EN Official Journal of the European Union C 101/25

Summary of Commission Decision

of 4 December 2007

declaring a concentration compatible with the common market and the functioning of the EEA Agreement

(Case COMP/M.4662 — Syniverse/BSG)

(Only the English version is authentic)

(Text with EEA relevance)

(2008/C 101/09)

On 4 December 2007 the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1) , and in particular Article 8(…) of that Regulation. A non-confidential version of the full decision can be found in the authentic language of the case and in the working languages of the Commission on the website of the Directorate-General for Competition, at the following address:

http://ec.europa.eu/comm/competition/index_en.html

I. SUMMARY

1. On 5 June 2007, the Commission received a notification of a proposed concentration pursuant to Article 4 and following a referral pursuant to Article 4(5) of Regulation (EC) No 139/2004 by which the undertaking Syniverse Technologies, Inc. (‘Syniverse’, USA) acquire(s) within the meaning of Article 3(1)(b) of the Council Regulation control of the wireless business of Billing Services Group Limited (‘BSG Target Business’, Bermuda) by way of purchase of shares.

2. Syniverse Technologies, Inc. (‘Syniverse’, USA) is a wholly owned subsidiary of Syniverse Holdings, Inc. Syniverse is a global provider of technology services to wireless telecommunications companies. Syniverse's customers are based in more than 50 countries all over the world.

3. The BSG Group is a global provider of payment processing, data clearing, financial settlement and risk management solutions for fixed-line (wireline), wireless and Wi-Fi communication service providers. The BSG Group operates two businesses, namely a wireless business and a wireline business. The proposed transaction only concerns the wireless business (the wireless business hereinafter: ‘BSG’).

4. The Commission's market investigation has revealed that the proposed concentration will not give raise to any competition concerns as a result of which effective competition would be significantly impeded in the Common Market or in a substantial part of it.

I.1. Relevant Product Market

5. This transaction concerns a part of the billing services market for mobile network operators (‘MNOs’), namely the data and financial clearing services for GSM (2) roaming (3). Data clearing and financial clearing services represent a niche in the billing services function. It enables the processing of records relating to the number and length of wireless calls or message transmission, thus allowing the MNOs both to reconcile their charges with each other and to charge their subscribers for the use of the visited network.

6. Syniverse offers GSM roaming data clearing services and BSG offers both. The notifying party claims that Syniverse is today the only leading data clearing house which does not have financial clearing capabilities and that this places Syniverse at a competitive disadvantage because many MNOs seek a ‘one-stop’ solution when outsourcing their data and financial clearing needs. The parties cite the acquisition of BSG's financial clearing services as an essential part of the rationale for the transaction.

7. Roaming allows subscribers to make and receive voice calls, send and receive data, or access other services when they are outside their home network. The subscriber ‘roams’ when he or she uses the visited network. In order for MNOs to be able to provide services across different networks and across different countries, they enter into roaming agreements with each other. These agreements are standard agreements and the entire GSM roaming process is standardised under the auspices of the GSMA.

8. The data clearing process is the exchange of information between MNOs (acting either as a visited network or as a home network) containing subscriber identifying information, the mobile numbers involved, time and date stamps, call duration, and all other data items needed to generate a charge to the customer. An MNO doing its own data clearing would potentially have to send a package of data to all their roaming partners. Alternatively they could send their visitors' data to a data clearing house who would deal with all their roaming partners. Subsequently, MNOs need to settle the costs of the usage of their respective subscribers: this is the financial clearing process.

9. As yet, the Commission has not defined these markets. The notifying party proposes that it can be left open whether data clearing and financial clearing are separate markets.

10. The market investigation clearly confirmed that there are separate markets for data clearing and financial clearing services. The vast majority of respondents considered these to be separate markets (4). Accordingly, the purposes of the two services are considered to be different and do not seem to be substitutable. The market investigation showed that MNOs frequently use a different data clearing service provider and a different financial clearing service provider. Financial clearing services are much more frequently done in-house than data clearing services, as MNOs tend to outsource their data clearing services (only one major MNO in the EEA does it in-house) (5). In contrast to what the notifying party suggests, customers do not require that a service provider provides both data clearing and financial clearing services (6).

11. Accordingly, data clearing and financial clearing services shall be considered as different product markets. As the parties' activities do not overlap in the market of financial clearing services, the decision only deals with the market for GSM roaming data clearing services.

I.2. Relevant Geographic Markets

12. The Commission has not defined the geographic scope of these markets in previous cases. The notifying party suggests that the geographic market for GSM data clearing services is worldwide in scope. The parties submit, firstly, that roaming data, by its very definition has an international dimension and is not limited to national borders. Secondly, they maintain that global standards apply to the way that roaming data is exchanged and cleared (these are confirmed by the market survey). Thirdly, the notifying party maintains that the geographic location of the customer and of the service provider is irrelevant as the service provider can provide services from any location worldwide. By way of example, the notifying party describes how Syniverse provides its data clearing services to all of its worldwide customers (including all of its customers in Europe) from its headquarters in Tampa, Florida. The market investigation partly confirmed the view of the notifying party that the geographic market could be considered to be global. In reply to the general question on the scope of the market, a majority of the customers who responded considered the market for data clearing to be worldwide. A number of respondents, however, considered the market to be EEA-wide (7).

13. The market investigation also showed some indications that the market could be limited to the EEA. Requests for proposals by MNOs are addressed internationally, but if a service provider wants to win contracts for servicing MNOs in Europe it is advisable to have a European presence. Half of the respondents (which included some large MNO customers) place a high value on geographic proximity for reasons of data integrity and after sales service. Within the EEA all data clearing competitors (MACH, Syniverse and BSG) have more than one European office.

14. Nevertheless, the market investigation also showed that although a European presence would be an advantage for servicing EEA customers, the costs for opening up a European presence are limited and one competitor also explained that it would not be absolutely necessary as the data processing server may in any case be operated outside Europe.

15. The market investigation showed that data processing reliability and data protection issues are of a high relevance. Nevertheless, the market investigation has also revealed that MNOs must address data security in the same manner as any other company in other industries having to transfer personal data outside the EEA, therefore, it can be concluded that data protection issues are not a hindrance with respect to the processing of data outside the EEA and would not as such be an indication that the market is only EEA-wide.

16. The exact definition of the relevant geographic market may be left open for the purposes of the present case, as the proposed transaction does not significantly impede effective competition in the common market even in the narrowest possible (EEA-wide) geographic market.

I.3. Competitive Assessment

I.3.1. Market Structure

17. Outsourcing of data clearing services started back in the early nineties. From 2004 onwards, the markets witnessed a number of acquisitions. The market leader, Mach is headquartered in Luxembourg and has been doing data clearing since the 1990's. Mach has more than 400 data clearing clients around the world serviced by their 700 employees from offices in the United States, South America, India, Dubai, Singapore, Hong Kong and six other offices in Europe (including Moscow and London).

18. BSG was created in 2003 from an amalgamation of companies by the private equity fund ABRY Partners. Syniverse started data clearing operations in the United States in 1996 and first established a data clearing European presence in 2003 based upon what it termed a modest investment. There are other competitors such as: Comfone (Switzerland) which sells mobile-related services and training to MNOs worldwide and since 1998 has offered their own data and financial clearing solutions. In 2003, they ceased selling their data clearing product and became a re-seller of BSG's clearing services. The Commission considers that Comfone would be able to re-enter the market for GSM data clearing within the near future.

19. Emirates data Clearing House (‘EDCH’) was founded in 1994 as part of Etisalat, the United Arab Emirates telecommunications company. It has been focusing its activity in the Middle East, but has business in other parts of the world (in the Far East and in Africa). Although EDCH is not active in Europe, it has participated in tender procedures in the EEA and the Commission considers that EDCH may have the incentive to enter an EEA market for GSM data clearing.

20. VeriSign is a US-based public company, which offers a variety of internet and telecommunications services. As yet it does not provide data clearing services in Europe. However, it does provide related services to its customers through its European offices. On the basis of the market investigation, the Commission considered it likely that VeriSign would have the incentive to enter the market in the EEA, in particular if sponsored by an MNO. VeriSign has almost […] data clearing customers in the Americas.

21. Another competitor providing data clearing services is ARCH, a subsidiary of China Mobile with offices in Hong Kong and in Shenzhen in the People's Republic of China. ARCH services the world's largest MNO, China Mobile as well as other MNOs. It has no presence in Europe and, although during the market investigation some customers considered ARCH to be a credible bidder, the Commission did not find it likely that ARCH would imminently enter an EEA market for data clearing.

22. In worldwide market Mach would have an estimated [50-60] % market share and in the EEA [55-65] %. For Syniverse the corresponding market shares are estimated at [15-25] % and [10-20] %, for BSG [10-20] % and [30-40] %, EDCH [0-10] % (worldwide) and VeriSign [0-10] % (worldwide).

23. Post merger, in a worldwide market, Mach would also remain the clear market leader [50-60] %, the combination of Syniverse and BSG (currently the second and third players respectively) would become the second player in the market [30-40] %. With respect to an EEA-wide market, Mach would still be the market leader in data clearing with a market share of [55-65] %. The combination of BSG & Syniverse (currently number two and three in the market) would come closer with a combined share of [35-45] %. The concentration would therefore reduce the number of competitors from three to two in an EEA-wide market.

24. According to the notifying parties there is a genuine option for MNOs called ‘self-supplying’ as the MNOs do have the ability and the in-house know-how to switch from outsourcing their data clearing to doing it in-house. However, this has not been confirmed by the market investigation. Firstly, the investigation has revealed that there are no recent examples of an MNO switching from outsourcing to in-house data clearing. Secondly, the MNOs which responded to the Commission's market investigation also indicated that self-supplying was not a realistic option for them.

25. Data clearing services are typically procured by MNOs using a tender or a bidding process. Negotiations are often done by e-mail. The market investigation has shown that the bidding process is competitive and is also characterized by an absence of price transparency. Prices usually depend on the number of roaming transactions processed and there can also be significant potential follow-on revenues from the provision of other services. However, the net effect of MNO consolidation, according to the parties has been an historical downward spiral of data clearing prices and the resulting commoditisation of the data clearing service. This trend has been confirmed by the market investigation which also showed that the cost of catering for any extra capacity needed for new clients are not significant. Servicing the extra volume of transactions of a new MNO customer has less to do with the total number of subscribers they have and more to do with the number of visiting subscribers they host.

26. The market investigation has shown that the markets concerned are quickly developing technology markets. As such there are on-going technical developments. Within the next few years the market for data clearing services may appear different with respect to the services provided and even the players involved. On-going technological developments fostered by the GSMA are to do with ‘Near Real-Time Roaming Data Exchange’ technology (‘NRTRDE’) that is designed for fraud detection, but potentially suitable for data clearing; and the ‘Hubs-concept’ (part of what is termed the ‘Open Connectivity project’) that will allow clearing ‘hubs’ to co-ordinate clearing positions between MNOs instead of having a contract with each of the more than 700 MNOs.

I.3.2. Unilateral Effects

27. The analysis of potential unilateral effects was carried out on the basis of an EEA-wide market as the narrowest conceivable geographic scope of the market. The analysis of the bidding and switching data has shown that Syniverse and BSG do not form particular competitive constraints upon each other and that MACH has exerted a stronger competitive constraint on each of Syniverse and BSG. In addition, the characteristics of the market for data clearing services give suppliers a strong incentive to compete aggressively for every contract that comes up for renewal. Both the parties' and the customers' data on tender participation indicated that each of BSG and Syniverse faced strong competition from MACH. In nearly half of the cases there were only two bidders, but BSG and Syniverse were never the only two bidders in a tender. This means that the MNOs determined that the tender process was sufficiently competitive with two bidders, namely MACH and BSG or MACH and Syniverse. The analysis of the ranking data has shown that Syniverse and BSG were only very rarely both the winner and the runner-up in the same tender.

28. The results of the analysis indicate that prices offered by BSG are unaffected by whether or not Syniverse participated in a tender, which also implies that Syniverse does not exert a strong competitive pressure on BSG's prices.

29. Irrespective of the different costs and efforts needed to switch suppliers, the market investigation confirmed that switching can be done and that there are many instances of MNOs switching data clearing suppliers. Costs incurred in switching can be offset by the savings made in switching suppliers. The Commission has found several instances of switching suppliers in Europe occurring between 2004 and 2007. The market investigation has also shown that switching between BSG and Syniverse (or vice versa) is very rare.

30. The characteristics of the market for data clearing services provide incentives for suppliers to compete intensely, which would make a unilateral price increase by the merged entity unlikely. Firstly, there are no capacity constraints. Secondly, the provision of data clearing services is characterised by low marginal costs for those suppliers providing these services on their own equipment. Suppliers therefore have a strong incentive to compete aggressively for every contract. Finally, data clearing houses face significant potential follow on revenues from other services.

31. As indicated above, existing data clearing houses operating on a worldwide basis have shown that they have the ability and the incentive to enter the European market for data clearing services. In this regard, the market investigation has shown that several MNOs would clearly consider ARCH, EDCH, VeriSign and Comfone as credible bidders.

32. The recent consolidation of MNOs as well as a more sophisticated bidding process give MNOs countervailing power. In particular, MNOs may have a strong bargaining position by virtue of their relative financial size and the scale of their operations. Therefore, from the above analysis one can conclude that the proposed operation would not lead to concerns with respect to unilateral effects.

I.3.3. Co-ordinated effects

33. Considering the market shares, the merger would lead to an estimated [80-90] % market share for the two largest competitors in a worldwide market, and an estimated [90-100] % market share in an EEA-wide market for data clearing. Given the market shares of Mach and the merged entity post merger, it was important to study whether the proposed transaction could either facilitate or enable MACH and the merged parties to co-ordinate on prices.

34. Taking into account the characteristics of the market for data clearing services, it does not seem likely that the proposed merger would lead to co-ordinated effects. A common understanding on prices does not appear to be feasible and given the dynamic nature of the market and the lack of stability in the customers' respective sizes, a customer allocation would be difficult and would need to be reassessed regularly.

35. Although deviation may be detected easily after a tender has taken place, bidders would not be able to detect deviation during the tender. Retaliation would only be possible by bidding very aggressively for the next contracts. Since tenders for new contracts are relatively infrequent — the contract durations and volumes vary strongly from one MNO to another — such a strategy does not constitute a credible deterrent mechanism. Finally, effective collusion is unlikely to take place as outsiders would most likely jeopardise the outcome of the expected co-ordination. Therefore, as a result, one can conclude that the proposed operation does not lead to concerns with respect to co-ordinated effects.

I.4. Conclusion

36. The Commission concludes in the draft Decision that the proposed concentration will not give raise to any competition concerns as a result of which effective competition would be significantly impeded in the Common Market or in a substantial part of it. Consequently, the Commission intends to declare the concentration compatible with the Common Market and the EEA Agreement, in accordance with Article 8(1) of the Merger Regulation and Article 57 of the EEA Agreement.

(1) OJ L 24, 29.1.2004 p. 1

(2) GSM (‘Global System for Mobile Communications’) is the main worldwide standard for mobile communications, and is defined by the GSM Association (‘GSMA’).

(3) Roaming allows an MNO's retail customer to use their mobile device on wireless networks other than those to which they are a subscriber. A mobile device could be a mobile telephone, a PDA (personal digital assistant) or a laptop computer.

(4) 30 customers out of 34 defined data clearing and financial clearing services as separate product markets.

(5) Only one MNO out of 38 answered that it does data clearing in-house. Five others responded that they have outsourced 70-95 % of their data clearing needs. 32 MNOs have completely outsourced this service.

(6) Only 10 % of the MNOs that responded indicated that they require both services from the same supplier. The other 90 % were very clear that it was not a requirement for them.

(7) 30 respondents indicated that the geographic market would be global, 5 others suggest EEA-wide.