1999/154/EC: Commission Decision of 27 May 1998 relating to a proceeding pursuant to Council Regulation (EEC) No 4064/89 (Case No IV/M.1027 - Deutsche Telekom/BetaResearch) (notified under document number C(1998) 1441) (Only the German text is authentic) (Text with EEA relevance)
Date: 1998-05-27
Institutions: European Commission
Subjects: Germany, dominant position, economic concentration, merger control, pay television, shareholding

27.2.1999

EN

Official  Journal  of  the  European  Communities

L  53/31

COMMISSION  DECISION

of  27  May  1998

relating  to  a  proceeding  pursuant  to  Council  Regulation  (EEC)  No  4064/89

(Case  No  IV/M.1027  —  Deutsche  Telekom/BetaResearch)

(notified  under  document  number  C(1998)  1441)

(Only  the  German  text  is  authentic)

(Text  with  EEA  relevance)

(1999/154/EC)

THE  COMMISSION  OF  THE  EUROPEAN  UNION,

Having  regard  to  the  Treaty  establishing  the  European
Community,

Having  regard  to  the  Agreement  on  the  European
Economic  Area,  and 
in  particular  Article  57(2)(a)
thereof,

digitaler  Infrastrukturen  mbH  (BetaResearch).  The
proposed concentration was to be effected through
the  purchase  of  shares.

(2)  On 23 December 1997 the Commission decided to
suspend 
proposed
concentration  pursuant  to  Articles  7(2)  and  18(2)
of  the  Merger  Regulation  pending  adoption  of  a
final  decision.

implementation 

the 

of 

Having  regard  to  Council  Regulation  (EEC)  No  4064/89
of  21  December  1989  on  the  control  of  concentrations
between  undertakings (1),  as  last  amended  by  Regulation
(EC)  No  1310/97 (2),  and  in  particular  Article  8(3)
thereof,

(3) 

Having regard to the Commission Decision of 29 January
1998  to  initiate  proceedings  in  this  case,

Having given the undertakings concerned the opportunity
to  make  known  their  views  on  the  objections  raised  by
the  Commission,

Having regard to the opinion of the Advisory Committee
on  Concentrations (3),

Whereas:

(1)  On  8  December  1997  the  Commission  received
notification  pursuant  to  Article  4  of  Council
Regulation  (EEC)  No  4064/89  hereinafter:  the
Merger  Regulation  of  a  proposed  concentration
whereby  Deutsche  Telekom  AG  (Telekom)  and
BetaTechnik AG (BetaTechnik) would acquire joint
control,  within  the  meaning  of  Article  3(1)  of  the
Merger  Regulation,  of  BetaResearch  Gesellschaft
Vermarktung
für 

Entwicklung 

und 

(1)  OJ  L  395,  30.12.1989,  p.  1.  Corrigendum  (OJ  L  257,

21.9.19990,  p.13).

(2)  OJ  L  180,  9.7.1997,  p.  1.
(3)  OJ  C  57,  27.2.1999.

By 
letter  dated  22  December  1997  Germany
informed  the  Commission  pursuant  to  Article  9(2)
of  the  Merger  Regulation  that  that  concentration,
and  also  the  concentration  between  Bertelsmann,
Kirch  and  Premiere,  threatened  to  create  or
strengthen  a  dominant  position  as  a  result  of
which  effective  competition  would  be  significantly
impeded  on  six  markets  in  Germany,  each  of
which  constituted  a  separate  geographic  market
within  the  meaning  of  Article  9(7)  of  the  Merger
Regulation.

(4)  On  29  January  1998  the  Commission  decided
pursuant 
the  Merger
Regulation  and  Article  57  of  the  EEA  Agreement
to  initiate  proceedings  in  this  case.

to  Article  6(1)(c)  of 

(5) 

The Advisory Committee discussed the draft of this
Decision  on  6  May  and  25  May  1998.

I.  THE  PARTIES

(6) 

Telekom is the public telecommunications operator
in  Germany.  It  is  active,  either  directly  or  through
subsidiaries,  in  all  areas  of  telecommunications
services,  and  is  the  owner  and  operator  of  nearly
all 
the  German  cable-television  networks  at
level  3.

(7) 

(8) 

(9) 

L  53/32

EN

Official  Journal  of  the  European  Communities

27.2.1999

CLT-UFA  is  a  joint  venture  between  Bertelsmann
AG  (Bertelsmann)  and  Audiofina  SA,  into  which
the  parent  companies  have  merged  their  European
television  interest.  These  include  the  shareholding
in  Premiere  Medien  GmbH  &  Co.  KG  (Premiere).

BetaTechnik  belongs  to  the  Kirch  group  (Kirch)
and  does  mainly  film  post-production  work  such
as  dubbing.  Kirch  is  the  leading  German  supplier
of feature films and television programming and is
also  active  in  commercial  television.

technical  platform 

(11)  Telekom  has  become  a  party  to  the  arrangement
between  Kirch  and  Bertelsmann  regarding  the
introduction  of  Beta  encryption  and  decryption
(Beta  access)  technology  based  on  the  d-box
decoder.  Thanks  to  this  technology  Telekom  will
have  a 
the  digital
distribution  of  pay-TV  programmes  via  its  cable
network  and  be  able  to  provide  technical  services
for  programme  transmission.  Telekom  aim 
in
taking  part  in  the  notified  transaction  is  to  ensure
that  it  has  the  necessary  rights  in  the  Beta  access
technology. The operation is part of a complex set
of agreements between CLT-UFA and Kirch on the
one  hand  and  CLT-UFA,  Kirch  and  Telekom  on
the  other.

for 

II.  THE  PROPOSED  OPERATION

III.  THE  CONCENTRATION

BetaResearch  which  at  the  present  time  is  still  a
wholly-owned  Kirch  subsidiary,  is  the  holder  of
exclusive,  open-ended 
licences  —  granted  for
Germany,  Austria  and  the  German-speaking  part
of  Switzerland  —  for  Beta  encryption  technology
for  the  encryption  of  programmes  on  the  basis  of
the  d-box  decoder.  The  licenser  of  the  access
technology is DigCo BV, in which Kirch and Irdeto
BV, owned by the South African group MIH, each
have  a  50 %  stake.  BetaResearch  is  active  in  the
development of decoder software and will continue
to  develop  the  encryption  and  operating  software
for  the  d-box  technology.  It  will  licence  this
technology  to  pay-TV  operators,  providers  of
technical  services  for  digital  television  and  decoder
manufacturers. 
itself  manufacture
conditional  access  modules  (CA  modules)  and
smart  cards  for  supply  to  d-box  manufacturers,
and  will  carry  out  contract  and  project  work  for
third parties; it has already received orders for such
work 
(Thyssen
Telecom).

from  Stinnes  and  MediaGate 

It  will 

and 

in  BetaResearch 

(10)  First  of  all  CLT-UFA  will  acquire  a  50 %  interest
in  BetaDigital
both 
Gesellschaft 
für  digitale  Fernsehdienste  mbH
(‘BetaDigital’),  likewise  a  wholly-owned  subsidiary
of  Kirch.  These  transactions  are  part  of  the
intended  restructuring  of  the  German  pay-TV
operator  Premiere,  which  is  to  become  a  digital
pay-TV  programme  and  marketing  platform  using
the  d-box  technology  made  available  to  it  by
Kirch.  This  operation  forms  the  subject-matter  of
proceeding 
IV/M993  —  Bertelsmann/Kirch/
Premiere.

(12)  Telekom, in conjunction with CLT-UFA and Kirch,
will exercise joint control over BetaResearch within
the  meaning  of  Article  3(1)(b)  of  the  Merger
Regulation.  In  the  ‘Agreement  on  the  restructuring
of  BetaResearch’  (‘the  restructuring  agreement’)  it
is  stipulated  that  important  business  decisions,
such as [. . .] (4), are to be taken by the proprietors’
meeting  acting  unanimously.

technical 
services 
it  will  also  grant 

(13)  BetaResearch will perform on a permanent basis all
the  functions  of  an  autonomous  economic  entity
and  should  not 
lead  to  coordination  of  the
competitive  behaviour  of  Telekom,  CLT-UFA  and
Kirch.  It  will  not  only  license  d-box  technology  to
firms — such as Telekom and BetaDigital — which
for  digital
seek 
to  offer 
televisions,  but 
licences  to
programme  suppliers  who  wish  to  provide  the
necessary technical services themselves. It will grant
licences  to  interested  decoder  manufacturers  and
supply  them  with  CA  modules,  and  develop
decoder  software  for  third  parties.  Besides  its
business  dealings  with  its  parent  companies  and
with  companies  associated  with  them,  therefore,  it
can  be  assumed  that  BetaResearch  will  also  do
business to a considerable extent with third parties
and  will  hence  have  its  own  access  to  the  market.
BetaResearch  is  accordingly  to  be  regarded  as  a
full-function  enterprise.  Since  only  CLT-UFA  is
active  in  the  field  of  digital  encryption  technology
for  pay-TV,  through  Bertelsmann’s  stake  in  Seca
SA  there  is  no  risk  of  coordination  of  competitive

(4)  This  version  of  the  Decision  has  been  edited  to  ensure  that

confidential  information  has  not  been  disclosed.

27.2.1999

EN

Official  Journal  of  the  European  Communities

L  53/33

behaviour  between  Telekom,  CLT-UFA  and
Kirch.

IV.  COMMUNITY  DIMENSION

(14)  Telekom,  Bertelsmann  and  Kirch  together  have  an
aggregate  world-wide  turnover  of  more  than  ECU
them  has  an  aggregate
5  billion.  Each  of 
Community-wide  turnover  of  more  than  ECU  250
million. Only Telekom and Kirch realise more than
two-thirds  of  their  aggregate  Community-wide
turnover  within  one  and  the  same  Member  State,
namely  Germany.  The  concentration  therefore  has
a Community dimension and does not constitute a
case  of  cooperation  under  the  EEA  Agreement.

V.  ASSESSMENT  UNDER  ARTICLE  2  OF  THE
MERGER  REGULATION

(15)  The  proposed  concentration  affects  mainly  the

markets  for:

—  technical  services  for  pay-TV,

—  cable  networks.

to 

receive 

the  pay-TV 

of 
the
subscribers 
programmes,  together  with  the  television  signal,
and possibly smart cards which are made available
to  the  viewer  and  are  able  to  decipher  the
encrypted  authorisation  data  and  transfer  them  to
the  decoder.

(18)  The  infrastructure  described  above  forms  the  basis
for  the  services  relating  to  the  operation  of
pay-TV.  These  involve  primarily  the  handling  of
conditional  access  and  the  marketing  of  decoders
and  smart  cards.  Technical  services  for  pay-TV
require  specific  technology  for  the  transmission  of
digital  television  signals  via  satellite  and  via  cable.
In  the  case  of  satellite  transmission,  the  television
signal  is  processed  by  the  playout  centre  and  sent
to  the  respective  satellite  transponder,  from  where
it  can  be  beamed  down  and  received  directly  by
each  satellite  TV  subscriber  using  a  decoder
designed for satellite reception. In the case of cable
distribution,  on  the  other  hand,  the  processed
television  signals  are  first  beamed  down  from  the
satellite  transponder  to  a  cable  head-end,  where
they are converted for cable transmission and then
fed  into  the  cable  network.  Despite  the  separate
transmission  technology  for  satellite  and  cable
transmission,  a  corresponding  subdivision  of  the
market  for  technical  services  for  pay-TV  into  two
independent 
seem
imperative.  Both  satellite  and  cable  transmission
the
require 
operation  of  pay-TV.  Ultimately  the  question  can
be  left  open,  however,  as  it  does  not  affect  the
outcome  of  the  assessment  under  the  Merger
Regulation.

technical  services 

sub-markets 

the  same 

does 

not 

for 

A.  RELEVANT  PRODUCT  MARKETS

1.  Technical  services  for  pay-TV

2.  Cable  networks

(16)  The  operation  of  pay-TV  requires  a  special
technical  infrastructure  which  makes  it  possible  to
encrypt  the  televisions  signals  and  to  decrypt  them
for  the  authorised  viewer.  This  is  done  by  a
decoder  which  is  installed  in  the  home  of  every
pay-TV  subscriber.  Decoders  for  receiving  digital
pay-TV  do  not  only  decrypt  the  signals  encrypted
in the access system, but they also convert them to
enable  digital  television  signals  to  be  received  on
analogue  TV  sets.  Different  decoders  are  used  for
cable  and  satellite  TV.

(17) 

In  addition  to  a  decoder  base,  pay-TV  requires  a
system  of  conditional  access.  This  system  includes
the  transmission  of  encrypted  data,  which  contain
information  on  the  programmes  or  packages  of
programmes  subscribed  to  and  on  the  entitlement

(19)  Television  signals  can  be  broadcast  by  terrestrial
transmitter,  satellite  or  cable.  In  its  Decision  on
MSG  Media  Service (5) 
the
Commission took the view that there were separate
markets  for  cable  TV,  direct  broadcasting  by
satellite  and  terrestrial  transmission.  It  established
in 
there  were  considerable
differences  between  the  technical  conditions  and
financing  of  the  three  means  of  transmission.

(the  MSG  case) 

that  case 

that 

(20)  From  the  point  of  view  of  the  TV  supplier  the
transmission  of  his  programmes  by  cable  is  not

(5)  OJ  L  364,  31.12.1994,  p.  1.

L  53/34

EN

Official  Journal  of  the  European  Communities

27.2.1999

—  in  Germany  at  least  —  interchangeable  with
satellite  transmission,  if  for  no  other  reason  than
the  completely  different  reaches  of  the  two  means
of 
transmission.  Whereas  approximately  18,5
million  German  households  are  connected  to  cable
networks,  only  some  7-9  million  receive  satellite
television.  A  TV  supplier  who  broadcasts  his
programmes  exclusively  via  satellite  direct  to  the
home  would  therefore  fail  to  reach  two-thirds  of
all  households  not  receiving  television  solely  from
land-based  transmitters.  In  particular,  households
in  large  apartment  blocks  cannot  as  a  rule  be
reached  on  a  direct-to-home  basis  as  there  is
usually  a  clause  in  the  lease  restricting  the  use  of
satellite dishes.

comes 

satellite 

transmission 

(21)  For these two means of transmission there are also
considerable differences between the costs borne by
a  TV  supplier  per  viewing  household.  The  cost  of
analogue 
to
[5-25] (4)  million  per
approximately  DEM 
transponder  per  year.  With  7  million  satellite
households,  this  gives  a  cost  of  DEM  [1-2] (4)  per
household. With 9 million satellite households, the
corresponding  figure  is  still  DEM  [0,50-2] (4).
According  to  data  supplied  by  the  firm  o.tel.o
communications  GmbH  &  Co.,  the  cost  of  cable
transmission comes to approximately DEM 10 000
per  analogue  channel  per  month  for  500 000
to
households 
DEM 0,02  per  month  or  DEM 0,24  per  year  per
household  reached.  Since  in  the  case  of  cable
transmission  the  transponder  costs  are  spread  over
some 26 million households (18,5 cable households
and  7-9  million  satellite  households),  the  annual
cost  per  household  in  this  instance  comes  to
DEM 0,38.  The  total  annual  cost  per  cable
household  accordingly  comes  to  DEM 0,62.  In  the
case  of  German  viewers,  cable  transmission  is
therefore  much  more  profitable  to  a  TV  supplier.
There  are  therefore  strong  grounds  for  believing
that,  in  Germany  at  least,  the  operation  of  cable
networks  still  constitutes  a  separate  relevant
product  market.

reached.  This 

equivalent 

is 

B.  RELEVANT  GEOGRAPHIC  MARKETS

1.  Technical  services  for  pay-TV

(23)  Technical services for pay-TV are closely bound up
with the supply of pay-TV. In the MSG case (6) the
Commission  assumed  that  the  relevant  geographic
market  was  confined  to  Germany,  but  at  the  same
time  it  stated  that,  to  the  extent  that  German
providers  of  digital  pay-TV  also  acquired
subscribers 
in  other  German-speaking  regions,
MSG’s service market will probably also spread to
such  areas.  In  the  present  case,  the  market  for
technical  services  for  pay-TV  may,  if  there  is
assumed  to  be  an  overall  market  for  satellite  and
cable  transmission,  be  deemed  to  encompass  the
entire German-speaking area. In so far as technical
services for pay-TV in the cable sphere constitute a
separate  market,  however,  the  relevant  geographic
market would be confined to Germany. Since even
on the assumption of the uniform market for cable
and  satellite  the  competition  assessment  of  the
concentration  would  be  the  same,  the  question  of
the  relevant  geographic  market  can  be  left  open.

2.  Cable  networks

(24)  The  structure  of  the  cable  markets 

that,  as  regards 

in  most
Member  States  is  subject  to  different  conditions  in
terms  of  geography,  marketing  and  legislation (7).
In  the  MSG  case  MSG  Media  Service (8)  the
the
Commission  established 
operation  of  cable  television  networks,  there  was
already  a  national  German  market  resulting  from
Telekom’s  statutory  monopoly  on 
laying  and
operating  cable  networks  in  public  roads.  Even  if
the  network  monopoly  has  since  been  abolished
and  private  network  operators  are  now  more
active  at  least  at  level  4,  Telekom  still  has  an
advantage  in  that  it  owns  almost  all  the  level  3
cable  TV  networks  in  Germany.  The  conditions  of
still
competition 
substantially  different 
in  other
countries.  The  Commission  considers  as  a  result
that  in  the  present  case  the  relevant  geographic
market  for  cable  networks  is  to  be  confined  to
Germany.  This  holds  true  even  if  the  relevant
product  market  were  to  include  cable  networks
and  direct-to  home  satellite  transmission.

in  Germany  are 

therefore 

those 

from 

(22)  The question can, however, be left open in the last
analysis,  as  the  competition  assessment  of  the
concentration  would  be  the  same  even  on  the
assumption  of  a  uniform  market  for  cable  and
satellite.

(6)  Loc.  cit.  (footnote  5),  paragraphs  52,  53  and  54.
(7)  Nordic  Satellite  Distribution  (OJ  L  53,  2.3.1996,  p.  20).
(8)  Loc.  cit  (footnote  5),  paragraph  54.

27.2.1999

EN

Official  Journal  of  the  European  Communities

L  53/35

(25) 

(26) 

C.  EFFECTS  OF  THE  CONCENTRATION

1.  Technical  services  for  pay-TV

(a)  Telekom’s  monopoly  of  the  provisions  of
transmission  of
for 

technical  services 
the 
pay-TV  over  cable  networks

It  is  to  be  expected  that  the  concentration  will
result  in  Telekom’s  having  a  monopoly  of  the
management of access control in the cable network
the  parallel  concentration
market.  Following 
between  Bertelsmann,  Kirch 
and  Premiere,
BetaDigital  will  secure  a  lasting  monopoly  in
technical 
television
market.

services  on 

satellite 

the 

the 

is  operated 

In  Germany  a  total  of  18,5  million  households,  or
over  half  of  all  TV  households,  are  connected  to
cable.  By  contrast,  satellite  television  is  received  in
Germany  by  only  7-9  million  households.  Because
of  the  historical  development  of  the  structure  of
cable distribution, there are several levels of supply
network  in  Germany.  For  the  supply  of  cable
television, network levels 3 and 4 are of particular
importance.  Level  3  is  the  distribution  network
from  the  cable  head-end  to  the  boundary  of  a
given  plot  of  land.  Level  4,  on  the  other  hand,  is
the  network  infrastructure  between  that  boundary
junction  boxes  of  TV  households.
and 
Network  3 
in  Germany  almost
exclusively  by  Telekom:  there  are  16,5  million
households  with  cable  access  whose  cable  signals
are  carried  over  a  Telekom  network  level  3.
Telekom  is  also  by  far  the  biggest  provider  of
home  link-ups:  for  6  million  households  Telekom
also  operates  the  cable  network  at  level  4.  In
comparison,  2  million  households  are  supplied  via
private  level  3  networks,  and  12,5  million  are
connected  at  level  4  via  networks  run  by  private
operators.  The  largest  private  cable  operator  has
hooked  up  some  2  million  households,  the  next
largest 1,2 million and 0,9 million respectively. All
the  other  private  cable  operators,  whose  networks
are dotted across Germany, each supply fewer than
0,25  million  households.  These  figures  show  that
Telekom  has  the  preponderant  share  of  the  cable
network  market.

(27)  For the time being Telekom is the only provider of
technical  services  for  digital  signal  transmission
over  cable  networks.  CLT-UFA,  Kirch  and

Telekom  agreed  in  the  restructuring  agreement
that,  when  providing  technical  services  for  the
transmission  of  digital  TV  programmes  over  its
cable  networks,  Telekom  would  use  exclusively
Beta  access  technology  on  the  basis  of  the  d-box
decoder.  They  also  stipulated  in  that  agreement
and  in  the  ‘understanding  on  a  cable  platform  for
digital television neutral in its effect on programme
suppliers’ 
the
exclusive right to use Beta access technology to the
extent  that  it  was  to  be  granted  that  right  in
respect  of  the  cable  networks.  It  is  only  to  other
content  suppliers  that  this  exclusivity  does  not
apply.  This  in  itself  rules  out  the  possibility  of
other  cable  operators  being  granted  a  licence  for
BetaResearch’s  Beta  access  technology  and  thereby
being able to compete with Telekom in the area of
Telekom’s  cable  networks.

that  Telekom  was 

to  receive 

(b) The  lasting  nature  of  the  dominant  position

(28)  Telekom  will  remain  the  sole  provider  of  technical
services  for  the  transmission  of  pay-TV  over  cable
networks in Germany in the short term, and that it
will  also  secure  a  monopoly  position  in  this  area
on  a  lasting  basis.  This  assessment  is  based  on  the
following  considerations.

(i)  Premiere  will  be  the  only  programme  platform

in  Germany  in  the  long  term.

(29)  Access 

rights 

to  programme 

is  even  more
important  in  the  case  of  pay-TV  than  it  is  in  the
case of free TV. In order to entice the consumer to
subscribe,  or  to  take  particular  productions  on  a
pay-per-view basis, certain specific types of content
are required. Experience with pay-TV in Europe so
far shows that in order to be sufficiently attractive
a  pay-TV  package  must  include  a  combination  of
premium  rights  for  the  first  broadcasts  of  films
produced  at  the  major  Hollywood  studios  and  for
popular  sporting  events.  This  is  especially  true  in
Germany,  where  every  household  with  television
can  already  receive  more  than  30  free-access
channels  —  unlike,  for  example,  —  France  or  the
UK.  The 
films  and
importance  of  premium 
sporting  events  for  the  organisation  of  pay-TV  is
borne  out  by  the  programme  costs  estimated  in
Premiere’s  business  plan.  About  [50-80] % (4)  of
all  licensing  costs  are  to  be  for  premium  films
(about  [20-50] % (4))  and  sports  rights  (more  than
[10-40] % (4)). An alternative programme platform

L  53/36

EN

Official  Journal  of  the  European  Communities

27.2.1999

can  be  built  up  only  by  a  person  with  access  to
premium  content  so  as  to  be  able  to  offer  a
promising  pay-TV  package.

rights 

(30)  But programme resources are in short supply since,
as  a  general  rule,  the  broadcasting  rights  for
premium  content  of  this  kind  are  given  on  the
basis  of  longer-term  exclusive  contracts.  In  the
German-speaking  area  CLT-UFA  and  Kirch  hold
[. . .] (4)  of  pay-TV  broadcasting 
for
premium  films,  as  a  results  of  output  deals  with
the  Hollywood  majors,  and  [. . .] (4)  of  sports
rights  too.  As  CLT-UFA  and  Kirch  are  to  transfer
their  pay-TV  broadcasting  rights  to  Premiere,  the
transaction  will  initially  make  Premiere  the  only
operator  to  dispose  of  the  programme  content  for
a  premium  channel.  For  the  duration  of  the
existing  contracts  no  other  supplier  will  have
access  to  Premiere’s  programme  resources.  Thus
potential  competitors  will  not  be  in  a  position  to
create  an  alternative  programme  platform  for  the
German-speaking  area.  They  might  be  able  to
show  particular  programmes  in  specific  pay-TV
niches,  but  to  do  so  they  would  be  dependent  on
Premiere’s  programme  and  marketing  platform.

(31)  Nor is it likely that the situation will change in any
way  once  the  current  contracts  for  pay-TV  rights
have  expired.  In  theory,  pay-TV  services  could
potentially  be  supplied 
in  Germany  and  the
German-speaking  area  by  other  European  and
non-European  television  operators,  such  as  BskyB
or  Canal+,  or  even  the  major  Hollywood  studios.
But in order to establish an alternative programme
platform  it  is  not  enough  to  conclude  just  a  few
individual  output  deals.  The  output  deals
concluded by Kirch and CLT-UFA run for different
terms.  They  cover  periods  of  [1-10] (4)  years.
Potential  competitors  would  have  to  succeed  in
acquiring  rights  under  several  output  deals  over  a
number  of  years  before  they  could  offer  an
attractive  pay-TV  package.

(32)  Given  the  market  position  Premiere  will  by  then
have established, competitors’ prospects of securing
any  substantial  volume  of  attractive  pay-TV
broadcasting  rights  will  be  small.  This  is  because,
to  have  any  hope  of  acquiring  broadcasting  rights,
it  is  vital  to  have  access  to  viewers  in  the  form  of

an  established  subscriber  base  since  rightholders
usually  want  to  see  their  product  distributed
widely.  This  is  true  of  premium  films,  and  even
more  so  of  sporting  events.  In  addition,  the  prices
of  pay-TV  rights  are  usually  determined  by
reference to the number of subscribers, subject to a
stated  minimum.  This  is  certainly  what  is  done  in
output  deals.  As  Premiere’s  subscriber  base  can  be
expected  to  be  large  in  the  next  few  years,  it
follows  that  a  sale  of  rights  to  Premiere  should
secure  a  considerably  higher  price  than  sale  to  a
newcomer.  And  a  newcomer  would  run  a
considerable  financial  risk  by  concluding  output
deals since he would have to guarantee a minimum
subscriber  base,  without  knowing  whether  he
could achieve the guaranteed figure. In view of the
advantages which Premiere will consequently enjoy
over any potential competitor in the negotiation of
contracts  for  premium  content,  it  is  unlikely  that
outsiders  will  be  able  to  secure  adequate  access  to
content  of  that  kind.

(ii) Following  the  transaction,  d-box  technology
will  in  practice  become  the  digital  standard  in
the  German-speaking  area.

for 

the 

technical 

infrastructure 

(33)  Pay-TV  requires  special  technical  infrastructure.
This  can  be  proved  either  by  pay-TV  operators  or
by  other  parties,  mainly  cable  operators.  Because
of  the  structure  of  cable  networks  in  Germany,
private cable operators are by themselves unable to
provide 
the
transmission  of  pay-TV.  Their  ‘cable  islands’  are
mostly too small to justify the investment necessary
to  acquire  their  own  conditional  access  and
alternative  decoder  system  for  pay-TV.  Moreover,
private  cable  operators  control  only  parts  of  the
level 3 and 4 networks involved in the distribution
of  cable  televisions.  At  network  level  3  —  that  is,
the  digital
from 
programme signal is received and fed into the cable
network,  to  the  boundary  of  the 
individual
house — the great majority of the networks belong
to  Telekom.  Private  cable  operators  are  at  present
dependent on upstream level 3 services supplied by
Telekom.  This  makes  it  impossible  for  private
cable  operators  to  develop  alternative  facilities  for
the  transmission  of  pay-TV  without  involving

the  cable  head-end,  where 

27.2.1999

EN

Official  Journal  of  the  European  Communities

L  53/37

islands
Telekom.  The  private  cable  operators’ 
would  have  to  be 
level  3  supply
networks  before  they  could  set  up  an  alternative
infrastructure.

linked  by 

would  in  any  case  be  obliged  to  use  Beta  access
technology  and  the  d-box  decoder  as  far  as  the
Telekom  cable  network  is  concerned.

(34)  After  the  transaction,  Premiere  will  distribute
digital  television  through  d-box  technology  and
d-box  decoders.  Telekom  will  supply  services  for
pay-TV  by  cable  on  the  basis  of  Beta  access
technology  and  d-box  decoders.  Thus 
those
companies  which  would  have  been  qualified  to  set
up  an  infrastructure  for  digital  television  and  to
provide the corresponding services have committed
themselves  to  Beta  access  technology  based  on  the
d-box  decoder.  It  must  therefore  be  accepted  that,
in  the  German-speaking  area,  there  will  be  no
alternative  technical  platform  for  digital  television
in  the  foreseeable  future.

(iii)  The  monopoly  position  of  Premiere’s
that
programme  platform,  and 
Telekom  is  to  feed  it  into  the  cable  networks
using the d-box technology, forms a long-term
obstacle  to  the  introduction  of  any  other
technology.

fact 

the 

(35)  The 

if 

installation  of  an  alternative 

technical
infrastructure  for  the  transmission  of  pay-TV
would require a major investment. However, other
potential suppliers would be prepared to make that
investment  only 
there  were  corresponding
opportunities  for  market  penetration.  That  would
be  so  only  if  it  were  possible  for  a  second  pay-TV
operator  to  set  up  in  Germany.  Such  an  operator
could  either  create  his  own  technical  platform,  on
the  basis  of  alternative  access  technology,  or  offer
another  party  an  opportunity  of  developing  a
technical  infrastructure.  But  as  has  already  been
indicated,  it  is  improbable  that  a  second  pay-TV
operator  will  enter  the  market,  given  Premiere’s
established  position,  with  its  subscriber  base  and,
especially,  its  programme  resources.

(36)  Moreover, 

and 

access 

alternative 

decoder
technology  could  be  developed  only  for  satellite
transmission,  since  CLT-UFA,  Kirch  and  Telekom
have  stipulated  in  the  restructuring  agreement  that
Telekom,  in  providing  technical  services  for  digital
transmission  of  TV  programmes  on  its  broadband
cable  network,  will  rely  exclusively  on  Beta  access
technology on the basis of the d-box decoder. This
means  that  potential  pay-TV  suppliers  and  other
potential  providers  of  conditional  access  services

(iv)  All  potential  conditional  access  operators  will
licensing

be  dependent  on  BetaResearch’s 
policy

(37)  BetaResearch  is  the  licenser  of  the  conditional
access  system  applied  in  the  d-box.  The  parties
have  stated  that  a  proprietary  conditional  access
system  was  developed  for  security  reasons.  Other
pay-TV operators, such as Canal+ and BSkyB, who
already have experience in the pay-TV market, also
prefer  to  rely  on  a  proprietary  access  control
system for better protection against breaches of the
security  of  data  transmission.  Under  the  DVB
standard,  there  are  two  processes  available  to
prevent 
pay-TV
subscriptions  with  different  CA  systems  from
having  to  use  several  decoders,  Simulcrypt  and
common  interface  (‘CI’).

viewer  who 

receives 

a 

(38)  With CI, widely varying conditional access systems
can be used in the same decoder, enabling all other
pay-TV  operators  and  service  providers  to  operate
access controls using the existing decoder base. It is
not  necessary  with  CI,  as  it  is  with  Simulcrypt,  to
conclude  an  agreement  with  the  person  who
installed  the  decoder  base  on  the  linking  of  one’s
own  access-validation  system  with  the  proprietary
access  system  of  the  decoder.  If  a  proprietary
conditional access system is to be used, there must
be  discrimination-free  access  to  the  system.  In  the
Commission’s  view,  this  requires  that  the  licenser
of  the  decoder  technology  be  able  to  take  his
business  decisions  without  being  influenced  by  a
programme  supplier.  In  the  present  case  the
licenser  is  not  independent,  since  BetaResearch  is
controlled  mainly  by  enterprises  which  have  their
own  interests  as  programme  suppliers.

(39) 

If  all  existing  and  potential  suppliers  of  digital
pay-TV,  and  Telekom  as  provider  of  technical
services  for  cable,  have  committed  themselves  to
Beta access technology and the d-box decoder, it is
impossible  for  an  alternative  decoder  base  to  be
established 
in  Germany.  Any  other  potential
provider of conditional access services will have to
the  d-box  decoder.  The  d-box  uses  a
use 
by
system 
proprietary 

developed 

coding 

L  53/38

EN

Official  Journal  of  the  European  Communities

27.2.1999

for  Beta 

technology 

BetaResearch.  Potential  providers  of 
technical
services for pay-TV would therefore have to seek a
licence 
from
access 
BetaResearch.  This  is  the  case  with  both  satellite
and  cable  transmission.  In  managing  conditional
access 
however,
BetaResearch  would  have  no  interest  in  exposing
BetaDigital  or 
to
competition on the market in technical services for
its
pay-TV.  BetaResearch  might  therefore  use 
licensing  policy  to  hamper  other  service  providers’
access  to  the  market.

joint  parent  Telekom 

satellite 

cable, 

and 

for 

its 

for 

to  use 

their  networks,  however,  the  planned  introduction
of  Beta  access  technology  as  the  digital  standard
would  mean  that  they  would  have  to  approach
BetaResearch 
the  Beta
licences 
It  has  been  explained  already,
technology. 
however,  that  in  managing  conditional  access  in
the  cable  field  BetaResearch  would  have  not
interest  in  exposing  its  joint  parent  Telekom  to
competition on the market in technical serviced for
pay-TV.  BetaResearch  would  have  no  interest  in
exposing  its  joint  parent  Telekom  to  competition
on  the  market  in  technical  services  for  pay-TV.
BetaResearch  might  therefore  use 
licensing
policy  to  hamper  other  service  providers’  access  to
the  market.

its 

(v)  Given  the  present  structure  of  German  cable
networks, private cable operators would not be
able to provide technical services for pay-TV in
their  networks.

(vi)  The  merger  should  also  be  assessed  positively
in the light of Telekom’s neutralising effect on
BetaResearch

(40)  The  parties  argue  that  private  cable  operators
would  be  able  to  build  up  and  operate  a  technical
platform  in  competition  with  Telekom  in  their
networks.  This  cannot  be  accepted.  The  private
operators  normally  handle  small  level  4  ‘cable
islands’  which  are  often  unconnected  between
themselves and are supplied by a ‘backbone’ level 3
network  belonging  to  Telekom.  This  means  that
private  cable  operators  are  usually  dependent  on
upstream level 3 services supplied by Telekom. The
same  applies  to  the  provision  of  technical  services
for  pay-TV.  In  Telekom’s  cable  networks,  the
signals  broadcast  by  programme  suppliers  are
received centrally at the Telekom playout centre in
Usingen,  and  after  processing  are  distributed  from
there  to  the  head-ends  of  the  Telekom  cable
networks.  The  private  cable  operator’s  islands
would  have  to  be 
level  3  supply
networks  before  they  could  set  up  an  alternative
infrastructure.  As  a  rule  the  construction  of  a
network  head-end  will  not  be  an  alternative,  at
least  for  private  cable  operators  who  operate  only
at  level  4.  Given  the  fragmented  nature  of  the
networks, 
be
economically justified.

investment  would 

linked  by 

not 

the 

(41)  The  possibility  that  private  cable  operators  might
be  able  to  offer  technical  services  for  pay-TV  in
their  networks  is  therefore  purely  theoretical.  If
they did want to offer pay-TV technical services in

(42)  Telekom  has  claimed  that,  through  its  holding,  it
will be able to exert a neutralising influence on the
competitive conduct of BetaResearch, which would
otherwise  be  controlled  solely  by  the  pay-TV
operators  CLT-UFA  and  Kirch.  Against  this  claim,
it  should  first  be  stated  that  CLT-UFA  and  Kirch
will  in  any  case  have  a  combined  two-thirds
holding  in  BetaResearch  and  that  satellite  TV  is
largely  outside  Telekom’s  sphere  of  influence.  As
long  as  Telekom  is  able  to  exert  specific  rights  of
influence  in  respect  of  the  further  development  of
the  d-box,  it  will  have  an  interest  in  influencing
that  development  in  such  a  way  as  to  maintain  its
position  as  the  sole  operator  of  the  technical
platform  for  cable  TV.  The  same  applies  to
BetaResearch’s licensing policy.

is 

competition 

together  with 

this  Decision, 

(43)  Moreover, Telekom’s claim that its acquisition of a
holding  in  BetaResearch  actually  has  a  positive
impact  on 
conditional  on
Commission’s approval of the merger of the digital
activities  of  Bertelsmann  and  Kirch,  which  is  the
subject  of  the  Bertelsmann/Kirch/Premiere  case.
However, 
the
Commission  has  also  declared 
the  proposed
parallel  Bertelsmann/Kirch/Premiere  merger  to  be
incompatible  with  the  common  market.  In  so
doing,  it  has  also  prohibited  the  initial  50 %
holding  by  CLT-UFA  in  BetaResearch  covered  by
the  notification  in  the  Bertelsmann/Kirch/Premiere
case. Approving this merger proposal involving the
acquisition  of  joint  control  of  BetaResearch  by
CLT-UFA,  Kirch  and  Telekom  would  mean  that
CLT-UFA  would  also  be  able  to  obtain  partial
control  of  BetaResearch.  It  would  therefore  have

27.2.1999

EN

Official  Journal  of  the  European  Communities

L  53/39

that 

the  only 

the  consequence 
two  pay-TV
operators  on  the  market  would  together  control
the  decoder  technology,  including  the  CA  system.
For  that  reason  alone,  it  is  not  possible  to  claim
impact  on
that 
competition.

this  merger  has  a  positive 

(c)  Conclusion

(44)  On the foregoing grounds, it is to be expected that
the  proposed  transaction  will  give  Telekom  a
dominant  position  on  a  lasting  basis  on  the
German  market  in  technical  services  for  satellite
pay-TV  in  the  cable  field.  If  it  is  considered  that
there  is  one  market  in  technical  services  for  both
satellite  and  cable  TV,  the  transaction,  taken
together  with  the  parallel  concentration  between
Bertelsmann,  Kirch  and  Premiere,  will  produce  a
dominant  duopoly  on  this  broader  market  in  the
German-speaking  area  since,  given  the  number  of
television  viewers  there,  Germany  is  by  far  the
largest  component  in  the  German-speaking  area.
Neither  Telekom  nor  BetaDigital  are  exposed  to
this  market.
any 
Moreover,  in  view  of  their  common  technology
and  of  their  legal  links  with  BetaResearch,  there
are  no  grounds  to  expect  that  there  will  be
competition  between  Telekom  and  BetaDigital.

significant  competition  on 

2.  The  market  in  cable  networks

(a)  Telekom’s  dominant  position  in  broadband

cable  networks

(45)  As has been explained in more detail in paragraph
26,  the  bulk  of  the  level  3  and  4  cable  networks
used  for  the  supply  of  cable  television  belong  to
Telekom.  Even  if  Telekom’s  monopoly  over  the
networks  has  now  come  to  an  end  and  private
network operators are more active, at least on level
4,  it  can  be  presumed  that  Telekom  continues  to
hold  a  dominant  position.

(46)  Telekom would still hold a dominant position if in
the  future  it  were  to  be  considered  that  cable  and
satellite  transmission  formed  one  market.  As  we
have  seen,  there  are  18,5  million  households
connected  to  the  cable  network  in  Germany.  At
level  3  Telekom  controls  16,5  million  of  these
connections.  By  contrast,  only  7  to  9  million
households receive television direct by satellite. If a
television  channel  is  to  be  successful  in  Germany,
therefore,  it  has  to  be  fed  into  Telekom’s  cable
network;  that  is  the  only  way  to  reach  a  sufficient

number  of  viewers.  this  is  borne  out  by  the
example of DF 1. Until November 1997 DF 1 was
not carried on the cable network. This is generally
considered  to  be  one  of  the  reasons  why  the
number  of  subscribers  to  DF  1  fell  far  below
expectations.

(47)  On  24  November  1997  the  management  board  of
Telekom  decided  that  the  entire  broadband  cable
business, 
including  the  broadband  distribution
network, should be made organisationally separate
from the rest of the company. The objective of this
restructuring  operation  was  ultimately  to  hive  off
Telekom’s  networks 
to  one  or  more  new
companies  to  be  set  up  in  partnership  with  other
operators. The final plan, still to be defined, would
be  implemented  with  effect  from  the  beginning  of
1999.  The  details  of  the  intended  restructuring
operation  and  the  time-scale  for  implementation
are  not  yet  certain.  In  particular,  it  is  not  clear
whether  and,  if  so,  to  what  extent  outsiders  may
in  Telekom’s  cable
be  able 
networks.

to  participate 

(b) Strengthening  of  Telekom’s  dominant  position

(48)  The  proposed  concentration  between  Telekom  and
BetaResearch  will  strengthen  Telekom’s  dominant
position in cable television networks at the expense
of  the  private  cable  operators.

(49)  The 

by 

cable 

operators 

approached 

the
Commission  have  stated  almost  without  exception
that  they  intend  to  use  their  cable  networks  for  as
wide a variety of new services as possible. the main
such  uses  are  digital  television,  internet  access,
telecommunications
multimedia 
services 
The
the
Commission’s 
realisation  of  these  plans  is  threatened  by  the
proposed  transaction.

services,  and 
voice 
inquiries  have  shown 

telephony. 

including 

that 

investment  needed 

(50)  To set up the technical infrastructure needed to be
able  to  use  the  cable  network  for  these  services
requires substantial investment. At network level 4
is  expected  to
alone,  the 
amount  to  between  DEM 150  and  DEM 250  per
household.  In  addition,  private  cable  operators
could  reasonably  develop  level  4  only  if  level  3  is
equipped  correspondingly.  Telekom  has  so  far
inclination  to  undertake  any  such
shown  no 
operation.  If  the  private  cable  operators  want  to
increase the value added in their cable networks by
providing  additional  services,  they  will  have  to
expand  their  activities  to  level  3  in  competition

L  53/40

EN

Official  Journal  of  the  European  Communities

27.2.1999

with  Telekom.  They  are  now  legally  permitted  to
do  so,  but  this  too  would  require  substantial
investment.

is 

to  operate 

represented  by  digital 

(51)  The  private  cable  operators  would  have  to  finance
these  investments  in  the  first  place  form  their  core
business,  television.  But  to  do  so  they  would  have
to  be  in  a  position  to  take  part  in  the  added  value
chain 
television.  The
technical  platform  for  digital  pay-TV  already  rules
this  out:  only  Telekom 
the
conditional  access  system  on  the  cable  network.  If
private  cable  operators  did  want  to  offer  pay-TV
technical  serviced  in  their  networks,  however,  the
planned  introduction  of  Beta  access  technology  as
the  digital  standard  would  mean  that  they  would
have  to  approach  BetaResearch  for  licences  to  use
the  Beta  technology.  In  managing  conditional
access  in  the  cable  field,  BetaResearch  would  have
no  interest  in  exposing  its  joint  parent  Telekom  to
competition on the market in technical services for
pay-TV.  Even  more  important  is  the  fact  that  the
distribution  structure  for  digital  pay-TV  which  is
the objective of the proposed transaction will make
it  impossible  for  private  cable  operators  to  market
the  proposed
connection  with 
pay-TV. 
transaction  Telekom  has  adopted  a  transparent
transmission  model  for  digital  pay-TV,  as  it  had
already  done  for  analogue  pay-TV.  This  means
that  Telekom  has  given  up  the  possibility  of
marketing  Premiere’s  digital  programmes  itself.
The  consequence  is  that  private  cable  operators
will  not  be  in  a  position  to  introduce  a  marketing
model  in  which  they  act  as  suppliers  of  pay-TV  to
the  ultimate  consumer.  This  might  have  been
possible  in  cooperation  with  Telekom  even  with
the  present  structure  of  the  cable  networks,  if
Telekom  had  not  confined  itself  to  a  purely
carrying  function  in  the  pay-TV  field.  And  the
private  cable  operators  could  market  pay-TV  only
if  they  were  to  expand  their  activities  to  level  3.
Marketing  by  cable  operators  would  also  have
been  possible  once  Telekom  had  implemented  the
restructuring  plan  described  above,  if  after  the
hive-off  its  cable  networks  were  operated  with  the
participation  of  private  cable  operators.  But
Telekom’s  opting  for  a  transport  model  excludes
all  these  possibilities.

In 

(52) 

In  particular,  it  removes  the  possibility  of  an
expansion  into  level  3  on  the  part  of  the  private

far 

the 

cable  operators,  because  if  they  are  confined  to
transparent  transmission  they  will  not  be  able  to
finance  the  necessary  investment.  Once  Telekom
has  decided  in  favour  of  this  model,  the  private
cable  operators  have  no  prospect  of  securing
Premiere’s agreement to a marketing model of their
own.  Telekom  controls  by 
largest
proportion  of  level  3,  so  that  Premiere  is  in  a
position  to  refuse  to  allow  the  private  cable
its  programmes  without
operators  to  market 
having to fear any serious loss as a result. There is
a  theoretical  possibility  that  the  private  operators
might  impede  transmission  at  network  level  4,  but
this does not provide any real counterweight. They
would  not  be  able  to  justify  filtering  out  Premiere
programmes  to  their  customers  for  any  length  of
time.  This  will  apply  with  even  greater  force  if
digital  pay-TV  develops  strongly  in  future.

(53) 

to 

finance  an  expansion  of 

It  follows  that  Telekom’s  opting  for  the  transport
model has made it impossible for the private cable
operators 
their
activities,  and  that  no  such  expansion  will  take
place  in  the  foreseeable  future.  This  eliminates  the
potential  competition  of  the  private  operators  at
network  level  3,  and  protects  and  strengthens
Telekom’s  dominant  position.  It  also  prevents  the
development  of  the  cable  networks  needed  if  new
services  are  to  be 
introduced,  and  thus  the
introduction  of  such  services  in  the  foreseeable
future.  The  scope  for  competition  on  the  part  of
the  private  operators  is  further  limited,  even  at
network  level  4,  and  Telekom’s  dominant  position
is  strengthened.

(c)  Conclusion

a 

of 

the 

acquisition 
and 

(54)  On the foregoing grounds, it is to be expected that
holding 
in
Telekom’s 
BetaResearch, 
agreements  with
Bertelsmann  and  Kirch  which  Telekom  has
concluded in connection with that acquisition, will
significantly  restrict  the  scope  for  competition  on
the  part  of  the  private  cable  operators,  and
eliminate  competition  at  network  level  3.  The
transaction  will  also  establish  a  distribution
structure  in  the  German  cable  network  under
which  there  is  little  prospect  that  in  the  event  that
Telekom’s  cable  activities  are  hived  off,  private
cable  operators  would  be  able  and  willing  to
participate 
in  Telekom’s  cable  networks.  The
transaction  is  consequently  likely  to  strengthen
Telekom’s dominant position on the cable network
in  Germany  on  a  lasting  basis.

27.2.1999

EN

Official  Journal  of  the  European  Communities

L  53/41

VI.  UNDERTAKINGS  PROPOSED  BY  THE
PARTIES

interface  to  be  standardised  by  the  DVB,  as  soon
as  the  standard.  BetaResearch,  moreover,  will
adopt  all  future  DVB  standards.

1.  Undertakings

(55)  By  letters  dated  28  April  and  4  May  1998  the
parties  suggested  a  series  of  undertakings  intended
the  proposed
to  remove 
Deutsche
Bertelsmann/Kirch/Premiere 
Telekom/BetaResearch 
These
consist  basically  of  the  following  points:

and 
concentrations. 

the  doubts  about 

(a)  Cable  operators

(56)  The  parties 

to 

the  merger  are  prepared 

to
cooperate  with  the  cable  operators  on  sales.  As
well as advertising for new customers, this includes
marketing 
information  and  support.  Customer
relations  will  still  be  Premiere’s  responsibility,
however.  Cable  operators  will  receive  appropriate
financial  compensation  for  their  efforts.

(b) BetaResearch

(57)  Telekom  will  set  up  a  technical  council  of  experts,
which  will  be  accessible  to  all  firms  involved  in
digital  television.  The  council’s  recommendations
will be implemented in accordance with the already
existing  agreement  between  Bertelsmann,  Kirch,
Telekom,  ARD  and  ZDF.  The  shareholders  of
BetaResearch  are,  moreover,  prepared  to  allocate
25 %  of  the  company’s  capital  to  third  firms  via
an  intermediate  holding  company.  No  veto  rights
will  be  associated  with  this,  however.  The  present
veto rights of Bertelsmann, Kirch and Telekom will
continue. The leading role of Kirch, in particular as
again
regards  management 
emphasised  by  the  parties.

occupancy, 

is 

(58)  BetaResearch  will  on  request  immediately  grant
every customer who intends to perform encryption
services  for  itself  or  for  third  parties  a  conditional
access  licence  (compulsory  licence)  on  the  basis  of
a  generally  accessible  standard  contract.  If  no
agreement 
in
particular the licence fees, an arbitration body will
take  a  final  decision  as  to  their  appropriateness.

the  conditions, 

is  reached  on 

(59)  BetaResearch  undertakes 

to  disclose 

the  API
interface  of  the  d-box  network  (native  API)  by  the
end of 1998 and to defer to an arbitration body in
the  event  of  licensing  disputes.  BetaResearch  also
undertakes  to  supplement  the  native  API  with  the

(60)  BetaResearch  will  grant  manufacturing  licences  to
any 
standardised
interested  manufacturer  on 
conditions and defer in the event of disputes about
to  an  arbitration  body.  A
those  conditions 
‘technical  verification  test’  by  BetaResearch  is  the
condition  on  which  the  decoders  may  be  supplied
on  the  market.  Manufacturers  may  be  certified
after  two  to  three  years  by  independent  third
parties.

2.  Assessment

(a)  Cable  operators

thereby 

(61)  The  parties  have  offered  cooperation  with  the
cable  operators  only  in  the  area  of  sales.  Cable
operators  are  thus  prevented  from  marketing
Premiere  on 
from
their  own  and 
developing  customer  relations  and  unbundling  and
repackaging  programmes.  For  the  cable  operators
to  develop  an  alternative  programme  platform,
other  than  by  cooperating  with  Telekom  given  the
existing  network  structure,  they  would  require  at
least to be able to obtain the individual programme
packages  offered  by  Premiere,  in  particular  the
premium  film  and  sports  channels,  bundle  them
with  third-party  channels  and  offer  them  to  their
cable  customers.

(b) BetaResearch

(62)  Telekom’s offer of setting up a technical council of
experts  is  simply  a  question  of  opening  up  the
existing  council  of  experts  with  ARD  and  ZDF  to
third  parties.  It  should  be  noted  that,  under  the
agreement  with  ARD  and  ZDF,  this  council  of
experts 
issues  relating  to
technological  development  but  cannot  require
operators  to  comply  with  its  recommendations.

is  able  to  discuss 

(63)  The  possibility  for  third  parties  to  participate  in
BetaResearch,  as  proposed  by  the  parties,  might
in  respect  of
give  rise  to  some  transparency 
decisions 
technological
future 
concerning 
development.  However,  since  this  participation  is
to be limited to 25 % and the intermediate holding

L  53/42

EN

Official  Journal  of  the  European  Communities

27.2.1999

company  is  not  to  be  granted  any  veto  rights,
Bertelsmann  and  Kirch,  as  the  dominant  pay-TV
suppliers,  and  Telekom,  as  the  dominant  cable
operator,  retain  joint  control  of  BetaResearch  and,
consequently,  of  technological  development.

3.  Further  undertakings

(66)  On  13  May  1998,  the  parties  supplemented  and
widened  the  proposals  they  had  made,  as  follows:

the 

the 

fact 

that 

licensing 

concerning 

conditions, 

to  discrimination  where 

(64)  The  introduction  of  a  compulsory  conditional
access  licence  and  an  arbitration  procedure  for
settling  disputes 
in
particular  the  level  of  licence  fees,  may  indeed  go
some  way  to  ensuring  that  third  parties  are  not
subject 
is
concerned.  However,  this  undertaking  again  does
not  alter 
technological
development for which licences are granted will be
controlled  by  Bertelsmann,  Kirch  and  Telekom.
The  undertakings  that  BetaResearch  will  disclose
the  API  interface  of  the  d-box  network  by  the  end
of  1998,  that,  in  the  event  of  licensing  disputes,  it
will  defer  to  an  arbitration  tribunal,  and  that  it
will  supplement  the  native  API  with  the  interface
to be standardised by the DVB as soon as the latter
has  been  approved  are  essentially  confirmation  of
intentions which the parties had in any case stated.
Furthermore,  although  BetaResearch’s  undertaking
that  it  will  grant  manufacturing  licences  to  any
interested  decoder  manufacturer  on  standard
conditions  and  defer  to  an  arbitration  body  in  the
event  of  disputes  concerning  those  conditions
might  well  contribute  to  creating  competition  with
regard  to  the  manufacture  of  decoders,  it  does  not
alter  the  fact  that  Bertelsmann  and  Kirch,  as  the
dominant  pay-TV  suppliers,  and  Telekom,  as  the
dominant  cable  operator,  control  the  development
of  decoder  technology.

(c)  Overall assessment

(65)  On  the  basis  of  the  proposed  undertakings,  the
parties  do 
indeed  guarantee  a  degree  of
technological  transparency  and  access  to  d-box
technology. However, the parties are not willing to
surrender their absolute control of this technology,
and  in  particular  of  its  further  development.  Nor
will the proposed undertakings give any alternative
programme  and  marketing  platform  a  realistic
chance. At the same time, without the chance of an
alternative  programme  platform,  the  undertakings
with  regard  to  technology,  or  at  least  to  licensing
for the purposes of controlling access, are rendered
even  more  meaningless  by  the  fact  that,  without  a
second  programme  platform,  no  alternative
technological  platform  can  be  expected  to  be
developed.

(a)  Cable  operators

(67) 

In  addition  to  the  cooperation  on  sales  already
offered,  Premiere  will,  on  certain  conditions,  also
allow  cable  operators  to  market  its  programmes
and  thus  develop  their  own  customer  relations.
Free-TV,  pay-TV  and  pay-per-view  programme
suppliers are in principle excluded from marketing.
Marketing  will  not  be  exclusive,  i. e.  Premiere  and
the  cable  operators  will  market  Premiere 
in
competition  with  each  other.  Generally  speaking,
each  party  will  pursue  customer  relations  with
those  subscribers  acquired  by  it.  The  data  of
customers  acquired  by  the  cable  operators  would,
however,  have  to  be  made  available  to  Premiere’s
subscriber  management  system  to  that  Premiere
could  provide  the  customers  in  question  with
additional  services  (such  as  pay-per-view)  and
general customer information. Cable operators will
not  be  allowed  to  market  Premiere’s  pay-per-view
services.

and 

the  packages 

(68)  The  cable  operators  will  have  to  offer  the  same
combination  of  packages  as  Premiere.  They  will
not  be  allowed  to  unbundle  programmes  within
individual packages or Premier’s package structure.
However, cable operators will be able to offer their
own  services  together  with  the  Premiere  package
and  market 
individual
programmes  of 
third-party  suppliers.  Because
Premiere  no  longer  insists  on  linking  its  basic
package  with  its  premium  package,  the  cable
operators’  customers  will  have  the  opportunity  of
subscribing to a basic package offered by the cable
operator 
package
the 
combination. However, subscribing to such a basic
package  must  not  be  made  a  condition  for
subscribing  to  Premiere  programmes.  The  price
payable  by  cable  operators  for  the  Premiere
package  will  be  calculated  on  the  basis  of  the
transfer  price  of  Premiere  on  the  cable  market
minus the costs which Premiere will have saved on
marketing.  Cable  operators  will,  like  Premiere,
have  to  offer  the  d-box  decoder  for  rental  and,
while  supplies  last,  make  use  of  decoders  from  the
Nokia  quota  (1  million  units).

alongside 

Premiere 

(69)  Cable  operators  must  not  abuse  the  freedom  they
have been offered in order to limit their marketing

27.2.1999

EN

Official  Journal  of  the  European  Communities

L  53/43

operations 
in  capacity  terms  with  regard  to
Premiere  programmes,  i. e.  they  must  agree  to
market  the  Premiere  package  in  toto.  Otherwise
Premiere  will  not  be  obliged 
its
programmes  available  for  marketing.  In  the  event
of  capacity  shortages,  Premiere  and  the  cable
operators  will  either  be  bound  by  the  instructions
of 
Institutes
(Landesmedienanstalten)  or  reach  agreement  on
another  objective  capacity-allocation  procedure.

to  make 

Media 

Land 

the 

(b) Cable  networks

(70)  Telekom  also  stated  on  20  May  1998  that  it  will
keep,  until  31  December  1999  at  the  latest,  two
digital  channels  on  the  hyperband  open  for  use  by
supplier.
a  potential 
Telekom  is  also  willing,  together  with  level-4
operators,  to  expand  cable  capacities  on  band  IV,
but  only  where  refinancing  is  possible  for  cable
operators  (levels  3  and  4).

third-party  programme 

(c)  BetaResearch

(74) 

(71)  As  far  as  the  offer  to  allow  third-party  firms  to
acquire  a  holding 
in  BetaResearch  via  an
intermediate  holding  company  (see  recital  57),  all
shareholders,  i. e.  Bertelsmann,  Kirch,  Telekom
and  the  holding  company,  will  have  the  same
rights.  For  the  purposes  of  obtaining  a  majority  in
the  event  of  voting,  the  statutory  rules  will  apply
(no  specific  quorum).  The  special  rights  previously
granted  to 
longer
apply.

individual  shareholders  no 

4.  Assessment

(a)  Cable  operators

technical  platform 

(72)  The  new  undertakings  proposed  by  the  parties  do
not create the conditions for the development of an
alternative  programme  and  marketing  platform  or
an  alternative 
for  cable
operators. The parties themselves point out in their
accompanying  letter  that  ‘the  partners  for  the
establishment  of  these  marketing  forms  on  an
economically plausible basis do not at present exist
on  the  German  market  or  at  least  have  not  in  the
past  shown  any  readiness  to  carry  out  the
necessary investments to develop the corresponding
infrastructures’.  With  the  cable  network  structure
in  its  present  form,  it  is  indeed  not  possible  for
private cable operators to set up a programme and
marketing platform and technical platform of their
own.

(73)  As  indicated  in  recital  26,  private  cable  operators
are predominantly active at level 4 (home link-ups,

islands).  The 

level-3  networks 

cable 
(cable
head-end  to  the  boundary  of  a  plot  of  land)  are
almost  entirely  owned  by  Telekom.  Private
operators  are 
thus  generally  dependent  on
obtaining  upstream  level-3  services  from  Telekom.
without  operating  at  level  3,  however,  it  is  not
possible  for  private  cable  operators  to  create  an
alternative  programme  platform.  Given 
the
fragmentation of the German cable-TV market and
Telekom’s position as virtually the sole operator of
level-3  networks,  the  private  cable  operators  are
not  at  present  able 
to  offer  an  alternative
programme  platform  which  would  compete  with
Premiere.

level-3  and 

In  the  course  of  this  proceeding,  Telekom  has  not
shown  any  willingness  to  cooperate  with  private
cable  operators  in  creating  an  alternative  cable
platform  or  at  least  allow  them  access  to  level-3
services.  It  is  true  that,  when  asked  on  22  May
1998  how  the  separation  between  levels  3  and  4
could  be  overcome,  Telekom  stated  that,  for  the
purposes of making available its services relating to
the  digital  cable  platform  and  digital  marketing
platform,  contracts  would  be  concluded  between
Telekom  and 
interested  operators  (programme
suppliers, level-4 operators). If level-4 operators so
wished, the technical and operational separation of
levels  3  and  4  could  also  be  overcome  by
combining  the  services  of 
level-4
operators.  However,  these  statements  are  so  vague
and  general  that  they  do  not  provide  adequate
reason to expect that the separation between levels
3  and  4  can  be  overcome  for  the  purposes  of
enabling 
a
programme  and  marketing  platform.  In  particular,
as  far  as  combining  the  services  of  level-3  and
level-4  operators  is  concerned,  it  is  not  explained
which  services  could  be  provided  by  Telekom  and
which by the level-4 operators, nor how they could
indeed  be  combined  in  technical  and  economic
terms.  It  is  still  completely  unclear  whether  level-4
operators will have their own access to level 3 and
whether,  in  particular,  they  could  also  operate
conditional  access  and  how  this  could  be  made
technically  possible.  On  the  basis  of  Telekom’s
statements, 
it  must  therefore  continue  to  be
assumed  that  Telekom  ultimately  wants  to  be  the
sole  provider  of  the  necessary  technical  services,
and  that,  consequently,  level-4  operators  will  be
dependent  on  it.  Above  all,  this  means  that  there
will  be  no  possibility  of  an  alternative  platform

level-4  operators 

establish 

to 

L  53/44

EN

Official  Journal  of  the  European  Communities

27.2.1999

the 

system  within 

emerging  because  only  Telekom  will  operate  the
conditional-access 
cable
network.  Overcoming  the  separation  of  levels  3
and  4  would,  in  all  probability,  only  be  possible
after a restructuring and privatisation of Telekom’s
cable  networks,  whereby  they  would  be  operated
by  regional  companies  in  which  private  cable
operators  would  have  a  stake.  Telekom  has  not,
however, made any binding statements about when
and  how  such  restructuring  might  take  place.  It
will  therefore  probably  not  occur  until  such  time
as  Premiere  is  so  ahead  of  the  field  in  terms  of  its
subscriber  base  that 
it  will  be  difficult  for
alternative  platforms  to  gain  a  foothold.

(75) 

In  addition,  cable  operators  will  not,  on  the  basis
of  the  proposed  undertakings,  be  in  a  position  to
offer pay-TV programmes on the same competitive
terms as Premiere. This is because they will not be
allowed to supply programmes for pay-TV and, for
example,  offer  regional  programmes  produced  by
themselves.  Rather,  they  will  be  limited,  in  their
ability  to  offer  additional  services,  to  marketing
third-party  channels.  Moreover,  they  will  not  be
allowed to market Premiere’s pay-per-view services
nor  offer  any  pay-per-view  services  of  their  own.
lack  of  exclusivity  on
However,  given 
pay-per-view 
to  offer
them 
pay-per-view  services  would  be  the  easiest  way  of
giving  them  access  to  the  pay-TV  market.  Cable
operators  must  also  offer  the  Premiere  package  in
the  same  combination  as  Premiere  itself.  This
means  that  they  will  be  completely  dependent  on
Premiere  as  far  as  the  essential  parameter  of
bundling  is  concerned.

rights,  allowing 

the 

(76)  Cable  operators  are  further  required  to  make  their
customer  data  available  to  Premiere  without  any
corresponding  obligations  on  Premiere’s  part.
However,  the  supply  of  such  data  would  be  an
entirely  uncommon  practice  in  this  sector,  and
would  provide  Premiere  with  a  considerable
competitive  advantage.  Pricing  on  the  basis  of  the
Premiere  transfer  price  minus  the  costs  saved  on
marketing gives rise to the risk that cable operators
will  not  be  able  to  market  Premiere  programmes
economically.  It  remains  entirely  unclear  who  will
determine  these  cost  savings  and  what  criteria  will
be  used  in  so  doing.

(b) Cable  networks

(77)  The  reservation  of  two  digital  channels  in  the
hyperband 
third-party
for  use  by  potential 
programme suppliers might theoretically help make
it  possible  for  competing  programmes  to  be
supplied  given  the  additional  capacity  thus  made

available, but it is not in itself likely to open up an
opportunity  for  the  emergence  of  an  alternative
programme  platform  for  cable.  this  is  true  solely
by dint of the fact that the reservation is limited in
time.  It  would  be  extremely  difficult  in  only  one
and  a  half  years 
to  set  up  an  alternative
programme  platform.  Since,  moreover,  private
cable  operators  are  not,  if  they  wish  to  market
Premiere,  allowed  to  supply  pay-TV  themselves,
they  will  be  restricted  to  offering  third-party
channels  and  thus  be  considerably  handicapped  in
their ability to set up a programme platform which
could  use  the  two  channels.  On  the  other  side  of
the  coin,  a  programme  supplier  who  wished  to  set
up a programme platform on the basis of the 25 %
of  pay-TV  rights  could  not  make  use  of  those
rights  until  2000.  Moreover,  in  order  to  use  the
two channels, a programme supplier would have to
sign  a  contract  for  ten  years  even  though  he  has
access  to  the  25 %  of  pay-TV  rights  from  the
output  deals,  as  offered  by  the  parties,  only  until
the  end  of  2002.  The  creation,  as  proposed  by
Telekom,  of  additional  capacities  by  extending
band  IV  has  not  been  described  in  any  more
concrete  terms  and  should  therefore  be  considered
merely  a  general  statement  of  intent.

(c)  BetaResearch

(78)  The  undertaking 

all 

that 

shareholders 

it  should  be  borne 

intermediate  holding 

in
BetaResearch,  including  the  intermediate  holding
company for third parties, will be granted the same
rights  might  in  principle  solve  the  problem  of  the
control  of  technology  by  programme  suppliers.  If
CLT-UFA  and  Kirch  no  longer  have  the  right  of
veto  and  all  shareholders  have  the  same  rights,
shifting  majorities  are,  from  a  formal  point  of
view,  possible  within  the  bodies  of  the  company.
However, 
in  mind  that
BetaResearch  will  only  have  four  shareholders
since third parties will be granted a share solely via
an 
company.  Majority
decision  could  therefore  be  taken  only  with  the
approval of at least three of the four shareholders.
This  means  that  CLT-UFA  and  Kirch,  acting
together,  would  always  be  able  to  block  decisions
and thus continue to ensure that their interests win
the  day  by  preventing  any  decision  which  goes
against  those  interests  from  being  adopted.  The
intermediate  holding  company  would,  by  contrast,
only  be  able  to  enforce 
interest  against
CLT-UFA  and  Kirch  in  conjunction  with  Telekom
if both of them voted against CLT-UFA and Kirch
and  thereby  prevented  a  majority  from  being
reached.  It  is  obvious,  however,  that  Telekom,
given  that  it  will  supply  technical  services  for

its 

27.2.1999

EN

Official  Journal  of  the  European  Communities

L  53/45

(79) 

pay-TV  on  the  basis  of  the  d-box  technology,  is
more  likely  to  have  interests  which  converge  with
those  of  CLT-UFA  and  Kirch  than  with  those  of
the  intermediate  holding  company  for  third-party
the  possibilities  of
that 
firms.  This  means 
CLT-UFA  and  Kirch,  as  dominant  pay-TV
suppliers,  and  Telekom,  as  dominant  cable
operator,  of  jointly  controlling  the  technology  and
its  further  development  may  be  limited  from  a
formal point of view but might nevertheless remain
in practice.

(d) Overall assessment

to  solve 

in  BetaResearch  and 

It  follows  from  the  above  that  the  proposed
undertakings,  even  in  their  expanded  version,  are
the  existing  competition
inadequate 
problems.  They  are  unlikely  to  give  private
operators  a  realistic  chance  of  establishing  an
alternative  programme  and  marketing  platform.
This  also  means,  however,  that  an  alternative
technical  platform  will  fail  to  emerge  in  the  cable
network  because  only  Telekom  will  operate  the
conditional-access system in that network. It is true
that  opening  up  the  possibility  for  third  parties  to
take  a  holding 
the
abandonment  of  the  veto  and  special  rights  of  the
existing  shareholders  is  an  important  concession
since  it  will  enable  the  structurally  safeguarded
control  of 
further
lifted.  However,  since  no
development  to  be 
alternative  technical  platform  will  emerge  without
the  chance  of  an  alternative  programme  platform,
the  undertaking 
is
inadequate,  even  in  connection  with  the  further
undertakings  proposed  by  the  parties  concerning
the  CA  licence,  the  API  and  the  manufacturing
licence, to prevent Telekom form, in the long term,
dominating  the  market  for  the  supply  of  technical
services  for  cable  pay-TV  and  strengthening  its
dominant  position  in  the  cable  network  to  the
detriment  of  private  cable  operators.

regarding  BetaResearch 

technology  and 

the 

its 

transaction  would  create  or  strengthen  dominant
positions as a result of which effective competition
would  be  significantly  impeded  in  a  substantial
part  of  the  Community.  The  merger  should
consequently  be  declared  incompatible  with  the
common  market  under  Article  8(3)  of  the  Merger
Regulation,

HAS  ADOPTED  THIS  DECISION:

Article  1

The  notified  concentration  consisting  of  the  acquisition
of  joint  control  by  Deutsche  Telekom  AG,  CLT-UFA  SA
and BetaTechnik GmbH of BetaResearch Gesellschaft für
Entwicklung  und  Vermarktung  digitaler  Infrastrukturen
mbH  is  declared  incompatible  with  the  common  market
and  with  the  functioning  of  the  EEA  Agreement.

Article  2

This  Decision  is  addressed  to:

Deutsche  Telekom  AG
Postfach  2000
D-53105  Bonn

CLT-UFA  SA
Boulevard  Pierre  Frieden,  45
L-2850  Luxemburg

BetaTechnik  GmbH
Betastraße  1
D-85774  Unterföhring.

Done  at  Brussels,  27  May  1998.

VII.  CONCLUSION

(80)  For  the  above  reasons,  the  Commission  has
reached  the  initial  conclusion  that  the  proposed

For  the  Commission

Karel  VAN  MIERT

Member  of  the  Commission