does not give rise to any horizontal overlap between the Parties’ activities or the scope of any such overlap is very limited (below [0-5]%).

273. During the market investigation, a number of respondents have taken the view that as a result of the proposed concentration, the combined entity would be able to secure exclusivity for the acquisition and subsequent distribution of certain TV channels because it would have increased bargaining power. [142] Similarly, respondents feared that the combined entity would be in a position to negotiate lower rates from TV broadcasters, which could in turn potentially weaken or foreclose competing TV retailers. [143]

274. The Commission has carefully assessed these claims and considers them unfounded.

275. As noted, Vodafone's market position as a licensee of TV channels is very limited (less than [0-5]%) even in the narrowest possible hypothetical market limited to cable and IPTV. An important bargaining criterion for negotiations between pay TV retailers and pay TV channel broadcasters is the number of TV subscribers. The addition of Vodafone's approximately [non-public information about Vodafone's number of customers] IPTV subscribers to Kabel Deutschland's customer base of 8.1 million corresponds to an increase of [0-5]%. Hence, the proposed concentration is unlikely to have any material impact on Kabel Deutschland's bargaining position vis-à-vis pay TV channel broadcasters.

276. In any event, despite its alleged market power, today Kabel Deutschland does not currently secure exclusivity for TV channels and any such alleged market power does not appear to translate into any ability on the part of Kabel Deutschland to secure significantly better terms than its competitors from TV broadcasters. Again, the addition of Vodafone’s very limited market share is unlikely to change this market situation.

277. Moreover, some elements would indicate that Kabel Deutschland does not have an ability to secure significantly better licensing terms. First, TV channel broadcasters are expected to strongly resist any request for exclusivity on the part of the merged entity. Indeed, consistent with the Commission’s findings in a series of earlier cases, TV channel broadcasters have a strong incentive to achieve the greatest possible distribution for their channels, which typically translate in pursuing a multi-platform strategy consisting of being present on as many competing TV retail platforms as possible. [144]

278. Second, possible foreclosure effects could only potentially arise if the merged entity were to be able to secure exclusive access to the most popular channels. However, these channels are precisely those with the greatest negotiating power and therefore the less