2001/98/EC: Commission Decision of 13 October 1999 declaring a concentration to be compatible with the common market and the EEA Agreement (Case IV/M.1439 Telia/Telenor) (Text with EEA relevance.) (notified under document number C(1999) 3314)
Date: 1999-10-13
Institutions: European Commission
Subjects: Norway, Sweden, application of EU law, economic concentration, merger control, telecommunications industry

9.2.2001

EN

Official Journal of the European Communities

L 40/1

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 13 October 1999

declaring a concentration to be compatible with the common market and the EEA Agreement

(Case IV/M.1439 Telia/Telenor)

(notified under document number C(1999) 3314)

(Only the English text is authentic)

(Text with EEA relevance)

(2001/98/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Whereas:

Having regard to the Treaty establishing the European
Community,

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

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 of 30 June 1997 (2), and in particular Article 8(2)
thereof,

Having regard to the Commission decision of 15 June 1999 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),

(1) OJ L 395, 30.12.1989, p. 1; corrected version OJ L 257,

21.9.1990, p. 13.

(2) OJ L 180, 9.7.1997, p. 1.
(3) OJ C 43, 9.2.2001.

(1) On 28 April 1999 a notification was received pursuant
to Article 4 of Regulation (EEC) No 4064/89 ((cid:145)the
Swedish and
Merger Regulation(cid:146)), by which the
Norwegian Governments announced that
they would
acquire joint control, within the meaning of the ECMR
of a newly created company, Newco, set up to hold the
shares of Telia AB ((cid:145)Telia(cid:146)) and Telenor AS ((cid:145)Telenor(cid:146)).

(2) On 25 May the notifying parties submitted certain
proposed undertakings, which were conditional on the
Commission’s adoption of a decision pursuant to Article
6(1)(b) of the Merger Regulation.

(3) After examination of the notification, the Commission
the notified operation fell within the
concluded that
scope of
the Merger Regulation and raised serious
doubts as to its compatibility with the common market,
because it could create or
strengthen a dominant
position as a result of which effective competition
would be significantly impeded in the common market
or in a substantial part of it and in the territory covered
by the EEA Agreement. Therefore, on 15 June 1999, the
Commission decided to initiate proceedings pursuant to
Article 6(1)(c) of the Merger Regulation.

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I. THE PARTIES

(4) Telia is

the largest

telecommunications operator

in
Sweden and is wholly owned by the Swedish State. It is
also the parent undertaking of the Telia group. Telenor
is the largest telecommunications operator in Norway
and is wholly owned by the Norwegian State. Both
companies provide within their respective countries the
telecommunications services as well as
full range of
television services, and also provide such services
elsewhere in the Nordic area and internationally.

II. THE OPERATION AND THE CONCENTRATION

(5) Under the terms of the notified operation, Newco, a
new company to be incorporated under the laws of
Sweden, will acquire all the shares in Telia and Telenor
from the respective governments. In return, the Swedish
and Norwegian Governments will be issued shares equal
to 60 % and 40 % respectively of the equity share capital
of Newco.

appointment

budget
and

of Newco, major

(6) The Swedish and Norwegian Governments have entered
into a Shareholders’ Agreement, dated 30 March 1999.
Under the Agreement, each Government will have a
veto over the approval of the group business plan and
strategic
consolidated
acquisitions
and
disposals,
authorisation of committees of the Board of Newco and
the appointment of the Boards of Directors of Telia and
Telenor (as subsidiaries of Newco). Each Government
will therefore have the possibility of exercising decisive
influence over Newco, and hence the Governments will
share joint control over it. As Newco inherits the two
telecoms and television businesses formerly owned by
it will perform the functions
the respective States,
normally carried out by a telecommunications company,
and therefore can be expected to perform on a lasting
basis all
the functions of an autonomous economic
entity.

III. COMMUNITY DIMENSION

(7) The worldwide turnover of the Telia group in 1998 was
just over EUR 5 600 million and its Community-wide
turnover of Telenor was just over EUR [(cid:133)]* million.
The worldwide turnover of Telenor was just over EUR
3 400 and its Community-wide turnover was in the
order of EUR [> 250]* million. Telia achieved more than
two thirds of its Community turnover in Sweden but
Telenor does not achieve more than two thirds of its

*

Parts of this text have been edited to ensure that confidential
information is not disclosed; those parts are enclosed in square
brackets and marked with an asterisk.

turnover in any Member State. Both Telia and Telenor
achieve over two thirds of the EFTA-wide turnover in
Norway, and the combined turnover of the undertakings
concerned in the EFTA States equals 25 % or more of
their total turnover in the EEA territory. The notification
therefore falls to be treated as an EEA cooperation case.

IV. COMPATIBILITY WITH THE COMMON MARKET

I. TELEPHONY AND RELATED SERVICES

Introduction to telephony and telecoms services

(8) This is the first case to be considered under the Merger
Regulation which involves the merger of two incumbent
national operators in Europe. There have been earlier
cases
involving the merger, or possible merger, of
European telecoms operators, but one of the two parties
to the operation has always been outside Europe (for
been
example,
arrangements notified under Regulation No 17 which
fell short of a full
two parties’ entire
integration of
telecoms activities (5). However, as the present case goes
a step further, it raises issues which did not need to be
considered in such detail
in those earlier cases, and
therefore some initial review of market definitions is
required.

BT/MCI(II) (4)).

There

have

also

(9) Before dealing with the overall assessment and with
individual product markets in detail, it may be helpful
to set out some basic explanation of how the industry
operates and also to clarify certain essential principles
involved.

Structure and operation of switched circuit telephone networks

(10) For most of this century, and for most countries in
Europe, the telephone industry has been structured in
the form of vertically integrated national monopolies,
usually publicly owned. These PTOs (public telephone
operators)
customers
((cid:145)subscribers(cid:146)) basic voice services. Such basic voice
services provided connection to any other subscriber
within
international
and,
agreements with other PTOs, access to the international
PSTN (public switched telephone network).

through

country

offered

their

final

user

the

(4) Case IV/M.1069, decision of 8 July 1998.
(5) See,

for

example, Commission Decision 96/546/EC (Case
IV/35.337 (cid:151) Atlas) (OJ L 239, 19.9.1996, p. 23), and Decision
96/547/EC (Case IV/35.617 (cid:151) Phoenix/GlobalOne)
(OJ L 239,
19.9.1996, p. 57).

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(11)

interconnection (6) at

In recent decades efforts have been made in a number
of countries to liberalise national telephone markets by
introducing competition. For these purposes national
telephone networks have generally been considered as
consisting of three distinguishable segments: local loop,
which is essentially the network between subscribers
local
and the point of
exchanges; long distance, that is, the network of cables
and switching equipment which connects
the local
exchanges to higher levels of exchange known as transit
exchanges; and international; namely the network of
cables and related switching equipment which leads
traffic from the international gateway (often in a capital
city or at some key node in the network), via (cid:145)backhaul(cid:146)
cables to the international cable head or landing point,
and hence out of the country and to PTOs in other
countries.

their

for

local

to the

from the

the operator’s cost

(12) A subscriber for such voice telephony services gains
access to the network by paying a subscription fee
the
which generally covers
in particular the fixed
provision of the infrastructure,
line
subscriber’s
exchange
premises. The line itself is usually a pair of copper wires
twisted in a certain characteristic fashion and referred to
as a (cid:145)twisted copper pair(cid:146) or (cid:145)twisted pair(cid:146). The physical
shape of
and
exchange can be thought of as a loop, consisting of one
elongated piece of wire which starts on the main
distribution frame and runs down to the subscriber, is
connected across the handset, and returns via the return
wire to the main distribution frame, where all the loops
from that exchange area are connected.

two wires between subscriber

the

(13) When a call

it

is made,

is necessary to set up a
complete voice path (7) by connecting the loop of the
originating subscriber
the intended
recipient. If the recipient is connected at the same local
exchange as the originating subscriber, the two callers
can be connected at that exchange.

to the loop of

(14) A call destined for a subscriber on a more remote local
exchange might be sent direct to the local exchange
is unusual however,
concerned. This
and it will
first up to one or more (cid:145)transit(cid:146)
normally be sent

(7)

(6) The point where the twisted copper pairs are brought together at
the local exchange, and from where switching can take place, is
usually referred to as the main distribution frame.
In traditional switched telephony over copper lines, the voice path
would require a completed electrical circuit between the two
subscribers. With fibre-optic cables, satellite or radio links, there
may no longer be a complete
some
components of the voice path may be light pulses, radio waves,
etc.

circuit, as

electrical

exchanges (8), from which the call will then be directed
back down the network to the relevant local exchange
and hence to the subscriber.

(15) As the call is set up, an appropriate connection must be
made across each intervening bridging point or switch
in order that a complete voice path from originator to
recipient can be constructed. Once made, this circuit
has to remain in place for the duration of the call,
irrespective of how much voice traffic is actually carried
during the call.

(16) An international call will be sent

to a convenient
international switch or (cid:145)gateway(cid:146), from which it will be
sent on international connections (cables, satellite or
in the
radio links) either
country where the recipient subscriber is located, or
transited through the networks of other operators if no
direct network-to-network connection is available.

to the network operator

to

(17) The only reason for which monopoly PTOs needed to
interconnect with each other was
exchange
international traffic. The physical connection between
the two networks was usually made by an international
cable terminating in each of the countries concerned.
generally
The
such
described as
relations, the price of traffic between the two countries
would be agreed at a fixed per-minute cost known as
the accounting rate (9).

relations. Under

operators were

correspondent

relations

between

Different methods for new operators to access the local loop

(18)

In principle new entrants
could build their own
networks. However, all the existing local loop networks
were normally built up over substantial periods of time,
and financed when the telephone companies concerned
were public sector bodies. For an entrant
facing an
established incumbent,
the high cost and long time
periods involved in building out new networks means
that there is a significant economic disincentive to entry
in this way.

(19) Where there is a powerful

incumbent,

entrant
persuade potential

faces some basic challenges. The first

customers, who are

the potential
is to
currently

(8) The precise architecture of the system, and the terminology, may

vary from network to network and country to country.

(9) The precise rate, usually expressed in SDR (special drawing rights)
might vary depending on the time of day at which the call was
made.

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9.2.2001

the incumbent,

subscribers of
to switch to the new
entrant as their chosen service provider. A second is
that subscribers will probably remain physically linked
to the incumbent, and it will be necessary for traffic to
pass through some of the incumbent’s network in order
to get to and from the new entrant. A third is that the
vast majority of outgoing calls from the new subscribers
will still have to be terminated on the network of the
incumbent, and the entrant has to be able to hand off
these calls to the incumbent without incurring charges
for the use of the incumbent’s network which make his
offering uncompetitive.

(20) Competition in the territory of former monopolies has
generally begun by entrants attacking the incumbents
on their most profitable routes, namely the international
and long distance routes for outgoing calls. The simplest
form of entry is resale, whereby the entrant purchases
an (cid:145)end to end(cid:146) (10) retail service from the incumbent.
The entire line continues to be owned and operated by
the incumbent, but the entrant (cid:145)resells(cid:146) the retail services
provided by the incumbent. The customer will remain
technical and
connected to the incumbent
practical purposes other
the ordering of
services, billing, branding and customer care, and sales
and marketing. The supplier of resale will generally
receive the resold services at a wholesale price or at a
discount compared to the price at which the incumbent
offers them. The opportunity to make a profit depends
on the reseller’s ability to keep the costs of
the
overheads under his control
(generally for sales and
marketing, billing and a service centre) lower than the
equivalent costs which the incumbent would have
incurred.

than for

for all

margins to the point where their operations are no
longer profitable.

of

call-by-call

commitment

terms
is

entrant operator(s) provides

(22) The next
form of entry, which involves a more
substantial
in
network
carrier
entrant,
development by the
selection. The final user remains a subscriber to the
incumbent, but also becomes a subscriber to whichever
other
competing
outgoing call service. At all times the subscriber remains
physically linked to the network of the incumbent, and
still remains a subscriber of the incumbent. When the
subscriber wishes to use the services of the competing
operator, he enters a special code before dialling the
the local
desired number. The code is recognised at
exchange as the access code of the competing operator.
The call is handed off to the competing operator at the
nearest
two
networks.

interconnection

between

point

the

the

(23) Another

entry,

form of

carrier pre-selection,

is
essentially the same as described above, except that all
outgoing calls are automatically diverted to the new
operator, unless the diversion is manually overridden by
the subscriber.

(24) Carrier

or

call-by-call

pre-selection

are
normally used mainly for long distance or international
calls, where the prices charged by incumbent carriers
are sufficiently above cost
the
opportunity to compete by running traffic over its own
network, and charging its customers less for doing so.

to allow an entrant

selection

(21) The problem for resellers is that the bulk of the costs of
providing the telephony service remain under
the
control of the incumbent. Resellers can only re-offer
services which the incumbent has itself provided over its
therefore no possibility of
own network. There is
innovation, in terms of offering new technical solutions
which go beyond those which the owner of the line is
able or prepared to offer. Furthermore, the exercise is
only profitable in so far as the incumbent
(or the
regulator) is prepared to allow the resellers to survive. If
there are no regulatory obstacles to its doing so, the
incumbent can easily cut its retail prices whenever it
chooses in order
resellers
uncompetitive, and thus force entrants to reduce their

to make the offering of

(10) In this context an (cid:145)end-to-end(cid:146) service is one where all the network
elements between the
call and the
subscriber receiving the call are owned by, or under the control
of, the same operator.

subscriber making the

continues

incumbent

type of carrier selection the domestic
(25) Under either
subscriber
the
the
to pay
subscriber fee for the fixed line. In principle there is no
direct charge levied by the incumbent on its subscribers
when those subscribers make a call using carrier
pre-selection or call-by-call selection, even though the
traffic must
the incumbent’s
some of
Instead the chosen entrant has to pay the
network.
from the
incumbent
subscriber up to the point of interconnection with the
entrant’s network. This payment is sometimes referred
to as (cid:145)originating interconnection(cid:146), and will usually be
recovered by the entrant from the subscriber as part of
the entrant’s call charges.

its networks

the use of

travel over

for

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(26) The calls taken over by the entrant might have to be
terminated back on the incumbent’s network, on the
entrant’s own network, or on a third-party network. The
majority of domestic calls will need to be terminated
back on the incumbent’s network, simply because the
vast majority of subscribers in the country concerned
will remain connected to the incumbent. A further
payment therefore, terminating interconnection, has to
be made by the entrant to the incumbent to cover this
service.

(27) An important limitation to these ways of entry is that
both carrier pre-selection and call-by-call selection apply
only to outgoing calls. A carrier who manages to attract
1 % of
the incumbent’s customers may be able to
persuade the customers to use it for all their outgoing
calls, but all incoming calls destined for the subscribers
concerned will
still have to be terminated on the
incumbent’s network. Therefore an entrant offering
carrier pre-selection or call-by-call selection cannot earn
the call-terminating revenue which an operator in full
control of the local loop can expect to earn.

(28) A more

local

entry is

substantial

is implemented,

loop
form of
unbundling (sometimes referred to by the acronym
LLU). Although the details may vary slightly according
the new entrant will
to the way it
generally connect his cables directly to the subscriber’s
copper pair at the point where the subscriber’s twisted
the
pair
been
incumbent’s main distribution frame.
loop
unbundling will usually require the new operator or
operators
to co-locate in the same local exchange
building, which implies the entrant setting up its own
network switch to take the traffic off from that point
onto its own networks.

onto
Local

previously

connected

has

(29) The effect of such unbundling is as if the subscriber
concerned had had his cable connections taken from
one local exchange operator and placed onto the main
distribution frame of another operator (the entrant). All
the subscriber’s relationships are with the entrant. The
only respect in which the incumbent continues to have
control of any of the diverted network is that it retains
ultimate ownership of the twisted copper pair to the
final user. The
the
incumbent for the lease of the copper pair from the
incumbent’s premises to the subscriber.

generally pay

entrant must

It

is

the

incumbent.

controlled by

contain other twisted pairs, and which will continue to
therefore
be
important that the use of the diverted copper pair does
not create unacceptable interference with the other
wires in the cable, for example by (cid:145)crosstalk(cid:146) or radio
interference with other circuits in the incumbent’s local
loop cables. A cable in which several specific circuits
were owned outright by someone other than the owner
of the cable might give rise to difficulties in allocation
of responsibilities for maintenance. For these reasons
leasing arrangements are generally preferred.

that

(31) There are other possibilities

for getting local

loop
access,
is fixed access to final subscribers, but
which avoid the need to use the incumbent’s fixed links.
The most usual alternative to the incumbent’s fixed links
is the use of cable television connections.

contrast, with traditional

(32) Cable networks were usually designed to transmit traffic
in one direction only, and so have a (cid:145)trunk and branch(cid:146)
or (cid:145)cascade(cid:146) structure which is not ideal for telephony.
in the traditional telephone system each
By contrast,
subscriber has his individual
loop to the local
local
exchange, which only ever carries his own traffic. The
copper loop wires are less likely to be overloaded no
matter how many subscribers are simultaneously using
their phones. By
cable
networks there is a risk that the (cid:145)trunk(cid:146) connections
within the
system can be overloaded by return
telephone traffic. However the networks can be adapted.
The first step is to reserve some of the bandwidth on
the cable to create an outward and a return path for
telephony traffic. The system must be reconfigured so as
to break it down into separately served units of say,
500 to 1 000 subscribers, in order to ensure that the
arterial routes are not overburdened at times of peak
demand. There may be a need to create more capacity
in the key trunk lines, by putting in extra cables, or
replacing the copper coaxial system with fibre optics, in
order to enable the system to deal with all the traffic. If
so, investments are needed in the electronics required to
(cid:145)light up(cid:146), to bring into operation, the optical
fibres.
Cable modems are required at each end of the line.
Undeveloped cable networks are therefore not an
immediate substitute for the telecom network, but can
be made so with some investment.

(30)

In theory there is no reason why the new operator
should not take over outright ownership of the copper
pair. In practice however, the copper pair usually runs
for a substantial portion of its length in cables which

(33)

In some countries, the UK being one example, cable
networks were built out not only with the usual coaxial
cable for the supply of television services, but with an
additional twisted copper pair with the intention that it
might be used for telephony.
In other countries the
cable networks consist only of coaxial cable and so the
technical and financial challenges involved in developing
the network for telephony are greater.

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the conveyance of

(34) Other alternatives to the use of the incumbent’s fixed
lines involve the use of relatively new technologies, such
as
traffic over electricity cables
entering the subscriber’s premises. However, as this is
not commercially developed,
it does not provide an
immediately available competitive alternative for the
bulk of telephone users.

at

equipment

(35) There are also methods designed to avoid the use of
fixed links entirely, such as radio link. This requires the
radio signals beamed at
use of high frequency
the
located
receiving/transmitting
subscriber’s premises. The disadvantage of this system is
that it uses very short wave radio signals. These require
line of sight
transmission, so the use of radio-loop
systems might be limited to country areas rather than
built-up town and city centres, or to businesses with
high buildings or aerial masts on which to locate the
receiving antennae. The use of such radio frequencies
might generate unacceptable levels of interference with
other equipment. Moreover significant investments must
be made in the equipment at the subscriber’s end of the
line. An attempt to set up a commercial operation in
the UK using such radio links has recently failed.

(36) An important distinction should be drawn between local
the subscriber’s
loop services which give the entrant
outgoing call business only, such as carrier pre-selection,
and call-by-call selection, and technologies which place
the new operator in a position analogous to that of the
loop access, radio link,
incumbent
access by power cables and cable networks). The second
group gives the operator the possibility to earn revenue
from incoming as well as outgoing calls. Arguably only
the second group, and of these only unbundled local
loop access at least in the short term, is really capable
of allowing competitors to enter on the same terms as
the incumbent.

(unbundled local

Interconnection: correspondent relationships and the
accounting rate

(37)

Interconnection is the means by which two separately
owned networks exchange traffic between one another.
The accounting rate system, which was referred to
briefly,
is
essential for any telephone company to have sufficient
interconnections to be able to send traffic to, and
receive it
from virtually everywhere on the PSTN,
including the international PSTN.

is a particular form of

interconnection.

It

(38)

In the era of monopoly national telephone operators,
calls which had to be switched between local and transit
exchanges, or to international gateways, were switched
entirely within the network of the national PTO. In this
context (cid:145)interconnection(cid:146) would have had relatively little
meaning. The price of the service as paid for by the
subscriber, a combination of the fixed rental charge and
a usage charge for
individual calls based on their
duration, destination and perhaps time of day, would be
a bundled charge which covered all
the necessary
switching activities within the network.

(39) Where international operators deal with one another,
the financial relationship between them was and usually
still
the
is governed by a system referred to as
accounting rate system. A price is agreed between the
two national telephone operators concerned, and the
(the operator whose subscriber
originating operator
initiated the call) pays an agreed percentage, usually
50 % of the accounting rate, to the other operator for
delivering, or terminating, the call. As there is usually a
two-way exchange of traffic between the two operators,
the accounting rate is usually accompanied by a
settlements system,
in which the net flows of traffic
between the two operators over a period are counted,
and payments in one direction or the other made at
regular intervals on the basis of the imbalance.

the accounting rate,

(40) The physical cable structure between the two PTOs
would be considered as owned by each up to a notional
mid point (either on their common border or on the
mid point of an undersea cable). The subscriber making
the call would pay his operator the full price of the call
(which in theory should be related to the accounting
rate but might not be), and this operator on whose
network the call began would then generally pay the
terminating operator an agreed proportion, usually 50 %
to terminate the call on the
of
receiving network. The fact that traffic might be roughly
in balance between the two operators concerned, and
that payments would be subject to a settlement regime,
means that
the actual amounts of money changing
hands between the two operators would be relatively
small compared with the overall traffic volume. It will
be noted that under this system the price for a call to the
telephone companies involved reflects the agreements
reached between the two countries concerned, and the
terminating operator gets paid the same irrespective of
how far the call has to travel on his network to reach
his intended subscriber.

Interconnection at local or long distance level

(41) With the advent of liberalisation, there was a need for
the new competing networks who entered a domestic

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incumbent’s territory to be interconnected with the
incumbent, and of course with one another. Such
interconnection is especially important to new entrants,
because the vast majority of
subscribers will
probably want to make calls to subscribers who are still
on the incumbent’s network.

their

(42) The model for domestic interconnection usually differs
slightly from the accounting rate model used in
international calls. The originating operator (that is the
one on whose networks the call begins) usually pays the
receiving operator a minimum set-up charge for each
call, as well as a per-minute charge for the termination
of traffic sent over the physical points of connection
between the two networks. The per-minute usage
charge may vary depending on the time of day at which
the traffic is being sent, and how far it has to be sent
on
of
the
interconnection.

from the

receiving

network

point

Interconnection models

(46)

set by

certain minimum standards

(43) The pricing structures for interconnection vary from
country to country. A country may be divided into
regions, and the entrant will have to decide on the
specific regions in which it wishes to interconnect, and
to fulfil
the
incumbent. For example,
it might be required to
interconnect at specific points within the region as
designated by the incumbent, and/or at a certain
minimum number of points within the region as
stipulated by the incumbent. Under
this system an
entrant will pay a certain charge if a call can be
delivered within a region, or segment, where it
is
interconnected, and it might pay more if the incumbent
has to take the call to another region where the entrant
is not interconnected.

If

is

the

pair

point

specific customer on the incumbent’s local
loop the
cheapest interconnection is generally at or as close as
possible to the local exchange where the relevant
twisted
of
terminated.
interconnection is at a transit exchange, higher up the
exchange hierarchy, then the call will have to be carried
over more of the incumbent’s network in order to reach
the local
loop. The entrant can then expect to pay a
higher charge than for the same call terminated at a
local
local
interconnections are more direct and
exchange level
cheaper, but give access to fewer overall customers. In
general the fewer points of interconnection an entrant
has, the more it will have to pay the incumbent for call
termination.
of
interconnection it has, the less it will have to pay the
incumbent, but
the more it will have to spend on
building out its own network.

interconnection point. Hence

the more

Conversely

individual

points

to make

to lower his
In principle the way for an entrant
interconnection
as many
is
costs
interconnections as possible, as far down the exchange
hierarchy as possible. However this involves significant
capital costs of building out networks to each and every
local
exchange which it might wish to reach.
Furthermore, if interconnection charges are high relative
to the price at which the incumbent offers services to its
own subscribers,
it can be difficult for an entrant to
make a profit on the operation. But even if the prices of
interconnection are reasonable, a possible disincentive
to large investment
that new
entrants are entirely dependent on the incumbent, in the
for the price at which
absence of regulatory action,
of
offered.
interconnection
interconnection rises
to make the entrant’s
so as
operations uneconomic, their investments in rolling out
networks will be of little value. Thus entrants may be
unwilling to have their costs at
the
sufficient
incumbent unless
regulatory controls are in place to keep interconnection
costs low enough to make their offerings competitive,
and to prevent the incumbent from abusing its position
of power.

they are satisfied that

in new networks

the mercy of

price

the

is

is

If

layout of

(44) An alternative, which may amount to much the same
the
thing depending on the geographical
PSTN, is where the entrant can choose to interconnect
at various levels in the exchange hierarchy. Thus if he
interconnects at a high level in the hierarchy, he may
have access to all the exchanges in the country or a
substantial part of it, and if he interconnects at local
level, he may have access only to the local exchanges
served from the exchange he has chosen.

(45) The incumbent will generally set prices based on the
amount of his network which the interconnecting
operator will need to use. Thus in order to reach a

(47) For new entrants the most desirable state of affairs
would be to interconnect at chosen points, whether at
transit exchanges or local exchanges, selected on the
basis of where it was necessary for them to send the
most traffic. Thus in an area where a new entrant found
itself delivering a high volume of
traffic, say to a
particular group of subscribers in a specified area of a
it might want to interconnect at some selected
city,
local exchanges, or even at all of them in the area. In
another area where a new entrant sends little traffic, it
might want to interconnect only at the transit exchange
in
level
to avoid significant
in order
to
little-used capacity.

investment
could even choose not

It

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interconnect at all in such regions, and to accept that
this means paying the incumbent higher interconnection
charges in respect of the delivery of such traffic.

(48)

for

the entrant

to (cid:145)cherry pick(cid:146)

Incumbents sometimes insist on interconnections being
made in accordance with certain criteria which make it
the most
difficult
desirable points of interconnection.
It is common for
example for an entrant operator to be required to
interconnect at a minimum number of points, normally
two, in each region in which he desires to interconnect.
The incumbent may refuse to allow any interconnection
at the local exchange level (as distinct from the more
expensive interconnection via a transit exchange) unless
the entrant is prepared to interconnect at a minimum
number of exchanges, or perhaps even at each and
every local exchange within the region. The incumbent
may impose limitations on the networks to which it will
connect.

(49) As to who pays the costs, there is usually a one-off cost
for setting up each interconnection, and a continuing
periodic payment. The incumbent may insist that the
entrant pays the entire cost of setting up the physical
infrastructure required to make the interconnection,
even if the incumbent will be able to benefit from being
link. Such
able to send some traffic over the physical
strategies give the incumbent a significant degree of
control over entrants’ costs because they determine the
investment which the entrant has to make
level of
before
In addition the
it
incumbent may carry out quality degradation strategies.

can begin operations.

Supply of capacity or capacity-related products

(50) A national telephone operator is a significant owner of
network infrastructure in the form of cables and
switches. Most such operators lease out some of their
unused capacity. Such leasing can be of the (cid:145)wholesale(cid:146)
variety, whereby products are offered to other telecoms
operators or large users, or it can be retail, whereby
products are offered on an end-to-end basis, sometimes
to suppliers of telephone services, but also to private
users, such as data network operators.

(51) The alternatives for the supply of the raw cabling may
include utilities
electricity
companies, which have their own private telephone

such as

railways

and

systems or rights of way along which networks can be
rolled out more quickly. Such offerings may provide
(cid:145)backbone(cid:146)alternatives, but may not have the coverage or
(cid:145)capillarity(cid:146)
networks.
Consequently the incumbent may be better placed than
any other supplier of leased capacity in terms of the
reach and coverage of his physical network.

incumbent’s

own

the

of

that

this assumes

the entrant has

(52) The price at which leased lines and related products are
offered has a relationship with interconnection prices
loop access. It was noted in the
and prices for local
discussion on interconnection above
it was
generally cheaper for an entrant to keep its traffic off
the incumbent’s network as far as possible, and to make
the interconnection with the terminating network as
near as possible to the point of delivery of the traffic.
the capital
However,
resources to build out his networks to each desired local
exchange point. If the entrant chooses to lease lines, and
is substantially dependent on the incumbent
for the
supply of such leased lines, then its ability to avoid
the
hostile interconnection pricing on the part of
incumbent is further undermined by its being financially
and operationally dependent on the incumbent for his
leased lines. The ability of the incumbent to take such
action may be lessened however,
that
regulation or other competitive constraints provide an
effective constraint on its freedom to set prices for such
offerings.

to the extent

Circuit switching versus packet switching

(53)

In the model of telephony described above, one of its
features is that a complete end-to-end voice path must
be set up between the originating subscriber and the
intended recipient of the call, and must remain in place
for the duration of the call, irrespective of how much or
how little is said on the line by the participants to the
significant
call. Accordingly
amounts of network
resources
switching equipment) have to be
(cables,
dedicated exclusively to individual calls.

computers

(54) Packet switching is an alternative to traditional circuit
to
initially used to enable
switching,
exchange data over telephone lines, but
increasingly
being used as a means of carrying traditional voice
telephony messages.
data
In
packet-switched
communication,
information contained in the
message is broken up into separate (cid:145)packets(cid:146) of data.
to a
Packets are sent
computer known as a router, which examines
the
heading information on the packet and directs it on to
another router, and so on until the packet reaches the
intended addressee. Packet data systems are described as

from the originating terminal

the

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connectionless (11), in that the connection between two
cable runs need only be held open for as long as it takes
one packet to cross over the switch point from one
cable to the next.

to be

traffic which has
exchanged between the
employees of the company in their regional office in
country Y and the customer in country Y can be broken
out directly onto the PSTN in country Y,
thereby
incurring lower termination costs.

of

of

and

used

types

routers

switches

traditional

(55) The first experimental packet-switched networks were
locally confined, often within a university, and would be
described today as LANs (local area networks). However,
in
the
packet-switched data networking can be placed at the
(cid:145)nodes(cid:146) (12)
cable
networks. By this means data networks can make use of
the underlying physical cable of telecoms networks, thus
obtaining the wide reach and coverage of the relevant
networks, whilst
switching
required at the nodes in a traditional circuit switched
network. The advantage is
the same physical
circuitry no longer needs to be dedicated to each user
on a call-by-call basis, but can be used to carry the
traffic from many simultaneous data transmissions.

the physical

telecoms

avoiding

physical

that

the data network,

(58) The normal interaction of the private data network with
the incumbent will not be in the form of requests for
interconnection to the PSTN as such, but in terms of a
demand for network infrastructure (capacity) products.
In order to construct
it will be
necessary to lease capacity, or buy, probably from the
incumbent, virtual network transport services such as
Frame Relay or ATM (asynchronous transfer mode),
which can serve to some extent the function of leased
capacity. Thus a company seeking to construct its own
data network (or
to construct such a network for
is dependent on the prices at which such
others)
capacity products
can be
and related equipment
obtained.

Packet-switched data networks in use: business data
communications and the Internet

Internet

(56) A data network can be constructed using cabling,
switches and routers which are entirely divorced from
the PSTN, and which have no connection with it. Many
LANs, e.g. those found within an office building can be
considered examples of such private data networks.
Larger wide area networks ((cid:145)WANs(cid:146)), such as those
which may connect the multinational sites of a large
company, might use some telecoms fibre leased from
PTOs (such as private international leased lines) but in
principle these too are private networks and they do not
need to be connected to the PSTN.

traffic.

to exchange

(59) The Internet is basically a series of interconnected and
overlapping networks which all use the same protocol,
the TCP/IP protocol,
Internet
networks can either interconnect horizontally in an
arrangement known as peering, or vertically where one
network
for
customer
Internet data networks may
connectivity. The largest
have worldwide coverage, while smaller networks may
have coverage only of a region, or of one country, or of
a local area. All
Internet networks are ISPs (Internet
service providers) both to each other and to final users.

becomes

another

of

a

(57) Direct connection with the PSTN might be required in
the case of a combined voice and data network. An
example might be the case of a company with a global
network with its headquarters in country X but a
regional office in country Y. If the system breaks out
onto the PSTN only at the head office in country X,
then an employee in the regional office in Y who wants
to speak to a customer in Y will need to make a call
routed through the head office in X, onto the PSTN, and
back over international links to the customer in Y. Thus
the call from the head office to the customer would be
priced as an international call between X and Y. But if
the
an
interconnection with the PSTN in country Y, then any

company’s

voice/data

network

has

(60) Obtaining access to the Internet means getting access to
an ISP. This can be done by (cid:145)dedicated access(cid:146), that is to
say, a dedicated fixed line cable link between the final
user and his ISP, or by (cid:145)dial up(cid:146) access over a normal
PSTN line.

(61)

In so far as an ISP has any dial-up customers, it needs
connection with the PSTN in order to be able to reach
customers who can only be reached via the PSTN. For
these purposes, an ISP can be treated either as a
business customer of the relevant telephone operator, or
as another telephone operator.

(11) Some types of data network, such as Frame Relay and X25, are
(cid:145)connection oriented(cid:146), in that a connection is set up before a data
transmission begins. To that extent they share some features of
traditional circuit-switched telephony.

(12) The points where network connections intersect with one another.

(62)

If the ISP is treated as a (business) customer, it will pay
a line rental to the telephone company, like any other

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to render

user of
telephone services. Calls from Internet users,
(that is, customers of the ISP) to the ISP will be treated
exactly like any other switched telephone call, except for
the fact that modems are placed at each end of the line
(i.e. by the customer’s telephone and at the ISPs modem
the data stream capable of being
port)
transferred over the circuit-switched PSTN. There will be
line rental payments made by the final user and by the
ISP, there will be usage charges paid by the final user
for his use of the PTO’s network, and the final user will
Internet
separately pay the ISP for the provision of
services.

another

telephone operator,

(63) However, if the ISP is entitled under national law to be
treated as
then the
relationship will be different. In this case the ISP (which
generally receives more calls than it will make) is the
recipient of a stream of calls originating in the network
of the PTO, and may be entitled to receive payments
from the PTO for call termination services. Because the
calls will in general be originated by the customer, and
it is normally the ISP who benefits
not by the ISP,
financially from providing the incumbent with call
termination services.

(64) Some (cid:145)free(cid:146)

ISP services are financed by settlement
payments made by the PTO to the ISP, thus relieving
the customer of any need to pay his ISP. A PTO may be
obliged by regulation to treat the ISP as a telephone
operator or, if it is exposed to significant competition
for ISP business, it may find itself commercially obliged
to offer call termination payments.
it
could risk losing its subscriber outgoing Internet call
traffic to a different carrier (by means of a carrier
pre-select arrangement, for example).

it does not,

If

(65)

ISPs thus need connection with the PSTN, which may
be interconnection,
if they are treated as a telephone
operator, or as a customer, if they are not. Where there
is little competition for access to the local loop, a PTO
may be able to insist that all ISPs be treated as ordinary
telephone subscribers. If it is not capable of doing so,
the PTO may be able to lower termination payments to
such ISPs to the point where the ISP is little better off
than if it were a retail customer.

Higher bandwidth (broadband) services

(66) The

term (cid:145)bandwidth(cid:146)

physical
system and
to the speed at which information can be

characteristics of a telecommunications
refers

relates

the

to

In digital systems it

transferred.
In analogue systems, such as traditional
circuit switched telephony, it is measured by frequency
(in hertz).
is measured in the
number of binary bits per second. The higher the
bandwidth, the higher the speed of the line, and the
system can
more information a telecommunications
transfer. A conventional
circuit
connected at each end to a subscriber by means of a
twisted pair can be regarded as a low speed (cid:145)narrow
band(cid:146) connection, which has only a limited capacity to
transmit data. Modern applications, such as Internet,
and in particular
the
transmission of much more information, and hence
require high speed broadband interconnections if they
are to be usable by the final subscriber.

video on demand require

telephone

voice

(67) There are two difficulties with the delivery of broadband
services to final users. One is the bandwidth limitations
of the twisted copper pair. Although many telephone
operators upgraded their long distance and international
to make
capacity with fibre optic cable in order
optimum use of packet-switched technology, the local
loop represents
the network where
traditional circuit switching represents an impediment
to the use of broadband technologies. The substantial
costs of replacing the local loop infrastructure represent
a disincentive, even for the incumbent, to upgrading the
links, and thus
to find ways of
the challenge is
delivering the service over existing facilities.

the point of

(68) Broadband services can be offered over the existing
copper line if it is hooked up to (cid:145)enabling(cid:146) technologies
(digital subscriber line) (13)
such as one of the (cid:145)xDSL(cid:146)
technologies. The xDSL technologies are capable of
effectively converting a copper pair into a high speed
digital line, and so overcome the technical limitations of
the traditional copper local loop. The technology must
normally be fitted at the local exchanges, on both the
incumbent’s and the customer’s
the main
distribution frame.

side of

(69) Competing operators who want

the

to offer broadband
services via xDSL technologies to customers who are
still connected to the incumbent
face three main
difficulties. First, they must wait for the applicant to
install
technical
offerings are limited by the equipment which the
incumbent
interconnect
somewhere further up the telephone line, further away
from the main distribution frame, and thus expect to
pay higher interconnection charges for the use of more

installs. Second,

and hence

technology,

they must

their

(13) There are a number of variants of DSL technology such as ADSL
(asymmetric digital subscriber line), HDSL (high data rate digital
subscriber line) and VDSL (very high data rate digital subscriber
line). They are collectively referred to as (cid:145)xDSL(cid:146) technologies.

9.2.2001

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of the incumbent’s network. And finally such entrants
are vulnerable to the incumbent’s policy on the pricing
and/or quality of his interconnection. If the incumbent
increases his prices for interconnection or degrades it, a
competitor’s xDSL offering may become uncompetitive.

services; business data

telephony
Internet access
local
distribution;
telephone
systems;
directories and mobile telephony.

communications;
(including retail and dial-up); PABX
and local
telephone

telephone directories
business-to-business

Interconnection between fixed and mobile networks

Markets within the fixed-switch telephony segment

(70) The principles described above

apply

equally

to
it is
interconnection with mobile networks. However,
customary for interconnection charges to be somewhat
higher for mobile networks. This is said to be justified
on the basis that the mobile operator has to incur more
work in establishing where his customer is, so that calls
to that customer can be directed to the appropriate
point on his network. In their Reply to the Statement of
Objections ((cid:145)the Reply(cid:146)) the parties argued that charges
were higher on the basis of the higher costs for mobile
compared to fixed networks, and the fact that mobile
infrastructure is still in the (cid:145)build-up(cid:146) phase.

(71)

(cid:145)Roaming(cid:146) refers to the possibility of a mobile phone
user taking his phone out of the area of the company to
whom he subscribes for mobile phone services, and
using it in the catchment area of another mobile phone
company. In order for him to do this, there must be a
roaming agreement between the two companies.
In
general, the main features of roaming agreements are as
follows:
the subscriber of network X arriving in the
territory of operator Y will be treated as a customer of
network Y. Operator Y will bill operator X for any calls
made by the customer when in Y’s territory. The bill
will reflect the rate charged by operator Y to its own
customers, plus a surcharge to reflect that fact that the
caller has no subscription with operator Y. Operator X
in turn bill his customer for the calls, with a
will
surcharge based on the additional administrative costs
involved.

(72) Roaming occurs both on a national basis, when a
subscriber of a mobile phone company goes
into
the area of another mobile operator, and on an
international basis, when a mobile phone user uses his
phone in another country, and his call is handled by a
service provider in that country.

A. RELEVANT PRODUCT MARKETS

(73)

In their notification the parties identified seven relevant
product markets, covering their activities in telephony
fixed-switch
and

services. These

included

related

(74) The parties’ proposed relevant product market

and

calls,

for
fixed-switch telephony covered local calls, long-distance
calls (meaning those made within a single country),
international
The
Commission considers that, from either a demand or
supply point of view,
the range of activities falling
within this definition comprises offerings which cannot
be regarded as economic substitutes for one another. An
assessment
is accordingly required on the basis of
narrower segmentations.

to mobiles.

calls

Narrower segmentations

(75) Many

to

respondents

services would be

the Commission’s market
investigations agreed that definitions more in line with
should be used, under which basic
previous cases
telephony
into separate
split
segments. One such segmentation was into local loop,
long distance, and international. However,
loop
access services are relevant both to subscribers and to
other operators seeking to interconnect. A distinction
can also be usefully drawn between the supporting
infrastructure, and the actual services which are offered.

local

Provision of local loop infrastructure

(76) Before he or she can access any higher level telephone
services, a subscriber has to be physically connected to
the PSTN, which is usually done by allocating him or
her a twisted copper pair to his nearest local exchange.
There
accordingly a demand on the part of
subscribers and telecom entrants for connection to the
local loop.

is

Provision of long distance and international infrastructure

(77) There has to be a means of connecting local exchanges
together within a country, and to bring traffic to and
take it
from the international gateways or switches.
These services require a physical network of cables and
a means of switching between them. The main suppliers
of such network infrastructure in the past were the

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telephone companies themselves, but new options have
emerged in recent years, notably utilities such as gas,
electricity and rail companies who are prepared to lease
out some of the capacity on their private networks.

refusing or making it more difficult
entrant
networks to interconnect if they use fibre obtained from
suppliers other than the incumbent.

for

(78)

companies

the provision of

running private networks,

In terms of demand,
long distance
transport is relevant not only for entrant PTOs, but also
for
such as
Internet service providers, suppliers of network services
for business data communications, and companies
seeking to (cid:145)self provide(cid:146) by constructing their own data
networks. Each of these types of player needs access to
capacity to complete networks in a given service area,
and possibly also interconnection with the incumbent in
order to be able to exchange traffic originating or
terminating in the country concerned.

(79)

In terms of such network infrastructure, a distinction
has been drawn in the past between (cid:145)wholesale(cid:146)
offerings, namely those which are offered on an
operator-to-operator basis only, and (cid:145)retail(cid:146) offerings,
which are offered to end-users (normally businesses) and
usually consist of private lines.

(80)

(81)

from any other

in buying a bundled product
company,

In principle the buyer of network infrastructure may be
indifferent as to whether the product is obtained from a
telephone operator or
competing
supplier of network infrastructure. There may be
advantages
from a
telephone
in which
that
interconnection is taken for granted, but if the price
rises too high by comparison with the offerings of
competing suppliers, the user may be ready to buy (cid:145)dark
fibre(cid:146)
(unused and unconnected cable) and to light it
himself and to seek interconnection arrangements for it.
From the point of view of the person buying access to
such infrastructure therefore, the offerings of suppliers
such as utility companies may represent a substitute for
offerings traditionally provided by PTOs.

one

is

is possible that, where the lessor is a dominant
It
it may discriminate between
telephone
company,
telephone
recognises as other
customers whom it
companies and to whom it will offer not only fibre but
also interconnection, and other customers (e.g. business
customers attempting to set up data networks or entrant
operators),
offer
interconnection. A dominant PTO could also refuse to
interconnect with
quality
offer
fibre leased from a
interconnection in respect of)
competing (non-PTO)
a
dominant telephony monopoly may be able to limit the
attractiveness of competing fibre offerings, simply by

to whom it will

supplier. To that

extent

lower

and

not

(or

a

(82) Thus from the point of view of telephone companies
there may be one market
seeking infrastructure,
covering not only the offerings of other
telephone
companies, but also those of alternative providers.
However, from the point of view of private buyers, such
as private data network providers, the market for the
supply of network infrastructure may be more limited if
they need interconnection with the incumbent, as they
may be forced to rent from the incumbent telephone
company.

(83) Notwithstanding the above,

infrastructure,

for the purposes of
separate markets

assessment however,
both

the
for
present
network
and
international, have been considered to exist, and such
markets are considered to cover all supplies of network
infrastructure, whether supplied by telephone companies
or not.

distance

long

Subscriber access to telephone services: (local, long
distance and international)

(84) Once the physical connection to the network is in place,
services can be run over the lines. Basic telephony
consists of incoming and outgoing calls. Incoming and
outgoing calls can be classified according to whether
they are (cid:145)local calls(cid:146), i.e. they originate and terminate on
the same local exchange network; or long distance, i.e.
they have to be sent to or are received from somewhere
else in the country, or international, i.e. they have to be
sent to or received from a foreign country (14).

(85)

Irrespective of whatever any additional segmentations
might be applied, a question arises as
to whether
separate markets should be defined for incoming and
outgoing calls. This
to the
question of the treatment of services such as carrier
pre-selection and call-by-call selection, which apply only
to outgoing calls.

is particularly relevant

(86) Subscriber access

is generally
offered by the incumbent on the basis of a bundled
product for both call termination and call origination.

to telephone services

(14) A number of segmentations are possible depending on the types
of users (e.g. private and business segments, and urban and rural
segments). For the purpose of the present assessment such further
segmentations are not necessary as they would not affect
the
outcome. However,
such segmentations might however be
relevant to consideration of any measures which might be offered
to remedy the effects of the concentration, as different types of
remedy might have different
types of
consumer group.

impacts on different

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The price of the service to a final user who receives but
never originates calls consists only of the line rental.
The price to a final user who originates but never
receives calls consists of all the variable usage charges as
well as
the line rental. The calculation of pricing
between the two services is more difficult where a fixed
line is used both to receive and to make calls. As part of
the fixed line rental has to be considered as attributable
to the cost of outgoing calls, and part as a charge for
the incoming calls (15). The proportion of the fixed costs
to be attributed to outgoing calls will vary according to
the relationship between usage for incoming and usage
for outgoing calls. Therefore it is difficult to unbundle
the individual price elements of the service for a final
user,
incoming and outgoing calls
should be treated together.

suggesting that

(87) Despite the foregoing, it might none the less be argued
termination constitute
that call origination and call
different service markets, because in theory a subscriber
facing local loop competition could rent one line only
for incoming calls, and a separate line only for outgoing
calls, thus allowing him to buy different services from
two different providers. But he would then incur two
charges for fixed line rentals instead of one, and the
exercise is unlikely to be cheaper than having the one
line for both incoming and outgoing calls. Accordingly,
the relevant markets are taken for the purposes of the
assessment as comprising incoming and outgoing calls.

(a) Local calls

(88) Conventionally the service markets for basic telephony
are split into local,
long distance and international. In
demand terms it is the subscriber who decides whether
he or she wants to make a local, a long distance or an
international call. However, if the various layers of the
telephone hierarchy are separated, then the supplier of
local loop services may not necessarily be able to offer
long distance or international calls directly to their
subscribers, and may have to refer the call to another
operator. Thus the layers can be treated as separate
markets.

(b) Long distance calls

(89) Where a PTO is a vertically integrated operator, the
loop and long distance is
transition between local
merely a switching between different exchange levels.
But where the different layers are segregated, a long
distance operator will need to interconnect with the
local loop network on which the call originated in order

to accept the call, and carry the traffic to somewhere
else in the country or region. From there it may be sent
back onto the incumbent’s local loop network closer to
the point of delivery, or handed off
to some other
operator. Demand for such long distance services would
also arise where local loop operators need to send traffic
to, or receive traffic from, an international (cid:145)gateway(cid:146) or
access point leading to the international public switched
network, and equally when traffic has to be routed to a
mobile network.

and can include

(90) The product or service which is offered can comprise a
combination of elements.
It comprises an offering by
the long distance network operator of transport over its
interconnection with the
fibres,
receiving network(s) at each end. The transport element
could be provided over fibre which is owned by the
long distance operator, or fibre which is leased by him
from another telephone operator. There are also other
capacity products which can be used for the transport
of long distance traffic. For example, it could be done
by the purchase of wholesale switched minutes from the
incumbent, or even by running communications over
virtual networks, such as data networks provided on a
retail basis by another operator.

(91) Competition for the carriage of long distance calls (and
also international calls) is generally introduced by means
of resale, carrier pre-selection and carrier call-by-call
selection. Such services generally apply only to higher
margin areas such as long distance or international calls,
and are not used for purely local calls. They allow the
customers to access another operator or reseller who
will handle the call for them.

(c) International calls

(92) From within any given country there will be a demand
from subscribers for the carriage of telephone traffic to
other countries. This is the area in which resellers and
call-by-call or pre-select carriers are most likely to be
active.

(d) Calls from fixed to mobile

(93) Calls to mobile telephones can be considered, for the
purposes of this assessment, as similar to long distance
calls, in so far as they require access to the incumbent’s
network for call origination, and have not been dealt
with separately below.

Mobile telephony

(15) In some countries certain telephone offerings usually charged on a
usage basis are offered free, such as local calls. This does not
however
countries under discussion in this
assessment.

apply in the

(94) The parties proposed mobile telephony, which means
the operation of mobile communications networks, as a
third parties
separate relevant product market. Most

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the market

who responded to the Commission’s
investigations
seemed to support a market definition at this level, and
there was little or no suggestion from third parties as to
the need for further sub-division of
(for
example into analogue and digital). As to the question
(cid:145)convergence(cid:146), namely the tendency for mobile
of
fixed-line
telephones
telephony, many respondents made the point
that
mobile telephony services cannot be considered yet as
substitutable for fixed-line telephony as, inter alia, fixed
lines can be used for purposes, such as Internet access,
for which mobile phone services do not provide the
same functionality. Mobile phone services are therefore
taken as a separate product market in their own right.

substitutable

to become

for

Operator access to networks (local, long distance, and
international)

(95)

In the same way as subscribers need access to networks
in order to be able to make calls, operators need access
in order to terminate calls on other networks, or to
receive calls for termination. There is thus a parallel, at
the operator level, with the discussion above about
outgoing and incoming calls.

their

traffic

to local,

hand off
long distance or
international operators. However, new entrants without
their own facilities may want
the
services provided either by the incumbent or by another
telephone company with the ability to deliver long
distance or international traffic.

to make use of

(100) Because the physical networks in most countries were
constructed in the era of national monopoly telephone
operators,
there are usually a limited number of
international switches which connect, via backhaul, to
(cid:145)gateways(cid:146) (cid:151) international cable landing points or cable
heads. All outgoing internationally bound traffic handled
under
is excluding
self-corresponded traffic and traffic over private circuits)
must therefore be brought to the international switches.
All
the
termination within the
international
country concerned.

incoming traffic
switches

to a country arrives at

the correspondent

regime (that

for

(a) Operator access to local loop networks

loop in
Just as a subscriber needs access to the local
order to make outgoing and to receive incoming calls,
other operators also need to be able to interconnect
with local
loop networks. Thus a demand for such
access services exists, and some form of contractual
consideration, either payment or a return of reciprocal
services, must normally be given.

Business data communications

(101) Business data communications are services involving the
transfer of often large quantities of data, securely and
quickly, nationally and internationally. Business data
communications services connect a company’s local area
in one location with its other LANs
network (LAN)
these services can also link third
located elsewhere;
parties to a company’s network. The customers of these
types of
companies with substantial
services
communications requirements.

are

(96)

(97)

such an arrangement,

Interconnection will normally be arranged in the form
terminating
of an agreement often referred to as
interconnection. Under
the
operator with the traffic to hand off will pay the
terminating operator for his services in delivering the
call. Thus the total cost can include a set-up charge for
origination for each call, and a per-minute charge which
may vary depending on how much of the incumbent’s
network the call has had to travel through before it
reaches the local loop subscriber.

(102)

(98) The Commission therefore

that, where
deregulation has permitted the entry of competing
operators, a market exists for operator access to the
local loop network.

considers

at

switches

related to traditional

(cid:145)Business data(cid:146) services form separate product markets
from those
switched voice
technical point of view, data
telephony. From a
networks are based on the physical configuration of the
underlying telecom cable network, but use different
types of
the points of
and routers
interconnection and access ((cid:145)the nodes(cid:146)). Business data
communications often use packet switching or similar
technology, such as Frame Relay or ATM. Business data
networks are commonly described as (cid:145)virtual(cid:146) networks.
When a connection is set up a (cid:145)virtual circuit(cid:146) is created,
a data stream is broken into packets which are then
placed on lines which are shared by different streams.
This technology provides the advantage that it is not
necessary to reserve network resources for a given
connection and that switching time is minimised.

(b) Operator access to long distance or international networks

(99)

In practice most of the incumbent telephone companies
in Europe are vertically integrated, and have sufficient
capacity not to need (apart from international calls) to

(103) Providers of business data communications services may
either build their own network, combining their own

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infrastructure with leased lines, or buy network
transport services (such as Frame Relay services) from
the telephone operator and in general
from network
infrastructure providers.
In any event business data
communications providers need to have access to the
local loop. To this end they may use leased lines, optical
fibre, PSTN and ISDN (16). Long distance connectivity
may also be obtained from providers of network
infrastructure by using leased lines and/or network
transport services.

(104) The provider of such data communications services
assembles the offer from these various elements, and
presents it to the customer as one (cid:145)seamless(cid:146) package.
For many business customers the attraction of buying
such a product is that it avoids the need to deal with
multiple national level telephone companies in each of
the countries required to be covered by their data
networks.

ISP services

(105)

for

therefore,

the supply of

ISPs offer their customers connectivity to the Internet at
in other words, access to any point on the
large,
to which a customer may want. A demand
Internet
Internet access
exists,
figures have been
services.
provided to show market
for dial up and
dedicated access combined and separately. However, as
competition concerns would arise whether they are
defined separately or together it has been unnecessary
to decide between the two.

In the assessment below,
shares

Wholesale ISP services

customer

(106) Wholesale ISP services comprise the resale of transit in
Internet terms, which involves an obligation by offering
ISP to provide connectivity to the whole of the Internet
to its
is global. The
ISP. This market
information supplied by the parties shows that neither
of the merging parties would have fitted the definition
of a top-level network as applied in Commission
Decision 1999/287/EC (WorldCom/MCI) (17) and they
are in part
transit obtained from such
networks. Moreover, as will be described below in the
Internet section of the competitive assessment, Telenor’s
business as an Internet transit provider is marginal; Telia
is stronger at a European level, but still small on a
global basis. Therefore, this market does not need to be

resellers of

(16) Integrated services digital network (cid:151) a type of network based on
the existing digital PSTN which provides digital links to customers
and end-to-end digital connectivity between them.

considered further as the notified operation does not
raise any competitive concerns in the field of wholesale
ISP services.

Internet advertising

In the Scandinavia Online decision (18), concerning the
creation of the joint venture Scandinavia Online (SOL)
between Telia, Telenor and the Norwegian media group
Schibsted, the Commission identified, amongst others, a
market for advertising over the Internet. On this market
providers of Internet content compete with each other
for advertising revenues. In their reply to the Statement
of Objections, the parties disagreed that there was a
separate market for Internet advertising, claiming that it
was extremely rare for companies to use the Internet as
an exclusive market channel, and that
this activity
should be regarded as part of a more general market for
advertising via newspapers, direct mail, television and
radio, etc. The parties have, however, provided no
evidence that those other marketing channels exert a
competitive constraint on the behaviour of suppliers of
Internet advertising space. The fact that most advertisers
advertising
market
channels does not demonstrate that
these different
channels are demand substitutes. It simply shows that
advertisers pursue a diversified marketing campaign
aimed at as many people as possible.

through several

their products

Sale of advertising space in local telephone directories

In Sweden and Norway,
like in many other countries,
local telephone directories are produced once a year and
delivered to households and businesses free of charge.
Publishers earn revenues from selling advertising space
to a range of advertisers, mainly large and medium-sized
businesses. Both Telia and Telenor publish and supply
local directories and sell advertising space in their
directories. In Sweden Telia publishes under the brand
rame DinDel
through its
subsidiary Lokaldelen Sverige AB ((cid:145)Lokaldelen(cid:146)). Telia has
no operations in Norway.

and Telenor

operates

(107)

(108)

(109) The parties maintain that advertising in local directories
is not a market as such, but is a segment of the wider
local free
market for advertising in other media (e.g.
newspapers
information
gathered in the course of the Commission’s investigation
of
suggests
features
that
from other
distinguishing
advertising media.
are
published once a year. This reduces their advertising

a
directories
telephone directories

there
are
telephone
First,

and radio). However,

number

the

(17) Case IV/M.1069 (OJ L 116, 4.5.1999, p. 1, at recitals 44 to 46).

(18) Case IV/JV.1 (cid:151) Telia/Telenor/Schibsted.

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9.2.2001

the

other

cannot be

compared with

strength and makes them a static advertising medium as
the information which is made known to the public
through telephone directories
changed,
integrated or updated. The once-a-year
issue has a
bearing on the price for advertising space in telephone
printed media.
directories
Advertising in telephone directories tends to be less
expensive, if the longer lifespan of the directory is taken
into consideration, than advertising in daily newspapers
or monthly magazines. For these reasons, customers
would not easily switch between the advertising media
because of a small, but not negligible price increase. In
their reply to the Statement of Objections, the parties
claimed that
(cid:145)annuality(cid:146) of business-to-business
directories, i.e. the fact that subscriptions were taken out
for longer intervals at a time, typically 12 months, was
not a reason to distinguish them from shorter-cycle
advertising media. The parties said there were other
types of advertising which were let on a full-year basis,
such as hoardings at football or ice hockey stadiums, or
magazines which only appeared two to six times a year.
On this basis they suggest that the market in which
directories compete for advertising revenues at
least
include other
term advertising
opportunities. However, the parties have provided no
evidence that these other advertising means may restrain
the competitive behaviour of the sellers of advertising in
local directories. For example,
the parties have not
shown a correlation between the local directories
advertising fees and the other advertising fees, nor any
other evidence indicating that these different products
are demand substitutes. Therefore, the sale of advertising
space in local telephone directories can be taken as a
distinct relevant product market.

forms of

longer

Sale of advertising space in business-to-business
directories

(110) Business-to-business directories are different

searching for

from the
ordinary local directories as they are mainly used by
businesses
suppliers of products and
services. They are generally distributed free of charge as
publishers earn revenue through the sale of advertising
space. Both parties are publishers and suppliers of
business-to-business
Telia
directories.
publishes under the Emfas brand and Telenor publishes
through its Swedish subsidiary Telenor F(cid:246)retagsinfo AB
under Stortele, Sveriges Handelskalender and ISO-guiden
brands. Telia has no operations in Norway.

Sweden

In

(111) The parties claim that the publishers of this type of
directory compete
for advertising revenue on the
general market for advertising. However, for the same
the Commission
reasons given for
local directories,
business-to-business
considers

advertising

that

in

the

also

users,

namely

business

constitutes

claimed that,
(cid:145)annuality(cid:146)
the

directories a distinct advertising market. Advertising in
a
directories
business-to-business
from advertising in ordinary local
separate market
directories. Business-to-business directories
are not
generally available to the public, but are targeted at
community.
specific
Advertising in business-to-business directories seems to
be less expensive than advertising in ordinary telephone
directories. In their reply to the Statement of Objections,
the parties
telephone
business-to-business
directories,
directories is not a reason to distinguish them from
shorter-cycle advertising media. The same reasoning set
out above in relation to local telephone directories can
be
on
arguments
In
business-to-business directories market definition.
addition, it is self-evident that because of the specificity
of business-to-business directories (these directories are
addressed only the business community) other forms of
advertising such as advertising on buses and trams,
which are directed to the general public, cannot be
considered as demand substitutes.

the parties’

dismiss

local

used

for

to

of

as

(112) On the basis of

the foregoing,

there is a relevant
for the sale of advertising spaces in

product market
business-to-business directories.

(113)

It is to be pointed out that the parties distribute, besides
the printed version, CD-ROM and Internet versions of
the business-to-business directories. The parties also
from CD-ROM and Internet version
earn income
advertising, accounting for less than 0 % to 10 %* of the
business-to-business directories
income. The parties
consider that the CD-ROM and Internet versions belong
the printed version. The
to the same market as
information collected in the course of the Commission’s
enquiry tends to confirm this view. However, it is to be
borne in mind that the Internet version has not got the
same layout as the printed and CD-ROM versions. In
the
the Internet version the names and addresses of
companies are set out in an objective and even way.
The only source of advertising revenues are banner
advertisements, which surround the relevant site, and
sponsorship. These advertisements and sponsorship are
the directory, are not
separate from the text of
necessarily related to the relevant business information
displayed in the directory, and are sold separately to the
companies wanting to advertise on that site. On the
the
contrary,
directory the information on the relevant companies
may be displayed in a biased way or in advertising
spaces of a different size, which are not separate from
the text of the directory. The advertisers pay for having
their company displayed in a more
the name of
noticeable way or for advertising spaces. In any event it
is not necessary to take a position on this issue since
the operation raises competition concerns irrespective of
whether or not Internet advertising is included in the
relevant product market.

in the printed or CD-ROM version of

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PABX

(114) Another

type of

a number of

infrastructure product, albeit used
within an organisation rather than as part of the public
network, is the PABX. The parties are both distributors
of PABXs. These are essentially switches with the
lines
capacity to handle
simultaneously,
and
internal voice
institutions as
telephone systems. Switches vary according to the
number of lines they handle. A PABX able to handle
less than 100 lines tends to be considered small, and
models with capacity of over 100 lines are considered
large.

telephone
and are used by businesses
switchboards

their

for

(115) The parties consider that large and small PABXs belong
to the same product market, as their function is the
same regardless of the size and customers seek solutions
which may include both large and small PABXs.
Customers do not generally want to deal with different
suppliers for large and small PABXs. The information
its
gathered by the Commission in the course of
view.
investigation tends
However, as shown below,
the
assessment of the present case it is not necessary to
conclude whether or not small and large PABXs belong
to the same relevant product market.

to confirm the parties’

for the purpose of

i.e.

service

customers

contracts with

supplying upgrades

(116) Distributors of PABX systems tend to focus on the
aftermarket,
to customers
already having PABX systems (whether large or small),
following
and
installation to provide ongoing maintenance
and
for an important
support. After-sale services account
part of the PABX business. Most customers expect to
take all these services from the company which sold and
installed the original equipment. However, as shown
below, for the purpose of the assessment of the present
case it is not necessary to decide whether or not after
sale services are part of the same product market as
PABX distribution.

for fixed telephony, and possibly also for some other
services, and create a two-country market consisting of
Norway and Sweden. However, even though this may
be the outcome of the merger, it is not its automatic
consequence, and the assessment has proceeded on the
fixed and
basis of essentially national markets
mobile telephony.

for

(118) Notwithstanding

the

to
foregoing,
generalise across the range of possibly affected telecoms
markets, and the position of each must be considered
separately.

difficult

is

it

Provision of local loop, long distance and international
infrastructure

(119) These three markets are considered to be national

If

the local

in
scope.
the control of one
loop under
operator were enlarged to cover an area that was wider
than national, and if
the network is reconfigured to
reflect the fact that it is now all under the control of the
same operator, then the geographic reach of the market
is not
could be wider
competition
this
necessary to determine
concerns arise even if, as suggested by the parties, the
market is defined as national.

than national. However,

issue,

as

it

(120) As regards long distance and international infrastructure,
similar principles may be applied to determine the
geographic dimension of the market definition. Long
distance telecoms transport in any given country has
been provided historically by the incumbent monopoly
who, for similar reasons as those applying to its local
loop offering, offered them within a specifically defined
national territory.

Subscriber access to telephone services (local, long
distance and international)

B. RELEVANT GEOGRAPHIC MARKETS

Markets national or wider than national

(121) The markets for subscriber access to telephone services
are, from the subscriber’s point of view, also generally
considered to be national. Service offerings have tended
in the past
to be nationally limited, because the
telephone operators supplying them have not been able
to provide services across national borders.

(117) The parties argue that all the relevant telecoms markets
affected by this concentration are national. It could be
argued however that even if the markets are currently
national, the merger (19) would expand markets, such as

Operator access to networks (local loop, long distance and
international)

(19) For the sake of convenience the notified operation is sometimes
referred to as a merger, although within the terms of the Merger
Regulation it is technically a joint venture.

(122)

In the same way as subscriber access services must be
the same is true for
considered a national market,
In the historical
loop.
operator access to the local

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9.2.2001

to an outside operator

situation of incumbent monopoly telephone operators,
the question of access to local loop networks was not
usually relevant
seeking to
terminate calls in the country concerned. Responsibility
for terminating the call would have been handed off to
the receiving telephone operator at a notional mid-point
on the cable between the two countries. From there on
the call would be handled on the incumbent’s vertically
integrated network, with call termination on the local
loop as the last stage in that process.

(123)

in their own right.

International calls, in the sense of access to international
call services, can be looked at as a separate segment of
In appropriate cases
business
however it may be necessary also to examine narrower
relevant markets on the basis of specific (cid:145)country pair(cid:146)
relationships, which means the routes over which traffic
can be exchanged between two given countries. The
assessment below has considered the position in terms
of a market for access to international services, and also
the impact of the merger on specific country pairs such
as (Norway to Sweden) and Norway or Sweden to
Denmark and Finland.

Mobile telephony

that

imposed

licensing

(124) The parties considered that the markets were national,
including in particular: that
for a variety of reasons,
on
different
conditions were
operators in different Member States;
frequency
availability limited the number of operators in countries
to between two and four, so an operator in one country
could not necessarily expect
to get a licence in all
neighbouring countries; and the conditions in most
licences obliging operators to build infrastructure in the
territory
is
roaming charges imposed on calls made while outside
the home territory of the service provider, which rarely
make it economic for customers in one country to
obtain their mobile services on a permanent basis from
a supplier operating in a different national market,
largely because they would have to pay all domestic
calls in their country of residence as international calls.

concerned. Another

important

factor

their own trans-border networks on their own account.
However, on the basis of the parties’ own assertion that
the markets
the
such services
assessment has been carried out accordingly.

are national,

for

ISP services and advertising

(126)

It is a common view that the geographical market for
ISP services is essentially national, based on the need for
a local loop service or the installation of a fixed line in
order to connect physically the subscribers with their
consumers. This limits the extent
to which existing
access markets could be wider than national.

(127) As

regards

Internet

advertising,

the Commission
considered in the SOL decision (Case IV/JV.1, referred to
in recital 107) that such a market should be considered
at least national in scope, possibly on a linguistic basis.
A competitor has suggested that, given the considerable
linguistic and cultural similarities between Sweden and
Norway the merged entity could provide the same
Internet content
in Sweden and Norway and thus
compete for advertising revenues in both countries.
Translation, which given the great similarities between
the two languages should be rapid and inexpensive,
would not always be required as Swedes can normally
read Norwegian and vice versa. Therefore, as a result of
the merger the relevant geographic market could be
wider than national. In their Reply the parties argued
that the same Internet content could not be provided in
both Sweden and Norway as, notwithstanding the
proximity of
the
languages, there are cultural and linguistic differences.
They claimed these differences were significant and that
advertisers procuring
there was no evidence of
advertising space on a combined Sweden and Norway
basis. However, it is unnecessary to determine this point
as competition concerns arise even if
is
defined at its narrowest extent, namely national.

the States and the similarity of

the market

Business data communications

Directories, local and business-to-business

(125) The parties asserted that

the relevant markets
communications were national,

for
business data
and
provided figures on that basis. In many previous such
cases, the market for business data packages was taken
to be wider than national, possibly European or even
worldwide. Indeed, one of the incentives for businesses
to buy such services was the desire to avoid having to
deal with a multiplicity of national telephone operators,
as would be the case if they had attempted to set up

(128) The parties consider that the relevant geographic market
for the sale of advertising spaces in both local and
business-to-business directories is national. Both their
sales and distribution systems are organised at a
national level. They also mention language differences as
to entry into the sale of advertisements’
a barrier
market. Third parties seem generally to agree on a
national definition of the relevant geographic market.
the
Therefore for
relevant geographic market will be
considered as
national.

the purpose of

this assessment,

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L 40/19

PABX

(129) The parties consider the market to be national in scope,
inter alia, as it is necessary to have a local sales force,
service and marketing staff with the relevant language
skills and local contacts. The parties also pointed to the
fact that some of their competitors were substantially
active in one country but not
in the other. The
following its enquiry, do not
Commission’s findings,
contradict the parties’ position as regards the geographic
market for PABX.

C. COMPETITIVE ASSESSMENT

regulatory approval.

tends to be ex post rather than ex ante. This implies that
the incumbents may apply excessive interconnection
rates and implement other anticompetitive practices
immediately without prior
In
Norway and Sweden, the incumbents are not required
to provide the same level of access to end-users to their
in Denmark (where the regulatory
competitors as
regime provides
access,
including the obligation to provide unbundled local
loops;
wholesale
telecommunications services for competitors to resell;
co-location; carrier selection and national roaming), and
in Finland (where the regulatory system provides for
competitive end-user access, including the obligation to
provide unbundled local loops; the obligation to provide
wholesale telecommunications services for competitors
to resell and carrier selection).

competitive

obligation

end-user

provide

the

for

to

(130) Before dealing with specific markets,

even

positions

some broader
consideration must be given to the overall effects of the
merger. The merger would bring together two national
operators who, prior to the merger, provided the full
range of telephony services and who have very strong
positions in the markets least exposed to competition
(fixed-switched telephony markets), but also relatively
those markets where
in
strong
competition has made greater inroads, such as Internet
and business data communications. In particular, they
have an extremely strong position, amounting to
dominance, over the local
loop infrastructure. These
operators also have reasonable access to the Danish and
Finnish infrastructure because of the more liberalised
local loop access provisions existing in these countries.
Moreover,
of
competition for each other. The merger would raise
significant competition concerns because of
the
elimination of actual and potential competition as
between the parties; and (b) the increased ability and
incentive of
the new entity to eliminate actual and
potential competition from third parties. As a result of
the enlarged footprint which the combined entity would
have in the Nordic region it would have the ability to
carry out commercial practices which others would not
be able to carry out, such as the ability to bundle
encompassing the whole Nordic
product offerings
region.

the main

constitute

source

they

(a)

The regulatory position

(131) An important element of this broader picture is the
difference between the regulatory regimes in Sweden
and Norway on the one hand, and Denmark and
Finland on the other. The most important differences
concern methods of price regulation, and access to
loop unbundling as well
end-users (by way of
for example resale and
as other means
carrier
control on
interconnection charges in both Norway and Sweden

selection). On price regulation,

local
such as,

(132)

In their Reply, the parties have stressed that effective
mediation concerning the interconnection conditions
imposed by Telia is possible. However, in the course of
the investigation competitors have pointed out that the
resolution of
very
time-consuming, and might
take up to two years.
Mediation is also required in Norway as the preliminary
step to any regulatory action to resolve disputes.

a disputed condition can be

(133) At

they argued that

the oral hearing the parties contended that
the
regulatory systems in Sweden and Norway acted as the
most important constraint on the parties’ behaviour. For
interconnection tariffs in
example,
Sweden are regulated and cost-oriented. However,
it
appeared on examination that the obligation on cost
orientation is
limited to voice services only. And
although Telia is obliged to make available a reference
interconnection offer, which is published on the Telia
homepage, it is not subject to any formal approval by
the National Regulatory Authority (NRA) before it is
published. Thus there is no ex ante control, nor is there
jure obligation on the NRA to give such
any de
approval. Rather the reference interconnection offer is
used as a basis for negotiations between the parties. In
effect therefore all interconnection tariffs other than for
voice services are set after negotiations between the
In Norway, Telenor’s obligation to offer
parties.
cost-oriented interconnection comprises access to PTN,
public telephony services and transmission capacity.
However, such offers are not subject to ex ante control
for their formal
since there is no legal requirement
approval, nor does the regulatory authority give such
approval in practice.

(134) According to the parties the Commission overstates the
differences between the regulatory regimes in the Nordic
that
area. The parties maintain that, despite the fact

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Official Journal of the European Communities

9.2.2001

local loop unbundling legislation exists in Denmark and
Finland but not currently in Norway and Sweden, the
regulatory regimes in the Nordic area are essentially
similar.

that

it can be said that

mere fact
interconnection is available does not
remove the advantages which the parties gain from
controlling the local loop. Second, as regards the chosen
cost base,
in an increasingly
competitive environment telecom companies struggle to
reduce their cost base by, for example, replacing old
high cost
efficient
equipment. In the face of this, historical costs should be
higher that current operating or incremental costs and
would
higher
interconnection margins.

equipment with cheaper more

incumbents

enable

earn

thus

to

resort

entrants may

loop unbundling,

in order
either

to switched access

is no mandatory local

(135) The parties do not deny that, unlike Denmark/Finland,
there
loop unbundling in
Sweden/Norway. This is a material difference since the
loop allows new
unbundling of the incumbent’s local
entrants to enter the market at a lower cost. It is worth
clarifying that in Sweden and Norway, in the absence of
to have access to
local
end-users,
own
their
build
(which
infrastructure or
includes call-by-call selection, carrier pre-selection, and
interconnection) or dedicated access (leased lines and
permanent virtual circuit). These forms of access are not
equivalent to local loop unbundling as they bundle the
transport
use
infrastructure with the use of local loop. This results in
an additional per call margin to be paid to the
incumbent.
loop unbundling
competitors can access the user by paying only a fixed
monthly charge for the lease of the loop. Moreover, the
forms of access available in Sweden/Norway, unlike
local loop unbundling, would not allow the provision of
services such as xDSL, IP, ATM and digital video, or in
any case rely on technology controlled and priced by
the incumbent.

In contrast, with local

incumbent’s

switching

the

or

of

(136) With respect to the cost base used for the purposes of
calculating interconnection prices, the parties say that
the use of historic costs in Norway and Sweden is in
compliance with Community law and,
in particular,
the European Parliament
with Directive 97/33/EC of
and of the Council of 30 June 1997 on interconnection
in telecommunications with regard to ensuring universal
service and interoperability through application of the
principles of open network provision (ONP)
(the
(cid:145)Interconnection Directive(cid:146)) (20), as amended by Directive
98/61/EC (21). Two points have to be made in this
connection.
interconnection is
fact
cost-oriented would not remove the parties’ ability to
eliminate actual and potential competition from third
Interconnection enables incumbents to force
parties.
new entrants to continue to rely on their services and is
for
revenue
therefore
of
are
incumbents.
interconnection charges
calculated in accordance with Community law,
the
parties could still degrade the technical quality of the
interconnection offered to third parties. As a result, the

source
Even if

constant

First

that

the

the

(20) OJ L 199, 26.7.1997, p. 32.
(21) OJ L 268, 3.10.1998, p. 37.

of

to

the

the

and

behaviour

companies

Even on the

the adequacy of

assumption that

the regulatory system(s)

(137) The Commission also observes that the question at issue
is not
in
constraining the merged entity’s future behaviour, but
rather whether the merger between Telia and Telenor
would create or strengthen a dominant position. The
regulatory systems in Sweden and Norway are designed
incumbent
to
control
telecommunications
protect
these
consumers.
regulatory systems are effective, they cannot be expected
to prevent
strengthening of a
dominant position that the combined entity will enjoy
the merger. Telecommunications
as
regulation is a complex task, which requires careful
consideration
extensive
consultation of
the industry. Regulation cannot be
expected to address the structural competition problems
raised by the merger. Indeed, if, as was confirmed by
the Commission’s market
the merger
between Telia and Telenor were to create or strengthen
a dominant position, merger control and not ex post
regulation is the only adequate tool to prevent these
effects.

the creation and/or

investigation,

regulator

result

and

the

by

of

a

Elimination of actual competition between the parties

(138)

It was noted that Telia, through Telia Norge (22), was
one of the most active entrants in Norway and that
Telenor, through Telenordia (23), was one of the more

(22) Telia Norge is active in Norway in the provision of domestic and

international voice and data communications services.

(23) Telenordia

a

venture between Telenor, BT and
joint
is
TeleDanmark (see Case
IV/M.570 (cid:151) TBT/BT/Tele-Danmark/
Telenor, Commission Decision of 24 April 1995; OJ C 154,
21.6.1995, p. 4).
It provides domestic and international voice
telecommunications in Sweden as well as enhanced global services
(through Concert).

9.2.2001

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Official Journal of the European Communities

L 40/21

just

active entrants in Sweden. This entry could be observed
in specific segments, but across a range of
not
to long distance and
telephony activities,
international activities, as well as
in business data
communications.

from local

(142)

In their Reply and at the oral hearing the parties argued
that there is nothing unique about Telia and Telenor
the
when compared with other possible buyers of
interests to be divested. The parties suggest
that the
requirements which, according to the Commission,
make Telia and Telenor the most formidable potential
competitors, would be fulfilled by other operators. In
general, the Commission does not deny that there are
other
the
abovementioned requirements, but no company other
these
than Telia and Telenor
conditions. It is the combination of these conditions and
their cumulative effect, rather than each one of them
considered in isolation, which is important and which
makes Telia and Telenor unique as potential competitors
one of the other.

is able to satisfy all

telecom companies

some of

fulfilling

(143) The parties maintain that the key elements for effective
entry into the home market of a telecom incumbent are
the entrant’s financial resources and technical expertise.
Telia and Telenor do not have, according to the parties,
unique financial resources and expertise which may not
be duplicated by third parties. The Commission is of the
opinion that financial resources and technical expertise
are certainly pre-conditions for successful competition
in the telecom sector as in any other. The Commission,
however, considers that they are not the only elements
to be taken into account; there are other elements such
the incumbent’s
as brand recognition, as well as
subscriber base
and
international network (including cable networks) and
knowledge of the business environment, which play an
role and may determine effective
equally important
entry into an incumbent’s market.

long distance

and the

local

of

as,

for

that

certain

especially

categories

advantage

(144) The parties maintain that the Telia and Telenor brands
for
confer no particular
household customers, it is the pricing strategy of a new
entrant, which is important. The Commission does not
deny
customers
competitive pricing may be the key. Nevertheless, the
for some other customer
Commission considers that
brands may be more important as a guarantee of
reliability of the telecom services offered. The parties
seem to recognise that for business customers brand
recognition is important, even if they say that for these
customers the major European and international brands,
such as BT and AT&T, would be at least as attractive as
Telia and Telenor. However, the parties have provided
no evidence showing that in Norway and Sweden those
foreign brands have achieved or are likely to achieve the
same brand recognition as Telia and Telenor.
In this
context, it is worth noting that BT chose to enter the
Swedish market
in combination with Telenor and
TeleDanmark using a trademark different from its own
but rather related to that of Telenor.

(139) The merger would remove Telia Norge as a competitor
from a Norwegian market. Indeed, Telia Norge would
become a subsidiary of the merged entity. Telenordia
would become an entity jointly controlled by the
merged entity. As will be explained in detail,
the
the most active entrants in each
removal of one of
country would strengthen each party’s
dominant
position on a number of markets.

Divestment of overlapping interests would not be an
adequate remedy

(140)

In the phase I investigation of the case, the parties had
offered to divest their overlapping activities in order to
remove any doubts which they considered might arise.

(141) Such divestments might help strengthen one of

those

about

country.

concerns

telecommunications

respondents,
in
and

the
other competitors on the market, or they might allow
the arrival of another new entrant. But, in the opinion
the
of many
this
concentration,
relating
particular
specifically to telephony, could not be wholly removed
by the divestment of their present overlapping activities.
Telia Norge derives advantages from its association with
Telia, such as: branding; technical/financial support; the
relative proximity of its relevant supporting networks,
and its bargaining position as the subsidiary of an
in
incumbent
a
similar
neighbouring
advantages
from its association with Telenor. An
acquirer without a presence in the region might be able
to provide financial support, but would be unable to
provide the same advantages to anything like the same
extent. Telia is the most significant and largest potential
competitor
the most
significant and largest potential competitor in Sweden.
As a result, divestment of either of their interests will
competitive
significantly
restraint
imposed by both Telia in Norway and
behaviour
Telenor in Sweden, owing,
inter alia, to their unique
geographic positions and the advantages conferred on
them by their respective regulatory positions in terms of
access to their local loops.

in Norway and Telenor

operator
derives

Telenordia

reduce

the

on

is

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Official Journal of the European Communities

9.2.2001

(145) The parties contend that proximity of the neighbouring
networks does not offer any significant advantage
and there are no business/linguistic/cultural
ties or
knowledge of the markets unique to Telia and Telenor.

(149)

(146) As regards proximity of

the network,

to payment of

that an adjacent operator enjoys

it cannot be
disregarded that the possibility of using neighbouring
for some purposes) an
backbone represents (at
least
alternative
interconnection charges,
which is available only to the parties. In addition, it is
some
self-evident
advantages such as the possibility of providing services
(such as the trans-border dispatching of maintenance
department technicians) in the neighbouring area using
personnel employed in their domestic market, or using
its domestic infrastructure as a basis to develop its
infrastructure in the neighbouring market.
In their
Reply, the parties themselves acknowledge, in a rather
contradictory way, that (cid:145)as liberalisation has progressed
some operators have looked first to opportunities in
typical of
neighbouring markets. This pattern is
undertakings
the
possibility of expanding out of their domestic market(cid:146).

in any industry as

they consider

(147) As

the

regards

business/linguistic/cultural

ties or
knowledge of the Nordic market the Commission does
not claim that these are unique to Telia and Telenor,
but that Telia and Telenor meet this condition and have,
in dealing in particular with business customers, an
historical advantage over an operator from outside the
region.

Elimination of potential competition between the parties

applied by

charges
competitive
constraint would also be eliminated as a result of the
merger.

each other. This

the parties have contended that

In their Reply,
they
have not represented any greater threat of entry to one
another than a number of other operators; and that they
did not constitute a competitive constraint to each other
prior to the merger based on their bargaining position
as suppliers of termination. They claim,
in particular,
that it would have been illegal for either of them to
offer more
(such as
interconnection charges) to each other than those that
they offered to other new entrants.

favourable

terms of

entry

local
cable networks,

(150) However, in order to foster sustained and strong entry,
loop on competitive terms is an
access to the local
important
for many
if not an essential requirement
telecommunication markets, in particular for broadband
services. Within the Nordic region, Telia and Telenor
had, prior to the merger, been uniquely well placed not
only to use the advantages outlined above in terms of
financial capacity, expertise, brand image, etc. but also
to (cid:145)trade(cid:146) access to each other’s networks. Because of the
position which the incumbents enjoy in regulatory
in both Norway and Sweden, as dominant
terms
loop infrastructure, and as major
providers of
providers of
each can afford to
negotiate access to the other’s network on the basis of
reciprocity. Given the situation of mutual dependence
on each other’s network to provide a significant number
of
telecommunications services (international services,
regional services, mobile telephony, Internet, etc.), Telia
and Telenor are equally well placed to (cid:145)negotiate(cid:146)
conditions. Other
access
telecommunications operators, such as those in Sweden,
Norway, Denmark or Finland cannot (cid:145)trade(cid:146) such access,
either because their networks are not big enough to
give them any negotiating power against the incumbent,
or the regulatory regime in their home territory means
that
(cid:145)trade(cid:146) access to their own home
networks, and thus they have nothing to bargain with.

they cannot

possible

best

the

on

(148) Telia and Telenor

represent

the strongest potential
entrants in each other’s national markets. Once they are
merged, this competitive pressure would be lost. This
would be true irrespective of whether or not they were,
prior to the merger, actual competitors. In addition to
that, given their relationship of mutual dependency with
regard to the termination of their respective traffic (that
is to say that Telia had to terminate a substantial
portion of Telenor’s outgoing traffic, international calls,
mobile calls, and others, and Telenor had also to
terminate a significant proportion of Telia’s outgoing
traffic), the parties were in a position to exercise an
influence over the level of accounting rates/termination

(151) As already stated, the heightened potential for entry by
the two merging parties also arises from geographical
adjacency.
It has been observed elsewhere in Europe
that operators in neighbouring territories are often the
first entrant
for example,
into each other’s markets;
Belgacom has interests in France and the Netherlands;
BT and Cable & Wireless have expanded their interests
from the United Kingdom to Ireland, and Deutsche
Telekom has its main interests in Austria, Hungary and
the Czech Republic. There are also various further
factors at work here, including higher brand recognition
of a nearby operator, and relatively greater business,

9.2.2001

EN

Official Journal of the European Communities

L 40/23

linguistic and cultural ties, as well as greater knowledge
of close-by markets, and the proximity of their networks
(which allows them,
inter alia, to by-pass some of the
access prices). This is evidenced by the fact they are
already among the strongest entrants in each other’s
country.

require any prior agreement or abusive behaviour. Even
if an agreement were required it would not necessarily
and automatically be illegal under Article 81 of
the
Treaty.

(152) Although it is true, as the parties stated in their Reply,
that any discrimination in relation to the terms offered
for entry may have been caught by Article 82 of the
Treaty (or by national law), this is clearly irrelevant, as
the purpose of the Merger Regulation is to prevent the
creation or strengthening of structures where the abuse
of dominant positions would be made possible or
enhanced. In any event, the possibility to trade entry is
not based on discriminatory entry since the effects of
mutual dependency between Telia and Telenor could
also benefit other market players.

Increased ability and incentive to eliminate actual and
potential competition from third parties

(cid:151) Increased ability to raise rivals’ costs to competitors, by increasing
(or not decreasing) the price of interconnection or degrading the
quality of interconnection

(153) As

the

to the

elimination of

effects of mutual
dependency between Telia and Telenor as a competitive
constraint on the termination fees charged by the
parties prior to the merger the Commission considers,
on the basis of the information submitted to it, that the
prevailing interconnection charges
in Sweden and
Norway result from the combined downward pressure
of regulation and mutual moderation. The fact
that
Telia, on the Swedish market, has had to grant
non-discriminatory terms of access to Telenor and all
other entrants effectively means that all entrants have
been able to benefit
from, not only the downward
pressure on termination charges exercised by regulatory
from mutual
measures, but
to the
moderation. The
Norwegian market. This
the
negative effects flowing from the removal of the mutual
dependency exercised as between the parties. Once the
merger has been implemented, the effect of this mutual
dependency will be lost, as no other operator has
exclusive control over an access network to bargain
with.

also that
same

therefore highlights

stemming

argument

applies

rates,

roaming

accounting

termination charges, or
is
interconnection. This

(155) The merger will increase the ability and the incentive to
to
raise (or not decrease)
degrade the quality of
so
because the merger would eliminate one of the main
moderating factors prevailing before the merger, namely
incentive to reach a mutual reduction of
the parties’
their
and/or
termination charges. It will also eliminate any concerns
they might have had about losing revenue as a result of
reducing the volume of calls between each other.
Finally, because there is now a much larger area under
the control of one player rather than two, and because
the former incumbents have ceased to be actual and
potential competitors, each of them would effectively
benefit from the anti-competitive effects of the strategies
pursued in the territory of the other, thus removing any
incentive on their part
such a strategy
(foreclosure) (24).

to resist

charges,

(156)

In addition, before the merger, neither of the incumbent
operators would
from degrading
termination, since degradation reduces volume but has
no impact on the incumbent operator’s margin. After
the merger, the new entity would have the ability and

gained

have

that would be illegal.

(154) According to the parties the Commission is relying,
when claiming that potential competition will be lost,
on conduct
In particular the
parties could not (cid:145)trade(cid:146) entry into each other’s market
or mutually moderate their behaviour without infringing
either national or Community competition law (Articles
81 and 82 of the EC Treaty). The Commission considers
that the theory of (cid:145)trading(cid:146) entry and the effects of their
mutual
common
economic interest of both Telia and Telenor and do not

based on the

dependency

are

(24) By making it difficult for an entrant in, say, Sweden to get call
termination in Norway except at high prices or low quality, the
Norwegian incumbent would have been able to disadvantage
potential competitors operating out of Sweden who would
otherwise have been unaffected by the interconnection prices of
the Swedish incumbent. The fact that such behaviour would have
led to retaliatory action would have
two
incumbents from developing such a strategy. After the merger the
only constraint which prevents them from behaving in this way is
the constraint provided by regulation.

constrained the

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Official Journal of the European Communities

9.2.2001

the incentive to degrade the termination of calls carried
by any entrants, because doing so artificially raises
Indeed, after the merger the parties can
rivals’ costs.
single
of
the
out
degradation (25).

purposes

entrant

the

for

(157) Another advantage for

is

in

on

particular

payments,

the
the merging parties
(cid:145)internalising(cid:146) accounting rates and/or
possibility of
interconnection
the
Sweden/Norway route. The merging entities would no
longer need to exchange payments between themselves
for calls (formerly treated as international) between
Norway and Sweden. Only their competitors would
have to pay prices determined by accounting rates
and/or interconnection agreements. Other players would
thus be at a competitive disadvantage as a result of the
merger.

(158)

of

rates

effects

increasing

accounting

In their Reply, the parties contend that the net revenues
from international traffic between the parties is small
compared to their total fixed telephony revenues, and
that any advantage for Telia would be negated by an
equally sized disadvantage for Telenor, and vice versa.
This argument is, however, largely irrelevant. First, the
revenue between the parties can only measure
net
whether traffic between the two countries is balanced in
financial terms. It says nothing about the absolute size
of
the
the traffic, and therefore the importance of
revenues from these services. Second, the argument that
or
any
interconnection charges may result in a zero-sum game
between the parties, obriously says nothing about the
effects that such a strategy can have on competitors.
Instead, for the purposes of assessing the importance of
the merged entity’s ability to internalise these costs, the
relevant point is to note that,
for all entrants, these
international services constitute a significant part of
their total
turnover. New entrants will be forced to
terminate the majority of their calls on the incumbent’s
local
carrier
pre-selection or call-by-call selection for calls on the
likelihood need to
Norway-Sweden route would in all
originate calls on the incumbent’s local
loop as well,
and would thus be doubly disadvantaged since the new
entity could (cid:145)internalise(cid:146) both their
termination and
origination charges. At
the oral hearing the parties
argued that
third parties could easily find a way of
moving off the accounting rates, if they chose to, either
by self-corresponding or finding someone other than
the incumbent with whom to correspond. However,
they did this competitors would be in a
even if
disadvantageous
the
incur origination
merged parties. They would still
and/or termination charges that Telia and Telenor would

competitive position vis-(cid:224)-vis

operators

offering

Indeed,

loop.

(25) The

same

argument

servicing
international calls between Norway and Sweden. It applies twice to
competitors offering international calls both ways.

to every competitor

applies

have internalised through the merger. They could also
pay more because, as already seen, the parties will have
the ability and incentive to increase termination and
to degrade the quality of
origination margins or
interconnection as a result of the merger. Finally,
in
order to self-correspond the competitors would have to
incur additional
costs by acquiring switching and
transport services to have access to the incumbents’
interconnection points.

(159)

as

types of

telephony,

already described for

It is important to note that (cid:145)internalisation(cid:146) applies not
only to the costs of providing all
fixed
telephony services (26) but also to regional services (such
as business data communications) provided over the
Nordic countries and mobile telephony in relation to
both roaming and interconnection. In their Reply, the
parties essentially agree that the same issues are relevant
in relation to internalisation of roaming charges for
mobile
fixed
telephony. It can therefore be concluded that the merger
would provide the parties with the same advantages as
described in relation to fixed telephony also in relation
to their mobile activities. In particular, they would gain
the power to abolish roaming charges between each
other or to bring them to the level where the price of a
call between Norway and Sweden attracts no extra
international
If other Norwegian and
Swedish mobile telephony operators were to attempt to
replicate this by agreeing to abolish roaming rates
they would be faced with the
between themselves,
difficulty that, unless the flow of
traffic is entirely
balanced, one would effectively be subsidising the other.
Moreover,
to the merged
entity for a large proportion of
their costs, as they
would continue to need access to the local loop in both
countries for termination of calls.

they would remain subject

supplement.

Increased ability to (cid:145)bundle(cid:146) products across a wider
geographic area

(160) The parties will have a unique position in the Nordic
region in relation to local access. They will control
access in Norway and Sweden, and have a legal right to
access in Finland and Denmark. As a result, the merged
entity will be the only entity able to offer (cid:145)bundled(cid:146)
(for example combined mobile and fixed
products
data/voice/Internet
telephony

combined

packages,

(26) This is so because access to the local loop, and thus the need for

interconnection, is an essential element of all telephony offerings.

9.2.2001

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Official Journal of the European Communities

L 40/25

the Nordic region at

packages) across
terms and
conditions that no one else will be able to match.
Whereas prior to the merger there were two providers,
or at least potential providers, of such a service on a
similar basis in the Nordic region,
the
merger is that there will be only one remaining supplier
able to have local access in all four countries.

the result of

of them needed access to each other’s market to provide
a number of services for their own customers, such as
international calls and regional services that effectively
cannot be provided on competitive terms without
reasonable access to the local access network in all
relevant countries.

(161)

In their Reply the parties argued that they would not
enjoy any special ability to bundle in the Nordic region.
However this proposition was based on their contention
that the regulatory regimes in all four territories were
essentially the same, whereas it is clear that a significant
difference is that local
loop unbundling is available in
Denmark and Finland but not in Norway and Sweden.
This difference alone would be enough to provide them
with the advantages referred to above.

The parties would be able to gear a secure captive home
market in order to prevent entry by operators in Finland
and Denmark.

(162) A number of

third parties

the
regulatory regimes in Finland and Denmark were more
favourable to entrants than the regimes in Sweden and
Norway,
inter alia, due to the existing requirements of
local loop unbundling in the former countries.

commented that

(163) This means that the merged entity would gain increased
ability to protect its home market from new entry by
operators based in the more liberalised markets in
Finland and Denmark. Not only will the merged entity
have a total business volume which is significantly
larger than any operator in Denmark and Finland, it will
also be able to obtain unbundled access to the local
loop in Finland and Denmark, which will not be
possible for the operators from those countries if they
want to enter the home countries of the merged entity.
This will deter Danish and Finnish operators from
entering Sweden and Norway, as they will know that
any entry would provoke retaliatory action from the
merged entity in their home markets, where the merged
entity can finance its entry by extracting economic rents
from its captive customers
in the Norwegian and
Swedish markets.

(164) Prior to the merger, neither Telia nor Telenor were as
well equipped to prevent entry into their respective
(cid:145)captive home market(cid:146). The reason for this is that both

(165) Prior

be

seen

the parties

to the merger,

to allow each other
This
terms.

therefore had an
entry on mutually
incentive
beneficial
from the
can
establishment of Telenordia and Telia Norge. The
establishment of Telenordia is also an example that the
parties were uniquely positioned to provide a platform
for third parties to enter the Nordic region through an
alliance. If the operation were allowed to go ahead in its
notified form, the combined entity would become the
single operator in the Nordic region with complete
control over
the local access network in its home
market. It would therefore gain an increased ability to
restrict entry from operators established in Denmark or
Finland (or any other country).

(166)

In addition to raising barriers to entry from other
operators in the Nordic region, the unique position of
the new entity in terms of access to essential facilities
(local loops) across the Nordic region would also give it
a strategic advantage as it effectively would become the
only telecom operator in the Nordic region with whom
non-Nordic operators could form alliances, for example,
the Nordic component of a
for
European or global business data solution.

the provision of

(167) The parties consider

that

the Commission invokes
conduct that is effectively precluded by regulation as an
indication of additional market power created by the
merger. In particular, the parties claim that any attempt
by the merged entity to raise prices, or avoid a decrease
in prices, would be precluded by law in the absence of
genuine cost justification. The Commission has already
pointed out that its reasoning hinges on the parties’
ability to eliminate actual and potential competition
from third parties rather than on cost orientation of
interconnection
the
the historic basis of cost
Commission considers that
accounting accepted in Sweden and Norway may lead to
a situation where interconnection rates are higher than
actual costs. This would result in high profit margins for
the incumbents which will thus be able to avoid any
decrease in interconnection charges. As regards the
regulatory control over interconnection charges, it is to
be borne in mind that under the Merger Regulation the
test is whether a concentration leads to the creation or
strengthening of
the
Commission has been able to prove the existence of

a dominant position. Once

conditions.

event

any

In

L 40/26

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Official Journal of the European Communities

9.2.2001

strengthening of a dominant position,
the dominant
position is not negated by the existence of regulatory
control over prices or other anti-competitive behaviour.
The examples given by the Commission are not the
reason for prohibiting the
are
strengthening of a
indicators of
dominant position.

concentration, but

the existence or

MARKET BY MARKET ASSESSMENT

Provision of local loop infrastructure

(168) Telenor estimates its total local loop capacity in Norway
at [(cid:133)]* Mbit/s x km. Telia estimates its local
loop
capacity at [(cid:133)]* Mbit/s x km. An indication of the
importance of their capacity holdings in relation to that
of their competitors is given by the market shares for
local loop calls, as detailed below. Telia in Sweden, and
Telenor
in Norway, are respectively the dominant
providers of local loop infrastructure in their respective
countries,
such
connections. Entry by other competitors,
in terms of
is
building or upgrading new competing networks,
difficult because of the cost of replicating, upgrading or
expanding networks.

vast majority of

and own the

(169)

that

some

and Gavlenet) owned optical

loop access is not
In Sweden, since unbundled local
identified as competitors must
available,
the firms
loop services by other
generally, therefore, offer local
means. The parties pointed out
local
municipalities (for example, Stokab, Gotnet, Link(cid:246)ping
Energi, Bitnet
fibre
networks and offered Internet services over cable-TV
lines. These networks are, however, comparatively very
small. The parties contended that cable-TV networks
could be used for telephony. This is probably correct in
so far as the networks can be upgraded for voice
telephony. So far, the upgrading of cable-TV networks
has generally focused on modifications to the network
architecture (from (cid:145)cascade(cid:146) or (cid:145)trunk and branch(cid:146)
to
star-shaped)
in order to allow the use of high-speed
Internet downloading, but not on the work required to
introduce traditional telephony services over cable-TV
networks.
in
high-capacity return paths, which is significantly more
costly (a ratio of 5:1, according to one competitor).
Another disadvantage is that cable-TV networks are
the network
geographically limited to the extent of
owner’s subscriber base. Therefore, the new entrants will
be dependent to a considerable extent on the incumbent
because most of their outgoing traffic will still have to
be terminated on the incumbent’s network, while only a
the incumbent’s outgoing
very small proportion of

This would

investments

involve

traffic will have to be terminated on the new entrants’
networks. Thus the bargaining power of these entrant
networks against Telia is very small when it comes to
interconnection. By raising the price of
the price of
interconnection, or by imposing onerous
technical
compliance requirements, the notifying parties would be
in a position to raise the costs of entrant networks in
relation to all the traffic that they are obliged to hand
over to Telia for termination, which is likely to form a
substantial proportion of their entire traffic. Although it
the parties are constrained by
might be argued that
regulation from raising prices, they would still be in a
position not only to impose the maximum prices rise
possible within the regulatory system, but also to
disadvantage new entrants by tactics which do not
for example, by practising degradation
involve price,
strategies. In addition to that, regulation in Norway and
Sweden with regard to interconnection is ex post and
cannot thus be considered for the purposes of merger
constraint on the market
control as an effective
behaviour of dominant companies (27).

(170) The parties also identified as actual or potential entrant
to
companies
those who offered dedicated access
business over radio links (Teracom, Rymdbolaget).
It
was noted however that all these offerings were either
confined to relatively small or localised customer bases,
such as the networks of a municipality, or were not yet
at the stage of full commercial operation (radio links).

(171) Moreover, none of these companies are able to compete
head-on with the incumbent across the whole range of
local loop subscribers, and in the main they either target
high volume business users, or offer some technological
variant (cable-TV, radio link) which avoids the problem
of being unable to get unbundled access to the local
loop.

(172) Finally,

it

owns

of Telia.

In Norway Telenor

the most
should be noted that one of
important potentially competitive networks, namely the
biggest cable-TV network in Sweden, is already in the
hands
the
cable-TV network, Telenor Avidi (28).
second-largest
Although the parties’ cable-TV networks would be
capable of being upgraded to provide
telephony
services, there is no incentive for either Telia or Telenor
to do so, given that they would be competing with
themselves in the provision of local loop infrastructure.
These networks can therefore not be considered to
provide the customers connected to them with a
potential alternative telephony connection as long as
they remain controlled by the parties.

(27) See judgment of 25 March 1999 in Case T-102/99 (cid:151) Gencor Ltd v
Commission, at paragraphs 317 to 319; not yet published in the
ECR.

(28) See section II on television services; recitals 261 and following.

9.2.2001

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Official Journal of the European Communities

L 40/27

(173)

actual or potential

In Norway, other
competitors
include: Janco Multicom (offering telephony through its
cable television network); Eltele (offering local
loop
access via optical
fibre to larger public bodies and
businesses); Enitel (offering optical fibre and radio link
access services but not apparently voice telephony as
yet); and NetCom (offering local loop via leased lines as
part of a business package).

(174) The arguments in relation to Norway are similar to
those already developed in relation to Sweden. The
entrants on this market are not able to obtain local loop
access other than through the incumbent’s networks.
They can offer either carrier pre-selection or call-by-call
carrier
through cable television
networks. They are, however, hampered in the way
described by being unable to earn revenue through call
termination. They are therefore unable to pose a
significant competitive threat to Telenor’s dominance.

selection, or access

(175) The low level of entry in this market highlights the
difficulties of entry generally. Without unbundled local
loop access, new entrants cannot develop a market
position of their own for both incoming and outgoing
calls unless they are prepared to invest in their own
networks. The upgrading and expansion of existing
cable networks can present a viable alternative to the
incumbent’s network, especially where the new entrant
can provide cable-TV,
telephony and Internet access
over that network in competition with the incumbent.
However, as noted above, Telia owns the largest cable
network in Sweden and Telenor the second largest
network in Norway. In addition, building out entire new
networks, or upgrading and expanding existing cable
and/or other networks
for bi-directional use by
individual subscribers would certainly require substantial
amounts of time and capital. Although,
in particular,
cable-TV networks can in the medium to long term
provide an interesting economic proposition for the
provision of
telecommunication
such a
services,
development is under way in a way that would reduce
the competitive concerns related to the parties’ control
over
access network for
telecommunication services. Accordingly the barriers to
entry
the
concentration will have the effect of removing Telia and
Telenor as the most significant potential sources of
competitive constraint to open up their respective local
networks to access by competitors.

the only existing local

full
are no

indications

high. As

range of

explained

remain

above,

there

that

the

(176) For

these

reasons,

the proposed operation would
strengthen the dominant position already enjoyed by the
two incumbent operators in their respective domestic
market for the provision of local loop infrastructure in
each country.

Provision of long distance/international network
infrastructure

(177) Telenor estimates its total

long distance capacity as
some [(cid:133)]* Mbit/s (cid:215) km, and its international capacity
(or more accurately the national part of its international
capacity) at [(cid:133)]* Mbit/s (cid:215) km. About [55 % to 65 %]* of
the long distance capacity is used by Telenor or by third
parties (e.g. through interconnection). About [35 % to
45 %]* of it is available for leasing. According to the
parties’ estimates, about [65 % to 75 %]* of all
long
distance capacity leased in Norway was leased from
Telenor.

the possible

supplies of alternative

(178) There are other suppliers of network infrastructure in
Norway,
including Telia N(cid:228)ttj(cid:228)nster Norden AB (see
section IV). A number of competitors were concerned
cable
that all
infrastructure were substantially in the hands of utilities
which were said to be owned by the government or
as
potentially
(a
Jernbaneverket
consortium of Electricity companies) and ElTele. In its
market investigation the Commission has however not
found any evidence of the existence of a conflict of
that would reduce the incentives
interest
these
their capacity as an
to offer
alternative providers
alternative to that of Telenor.

(the rail administrator) and Enitel

influence,

subject

such

for

its

to

(179) For

(whose

Sweden, Telia

capacity holdings

are
categorised in a different way) estimates its regional
capacity at [(cid:133)]* Mbit/s (cid:215) km, and its long distance
capacity as some [(cid:133)]* Mbit/s (cid:215) km. Approximately
[20 % to 30 %]* of Telia’s network capacity is leased out
to third parties (customers and operators) Telia say no
particular capacity is earmarked for its own use. In an
independent report referred to by the parties (29) it was
estimated that 43 % of long distance leases were leased
from Telia. There are other suppliers of long distance
network infrastructure in Sweden, of which Banverket
and Svenska Kraftn(cid:228)t were said to be the largest
inter alia,
suppliers. Other alternative suppliers include,
Tele2, Stokab and a large number of municipalities.
Although none of these other suppliers of long distance
infrastructure has a capacity equal to that of Telia,
it
nevertheless cannot be disregarded that they individually
and in combination have access to substantial amounts
of alternative capacity, which they offer on the market
(including dark fibre). Again, the Commission’s market
investigation has not produced evidence of the existence
of a conflict of interest that would reduce the incentives
for these alternative providers to offer their capacity in
competition with Telia.

(29) A report by Price Waterhouse Coopers to the PTS (Swedish

telephone regulatory authority).

L 40/28

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Official Journal of the European Communities

9.2.2001

(180) At present,

in

the

parts

infrastructure

if the prices for capacity in one country
were to rise compared with the prices in the other
country, operators seeking capacity could be tempted to
look for solutions which enable them to use capacity on
the other side of the border (which is land-based and
has several connection points for telecommunication,
whereas
in other neighbouring
countries such as Denmark, Finland or Russia would not
be suitable for this purpose, either because it would
require a new connection across water, or because it has
fewer connection points). Thus if, say, Telenor’s capacity
prices were to rise too high in Norway, the possibility
exists that Telia Norge could make use of its special
position by offering long distance transport for at least
certain
particular
and
of Norway,
in the North-South direction, by
communications
bringing the traffic over the border into Sweden on
leased lines,
long distance
running it over Telia’s
networks, and redelivering it back to Norway, again
over leased lines, but close to the point of delivery. The
same could of course work in reverse. In their Reply,
the parties have indicated that
is an unlikely
scenario, given that the majority of all customers are
located in the southern parts of Sweden and Norway
respectively. Nevertheless, the fact remains that for a
certain part of the business, such a routing solution may
be a viable option. Although Telenor might be tempted
to dismiss any such claims as a negotiating tactic,
it
would be unable to rule it out entirely as a competitive
such the threat would impose a
response, and as
constraint on Telenor’s pricing to some extent. In any
event, each side has as much to lose as the other,
because if Telia Norge is disadvantaged by high prices in
Norway, Telenordia could be the subject of reciprocal
action in Sweden. In their Reply the parties claim that
any such action would breach national or Community
law.
the
possibility of controlling future abuses under national
a
law or Community
justification for
strengthening of a
dominant position. Once the merger had gone ahead,
such constraints would disappear, and the parties’
dominance on both markets would be strengthened.

to be said in this connection that

the creation or

law does not

constitute

this

is

It

(181)

In addition, before the merger each of the parties could,
at least for sales to business customers, have by-passed
the incumbent’s national infrastructure in the territory
of the other through dedicated access, i.e. leased lines or
virtual private networks. This possibility would also be
eliminated through the merger.

(182) As a result, the proposed operation would strengthen
the dominant position held by Telenor on the market
long distance and international
for the provision of
the
in Norway. Given
network
undertakings offered by the parties concerning the
divestiture of their overlapping activities, their cable-TV
businesses and the provision of LLU (see section IV
it is not necessary to determine whether the
below),
creation or
transaction would have

infrastructure

led to the

strengthening of a dominant position on the Swedish
and
markets
international network infrastructure.

the provision of

long distance

for

Subscriber access to telephone services

Subscriber access to local services

(183)

In Sweden Telia has [90 % to 100 %]* of the market
based on revenues. There are a number of competitors
with very small market shares, who account for the
remaining
including Tele2 and
Telenordia. With a market share of this size, Telia is
clearly dominant.

[0 % to 10 %]*,

(184)

In Norway, Telenor is the incumbent, with a [90 % to
100 %]* share of the market. Such a high market share
indicates a dominant position. Telia has a [0 % to
10 %]* (30) share, through Telia Norge, and Tele2 has
less than a [0 % to 10 %]* share.

in Sweden and from Telia Norge

(185) The merger would eliminate actual competition from
Telenordia
in
Norway (31). It would also eliminate the most effective
potential competitor in Norway and Sweden. Finally, the
merger would increase the ability and incentive of the
(or not
new entity to raise interconnection prices
decrease prices) or degrade access to the local loop for
the provision of domestic services
the reasons
outlined above. For example, before the merger, Telenor
would be restrained in its ability to raise interconnection
charges vis-(cid:224)-vis its domestic competitors because this
move would have affected Telia Norge which in turn
might have caused Telia to use its bargaining position
vis-(cid:224)-vis Telenor’s or Telenordia’s activities in Sweden.
After the merger this restraint would disappear (32).

for

(30) In a later submission the parties quoted a figure of [0 % to 10 %]*
by call minutes and [0 % to 10 %]* by revenue reflecting the shares
at the end of 1998. However, the argument is not substantially
affected by whether the later or earlier figures are taken.

(31) Although the increments of market share which would accrue to
the merged entity in Norway and Sweden are very small, they
would represent the disappearance of a substantial proportion of
the small slice of market share not already in the incumbent’s
control.

(32) Competitors offering local calls would be more or less affected by
the parties’
increased ability to raise rivals’ costs depending on
whether they offered domestic services in only one country or in
both, or whether they offered domestic and international services
in one country or both, or any combination of these services.

9.2.2001

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Official Journal of the European Communities

L 40/29

(186) For the reasons outlined above, and for the other more
general reasons outlined in the introductory section of
the competitive assessment,
the concentration would
strengthen the incumbents’ existing dominant positions
on the market for subscribers access to local services.

Long distance services

Long distance in Norway and Sweden

(187) According to information supplied by the parties, there
were some [(cid:133)]* million minutes of long distance traffic
in Norway and some [(cid:133)]* million minutes in Sweden.

(188) The table below shows the market shares for long

distance in 1998 based on revenues.

Long distance

Sweden only

Norway only

Telia

Telenor

[65 % to 75 %]*

[0 % to 10 %]*

[0 % to 10 %]*

[90 % to 100 %]*

Telenordia

[0 % to 10 %]*

[0 % to 10 %]*

Tele2

Tele8

[15 % to 25 %]*

[0 % to 10 %]*

[0 % to 10 %]*

Global One

[0 % to 10 %]*

Sonera

[0 % to 10 %]*

RSL Com

[0 % to 10 %]*

Netnet

[0 % to 10 %]*

(189)

In Norway, Telenor has a dominant [90% to 100 %]*
market share, with Telia Norge having [0 % to 10 %]*.
Telia Norge therefore has one sixth of the market share
not already controlled by the incumbent.
In Sweden,
Telia has a [70 % to 80 %]* share. Telenor is represented
in the Telenordia joint venture, which has a [0 % to
10 %]* market share. This [0 % to 10 %]
represents
around one quarter of the part of the market not held
by the incumbent.

the merger will also result

will disappear as competing suppliers. For the reasons
in the
already outlined,
removal of potential competition which Telia and
Telenor would have been able to bring. An important
element of providing a long distance service is the
interconnection with the incumbent’s
ability to get
network and with other competitors. A competitor
wishing to transport long distance traffic may have to
pay the incumbent
for the use of his networks (for
example, if the call has become by carrier pre-selection
or call-by-call selection), pay the cost of leasing the long
distance lines, again possibly from the incumbent, and
then pay for interconnection to deliver the call back
onto the incumbent’s network for
termination. The
incumbent is in a position to control all these costs.

for

the

they

paid

have

once

(191) The merger will give the parties an enhanced ability to
eliminate competitors by raising the prices of or
degrading interconnection to third parties seeking to
terminate calls, or by offering its own customers a
better deal on long distance calls than competitors can
necessary
offer
interconnection rates. They would have an increase
ability and incentive to raise rivals’ costs for the same
reasons as outlined above with regard to local calls
because their own subsidiaries operating in the others’
territories would no longer be harmed by retaliatory
price increases by the other incumbent. When Telia and
Telenor were separate entities the prices at which they
offered long distance services and associated support
were constrained by the knowledge that they could not
including each other,
raise prices
without harming their own interests in the adjacent
territory, and possibly that their customers could have
the incentive to look for ways of using cross-border
infrastructure as a means of putting price competition
on their main supplier. After the merger this constraint
would be gone. In addition to that, they could gear their
control of the local loop in their dealings with operators
seeking interconnection because that local loop control
gives them an advantage their competitors cannot offer.
They could also offer long distance products over a
much wider geographic area, and undercut competitors
whose
national
boundaries. This would be compounded by the fact that
they have a very strong position in their respective
national
supply of underlying
the
territories
infrastructure (cable capacity).

to competitors,

constrained

offerings

remain

for

by

(190) The merger will

in the removal of actual
competition from Telia Norge in Norway and from
Telenordia in Sweden, as Telia Norge and Telenordia

result

(192) As a result, the proposed operation would strengthen
the dominant position held by the parties on the
markets for the provision of long distance services in
Sweden and Norway respectively.

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Official Journal of the European Communities

9.2.2001

International

(193) The international market can be regarded as either a
market
telephone
supply of
services, or as a market for specific country pairs.

international

the

for

(194) Taking the market first as a whole, according to the
information provided by the parties in their form CO,
international calls traffic in 1998 amounted to [(cid:133)]*
million minutes in Norway and [(cid:133)]* in Sweden.

(195) The following table shows percentage shares of a
national market based on overall call revenues from this
sector.

(198) The following table shows international voice traffic
flows amongst Nordic countries as a percentage of calls
from originating country in 1997 (source (cid:145)Direction of
traffic 1999(cid:146) Traffic Statistics, ITU).

From

From

From

From

To

Sweden

Norway

Finland

Denmark

Sweden

Norway

Finland

Denmark

(cid:151)

26

28,7

15,5

12,7

13,6

10,3

(cid:151)

2,5

14,6

3,6

(cid:151)

2,9

9,4

1,8

(cid:151)

International

Norway only

Sweden only

Telia

Telenor

[0 % to 10 %]*

[60 % to 70 %]*

(199) These two tables demonstrate that

the Nordic traffic

flows represent a significant volume of traffic.

[80 % to 90 %]*

[0 % to 10 %]*

Telenordia

[0 % to 10 %]*

[0 % to 10 %]*

Combined

Tele2

Tele8

Global One

Sonera

RSL Com

MCI WorldCom

[0 % to 10 %]*

[20 % to 30 %]*

[0 % to 10 %]*

[0 % to 10 %]*

[0 % to 10 %]*

[0 % to 10 %]*

[0 % to 10 %]*

Netnet

[0 % to 10 %]*

(196) On a national market basis, the shares clearly indicate
that Telenor, with [80 % to 90 %]* market share, has a
dominant position on the Norwegian market. Also for
Sweden, Telia’s [60 % to 70 %]* share of international
calls is indicative of a dominant position.

international

shares of overall

(197) These market shares show dominance measured by the
parties’
traffic. The
following analysis will consider the flow of international
traffic between specific countries. As regards traffic to
[20 % to
individual countries,
30 %]* of its international traffic to Sweden, [10 % to
20 %]* to Denmark, and [0 % to 10 %]* to Finland. Telia
sent
traffic to
Norway,
[10 % to 20 %]* to Denmark, and [0 % to
10 %]* to Finland.

in 1998 Telenor sent

[15 % to 25 %]* of

international

its

(200) The merger will

result

in the removal of actual
competition from Telia Norge in Norway and from
Telenordia in Sweden, as Telia Norge and Telenordia
will disappear as competing suppliers. For the reasons
in the
outlined above,
removal of potential competition which Telia and
Telenor would have been able to bring.

the merger will also result

(201) Moreover, as seen above, the merger will also increase
the incentive and the ability of the merged entity to
discriminate against third parties. In terms of the impact
on specific country pairs, as outlined above, the merger
will increase the ability and the incentive to raise (or not
decrease) termination charges, or to degrade the quality
of interconnection. Although not all calls will require
termination in Norway or Sweden (inter alia, because
some competitors on the route may offer only outgoing
call services) even these will still incur charges for the
origination of traffic on the incumbent’s networks, and
thus the operators concerned are dependent on the
incumbent for a proportion of their costs.

(202) The parties have maintained that the size of their traffic
across that border is very small, representing no more
than a small percentage of
their business turnover.
However, it was noted that [20 % to 30 %]* of Norway’s
international traffic went to Sweden, and around [10 %
to 20 %]* of Sweden’s
to
Norway. Third-party competitors said that international
represented a
traffic between the
substantial portion of
International
their
routes are often a means by which competitors are able

two countries

international

traffic went

revenues.

9.2.2001

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Official Journal of the European Communities

L 40/31

third parties

confirmed that

to enter countries whose telecom markets were hitherto
dominated by incumbents. Evidence supplied to the
Commission by
the
cross-border traffic was much more important to them
in overall revenue terms than the parties claimed it was
to themselves. This merger would thus have far more of
an impact on the cost base of competitors because
competitors
tend to rely more on Norway/Sweden
international traffic than the incumbents appear to do
not only for the route in question but also for bundled
products.

(206)

In 1998 the Swedish market for mobile telephony was
estimated to be in the order of EUR [1 500 to 2 000]*
million. On this revenue basis, Telia was estimated to
have a [50 % to 60 %]* share of the Swedish market,
with Europolitan having [20 % to 30 %]* and Comviq
having [10 % to 20 %]*. On a call minute basis the
market was [(cid:133)]* billion call minutes. Telenor’s market
share in Norway for mobile telephony (GSM) was [65 %
to 75 %]*, and the competitor, Netcom GSM ASA had
[25 % to 35 %]*. On this basis the parties have a very
if not dominant position, on their respective
strong,
markets.

(203) As regards calls to Denmark and Finland, the merged
entity will have no fear of retaliation if it increases its
accounting rate with other operators in the Nordic
region. It can terminate its own outgoing traffic in those
countries through its own subsidiaries. Telia or Telenor
subsidiaries in Denmark or Finland can either terminate
traffic using their rights to unbundled local loop access,
or interconnect with the local incumbents on regulated
terms, with the comfort of knowing that competitors in
Denmark and Finland have less opportunity to retaliate
because they have no means of
landing traffic in
Norway or Sweden which enables them to avoid the
incumbent’s accounting or interconnection rates (33).

(204) As a result, the proposed operation would strengthen
the dominant position held by the parties on the
markets
telephony in Sweden and
for
in particular with regard to the
Norway respectively,
Swedish/Norwegian country pair.

international

their

subsidiaries uses

(207) On the basis that the markets are national, the parties
argue that no overlaps arise in Norway or Sweden,
because neither of
the GSM
licence which they have been allocated. However, the
fact that the respective subsidiaries already have spent
the effort and funds necessary to acquire these GSM
licences must be regarded as
indicative of a clear
intention to enter each other’s market. Moreover, given
traffic between
the above indicated importance of
ability to
Sweden and Norway,
terminate calls at cost in their home markets, it has to
be concluded that both parties, without
the merger,
would have been in a good position to utilise their GSM
licences to make a forceful entry into each other’s home
market. Such an entry could, in the same way as will be
explained below, have been based on abandoning
roaming charges between Norway and Sweden. The
merger will therefore eliminate a significant potential
competitor in both Norway and Sweden.

and the parties’

Mobile telephony in Norway and Sweden

(205) Telia and Telenor operate mobile telecommunications
businesses in Sweden and Norway respectively. Telia
Norge has been granted a GSM licence in Norway and
Telenordia has been granted a GSM licence in Sweden.
The merging parties would benefit
from the licence
holdings they would possess in Denmark and Finland.

(33) It should be noted that Telia owns cables between Sweden and
Denmark which, according to third parties, have sufficient
capacity for taking all Telia/Telenor traffic to Denmark and in
addition, Telia owns whole circuits running from Sweden to
Finland and Sweden to Norway.

(208) As to mobile telephony in the Nordic region the same
concerns arise as those identified in relation to fixed
telephony. The merger would give the parties
the
opportunity to eliminate roaming charges or to bring
them to the level where the price of a call between
Norway and Sweden attracts no extra international
supplement. They would have an incentive to do this as
a business strategy for removing competitors.
Indeed,
the concept of roaming charges becomes academic, as
payments made from one network to another would be
simply payments from one side of the merged entity to
the other. Consumers in Sweden could order
their
service in Norway or vice versa and use the telephone
in roaming mode. The parties, by
permanently
abolishing roaming charges
reducing roaming
charges on calls made over their shared networks to the
point where the calls were effectively treated as national
calls) could undercut the prices offered by competitors
who were forced to remain with the roaming charge
regime or risk cross-subsidising each other if the traffic
were out of balance.

(or

L 40/32

EN

Official Journal of the European Communities

9.2.2001

(209)

In addition, for the reasons outlined in relation to fixed
telephony above, the merger will increase the ability and
the incentive to raise (or not decrease)
termination
charges, or to degrade the quality of interconnection.
Indeed, access to mobile telephony is subject
to the
same considerations as any of the other services for
which access to the local loop is important in order to
be able to offer services. The fact that other mobile
operators would have to turn to the parties
for
termination of their call traffic in Norway and Sweden
on the parties’ local loop puts the parties in the same
position as they would be when terminating traffic from
a conventional fixed network.

Mobile telephony in Ireland

(210) The only current overlaps outside Sweden and Norway
and Telenor
in relation to Ireland. Telia
arise
respectively have joint control of
the mobile phone
operators which together represent the only two current
active operators in the Irish mobile telecoms market.
Telia has joint control, with KPN and the Irish State, of
Eircom (formerly known as Telecom Eireann). Eircom’s
mobile operator is Eircell, with a [60 % to 70 %]* market
share. Telenor has joint control, with ESAT Telecom, of
ESAT Digifone, the only current competitor, which has
a [30 % to 40 %]* market share.

(213)

(211) At the oral hearing the parties declared that they would
divest their overlapping businesses so that the overlap
between Telia and Telenor in Ireland will be entirely
removed. This offer was repeated in the undertakings
put forward by the parties (see section IV). Without
such a divestiture,
the
combined entity joint
the mobile
telecommunications operations, namely two, currently
operating on the
telecommunications
Irish mobile
market. By giving the merged entity joint control over
all players active in the market, the merger would thus,
in the absence of appropriate divestitures,
lead to the
creation of a dominant position in Ireland.

the operation would give

control of

all

Market shares for local loop traffic through Telenor’s
network (34), 1998

Company
Norway

Market share
inrevenues
(call minute
percentage in
brackets)

Market percentage share in
terms of subscribers (35)
(business/residential)

Telenor

[90 to 100]*
([90 to 100]*)

[90 to 100/90 to 100]*

Telia

Tele2

Tele8

NetNet

Others

[0 to 10]*
([0 to 10]*)

[0 to 10]*
([0 to 10]*)

[0 to 10/0 to 10]*

[5 to 15/0 to 10]*

[0 to 10]*
([0 to 10]*)

N/A

[0 to 10/0 to 10]*

[0 to 10]*
([0 to 10]*)

[0 to 10]*
([0 to 10]*)

revenues or

call minutes, or

It will be seen that, whether the figures are taken in
subscriber
terms of
numbers, Telenor still controls access to the local loop.
Telenor does not offer unbundled access to the local
loop and before 1998 it had a 100 % share. Since 1998
competition has developed. The parties say that Telia
carrier pre-selection
Norge
customers, Tele2 some [(cid:133)]* customers and Tele 1
Europe some [(cid:133)]* customers. However,
these new
competitors are unable to gain revenue from call
termination, and only competitors who have their own
fixed access, such as radio loop or business customers
with a fixed link to another operator, are truly able to
compete against the incumbent.

registered

some

[(cid:133)]*

Operator access to local loop networks (Norway and
Sweden)

(212) The market power of operators supplying local

loop
services may be a function of the amount of traffic they
can terminate, which in turn depends on the number of
subscribers and the volume of traffic directed to them.

(34) The parties pointed out that these figures include market shares
only for traffic originated through Telenor’s network, and that
their market shares would be lower if traffic through the other
networks were added. However, given that Telenor does not
provide unbundled local
traffic
loop access,
originated by local
loop competitors will be originated on
Telenor’s network through carrier pre-selection or call-by-call
selection. On call termination, only those networks with their own
fixed local loop access would be able to terminate traffic anyway,
and they could only expect to terminate a proportion based on
their size relative to that of Telenor. The distortion element would
therefore amount to no more than a few percentage points.

the majority of

(35) Figures sum to more than 100 because some subscribers have
carrier pre-selection/dial-up and therefore use more than one
telecom operator.

9.2.2001

EN

Official Journal of the European Communities

L 40/33

(214)

In Sweden the parties estimate that Telia had some
loop revenues and [90 % to
[90 % to 100 %]* of local
[90 % to 100 %]* of
100 %]* of call minutes, or
subscribers. Such a high market
share indicates a
dominant position. Carrier pre-selection is not yet
available in Sweden, but was due to be introduced on
11 September 1999. Owing to disputes over
the
implementation of the select procedure, where Telia has
refused to transfer customers to other operators unless
certain conditions are fulfilled,
there has been an
agreement to prolong the transfer period by another
two months (11 November 1999).

(215) Both Telia and Telenor can therefore be considered as
dominant in this market. The merger will strengthen
Telenor’s dominant position in Norway by eliminating
Telia, which is together with Tele2 its strongest actual
competitor. Moreover, as explained in the introductory
section of the competitive assessment, the merger will
eliminate the potential competition existing between the
parties.

the elimination of actual and potential
(216) Because of
competition,
the new entity will be in a stronger
position to increase rival’s costs for access to the local
in the
the
loop network,
introductory part of the competitive assessment.

reasons outlined

for

(217) As a result, the proposed operation would strengthen
the dominant position held by the parties on the
markets for operator access to local
loop networks in
Sweden and Norway respectively.

Operator access to long distance and international
networks

long

distance

(218) The market share figures shown above for long distance
and international calls illustrate the parties’ dominant
position in the handling of
and
international call traffic. Within the national territory,
operators seeking to offer long distance or international
network access would be hampered by their inability to
offer call
termination services as a quid pro quo.
Although they might agree to take long distance or
internationally-bound traffic from entrant
loop
in the long
operators,
distance market to offer competitive pricing because of
the need to interconnect with the incumbent in order to
terminate the call. In any case, operators will rely on the
incumbents’ network for call origination, and therefore
will be dependent on the incumbents for a proportion
of their costs. On the international side, they would be
unable to drive an effective bargain with operators
outside Norway and Sweden looking for an operator to
terminate calls on their behalf in Norway and Sweden,
because their prices would have to include an element

they would find it difficult

local

their

render

replicate. As a result,

for access to the local loop. The incumbent could at any
efforts nugatory by rebalancing
time
strategies. Because the incumbent would be able to
combine networks across the two countries, and control
access to final users, he would enjoy a cost position
the
which rivals could not
proposed operation would strengthen the dominant
position held by Telenor on the market for the operator
access to long distance and international networks in
Norway. Given the undertakings offered by the parties
concerning the divestiture of their overlapping activities,
their cable-TV businesses and the provision of LLU (see
section IV), it is not necessary to determine whether the
transaction would have
creation or
strengthening of a dominant position on the Swedish
and
markets
international network infrastructure.

the provision of

long distance

led to the

for

Business data communications

(219) The table below breaks down the market shares on the

basis of a national market definition:

Percentage shares
in business-data
communications

Telia

Telenor

Combined

In Norway alone

[10 to 20]*

[60 to 70]*

[70 to 80]*

In Sweden alone

[65 to 75]*

[10 to 20]*

[80 to 90]*

(220) The parties’ dominance would be increased as a result of
the merger by an increase in their market shares. The
merger would eliminate the first largest competitor of
the incumbent operator in both Sweden and Norway. In
Sweden, the four largest competitors would be Tele2,
with [5 % to 15 %]*, Global One, with [0 % to 10 %]*,
MCI WorldCom, with [0 % to 10 %]*, and Sonera, with
[0 % to 10 %]*.
the largest competitors
would be Posten SDS, with [0 % to 10 %]*, IBM, with
[0 % to 10 %]*, Global One, with [0 % to 10 %]*, Equant,
with [0 % to 10 %]*, and Fellesdata, with [0 % to 10 %]*.
In addition,
the merger would eliminate the most
effective potential competitor.

In Norway,

a

(cid:145)Nordic(cid:146)

business

essentially

(221) There are examples of companies active in this market
data
who supply
communications product. One
is
Telenordia, the joint venture between Telenor, BT, and
Tele Denmark, which is specifically aimed at providing
such services in Sweden and in the Nordic region, inter
alia, to customers looking for business communications
solutions in the Nordic area; and Nordicom, a service
provided by Telenordia, Tele Danmark and Telenor
whereby they offer high speed business communications

such company

L 40/34

EN

Official Journal of the European Communities

9.2.2001

services in the Nordic region. Third parties have also
provided a significant number of examples of Nordic
companies which have expressed an interest in services
limited to their
specific Nordic telecommunications
needs.

position at the local
loop level the merged entity will
have the possibility of foreclosing competition in the
Nordic region.

(224) The parties would be able to rely on their strong

position on leased line capacity (see discussion above).

that

they would be unable

(222) The merger could have an impact on the business data
in two ways. One concerns
communications market
access to local
loop and the other concerns access to
infrastructure. Those competitors in the business data
market who seek to have access through the PSTN
would suffer vis-(cid:224)-vis the parties from the competitive
disadvantage
to offer
equivalent services to those which the parties were
capable of offering. Specifically the parties could use
their control of the local loop to (cid:145)bundle(cid:146) business data
communications offerings with local loop services, such
as voice services, across the whole Nordic region. In this
context, the parties are able to offer products which
have been specifically designed for the Nordic market
and which offer a coverage of the four Nordic countries.
Although it is not necessary to conclude whether these
products could be regarded as constituting a distinct
market, the Commission’s investigation has found that
some Nordic companies have expressed an interest in
services
Nordic
telecommunications needs. All other things being equal,
such (cid:145)Nordic(cid:146) products would therefore be attractive to a
buyer choosing a business data communication product.
In Norway and Sweden at least, the parties’ competitors
would not be able to offer business data products which
included local loop services, as they would be dependent
on the parties if they needed to offer local loop access,
and the parties would have an increased ability to
increase their costs or to discriminate against them, for
the
competitors
would be at a disadvantage.

reasons outlined above. Therefore

specific

limited

their

to

(225)

(226)

seeking to interconnect

If the merger strengthens the position of the combined
entity in its dealings with other telecom operators, then
like
private data networks
operators are likely to be among the first casualties,
because of their relatively limited bargaining power in
such negotiations. Telia/Telenor will be able to offer
favourable terms for bundled packages which include
loop access, at a price designed to ensure the data
network operator has little or no choice but to accept
becoming a customer of the services in question from
Telia/Telenor. The merged entity can thereby render the
offerings of would-be competitors uncompetitive as least
as far as local call termination is concerned, and over a
much broader area than would have been possible prior
to the merger.

of

data

business

In Norway, Telenor provides network transport services
to a number
communications
providers. Its main customer is Telia Norge, which in
1998 acquired network transport services for EUR [(cid:133)]*
million. Telia Norge bought also EUR [(cid:133)]* million
physical components from Telenor. The merger will
enable the parties to internalise these costs and thus
bring about another competitive advantage to the
merged entity.

(223)

In addition it is to be borne in mind, as explained in the
introductory section of the competitive assessment, that
the parties are capable of implementing anti-competitive
practices in respect of all data communication services
(as well as other telecom services) in the Nordic region.
In Denmark and Finland, local loop access is regulated
and, consequently, access to the local loop is available
in a more cost-effective manner than in Norway and
loop unbundling
Sweden, where there is no local
obligation. This situation and the cost
internalisation
resulting from the merger is likely to raise the access
costs that the merged entity’s competitors will have to
incur in Sweden and Norway to provide Nordic regional
services
the
combined entity will keep benefiting from the more
liberal access provisions in Denmark and Finland and be
able
in a
cost-related way. Therefore, by gearing its strengthened

to their customers. On the contrary,

to terminate

in those

countries

calls

(227) So far as concerns the possibility of offering pan-Nordic
telecoms services, the merger will eliminate the potential
competition existing between Telia and Telenor. Indeed
these were the only two companies prior to the merger
who were in a position to offer a service encompassing
their own countries as well as Finland and Denmark,
with a privileged access to the local loop, and the only
ones in a position to (cid:145)trade(cid:146) access to their local loop in
exchange for reciprocal concessions. Finally, it should be
borne in mind that Telenordia, Tele Danmark and
Telenor have established Nordicom, a joint venture with
the aim of providing high speed communications
services to business users in the Nordic region. After the
merger, the actual and potential competition existing
between Telia and Nordicom will be eliminated.

(228) As a result, the proposed operation would strengthen
the dominant position held by the parties on the
markets for business data communication in Sweden
and Norway respectively.

9.2.2001

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Official Journal of the European Communities

L 40/35

Description of Internet

Internet network, peering and transit agreement

(232)

In Norway, Telia has an Internet network having a node
in [(cid:133)]* as the centre. This is connected with Telia’s
Swedish network and with its international network.
Telia has peering agreements with [(cid:133)]*ISPs, amongst
which there is Telenor, at Oslo’s Internet interexchange
point (NIX). Telia has [(cid:133)]* transit customers.

(229) From a technical point of view,

Internet

is a global
network of routers and computer servers connected
through cables, normally telecom cables. Both Telia and
Telenor own capacity, which is used for
Internet
purposes, but not all their Internet traffic is transmitted
through their networks. Internet traffic can be divided
into three groups:

(cid:151) the traffic sent by an ISP to (a) transit provider(s),

(cid:151) the traffic terminated by an ISP in its own network
(i.e. directly to its end-user customers or to ISP
networks which are its customers), and

(cid:151) traffic

sent by the
(traffic

ISP to secondary peering
peering
under
interfaces
agreements do not result in any payments between
the contracting parties) (36).

transmitted

(230) The parties have given the following description of their
networks, and have broken down their traffic flows
figures to show traffic falling within each of the three
categories above.

Telia

interexchange point

(231) At the top of Telia’s network infrastructure in Sweden
there are [(cid:133)]* nodes. At the level below, Telia manages
[(cid:133)]* distribution nodes.
In addition to these [(cid:133)]*
nodes, Telia manages [(cid:133)]* PSTN dial-up nodes. Telia
has entered into peering agreements with [(cid:133)]* ISPs at
the national
in Stockholm (the
D-GIX), and [(cid:133)]* private peering [(cid:133)]* with [(cid:133)]*.
Amongst
and
Telenordia. Telia does not sell national (cid:145)transit(cid:146) (i.e. the
provision, to ISPs, of Internet-protocol-based transport
communications within national
of
boundaries), or
for
international use to other ISPs.
Its share of the EEA
transit market is approximately [5 % to 15 %]*, on the
its share would go down to [0 % to
global market
10 %]*.

termination, but

are Telenor

Internet

transit

there

[(cid:133)]*

their

sells

ISPs

the

(233) Telia’s

international

infrastructure

((cid:145)the
Internet
backbone(cid:146)) consists of [(cid:133)]* nodes in Europe and [(cid:133)]*
in the United States of America. Telia’s US Internet
traffic is directed from Sweden through the [(cid:133)]* cable
system and onwards through either the [(cid:133)]* cable
systems (37). In the United States of America, Telia buys
transit from [(cid:133)]*. Telia also peers with approximately
[(cid:133)]* ISPs in the United States of America. As regards
European traffic, Telia purchases transit from carrier’s
carriers [(cid:133)]* from [(cid:133)]*. Telia also peers with [(cid:133)]* ISPs
at the LINX (London Internet exchange).

(234) Telia estimates that about [25 % to 35 %]* of the traffic
originated in its network is sent to transit providers,
[20 % to 30 %]* is terminated in its network, and [40 %
to 50 %]* is sent to secondary peering interfaces.

(235) As

regards

the geographical destination of

Internet
traffic, Telia estimates that about [50 % to 60 %]* of its
end-user traffic from the Swedish domestic market is
sent to the United States of America. The remaining
[40 % to 50 %]* is towards Europe, of which [30 % to
40 %]* is domestic/Scandinavian (i.e. [25 % to 35 %]*
directed to Sweden, [0 % to 10 %]* to Norway, [0 % to
10 %]* to Denmark and [0 % to 10 %]* to Finland). Of
its
to
Telenordia, and less than [0 % to 10 %]* to Telenor. As
regards traffic originating in Norway, Telia estimates
that [25 % to 35 %]* of
this traffic is terminated in
Norway, [0 % to 10 %]* to Sweden, [0 % to 10 %]* to
Denmark, and [0 % to 10 %]* to Finland. Of its total
Norwegian traffic, [0 % to 10 %]* goes to Telenor and
less than [0 % to 10 %]* to Telenordia.

[0 % to 10 %]* goes

total Swedish traffic,

Telenor

(236) At the top level of its infrastructure in Norway, Telenor
operates [(cid:133)]* core nodes ([(cid:133)]). At the level below,
Telenor operates [(cid:133)]*
distribution nodes and [(cid:133)]*
access nodes. Telenor enters into peering agreements
with any ISP having a presence at Oslo’s
Internet
interexchange point. Telenor sells transit services to
[(cid:133)]* ISPs,
is
negligible and below [0 % to 10 %]*.

the EEA transit market

share of

its

(36) Commission decision in the WorldCom/MCI case, referred to in

recital 106.

(37) [(cid:133)]

L 40/36

EN

Official Journal of the European Communities

9.2.2001

(237)

the

level

In Sweden, Telenor, through Telenordia, owns a high
capacity Internet infrastructure. At the top level of its
network, Telenordia operates [(cid:133)]* core nodes ([(cid:133)]*).
[(cid:133)]*
At
loop
distribution nodes. Telenordia owns radio local
to its
which connects
Internet backbone. Telenordia accesses the remainder of
its customers through interconnect agreements with
Telia.

than [(cid:133)]* businesses

Telenordia

operates

below,

fewer

a

cable

agreements;

connected to a node

(238) Moreover, Telenor, through Telenordia, owns [(cid:133)]* at
the Internet exchange in [(cid:133)]*, where it has entered into
[(cid:133)]* peering
in addition Telenordia
[(cid:133)]*.
controls
Telenordia controls a link between [(cid:133)]* and [(cid:133)]* and
is sending Internet traffic over [(cid:133)]*. Telenordia buys
transit services from [(cid:133)]* for its European traffic. It has
also entered into a transit agreement with [(cid:133)]*. About
traffic is
[55 % to 65 %]* of Telenordia’s
international
the
international traffic is to the United States of America.
Its US traffic is transmitted over a cable built by the
TAT consortium (the 12 cable).

[70 % to 80 %] of

and about

Internet

at

(239) As to the Telenor’s backbone network, Telenor owns
[(cid:133)]* nodes in [(cid:133)]*, [(cid:133)]* at the international exchange
point in [(cid:133)]* and [(cid:133)]* in [(cid:133)]*. Its US-directed traffic
is routed from Norway to [(cid:133)]* through the [(cid:133)]* cable,
on to Canada through the [(cid:133)]* cable,
then from
Canada is routed over the [(cid:133)]* to Telenor’s node in
[(cid:133)]*. Telenor leases capacity on the [(cid:133)]* network and
the [(cid:133)]* network from [(cid:133)]*.

(240) Telenor considers that approximately [50 % to 60 %]* of
its total Internet traffic is directed to transit providers,
[20 % to 30 %]* is terminated in its own network and
[15 % to 25 %]*
peering
arrangements.

exchanged

through

is

(241) As regards the geographical destination of

its traffic,
Telenor estimates that approximately [70 % to 80 %]* of
its Internet traffic originated in Norway is international,
and [50 % to 60 %]* is sent
to the United States of
America, [0 % to 10 %]* is terminated in the Nordic
countries, [(cid:133)]* and remaining [0 % to 10 %]* in other
[0 % to
European countries. Telenor estimates
10 %]* of its total Internet traffic is terminated on Telia’s
network and less than [0 % to 10 %]* is terminated on
Telenordia’s.

that

to 60 %]*, and Telia has [5 % to 15 %]*. The combined
market share would thus be [60 % to 70 %]*. As to fixed
access, Telenor has a market share of [30 % to 40 %]*
(by value and by subscribers), Tele2 and EUNet are the
next largest players with [5 % to 15 %]* each, followed
by Telia with [0 % to 10 %]*. For dial-up access, the
figures (by value) are Telenor [60 % to 70 %]*, Telia
[10 % to 20 %]*, Tele2 [5 % to 15 %]*; based on number
the parties would achieve a higher
of
combined market share of
[80 % to 90 %]* (Telenor
[65 % to 75 %]* and Telia [10 % to 20 %]*).

subscribers

(243)

In Sweden, combining dial-up and dedicated access,
Telia has [30 % to 40 %]*
(by value), and Telenordia
[0 % to 20 %]*. This gives a combined market share of
[40 % to 50 %]*. As to fixed access, the market shares
(by value) are as follows: Telia has [30 % to 40 %]*,
Tele2 [20 % to 30 %]*, Telenordia [10 % to 20 %]*, MCI
WorldCom [5 % to 15 %]* and Global One [0 % to
10 %]*. By subscribers (both dial-up and fixed-access
a higher
the parties would achieve
subscribers),
combined market share of [50 % to 60 %]*. As regards
dial-up access, the shares (by value) are Telia having
[30 % to 40 %]*, Telenordia [10 % to 20 %]*, Tele2 [30 %
to 40 %]*, and BIP [0 % to 10 %]*. By number of dial-up
share in
the parties’ combined market
subscribers,
Sweden would be [50 % to 60 %]*. According to the
information submitted in the notification, the parties’
market shares have remained relatively stable over the
in particular when compared to the
last three years,
largest competitor, Tele2, which according to the same
source has been on a consistent downward trend over
the same period (both for dial-up and fixed-access
subscribers).

(244) As a result of the merger the parties, because of their
stronger position in the capacity markets and their
stronger control over the local
loop, would become
in Sweden, and their already dominant
dominant
be
the Norwegian market would
in
position
strengthened.
the parties are already
In particular,
capable of discriminating against their competitors in
for example by
favour of
their own ISP activities,
bundling
services.
telephone
the parties will be able to cross-subsidise
Moreover,
their ISP activities from the increased profits from local
loop services.

subscriber

and

ISP

ISP services

(245)

(242) Telia and Telenor are active as ISPs in both Sweden and
Norway. In Norway, taking dial-up and dedicated access
together, Telenor has a market share (by value) of [50 %

In the absence of local loop unbundling, ISPs in Norway
in an increasingly poor
and Sweden would be
competitive position when compared with the merging
First, both merging parties have publicly
parties.
announced
their
telecommunications traffic to an Internet protocol ((cid:145)IP(cid:146))
platform with dedicated access points close to end-users.

they will migrate

that

all

of

9.2.2001

EN

Official Journal of the European Communities

L 40/37

Without LLU,
if competitors also migrated to IP
technology they would not be able to provide high
speed access because they would not be in a position to
place their own electronic equipment both at the user’s
premises and at the main distribution frame. It will be
difficult for ISPs to compete with this large integrated
and technically advanced network (covering at
least
Sweden and Norway, and possibly including the parties’
infrastructure throughout the Nordic region). ISPs could
then be left with only being able to reach end-users via
dial-up access through an increasingly obsolete PSTN.

(246) Second, the merging parties could eliminate competitor
ISPs entirely in the absence of LLU. Without LLU, there
is no assurance that ISPs can offer broadband services
(fast Internet connections) as they could not provide
high speed access without placing their equipment both
at the user’s premises and the main distribution frame.
Broadband is essential for emerging Internet applications
involving video and speech transmission. The merging
parties could decide to offer wholesale broadband
services to competitors, but there is no guarantee that
they would do so at competitive prices. It is more likely
that
the merging parties would retain broadband
exclusively for themselves, so only their ISP operations
would be able to offer fast Internet service to end-users.

(247) As a result,

the proposed operation would create a
dominant position for the merged entity on the market
for
in Sweden and strengthen the
dominant position already held by Telenor on that
market in Norway.

Internet access

Internet advertising

(248) According

to

the

the

parties

Swedish

Internet
advertising market is an immature emerging market and
little reliable information exists on it. The parties
maintain, a position repeated in their Reply to the
that Telia’s activities are
Statement of Objections,
extremely limited and are all conducted through SOL.
The information collected by the Commission in the
course of
this is not
its investigation suggests that
entirely accurate. The Commission has been informed
that Telia and Telenor, through SOL, control the first
and seventh largest Swedish sites, Passagen and Evreka.
in the Swedish Internet
In addition Telia operates
advertising market
four sites: Telia
Internet, Telia Email search catalogue, Telia’s yellow
pages site (Gula Sidorna), and Telia’s corporate site.

through at

least

Telia sells or barters banner ads and sponsorship on
each of these sites.

the

Internet

account

proposed

to provide

any evidence

50 % market

the figures put

(249) According to the parties Telia’s market share (and thus
SOL’s market share) is approximately [10 % to 20 %]*.
The [10 % to 20 %]*
figure is contradicted by a
complainant according to which only three of the above
mentioned Internet sites (Passagen, Evreka, and Telia
Internet)
advertising
for 50 % of
revenues. It should be pointed out that the complainant
to
has not been able
substantiate
share.
Accordingly, the Commission has no reason to believe
forward by the parties are not
that
jointly
accurate.
controlled
of
approximately [0 % to 10 %]*. The parties disputed this
claim, saying that the total Swedish market for Internet
advertising in 1998 was estimated by IRM (the Institute
for Advertising and Media) at SEK 207 million, of which
SOL’s revenues were SEK 29,9 million, or 14,4 % of the
market. For 1999 the equivalent figures (estimates) were
SEK 408 million and SEK 50 million, giving SOL a
16,4 % share. When the revenues for Telia’s other sites,
Gula Sidorna and Emfas were taken into account, total
estimated share was 16,4 %.

In addition, Telenordia, which is

by Telenor, has

a market

share

(250)

(251)

In Sweden, Telia, with the exception of its two sites
mentioned above, Telia operates exclusively through
SOL. Telenor has no Internet advertising operations in
Sweden outside SOL. Given the fact that the parties
have
the
concentration will have no direct competitive effect on
Internet advertising in Sweden.

joined their

in SOL

activities

already

In Norway, the parties control, through SOL, the largest
Norwegian site (Scandinavian OnLine) with a market
share of [40 % to 50 %]* (by value). Telenor, outside
SOL, is active through ABC Startsiden AS and Telenor
Media. For example, Telenor sells or barters banner
advertising on its yellow pages. However, these activities
have negligible economic
the
market leader with a market share of [40 % to 50 %]*;
its three largest competitors are Nettavisen with [10 %
to 20 %]*, Aftenposten with [10 % to 20 %]* and
Dagbladet with [0 % to 10 %]*. For the same reasons
given above for Sweden the merger will have no direct
competitive effects on Internet advertising in Norway.

significance. SOL is

forward by the parties

(252) Following the hearing and on the basis of the arguments
put
the
Commission considers that the parties will not be able
to gear their increased market power as ISPs to control
the Internet advertising market. The Commission has
come across no evidence (in the form of statistics or

in their Reply,

L 40/38

EN

Official Journal of the European Communities

9.2.2001

studies, for example) showing that the control over the
Internet (cid:145)start-up page(cid:146), provided by the ISPs as default
start-up page is the decisive competitive force in the
Internet
In particular, nothing
prevents a user from changing to another start-up page
that changing to other
and nothing demonstrates
start-up pages occurs infrequently.

advertising market.

(258) The parties maintain that barriers to entry are low, in
particular, for existing manufacturers wanting to enter
the market as distributors instead of selling through
third parties. However,
strength is
somewhat diminished by the standardisation of PABX
brand
technology, which reduces
recognition and permits distributors to service a range
of PABXs from different manufacturers.

the producer’s

the producers’

(253) Therefore,

the

Commission

the
concentration will not create or strengthen a dominant
position in the market
Internet advertising in
for
Sweden and Norway.

considers

that

Sale of advertising spaces in local and business telephone
directories

(254) During the course of

to divest

Lokaldelen

this procedure, Telenor has
entered into an agreement
its Swedish
thereby
and
subsidiaries
removing any overlaps between the parties’ activities on
these markets
removing all
in Sweden, and thus
competitive concerns the operations might have raised
these
in these markets. No further assessment of
markets is therefore necessary.

F(cid:246)retagsinfo,

PABX

(255) Telia is mainly active in the installation and distribution
of PABXs
share of
in Sweden and has a market
approximately [45 % to 55 %]*. In that country Telenor
through Internordia, a joint venture with
operates
TeleDanmark, which has a market share of about [0 %
to 10 %]*. The major competitors’ market shares are as
follows, Alcatel [20 % to 30 %]*, Philips [0 % to 10 %]*,
Siemens [0 % to 10 %]* and Enator Dotcom [0 % to
10 %]*.

(256)

In Norway, Telenor has an estimated [50 % to 60 %]*
market share. Telia is active through Telia Norge in the
supply of large PABXs and has an estimated [10 % to
20 %]* market share. The main competitor is Alcatel
with a [25 % to 35 %]* share.

(257) Market shares of such a magnitude are strong indicators
of dominance enjoyed by each party in its home
strong
country.
due
parties’
The
that Telia and Telenor, as
historically to the fact
incumbent telephone operators, have had a privileged
position
the
telecommunications system. This is confirmed by the
high awareness of Telia and Telenor brands as suppliers
of PABXs in Sweden and Norway, respectively.

connecting

equipment

positions

such

are

to

in

(259) Customers

and

importance

corresponding

attach a great deal of

to
installation, maintenance and other after-sale services, it
is the distributor who takes full responsibility for the
the
product
customers. A distributor who has built a reputation for
supplying PABXs and for providing after-sale services is
in a position to capitalise on this
strength. The
manufacturers do not have
the necessary service
organisations (which is why they use distributors, such
as the parties). The parties argument concerning the
threat of entry by manufacturers is therefore doubtful.

vis-(cid:224)-vis

service

(260) At the oral hearing the parties declared that they will
divest their overlapping businesses so that the overlap
between Telia and Telenor in Sweden and Norway will
be entirely removed. Unless
such a divestiture is
confirmed, the notified merger would strengthen Telia’s
and Telenor’s dominant position in Norway and Sweden
respectively in the market
the installation and
distribution of PABXs.

for

II. TELEVISION SERVICES

A. Relevant product markets

and

Sweden,

Norway,

Denmark

this includes:

(261) Telia and Telenor are active in various fields of what
may generally be described as distribution of television
services. For Telenor,
the provision of
satellite transponder capacity in the Nordic area (that
Finland);
is,
direct-to-home ((cid:145)DTH(cid:146)) satellite TV distribution in the
Nordic area (conducted by (cid:145)Canal Digital(cid:146), a joint
venture with Canal+); cable television activities
in
Norway (Telenor Avidi AS) and activities relating to
technical services for Pay-TV (including the proprietary
Conax system). Telia’s main activity in this field is its
cable television activities in Sweden (Telia InfoMedia
Television AB) and in Denmark (Stofa). Both companies
are active on the markets for content buying and
wholesaling of rights to content.

9.2.2001

EN

Official Journal of the European Communities

L 40/39

(262) A general

be

analogue

established

feature of
is

the markets for distribution of
the ongoing evolution from
television services
analogue to digital techniques. In their notification the
parties did not indicate that separate relevant markets
should
digital
for
techniques at the various distribution levels. In Decision
1999/242/EC (38)
the Commission stated that pay-TV
services cannot be subdivided into analogue and digital
services. Although
services
analogue
currently exist side by side, most industry sources agree
that digital services gradually will replace the analogue
ones in the medium to long term. In parallel with this
development the TV distribution, Internet and telephony
sectors are also widely expected to converge.

digital

and

and

(263)

In this context of migration to the digital world and the
consequent development of new services of enormous
potential growth for pay-TV and value-added services,
including Internet, Telia’s customer base is particularly
decisive for the assessment of the notified merger. As it
the
will be explained below,
for
expansion in the
the
cable-TV, DTH and
introduction of
advertising-financed and (cid:145)mini-pay(cid:146)
channels. Advertising appeal and the corresponding
revenues stem from the customer base that can be
offered to the content suppliers and/or advertisers. In
the digital environment, access to a large customer base
will be even more important in determining the success
of service providers such as the merged entity ((cid:145)Newco(cid:146)).

the main driver of
relevant geographic market
been

SMATV (39),

has

(264) The present market power of each of the parties, which
results directly from their respective customer base, will
be reinforced by the benefits of
the full vertical
integration achieved by this merger at all the levels of
the
the TV-distribution chain. Newco’s benefit of
reinforced market power resulting from the vertical
integration will be significantly increased in the future
digital context described above. Newco’s competitors,
including Netcom/MtG, have a much smaller customer
base, which though valuable in terms of analogue TV
revenues,
in the future digital context, would be
insufficient to contest Newco’s competitive advantages
resulting from its customer base size and,
therefore,
from its unparalleled appeal to advertisers and content
providers.

(265) The abovementioned market position of Newco, as a
and the
result of
to content providers,
consequent
which will be reinforced in the digital environment, has

its unparalleled customer base

irresistible appeal

(38) Case IV/36.237 (cid:151) TPS; decision of 3 March 1999; OJ L 90,

2.4.1999, p. 6.

(39) Small Master Antenna TV.

by

about

vertical

brought

integration

to be analysed in conjunction with the reinforcement of
Newco’s position in related markets. Newco will, due to
the
its
establishment, have a strong or dominant position
across all relevant
infrastructures for the carriage of
telecommunication services, as well as in cable-TV, DTH
and digital terrestrial television (DTT), and is in a strong
position to develop Internet and interactive services.
Following the concentration, not only the content
suppliers would have a strong incentive to contract with
Newco, but Newco itself will have an incentive to gear
its privileged position at the infrastructures level
into
the downstream distribution levels. In particular, Newco
will have the economic incentive to invest heavily in the
acquisition of the most valuable content from content
providers and broadcasters in order to irreversibly tilt in
its favour the emerging multimedia markets in the
Scandinavian countries. In doing so, Newco would have
the incentive and ability to target existing competitors,
such as Netcom/MTG, which prior to the proposed
concentration are important players on the market, in
terms of ownership of content and relations with
individual subscribers (through analogue decoders).

Satellite capacity

other

telephony

(266) Satellite transmissions are used for distribution of
TV-signals,
communication
and
services. In respect of TV-signals, the customer can be
either a broadcaster (CNN, Eurosport, Canal+ etc.) or a
TV-distributor (such as Canal Digital, Telia and Telenor).
The service may include the provision of uplink services
(transmission to the satellite), encoding and various
other technical services.

Acquisition and distribution of television signals

(267)

In the notification the parties do not differentiate
between the provision of TV-distribution infrastructure
(whether satellite transmission or cable infrastructure)
and the packaging and sales of various
individual
TV-channels or bouquets thereof.

(268) The parties, however, argue that distribution of DTH
and cable television should be regarded as separate
markets and that, on that basis, there is no overlap
between the existing activities of Telia and Telenor. The
parties base this argument on the contention that DTH
are
and cable,

from a broadcaster’s perspective,

L 40/40

EN

Official Journal of the European Communities

9.2.2001

it

for

stated that

the consumers,

is
the customer

complementary rather than alternative: the broadcaster
simply wants to reach as many viewers as possible. In
support of this contention, the parties have submitted
that all broadcasters sell rights to their programming in
the Nordic region separately for DTH and cable.
the
Moreover,
substitutability is negligible:
is either
passed by cable, in which case he will not be interested
in DTH, or he is (cid:145)forced(cid:146) to use DTH, as he is not passed
by cable. Telia has submitted that its cable operation
has not lost a single customer to a DTH operator over
that
the last
supported
their definition of
and
by
96/177/EC (41) in previous merger cases (Case IV/M.469
(cid:151) MSG Media Services and Case IV/M.490 (cid:151) Nordic
Satellite Distribution).

three years. The parties also consider

separate markets
Decisions

94/922/EC (40)

Commission

is

(269) The Commission’s investigation, however, indicates that
the issue of market definition may be more complex
than proposed by the parties. The function of a
cable-TV network or a DTH operation is to provide a
connection between broadcasters and viewers. The
TV-distributor is therefore active both on the upstream
market for the acquisition of rights to content (as a
buyer), and on the downstream market for the provision
and/or
of
TV
of
intermediaries,
apartment buildings
and
medium-sized cable-TV networks (SMATV). It may be
appropriate to distinguish between the substitutability
between cable and DTH on, on the one hand,
the
upstream market for acquisition of content, and, on the
other hand,
the downstream markets for retail and
wholesale TV-distribution, despite the competitive link
between these upstream and downstream activities.

viewers
individual
landlords
or
and operators of

to
such as

owners
small

services

infrastructure may be owned by a housing association,
whereas a third party may, in addition to transmitting
the TV signals, also be contractually responsible for
operation and maintenance of the cable structure in the
building.

(272) Also on the customer side there may or may not be
identity between the buyer of infrastructure and content.
Such identity normally exists
for DTH, where an
install a satellite dish and a
individual household will
subsequently
decoder
cards
and
purchase
in order to receive a selection of TV
(infrastructure)
signals. However, in cable, the party who contracts with
the
(the
behalf
infrastructure customer) is normally a building owner,
landlord or housing association, which will charge the
tenants the cost of this service as part of the rent. In
addition, the individual households may,
in a similar
way as DTH households, purchase the right to view
certain TV signals.

broadcaster

viewer

smart

the

on

of

(273) A difficulty

the

infrastructure

in separating

and
transmission services is that the suppliers, to varying
degrees, bundle the provision of
these two services.
includes a wide selection of (cid:145)basic
Telia, for example,
tier(cid:146) channels, which are sold to the owner of
the
building as a package together with the infrastructure
services (connecting the building’s internal network to
that of Telia, and, possibly, maintaining and operating
the building’s internal network). This means that Telia’s
cable networks have a disproportionately low number
of
individual households as direct customers. Other
tier(cid:146) and,
cable operators offer a narrower
consequently, have a proportionally higher number of
individual households as direct customers.

(cid:145)basic

(270) First, for the downstream market (that is where a cable
or DTH operator sells its services to final customers),
the parties’ views that cable and DTH are separate
markets has been contested by third parties. Whereas
some technical and commercial differences do exist
between these distribution methods, such differences are
not necessarily more significant
for
example, two competing cable-TV operators.

than between,

(271) For example, a distinction may be possible between the
provision of the infrastructure service as such (meaning
the physical connection of the cable structure in the
building with,
for example, Telia’s network) and the
transmission of the TV signals. In most cases the owner
the infrastructure will be the same entity as the
of
the TV signals. This is, however, not
transmitter of
in SMATV the
necessarily the case. For example,

(40) OJ L 364, 31.12.1994, p. 1.
(41) OJ L 53, 2.3.1996, p. 20.

(274) Some third parties have submitted that the mode of
distribution is unimportant, since both DTH and cable
will give the viewer access to more or less the same
range of TV channels (although some channels are only
available from one of the two DTH operators). In this
respect it may also be noted that customers appear to
pay more or less the same price for comparable cable
individual households
and DTH services. For example,
in Sweden pay the same price (SEK 199) for comparable
packages of TV channels from Telia’s cable operation (or
any of its competitors) and Telenor’s DTH operation.
The only competing DTH package (Viasat) is about 10 %
more expensive. Third parties have also submitted
examples of
in cabled areas
(including those operated by Telia) which have invested
in DTH reception equipment, and stated that
this
development may be expected to increase with the
introduction of digital
services, where the available
capacity for TV channels, as well as other services such
as Internet and telephony could make the cable and
DTH offerings less homogeneous, thereby increasing the
incentive for customers to switch.

individual households

9.2.2001

EN

Official Journal of the European Communities

L 40/41

(275)

if

the

the

current

complement

Newco would,

In the near future,
in the abovementioned context of
proposed
convergence,
concentration was approved, offer a package of services
such as voice, fast Internet access, digital pay-TV and
digital interactive services. These services will naturally
lead Newco to have an increasingly higher number of
individual contractual relations directly with households
which would
collective
contracts between Telia and landlords/building owners.
As with analogue decoders,
landlords will not accept
responsibility for the payment by individual users for
their use of digital decoders
interactive
services, pay-TV, pay-per-view TV). These services will
therefore necessitate direct individual contracts between
Newco and the users. This, however, does not mean
the advantages that Telia has drawn from the
that
landlord contracts will disappear. On the contrary,
Newco will be in a position to use this collective
bargaining model to significantly reduce the time and
to the new digital
effort needed to switch over
multimarket environment, and its ability to bundle
various services will be a key factor in its ability to win
such contracts (42).

(Internet,

(276) The alleged distinction between cable and DTH is
therefore likely, in due course, to become less relevant
in the new digital environment. First, as stated above,
the trend in the relevant geographic markets will be
towards an increasingly similar competitive structure, in
the sense that all
retail TV-distributors will have
individual subscription agreements with their viewers
(which, as already indicated is needed for the digital
decoders). Landlords will no longer act as the sole
the majority of viewers, and will
representative of
consequently play
in the
role
distribution chain. Both cable
and DTH will be
distributed via individual contracts direct with viewers.
Second,
it is clear that customers will assess the new
digital offerings by their ability to supply an attractive
and broad range of
services. Most customers are
unlikely to have any strong preference for any particular
technical means of delivering the new digital services,
whether by DTH, broadband cable or cable/satellite
in
copper
telecommunications network as a return path for the
interactive services. However, Newco’s control over all
of
those delivery forms, would significantly reduce
competition at the level of local access to viewers.

combination

traditional

important

with

less

a

a

first

in the

category have

of rights to transmit TV channels from the buying of
individual content, such as individual films, sport and
other events. Another potential distinction is between
content in the form of advertising-financed TV channels
and TV channels financed by low subscription fees (so
called (cid:145)mini-pay(cid:146) channels), where the cable or DTH
distributor acts as a wholesaler and normally bundles
several channels into a bouquet on the one hand, and
In practice
premium pay-TV channels on the other.
many TV channels
a
revenue-base, which is a mix of advertising income and
subscription fees. Moreover, both types of TV channels
share a common interest
in achieving as wide a
distribution as possible, as this, with minor incremental
cost, will increase the revenues from advertising (which
connected
is
households), and/or subscription fees. For this reason,
most such broadcasters will seek to be included in the
(cid:145)basic tier(cid:146) offering of any DTH, cable or SMATV
that
operator,
operator will need a decoder to receive the (cid:145)basic tier(cid:146)
offering. Broadcasters of premium pay-TV channels
(mainly films and sport) generate their revenue from
relatively high subscription fees paid by the viewer to
access that specific channel, and are never included in
the (cid:145)basic tier(cid:146). The cable or DTH distributor will often
act as an agent for the premium channel, and the latter
will normally set the prices. Broadcasters of premium
pay-TV channels focus mainly on households that have
already invested in decoders or other means to receive
scrambled TV signals.

to the number of

regardless whether

viewers of

directly

linked

the

(278) Several broadcasters have indicated that

the

activities

economic model

they regard
cable, DTH and SMATV as competing distribution
channels. The reason for this view, notwithstanding
their wish to be as widely distributed as possible, is that
their
although
broadcasting
certain
minimum degree of distribution in any given area, it is
not necessary for them, in order to maintain a profitable
business case, to achieve 100 % penetration. According
to these broadcasters, this fact has, prior to the notified
concentration, allowed broadcasters a certain degree of
flexibility in their negotiations with various distributors,
which would disappear with the emergence of Newco.

is build require

on which

a

(279)

(277) Second, in the upstream markets (that is to say where a
cable or DTH distributor acquires the right to distribute
content) it may be appropriate to distinguish the buying

(42) On 27 August 1999 Telia announced an agreement with HSB
Malm(cid:246), by which it will connect 34 000 apartments
to a
broadband solution including high-speed Internet,
telephony,
mobile telephony and digital TV services.

there are a number of aspects which
In conclusion,
indicates that a certain degree of substitutability may
exist between the cable, DTH and SMATV activities of
Telia, Telenor and Canal Digital, both as far as the
downstream retail TV-distribution and the upstream
content buying is concerned. However, for the reasons
set out below, the question of market definition is not
decisive
proposed
assessment
concentration. If the parties’ contention, as to the lack
of horizontal overlap, were to be accepted the proposed
concentration would, on the downstream distribution

the

the

for

of

L 40/42

EN

Official Journal of the European Communities

9.2.2001

for

cable-TV

or Nordic markets),

markets, strengthen Telia’s dominant position in the
Swedish market for cable-TV. If any of the alternative
market definitions were to be adopted (combined
or
national markets
the
Scandinavian
proposed
strengthen a
concentration would still
dominant position. Equally, on the content buying
market, the notified operation would create a dominant
position regardless of whether the parties’ cable, DTH
and SMATV activities are considered to be on the same
or on neighbouring markets (see below).

and DTH,

create or

cable

content

distribution,
buying,
television,
wholesaling of rights to content and technical services
relating to pay-TV are national. They have also stressed
that these activities need the support of national service
differ
organisations,
and that
legal
to content on a
broadcasters normally sell
national basis.

regimes
the right

that

Wholesaling of rights to content

(283)

In their Reply to the Statement pursuant to Article 18
of the Merger Regulation ((cid:145)the Reply(cid:146)), the parties have
stated that the market for satellite transponder capacity
is European, and that other satellite companies (Eutelsat
and Astra) provides a service which is substitutable to
those of Telenor.

the

broadcasters. The market

(280) The parties have stated that they, as well as their main
competitors in DTH and cable distribution, contract
directly with
for
wholesaling of rights to content is therefore, at present,
essentially limited to sales to small and independent
cable operators
to a lesser
extent, Telia, are active in this market, which is linked
to the markets for buying of content, in the sense that a
for its own
distributors’ right to use certain content
distribution activities and for its wholesaling activities is
normally regulated in a single agreement with the
broadcaster.

(SMATV). Telenor and,

Technology for technical services relating to pay-TV

access

(281) Technical services relating to pay-TV includes services
such as encryption and decryption of TV signals,
handling conditional
systems, marketing of
decoders and smart cards. Telenor has developed a
proprietary conditional access system for the scrambling
and unscrambling of TV signals (Conax). Some of the
technical
from a
are highly
commercial viewpoint, as they allow access to customer
data and details of agreements with broadcasters. Both
In addition,
parties provide these services (cid:145)in-house(cid:146).
to competing
they provide some of
cable-TV operators.

these services

functions

sensitive

(284) The parties’

this

Swedish

contention in the Reply is however
contradicted by the facts relating to Telia’s lease of
the time when
transponder capacity from NSAB. At
investment, one of
Telia made
the
strategic
to lease capacity from
alternatives considered was
telecoms
the
as
Eutelsat, where Telia,
incumbent, is a shareholder. Telia, however, rejected the
Eutelsat alternative, despite the fact that the required
capacity was available from Eutelsat for roughly half the
price offered by NSAB (and also that the shareholding
in Eutelsat would have provided better possibilities to
influence the strategic decisions of the satellite provider).
The reason why Telia, despite these advantages, decided
not to lease capacity on Eutelsat is that it does not
provide an attractive footprint for transmissions aimed
at the Nordic countries, and that almost all potential
viewers in that area have their dishes directed to the
Telenor and NSAB satellites. Consequently,
from a
broadcaster’s perspective, the use of any other satellite
position for the purposes of broadcasting to Nordic
viewers would involve very significant costs related to
convincing a sufficient proportion of viewers to either
stop viewing all
the Nordic interest programming
offered from Telenor’s satellites (and that of NSAB), or
to invest in a second dish. From a viewer’s perspective,
it
is not possible to simply turn the dish towards
Eutelsat or Astra, as there is no Nordic broadcaster
transmitting
parties’
contention in their Reply, as to the European market for
satellite transponder capacity, can therefore not be
accepted. For these reasons, the Commission maintains
the view expressed in the NSD case, that the market for
satellite transponder capacity is Nordic.

from those

satellites.

The

B. Relevant geographic markets

(282) For the TV-distribution markets, the parties have, largely
(see above),
for provision of DTH

relying on past Commission decisions
the markets
argued that

(285) A number of

third parties have suggested that

the
markets for retail TV-distribution and content buying
is, Norway,
should be seen as Scandinavian (that
Sweden and Denmark) or Nordic (that
the three
is,
countries mentioned plus Finland). The main reasons

9.2.2001

EN

Official Journal of the European Communities

L 40/43

to

for

this

share

relate

viewpoint

given
the
the parties’ upstream
wider-than-national nature of
activities. First, there is general agreement that satellite
transponder capacity is provided on a Scandinavian or
Nordic basis. Second, contrary to the view of
the
parties, most third parties have submitted that contracts
for the right to distribute content (commercial channels
and pay-TV content, such as films and sports rights) are
often concluded on a Scandinavian or Nordic basis.
Cultural and linguistic factors are not considered as
significant obstacles to transmitting largely the same
material in all Scandinavian countries, for example, all
common tradition of having
countries
the
programmes with subtitles. Moreover,
third parties
expect Newco to develop further its pan-Scandinavian
its
(or pan-Nordic) purchasing in order
downstream TV-distribution
the
the conditions of competition will
consequence that
The
become
parties’
cable-TV
according to which individual
argument,
customers cannot switch to suppliers from outside their
is clearly not an obstacle for considering a
country,
wider market definition as
far as content buying,
wholesaling of rights and technology for pay-TV is
the choice of
concerned. For retail TV distribution,
suppliers for customers (in particular cable TV viewers)
is currently restricted by the available technical means
of access and the broadcasting rights held by the various
distributors. However, in view of the transition to digital
trend towards
services,
pan-Nordic contracts for distribution rights, it may be
appropriate to take a broader (that is Scandinavian or
Nordic) view also on this market.

in combination with the

activities, with

homogeneous.

even more

to feed all

(286) However,

for the purposes of this decision it is not
necessary to conclude on the exact geographic scope of
the market, given that
the notified operation would
create or strengthen a dominant position at several
levels of
the distribution chain for the provision of
television services, regardless of whether this is assessed
on a national, Scandinavian or Nordic basis (see below).

C. Competitive assessment

Satellite capacity

(287) Telenor is the largest provider of satellite transponder
Its Thor and Intelsat (43)
capacity in the Nordic area.
satellites at 1(cid:176) west have a total of 48 transponders. In

(43) Telenor leases all available transponders on the Intelsat satellite at

1(cid:176) west.

their Reply the parties have stated that all of Telenor’s
transponders are suited for the transmission of television
signals. However, only 34 of Telenor’s transponders are
BSS transponders, which for technical reasons are suited
for
transmission of DTH television signals. The 14
remaining transponders (the Intelsat transponders) can
be used, for example, to feed cable-TV networks, but are
suited for DTH transmissions. All of Telenor’s
not
satellite
footprint(cid:146).
have
Furthermore, Telenor has concrete plans to increase its
capacity even further in the near future, through the
launch of another satellite. Telenor and Canal Digital
have
technical
facilities, and have established the only Nordic platform
for the transmission of digital TV signals.

invested significant amounts

transponders

(cid:145)Nordic

in its

a

(288) Telia does not own any satellite capacity but has been,
since 1997, one of the most significant customers of
NSAB, Telenor’s only competitor with a specific (cid:145)Nordic
footprint(cid:146). In their Reply, the parties have argued that
Telia is not a strategic customer for NSAB. However,
this argument is flawed, since it relies on the contention
that Telia will not use its leased transponders to develop
any services that could induce other customers to want
to be on the same satellite as Telia. As will be explained
later, to the extent that this contention is correct, this is
one of the consequences of the proposed concentration.
Therefore, the fact remains that Telia, at the time when
it entered into a [long-term]* lease for [(cid:133)]* NSAB
transponders, had concrete plans to develop a DTH
business in competition with Telenor, and therefore
leased BSS transponders, which, as explained above, are
specifically adapted for the transmission of DTH signals.
The leasing period corresponds to the expected lifetime
of the satellite.

(289) At the time of the leasing agreement, these transponders
represented [(cid:133)]* of NSAB’s capacity, and from NSAB’s
viewpoint it was clear that Telia intended to develop a
competing DTH service. The contention that Telia is not
a customer of
strategic importance for NSAB can
therefore not be accepted.

(290) Apart

from the investment

in the lease of satellite
transponders (the annual cost of which represents a
significant proportion of Telia’s cable-TV turnover),
Telia has also made a strategic investment in uplinking
facilities in Stockholm. From a technical viewpoint Telia
would therefore,
the proposed
concentration, be in a good position to commence
distribution of
to
individual customers via satellite (see below).

television and other signals direct

in the absence of

L 40/44

EN

Official Journal of the European Communities

9.2.2001

(291) Following the concentration, Newco would control 34
to [(cid:133)]* BSS transponders (depending on whether the
NSAB transponders leased by Telia are included or not)
out of a total of 51 BSS transponders at 1(cid:176) west and 5(cid:176)
east. Thus, Newco would control [60 % to 80 %]* of the
for DTH
transponders
total number of
television broadcasting to the Nordic area. As stated
above, Telenor is of the view that [(cid:133)]* of its [(cid:133)]*
transponders are suitable for television broadcasting to
the Nordic area. If all of those [(cid:133)]* transponders were
to be included in the calculation, Newco’s share of the
available
television
broadcasting would increase to [(cid:133)]* out of [(cid:133)]* (again
depending on whether the NSAB transponders leased by
Telia are included or not). This would represent [70 % to
80 %]* of the total capacity available.

transponder

capacity

suitable

for

(292)

is

incorrect. NSAB currently has

In their Reply, the parties contend that the number of
transponders available to NSAB is higher than indicated
above. This
two
satellites at its 5(cid:176) east orbital position (Sirius I and Sirius
II). The former has four effective BSS transponders. The
latter has 32 transponders. However, out of these 32
transponders, six are only suitable for communication
purposes (not for television broadcasting). Thirteen of
the remaining 26 transponders are not owned by NSAB.
These transponders are owned by GEAmericom, and
region (44).
are not
Consequently,
transponders for
television broadcasting that
is currently available to
NSAB is 17 (or 11 if the transponders leased by Telia
are deducted), as indicated in the above percentage
figures.

the total number of

the Nordic

towards

directed

actually be moved to 5(cid:176) east and kept in this position.
One of the factors influencing this decision will be the
impact of the proposed concentration on NSAB’s ability
to attract broadcasters. However, even if Sirius III
is
positioned at 5(cid:176) east,
the parties have not provided
convincing arguments as to why this would improve the
competitive position of NSAB. First, even in the present
analogue situation (where one transponder is needed to
transmit one TV channel), Telenor as well as NSAB have
In the digital environment,
significant spare capacity.
since one
the existing capacity will be multiplied,
transponder can be used to broadcast six to eight TV
channels. This will mean that
the currently available
Telenor satellites, from a technical viewpoint, will be
able to transmit all current analogue signals in the
digital format. The same is true for NSAB. It is therefore
not clear, as the parties argue,
in what sense NSAB’s
market position could be strengthened by the addition
of more transponder capacity at its satellite position.
Second, as mentioned above, Telenor also has plans to
add another satellite at 1(cid:176) west (Thor IV). According to
the notification, Thor IV is planned to be launched in
2002 (45). Thus, any potential advantage flowing from
the addition of new capacity is likely to be replicated or
exceeded by Telenor within the near future. Third, as
will be explained below, there are strong indications
that the proposed concentration,
in its notified form,
would have significantly weakened the competitive
position of NSAB. The question of NSAB’s available
this
is
capacity
assessment.

irrelevant

therefore

largely

for

(293) The parties are also of

the opinion that NSABs
transponders should be increased with the number of
transponders available on the Sirius III satellite, which is
owned by NSAB. This satellite is currently leased to
Astra, and not used for Nordic broadcasting. However,
when this lease arrangement ends in October 1999, the
satellite is planned to be moved to NSAB’s own position
If such a move is done, Sirius III would
at 5(cid:176) east.
replace Sirius
that both
satellites transmit on the same frequencies, cannot be
used simultaneously). The total number of transponders
the
available to NSAB would then be 27 (or 21 if
transponders leased by Telia are deducted), and not 31
as claimed by the parties in their Reply.

(which, due to the fact

I

(295) NSAB’s owners are SSC, Teracom (37,5 % each), and
Tele Denmark (25 %). NSAB is not vertically integrated
into any of the vertically related activities performed by
Telia and Telenor. The investigation has indicated that
in view of its position as the only vertically
Newco,
integrated provider of
satellite transponders with a
Nordic footprint, would be the only supplier able to
offer broadcasters a bundled service
consisting of
satellite infrastructure and retail distribution (cable and
DTH). Following the concentration,
the number of
viewers connected to Newco’s retail distribution would
have increased significantly, and would have covered up
to 70 % of all TV households (see below). Given that
Telia would have
cable-TV
network in Sweden to Newco (with approximately 1,3
million connected homes), this would have considerably
strengthened Newco’s ability to convince buyers of
satellite transponder capacity not
to purchase such
capacity from its only competitor, NSAB.

contribute

largest

the

(294) As with any future occurrence there is a certain degree
of uncertainty as to whether or not Sirius III will

(44) When Telia evaluated its various options for DTH transmission, it
concluded that it could only use the GEAmericom transponders if
it were to lease all thirteen transponders, since the entire beam
would have to be redirected towards the Nordic region.

(296) Telenor has already started an aggressive strategy to
induce broadcasters to move from NSAB to the Telenor

(45) According to information on Telenor’s home page, Thor IV may

be launched by 2000 or 2001.

9.2.2001

EN

Official Journal of the European Communities

L 40/45

arguments before

satellites (and it is alleged that transponder capacity has
been offered free of charge to at least one of NSAB’s
customers (46)). In their Reply, the parties have contested
this, and stated that hey have not offered free capacity,
but a penetration-based contract, according to which
the payment for the satellite capacity is based on the
number of viewers that the broadcaster will reach. It is
difficult for the Commission to take any firm view on
these
the National Competition
reached a decision on this dispute.
Authority has
the relevant conclusion from this example
However,
confirms that broadcasters can be persuaded to choose
their satellite provider on the basis of contracts linked
to
the
concentration, Newco would therefore have been in a
significantly stronger position than NSAB, which, due to
its lack of downstream integration, will not be able to
access
guarantee
to any cable or DTH viewers.
Moreover,
the concentration would not only have
increased Newco’s ability to offer broadcasters access to
retail
have
it would
decreased the ability of NSAB to do so, as it no longer
may have found Telia’s cable-TV unit to be as interested
in carrying services provided through NSAB.

simultaneously

distribution,

penetration.

Following

achieved

the

(297)

to continue

the previously

further appears that

third parties now doubt

the
It
viability of NSAB as a competitor if
the proposed
transaction were to proceed in its notified form. It could
be argued that this view was shared by Telenor, as it,
shortly before the notified transaction was announced,
existing
choose not
cooperation with NSAB in the promotion of
the
(cid:145)Nordenparabolen(cid:146) dish. This analogue dish is capable of
simultaneously receiving the signals from Telenor and
NSAB. Had Telenor believed that a significant number
of broadcasters would remain on NSAB after
the
completion of
it would have
the notified operation,
been logical to continue this cooperation. In their Reply,
the parties have stated that Telenor’s agreement with
NSAB for the promotion of the (cid:145)Nordenparabolen(cid:146) dish
expired in 1998, and that the company decided that it
was
to pursue this
cooperation, but that it nevertheless still promotes the
(cid:145)Nordenparabolen(cid:146) dish. This argument, however, fails to
the actions of
address the key-issue, which is that
Telenor confirms that it regards itself as likely to gain if
viewers use dishes directed at only one of
the two
Nordic satellite positions (47).
In any event, Telenor’s
decision to end the (cid:145)Nordenparabolen(cid:146) cooperation will
no doubt have an impact on the competitive position of
NSAB, given that a significant number of viewers in the

in its commercial

interest not

(46) This matter has been brought to the attention of the Swedish
Competition Authority, case number Dnr 353/1999. No decision
has been adopted at this stage.

(47) Canal Digital’s home page contains the following statement:

(cid:145)All
channels that we distribute can be received from one and the
same satellite position. This means that you do not have to install
multiple microwave heads on your dish.(cid:146)

Nordic region will not be able to receive signals from its
satellites.

(298) The investigation therefore shows

that

enabled Newco

the notified
concentration, would
to
have
significantly reduce or even eliminate the existing
competition from NSAB. This would not only have
created a dominant position on the market
for the
provision of satellite transponder capacity, but would
also have considerable strengthened Newco’s control
over all
It would
levels of the TV-distribution chain.
have put Newco in a gatekeeper function, where any
the
company wishing to participate at any level of
distribution
for
contract
transponder capacity with Newco.

chain would

have

to

(299) The parties have argued,

first

that Newco will not
become a (cid:145)bottle-neck provider(cid:146) of satellite transponder
capacity in the Nordic region. They base this primarily
on the existence of a competing provider of such
services, NSAB, and the key-role of NetCom/MTG (48) as
transponder capacity and provider of
a buyer of
broadcasting
its own TV-distribution
services
interests. NetCom/MTG is active as a broadcaster
inter alia, TV3 and TV1000, which are
through,
distributed in all Scandinavian countries.
is also,
through Kabelvision, active in cable-TV in Sweden, and,
through Viasat,
in analogue DTH distribution in all
Scandinavian countries. It has no own interests in any
satellite operation, but leases capacity from Telenor and
NSAB.

for

It

(300) The

the

role

parties’

argument

concerning

that Netcom/MTG has

of
Netcom/MTG as a buyer of
transponder capacity,
however, fails to fully take into account the medium- to
It is
long-term effects of the proposed concentration.
competitive
true
strengths, including the brand names of its TV channels.
However, these strengths should not be overstated. First,
Netcom/MTG acquires most of
its
channels from third parties,
including American and
other production studios and sports organisers. As such
the company is to a certain extent vulnerable, given that

the content

certain

for

(48) Netcom, MTG and Kinnevik are quoted separately on the
Stockholm Stock Exchange, while Netcom and MYG are also
separately quoted on NASDAQ. The Commission has been
informed that maintaining those separate listings requires the
companies to comply with Stock Exchange requirements as to
independent management and arm’s length dealing. Nevertheless,
the parties have assumed that the Netcom and MTG should be
seen as a group for the purposes of this assessment, given that
Kinnevik (the Stenbeck family) has significant interests in both
companies. For the purposes of this decision the Commission has
followed this assumption, which is the one most favourable to the
notifying parties.
(The telephony interests of Netcom/Tele2 are
described under the section dealing with such services.)

L 40/46

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Official Journal of the European Communities

9.2.2001

present

position

of Netcom/MTG on

most viewers will be loyal to specific content (which
can be acquired by another broadcaster in the future),
rather than to the channel brand. This means that
Netcom/MTG is dependent on maintaining its current
distribution level (which is the basis for its advertising
and other revenues) in order to finance the continued
acquisition of attractive content and thereby maintain
the loyalty of its viewers. In their Reply, the parties have
argued that Netcom/MTG has already concluded a
number of agreements, some of which are exclusive,
with various American and other production studios
and sports organisers. This argument relates mainly to
the
the
downstream markets for retail distribution, which will
be analysed below. For the purposes of assessing the
impact on the satellite transponder
concentration’s
market, it is sufficient to conclude the majority of the
indicated contracts are due to expire between 1999 and
2003, and therefore, regardless the level of protection
its
that Netcom/MTG currently has on the basis of
concluded agreements, these agreements are of limited
duration. One of the (cid:145)major sports deals(cid:146) relied on by
the parties to show the alleged strong position of
Netcom/MTG concerned Italian league football. In their
Reply, the parties indicated that Netcom/MTG held these
rights until 2001. However, on 1 September 1999, it
was announced that Canal Digital had acquired the
to Italian league football, and would
Nordic rights
commence
transmissions on 12 September 1999.
Therefore, since Canal Digital apparently is able to
outbid Netcom/MTG for these (cid:145)major sports deals(cid:146), it is
not possible to regard the existence of
these supply
agreements as a permanent feature of the market, when
assessing whether Netcom/MTG will have the ability and
incentive to support NSAB as an alternative satellite
provider to Newco.

the

fact

illustrated by

(301) Second, the relative strength of Netcom/MTG compared
to Newco can be
that
Netcom/MTG, even prior to the proposed concentration,
has been forced to accept a very disadvantageous
distribution agreement with Telia. In fact, Netcom/MTG
has to pay Telia to have its most popular channel, TV3,
distributed in Telia’s cable network. In their Reply, the
to challenge this conclusion by
parties have sought
stating that TV3 is not the only broadcaster who pays
Telia for distribution in its cable-TV network. However,
this argument is flawed. Even if Telia, as a dominant
impose
cable-TV
disadvantageous terms on all broadcasters, this does not
in any way weaken the conclusion that Netcom/MTG is
dependent on Telia for distribution, and that
this
dependence would have increased after the creation of
Newco.

operator,

been

able

has

to

(302)

In view of these circumstances, the parties’ argument
that Netcom/MTG would be able to balance Newco’s
satellite
apparent
transponder capacity (or on any other level of
the
distribution chain) appears doubtful.

in the provision of

strengths

(303) However, even if

it

for

it, despite the above, were to be
accepted that Netcom/MTG, as the main competitor of
Newco may have an incentive to use the NSAB
satellites, so as not to become entirely dependent on
Newco,
to
it would be increasingly difficult
continue to support NSAB if most other broadcasters
were to move to Newco’s satellites. First,
the fewer
customers that NSAB will have, the higher the prices it
will have to charge to cover
its operating costs,
including future investments in digital capacity. It is not
reasonable to assume, as the parties do in their Reply,
that NSAB will reduce its prices if its spare capacity
were to increase as broadcasters moved to Newco.
Whereas it is true that investments in satellites to a
large extent
it cannot be
assumed that NSAB would continue to operate its
Nordic broadcasting business, unless a reasonable return
on the invested capital can be generated through the
lease of satellite capacity. If, following the concentration,
NSAB could no longer attract Nordic broadcasters, it is
more likely to sell or lease the satellites to another
operator, who would move them to another orbital
position, than, as the parties suggest, to assume that it
would continue a loss-making operation. Nor
it
correct to state, as the parties have done in their Reply
that NSAB is not dependent on revenues from its
Nordic broadcasting activities, since such revenues make
up a large majority of NSAB’s total revenues.

sunken costs,

represent

is

(304) The situation for Newco would be the reverse, namely
that the more customers it could attract by offering
vertically bundled services, as illustrated by the above
mentioned penetration based contracts, the lower the
prices it would have to charge. Newco would therefore
have had an important cost advantage compared to
NSAB. Second, Netcom/MTG would in its capacity as a
broadcaster of commercial and pay-TV have become
even more dependent on Newco for distribution than it
has been so far on either Telia or Telenor. This would
have further reduced Netcom/MTG’s ability to negate
the market power of Newco by supporting NSAB.
Third, NSAB is for technical reasons, not able to reach a
significant number of viewers, primarily in Norway and
Denmark, whose reception equipment is directed only
towards Telenor’s satellite position, and therefore cannot
receive signals from NSAB. Any broadcaster, including
Netcom/MTG, would
significant
proportion of their DTH viewers if it were not carried
on Telenor’s satellites.

therefore

lose

a

(305)

In their Reply, the parties have indicated that this will
no longer be the case in the digital environment, since
these customers will have to buy a new decoder and,
usually, a new microwave head.

(306) Whereas there is general agreement

that all viewers
need a new decoder to receive digital signals, this clearly
has no impact on the possibility to reach DTH
customers who are tuned in only to Telenor’s satellite

9.2.2001

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Official Journal of the European Communities

L 40/47

the need

to exchange

position. Concerning
the
microwave head on the dish, the parties have justified
their view that this will be necessary by stating that (cid:145)a
new LNB (microwave head) is usually necessary because
old LNBs are not compatible with new analogue and
digital decoders(cid:146). The parties have not explained why, in
their
the
requirements for the transition to digital by comparing
the need to replace old analogue microwave heads, that
apparently are incompatible also with new analogue
decoders.

it would be

to assess

relevant

view,

(309)

in its notified form,

In view of the above,
it must be concluded that the
raised
proposed concentration,
significant concerns relating to the provision of satellite
transponder capacity. Moreover, the effects of Newco’s
position in this
area would also have produced
competitive concerns on the downstream markets (see
below). It therefore has to be concluded that the notified
concentration would have created a dominant position
as a result of which effective competition would have
been significantly impeded in the Nordic market for the
provision of satellite transponder capacity.

Retail TV-distribution (to individual households)

cards. Therefore,

(307) Third parties do not agree that it is technically necessary
for the switch to digital to replace existing dishes or
microwave heads. Furthermore,
from a commercial
viewpoint, Canal Digital and Telia have both started to
operate digital services and are offering subsidised prices
to customers for proprietary decoders that will not
accept Netcom/MTG’s
the
smart
argument put forward by the parties at the oral hearing,
that Netcom/MTG would be able to (cid:145)piggy-back(cid:146) on
digital technology investments made by the parties,
is
not supported by the facts. In view of the above, the
parties’ contention that the move to digital services will
reduce Netcom/MTG’s dependency on Newco’s satellite
services cannot be accepted. Consequently, neither can
the
accepted (cid:151)
Netcom/MTG would not have been able to provide
support
the
thereby
abovementioned negative effects of
the concentration
for NSAB’s competitive position.

contention

removing

second

parties

NSAB,

be

to

(310) As

that

indicated above,
for

the parties consider
the
relevant market
retail TV-distribution should be
assessed nationally, on the basis of separate markets for
cable-TV and DTH. On the other hand,
there are a
number of indications that the market should be seen in
a wider context, both from a product and geographical
viewpoint. However, as it is the Commission’s view that
the proposed concentration would create or strengthen
a dominant position,
these
approaches is followed,
this section will assess the
impact of
the proposed concentration on the level
proposed by the parties, as well as on a combined
market
and
for
Scandinavian/Nordic).

cable-TV and DTH (nationally

regardless of which of

(308) Finally, in their Reply, the parties argue that they face
the threat of new entry from Intelsat. As stated above,
Telenor currently leases and operates all broadcasting
capacity at the Intelsat satellite on 1(cid:176) west. The parties
have not provided any explanation as to why it would
not be reasonable to assume that Telenor would also be
involved also in any further capacity that Intelsat may
position at 1(cid:176) west. The impression that any new
capacity introduced by Intelsat would be more likely to
cooperate with Telenor is strengthened by the fact that
Telenor apparently have access to confidential business
plans of Intelsat. Moreover, the parties have not been
able to provide any reason as to why Intelsat, if it were
to enter the market independently of Telenor, would not
face all the difficulties to attract broadcasters that have
been described above in relation to NSAB. If anything,
Intelsat’s difficulties would be even greater, given that it
has no market position on which to build such an
entry. The Commission cannot
that
there is any indication that Newco’s position in the
market
satellite transponder capacity would be
constrained by new entry from Intelsat.

therefore accept

for

(i) National markets for cable-TV and DTH (taken

separately)

A. Cable-TV

(311)

In Norway, Telenor owns the second largest cable-TV
network, which connects approximately [30 % to 40 %]*
of all Norwegian cable-TV households. Similarly, Telia
owns the second largest cable-TV network in Denmark.
According to the notification, Telia has a share of [10 %
to 20 %]* of all connected households in Denmark
([30 % to 40 %]* if cable and SMATV are combined).
Tele Denmark’s share is indicated as [80 % to 90 %]* in
cable-TV and [50 % to 60 %]* if SMATV is included. On
the hypothesis that the relevant market for cable-TV
distribution is national,
the
it
purposes of this decision to consider the effects of the
proposed concentration in Norway and Denmark.

is not necessary for

L 40/48

EN

Official Journal of the European Communities

9.2.2001

(312) Telia owns the largest cable-TV network in Sweden. In
1998, 1 250 000 households were connected to its
network ([50 % to 60 %]* of all Swedish cable-TV
households) (49). In addition, 50 000 SMATV households
were connected to Telia’s network. The number of
households connected to Telia’s network has grown
over the last four years. Of the competing operators
Kabelvision (the Netcom/MTG group) has
[10 % to
20 %]*, Stj(cid:228)rn TV has [10 % to 20 %]* and Sweden on
Line [0 % to 10 %]*.

(313)

In the notification, the parties expressed the opinion
that market shares should be measured by pay-TV
revenues
instead of by the number of connected
households. On that basis, and if pay-TV revenue, as
proposed by the parties, were to be defined as revenues
paid by individual households
for pay-TV services,
Telia’s market share in Sweden has been stated to be
[20 % to 30 %]* Kabelvision would then have [30 % to
40 %]*, Stj(cid:228)rn TV [20 % to 30 %]* and Sweden on Line
[10 % to 20 %]*.

the
compared

explained by
Telia
by

(314) The large variations resulting from the two methods of
commercial
calculation can be
methods
its
to
employed
competitors. Telia normally sells a bundled package of
infrastructure services and a relatively large number of
TV channels as a (cid:145)free basic tier(cid:146) to landlords and other
building owners. Telia does not consider the revenues
from these sales as pay-TV revenues. Instead, it includes
only revenues resulting from individual households that
pay for receiving additional channels on top of the basic
tier. Kabelvision and the other cable operators have a
strategy. They provide only a
different commercial
relatively narrow basic tier (mainly consisting of
the
(cid:145)must-carry(cid:146) terrestrial channels), and therefore sell most
of their services as (cid:145)pay-TV(cid:146) according to the parties’
definition. The weaknesses of this definition are evident,
as it effectively means that all Telia customers who
subscribe only to the (cid:145)basic tier(cid:146) will generate zero
turnover according to the proposed market definition.
However, if another customer subscribes to exactly the
same channels in one of the competing cable operator’s
networks, most of the generated turnover would fall
within the parties’ definition. More than [45 % to 55 %]*
of Telia’s revenues from cable-TV comes from landlords
and building owners. It is therefore remarkable that the
to exclude this part of Telia’s
parties have sought
turnover
in
particular, as they have done this without taking the
excluded turnover into consideration at all. On the basis
of
its most recently submitted figures, Telia’s market
share would be [55 % to 65 %]* greater than that of
Kabelvision, if total revenues were used as a basis for
the calculation.

from their defined (cid:145)pay-TV(cid:146) market,

(315) More importantly,

to

by

significance
rather

reference
than (cid:145)pay-TV revenues(cid:146)

the investigation has shown that
Telia, as well as its competitors, normally states its
connected
market
households,
for
(see,
example, Telia’s 1997 annual report). Moreover, in cases
the valuation is
of acquisitions of cable networks,
generally made on the basis of connected households.
Digitalisation is widely expected to further increase the
inter
importance of the size of the cable-TV network,
alia, as
considerable
it will allow to spread the
investments over a larger number of customers. In view
the
of
relevant measurement
the
parties is the number of connected households.

that
for the market power of

the Commission concludes

the above,

(316) The parties have

there

that
for

are no
submitted
geographical concession areas
the provision of
cable-TV services in Sweden. This means that in the
analogue environment, the single most important factor
for a cable-TV operator to be competitive is the ability
so supply sought-after channels and programming, at
prices which are attractive to landlords and/or individual
households, depending on the
chosen distribution
methodology. As has been indicated above, Telia has
already prior to the proposed concentration, on the
basis of its control over more than [55 % to 65 %]* of
the market, been able to achieve significantly better
conditions
Swedish
cable-TV operators (including the terms negotiated for
the distribution of TV3, which the parties consider to be
a
achieve
preferential conditions is indicative of Telia’s dominant
position on the Swedish market for cable-TV services.
the growth of Telia’s cable-TV business
Furthermore,
the
four years confirms that none of
over the last
to
able
smaller
significantly challenge this position.

cable-TV operators

from broadcasters

channel). This

than other

(cid:145)must-carry(cid:146)

ability

been

have

to

(317) The

effects

vertical

from the proposed
resulting
concentration would significantly strengthen Telia’s
dominant position. First, Newco would, as has been
explained above, acquire a gate-keeper position for the
provision of satellite capacity. TV channels that are
supplied in a cable-TV network normally reach the cable
operator through satellites. This means that Newco will
be
a bundled service
consisting of satellite transmission and access to Telia’s
cable-TV network. Prior to the concentration, Telia did
not have this ability (50). None of
the other Swedish
cable-TV operators is vertically integrated into satellite
services. Following the concentration, Newco would
therefore gain a unique ability to attract broadcasters.

to offer broadcasters

able

(318) Second, as will be explained, Newco would,

in its
capacity as a buyer of content, become an obligatory
partner for any broadcaster wishing to address Swedish

(49) According to Telia,

[(cid:133)]* Swedish households (of a total of
3 980 000) are passed by its cable network, i.e. are located within
50 metres of the cable.

(50) Telia’s plans for launching DTH transmission will be explained

later.

9.2.2001

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Official Journal of the European Communities

L 40/49

the market

shown that

(and other Nordic) viewers.
From a broadcaster’s
is not restricted to Swedish
perspective,
cable-TV. Instead broadcasters normally wish to receive
as widespread distribution as possible. The investigation
has
distribution agreements between
broadcasters and Nordic cable-TV and DTH operators
often include the whole of Scandinavia or the Nordic
area and covers rights to cable-TV, SMATV and/or DTH.
Under the assumption of separate national markets for
cable-TV and DTH, it is therefore clearly relevant that
Newco would have significant activities on a number of
in total,
neighbouring markets, and that
control
as many Nordic
households as Telia did before the concentration. Newco
will
therefore be in an even stronger position in
negotiations with broadcasters that Telia has been so
far.

to almost

it would,

access

twice

(319) Third, as will be explained below, Newco would be in a
position to impose Telenor’s proprietary technology as a
de facto Nordic standard for TV broadcasting. This
would mean that other Swedish cable-TV operators
would have to license their encryption technology from
their dominant competitor. Therefore, as a consequence
of
a new form of
dependency would be created between Telia and the
other Swedish cable-TV operators.

the proposed concentration,

(320)

(321)

the parties have stated that Telia’s
In their Reply,
in Sweden is
cable-TV operator
position as
a
existing cable-TV operators,
contestable, by other
broadband network specialists and even by individual
cable-TV customers, who own the
intra-building
network, and, in the parties’ view, could operate these
themselves. This contention is not supported by the
facts. In their Reply, the parties state that (cid:145)Telia has not
lost a significant number of contracts so far(cid:146). In fact, as
indicated above, the number of households connected to
Telia’s cable network has grown over the last four years.
It must therefore be concluded that the parties have not
been able to demonstrate that there is such a likelihood
that Telia’s current growth trend would be reversed, in
particular
advantages
the
resulting from the proposed concentration, so as to
allow a finding that Telia’s market behaviour is likely to
be significantly constrained by the fear of significant
loss of customers through any of the indicated means.

in view of

competitive

strengthened

In conclusion,
the pre-existing dominant position of
Telia on the Swedish cable-TV market would be
vertical
significantly
integration into the provision of satellite services, and
Newco’s strengthened position as a buyer of content. It
is likely that
these effects would enable Newco to
achieve even more preferential distribution agreements
than those that Telia has concluded in the past.

through

the

Consequently, the proposed concentration would further
reduce the competitive ability of other Swedish cable-TV
operators. Moreover, Newco’s position as a provider of
technical
a new form of
dependency between Telia and the other Swedish
cable-TV operators, that would further reduce the ability
of the latter to compete effectively with Newco.

services, would create

be

for

can

that Newco’s

(322) The parties have submitted that the ongoing transition
from analogue to digital transmission techniques will
existing and new
provide new opportunities
competitors. In that context it may be noted that Telia
has already introduced digital services in its cable-TV
network (51). Most of
the smaller Swedish cable-TV
operators have not so far been able to undertake the
significant investments that Telia has made, which are
needed to upgrade the cable-TV networks to digital. As
was stated above, Telia has adopted a strategy whereby
most households connected to its cable network receive
a relatively large number of TV channels
in the
the decoder
analogue (cid:145)basic tier(cid:146), which means that
penetration in the network is low compared to other
cable operators. The
cable-TV
fact
(analogue) decoder
networks have a low level of
the
facilitate
to
expected
penetration
introduction of digital decoders, as the viewers will not
have to be persuaded to make a second investment.
Moreover, the system where Telia contracts with the
landlord or building owner,
than with the
individual households directly, can be expected to
facilitate the launch of digital services. In their Reply,
the parties have contested this by providing an example
from the United Kingdom, which in their view indicates
that operators with high analogue decoder penetration
are in a better position to introduce digital decoders.
Whereas that may be true for the United Kingdom, the
market conditions appear to be different in the Nordic
countries. According to a press-release from Canal
Digital (52), only 20 % of its new digital customers had
previously had analogue equipment. Telia has not
submitted
from the
introduction of digital services in its cable-TV network.
The parties’
a
competitive disadvantage for the introduction of digital
services can therefore not be accepted.

contention that

they will be

corresponding

figures

rather

any

at

(323) Once the cable-TV network is converted into digital,
each household will need a digital decoder to receive
the signals. Telia offers households who subscribe to its
digital services subsidised digital decoders. As will be
explained below, Newco would be able impose Telenor’s
proprietary technology in the digital decoders used in its
distribution networks after the concentration has been
implemented. The digital decoder will be necessary to

(51) Telenor plans to launch digital services in its cable-TV network

next year.
(52) 5 July 1999.

L 40/50

EN

Official Journal of the European Communities

9.2.2001

as

and

services,

value-added

such
(VOD)

video-on-demand

introduce
Internet
near
connectivity,
video-on-demand (NVOD) or pay-per-view (PPV). These
services should be attractive to viewers. It therefore has
to be concluded that there is no reason to believe that
the introduction of digital services would weaken the
position of Telia on the Swedish cable-TV market. On
the contrary, the fact that Newco is in a significantly
stronger position as regards the introduction of digital
the other Swedish
cable-TV services
than any of
another
cable-TV operators
significant
further
reduce the ability of smaller cable-TV operators to
challenge the strengthened dominant position of Newco.

likely to constitute
and will
advantage,

is
competitive

available from only one of the two DTH distributors.
For Viasat, this is the case for the channels produced by
the Netcom/MTG group (the Swedish, Norwegian and
Danish TV3 channels, TV1000, etc.), for Canal Digital,
this is the case for Canal+ and Kanal5 (and its sister
channels in Norway and Denmark). TV3 and Kanal5 are
respectively the first and second largest non-terrestrial
TV channels in Sweden. Both are advertising-financed
commercial
larger
viewership share (about
[5 % to 15 %]*), Kanal5 has
almost doubled its share over the last years, and now
reaches about [0 % to 10 %]*. Premium pay-TV channels
is the other category of channels that are exclusively
available on Canal Digital (Canal+) and Viasat (TV1000).

channels. Whereas TV3 has

a

(324)

In conclusion, as has been demonstrated, the proposed
the parties’ proposed market
concentration would,
definition were
strengthen Telia’s
accepted,
dominant position on the Swedish market for cable-TV
services.

if
to be

B. DTH distribution

the

(327) As can be seen from the above, the parties are correct
in stating that prior to the proposed concentration,
Viasat had been relatively more successful in marketing
its analogue DTH service. The importance of
this
should, however, not be overstated. The fact remains
analogue decoders used by most DTH
that
households are able to receive the signals from both
Canal Digital and Viasat.
In order to switch supplier
these customers need only to insert a new smart card
therefore be able to
into their decoder. Newco will
analogue DTH
reach
households, and will already from day one have a
contractual arrangement with [60 % to 70 %]* of all
such households.

the majority

existing

of

(325) Telenor

are

there

about

is one of

(Canal Digital)

the two existing
analogue DTH operators in Sweden (and in the Nordic
region in general). The other analogue DTH operator is
(the Netcom/MTG group). According to the
Viasat
parties,
[500 000 to
currently
600 000]* Swedish households connected to the two
analogue DTH providers. The analogue DTH receivers
used in Sweden (and in the rest of the Nordic region)
normally contains two slots for smart cards. Moreover,
as described above, most Swedish DTH households use
the (cid:145)Nordenparabolen(cid:146) dish, which can receive signals
from both 1(cid:176) west (Telenor) and 5(cid:176) east (NSAB). In the
analogue
can
therefore simultaneously subscribe to both Canal Digital
and Viasat
share
calculation is therefore difficult and not particularly
meaningful.
In 1998, Canal Digital’s analogue DTH
distribution in Sweden reached [60 % to 70 %]* of all
analogue DTH households. Viasat
reached [70 % to
80 %]* of all such households.

environment, most DTH households

(dual users). Tradition market

(326) Analogue DTH distribution in Sweden (and the other
Nordic countries) differ from the cable-TV distribution
in one significant respect. Whereas historically, in cable,
most TV channels are available in all cable networks,
the DTH packages offered by the two DTH operators
are less homogeneous, given that some TV channels are

(328) The

relevant

question is

therefore whether

such that
for Viasat

the Nordic region). This means that

the
competitive advantages that Newco would gain from the
it will be
proposed concentration are
significantly more difficult
to remain
competitive in the DTH market. This assessment must
be made in the light of the ongoing transition to digital
transmissions. As stated above, Canal Digital is the only
provider of digital DTH signals in Sweden (as well as
the rest of
the
company currently has a 100 % share in this segment of
the market. In their Reply, the parties have stated that
Viasat could introduce digital DTH services within six
months, and that one of the reasons why Viasat has not
yet introduced such services is that it wishes to reduce
the costs for double illumination (analogue and digital).
From a technical point of view, it is not contested that
Viasat could introduce digital DTH within a relatively
short period of time. However, it is likely that the more
significant constraint will be commercial. As the parties
have pointed out the cost for double illumination is a
significant factor. The fact that Canal Digital has been
able to take on these costs can be explained by its
vertical integration into Telenor’s satellite services. Canal
Digital does not, unlike Viasat, have to lease satellite
capacity on commercial terms. Moreover, as indicated
above, Netcom/MTG would not be able to (cid:145)piggy-back(cid:146)
on the digital
technology investments made by the
parties, as the digital decoders that Canal Digital and
Telia are providing to their subscribers will not accept
smart cards from Netcom/MTG.

9.2.2001

EN

Official Journal of the European Communities

L 40/51

(329)

a number of

In any event, the fact remains that Canal Digital, at least
in the short term to medium term, is the only provider
able to offer digital services to any new subscriber (or
existing analogue DTH subscriber who would like to
receive the value-added services available in the digital
format). Moreover, Canal Digital has been able to
exclusive agreements with
conclude
broadcasters for digital
transmissions. Canal Digital’s
exclusive rights are more extensive in digital than in
for the same reasons as stated
analogue. Moreover,
the purchasing power of
above regarding cable-TV,
Newco will be significantly greater than the pre-existing
position of Canal Digital and Telenor. Finally, again as
stated
digital
transmissions allow the introduction of value-added
such as high speed Internet downloading,
services,
NVOD, VOD and PPV, and Canal Digital will be the
only supplier able to offer its customers these services.
Consequently Canal Digital
is in a strong position to
gain additional market share as the existing dual users
will convert from analogue to digital services.

cable-TV,

relation

above

to

in

of

it has

relatively

expensive

upgrading

environment,

(330) This applies also to the SMATV segment, where, in the
analogue
so far not been
economically feasible to install value-added services that
require
the
infrastructure and the use of a decoder. It has, however,
been suggested that digitalisation will
allow the
such services at a reasonable cost.
introduction of
Newco could therefore offer SMATV networks
a
(cid:145)head-end in the sky(cid:146), which would give these networks
access to services that would otherwise be unavailable
to them. Telia is currently using a similar concept to
feed television signals into its Danish cable-TV operation
from its leased satellite transponders. Apart from the
potential revenues of extending this activity, such a
strategy would
of
households connected to Newco’s distribution system
and further increase the buying power of Newco (see
recitals 347 and following).

the number

increase

further

long-term investment

massive
capacity,
without having ascertained that broadcasters could be
convinced to provide it with the DTH rights needed to
start the business. It is difficult to attach any importance
to this explanation.

in satellite

(332) Moreover,

it should be noted that Telia’s decision to
make the investments to enter the DTH segment was
adopted by its top-level management and announced in
the 1997 Annual Report. This is in contrast with the
alleged (cid:145)independent(cid:146) decision not
to go ahead with
those plans (which essentially made the investment in
satellite transponders redundant [(cid:133)]* years before the
is due to expire). Telia has been
leasing agreement
unable to provide any supporting evidence to indicate
that
its top-level management were involved in this
decision, much less that it was adopted independently of
the plans to merge with Telenor.

(333)

the

In conclusion, as has been demonstrated above,
the
proposed concentration would, if the parties’ proposed
market definition were to be accepted, strengthen Canal
Digital’s position on the Swedish market
for DTH
services, and remove Telia as a potential competitor.
the Commission considers that Viasat’s
Nevertheless,
existing position in the provision of analogue DTH
services and the possibility that Viasat might be able to
overcome
in
establishing a digital transmission business may be seen
future market
as a counterweight
position. However, the Commission considers that the
existing evidence clearly supports a finding that Newco,
in future negotiations with broadcasters, will be able to
credibly claim that it can guarantee access to a majority
of (or even all) analogue and digital DTH households.
Viasat will not be able to make a similar claim, unless it
leases additional
satellite capacity from Newco and
launches its digital transmissions.

to the Newco’s

commercial

obstacles

involved

(331)

to enter

In addition to the abovementioned effects that would
strengthen Canal Digital’s position in the DTH market,
the concentration would remove Telia as a potential
competitor in DTH. Prior to the announcement of the
proposed concentration, Telia had positioned itself to
enter the DTH segment. In 1997, when Telia took the
into a
decision to make the investment
[long-term]* lease for satellite transponder capacity from
NSAB, it had plans to launch DTH distribution activities
in competition with Telenor (and Netcom/MTG). Telia
has argued that its decision not to go ahead with any
DTH activities was adopted independently of the plans
to merge with Telenor, and that
the concentration
therefore does not result in the removal of potential
competition.
any
supporting evidence, argued that its abandoning of the
inability to convince
DTH plans was due to its
broadcasters to grant
it distribution rights for DTH.
Apart from being unsupported by any evidence, this
explanation therefore implies that Telia, after several
years of contacts with broadcasters, would enter into a

has, without

providing

Telia

(334) There are thus strong indications that

the proposed
transaction may lead to the creation of a dominant
in particular for digital
position on the DTH market,
DTH transmissions.
the
competition concerns on the DTH market are due to
the same reasons as those relating to the strengthening
of Telia’s dominant position on the cable-TV market,
this question can be left open, as it would not materially
affect the assessment of the notified concentration.

In any event, given that

(ii) Combined national market for cable-TV and DTH

(335) Some third parties have suggested that an assessment on
a combined level
for cable-TV and DTH would be
appropriate, in particular in view of the transition from
this
analogue to digital broadcasting technologies.

If

L 40/52

EN

Official Journal of the European Communities

9.2.2001

the

concentration would

the negative effects of

were to be accepted,
the
concentration would be the same as those indicated
above. The only difference would be that, under this
assumption,
an
accretion of market shares, that is the addition of the
market share held by Telia in its cable-TV business, and
the market share held by Canal Digital
in its DTH
business. The Commission’s view is therefore that such
a widening of the market would not materially affect
the assessment of the notified operation.

involve

(336) On the basis of figures provided by the parties there are
about four times as many cable-TV households as there
are DTH households in Sweden. The number of SMATV
households is similar to that of DTH. As explained
above, one complication in calculating market share
figures for DTH is that there is a large number of dual
users. If, regardless of this difficulty, market shares are
calculated on a combined market for cable, SMATV and
DTH distribution, the Swedish market share of Telia and
Canal Digital would be about [35 % to 45 %]* and [5 %
to 15 %]* respectively.

its

twice

(337) Consequently, Newco’s market share would be [45 % to
55 %]*, or
competitor,
that of
Netcom/MTG. However, if the fact that, as mentioned
is able to address all Swedish
above, Canal Digital
analogue DTH viewers is taken into account, it can be
concluded that Newco would have direct assess to
households representing about [55 % to 65 %]* of the
total number of cable, SMATV and DTH households.

closest

(338)

the

If the market was to be assessed at this level Newco
would still derive all the above indicated competitive
advantages from the proposed concentration, meaning
the combination of Newco’s main Swedish distribution
activity (Telia’s cable-TV network) with Telenor’s satellite
activities; Newco’s position as a buyer of content would,
for
significantly
stronger than that of either Telia or Canal Digital, and
Newco’s position as a provider of
technical services
would still create a new form of dependency between
Newco and the other Swedish cable-TV operators.
Moreover, Newco would still be in a significantly
stronger position for the transition from analogue to
digital services.

explained above, be

reasons

affect
the assessment. Measured on the basis of a
Scandinavian market, the above indicated position of
Canal Digital and Viasat remains largely unchanged in
DTH, as the market situation is similar across the
Nordic countries, in that most households are able to
receive analogue signals from both Canal Digital and
Viasat. The available figures indicate that the current
market share balance between the two providers is
similar to the Swedish situation as far as Denmark is
concerned, whereas in Norway and Finland the situation
is reversed. For cable-TV, Newco would combine the
largest network in Sweden with the second largest in
Denmark and Norway.

If,

of

of

regardless

the market (53).

(341) For the purposes of calculating market shares the same
complication applies regarding DTH (dual users).
In
addition, there are various available sources for the total
these
size
methodological difficulties the parties figures are used as
a basis for
the calculation of market shares for a
combined Scandinavian market for cable (SMATV and
DTH distribution,
share of Telia and
Telenor/Canal Digital would be about [25 % to 35 %]*
and [15 % to 25 %]* respectively. Consequently, Newco’s
market share would be [45 % to 55 %]*, or more than
twice that of its closest competitor, Netcom/MTG, and
four
other
than
competitor (54).

the market

or more

times

that

any

of

(342)

is

In their Reply, the parties have tried to contest these
figures by quoting from the Annual Report of MTG,
where it
indicated that MTG offers broadcasters
connection to 1,9 million Nordic households. This
figure, however,
includes a significant proportion of
wholesale customers, and is therefore not comparable
with the figures indicated above. To make the above
figures comparable with those relied on by the parties
in their Reply, the wholesaling customers of Telenor
would therefore have to be added. In the Scandinavian
region, Telenor supplies [6 700 000] SMATV viewers
on a wholesale basis. This represents [65 % to 75 %] of
the total number of such viewers. Newco’s share of all
retail and wholesale to DTH, cable-TV and SMATV
households in Scandinavia would then be [60 % to 70 %]
(or [50 % to 60 %] on the Nordic level). This would still
remain twice that of Netcom/MTG.

(339)

It therefore has to be concluded that also under these
assumptions, the proposed concentration would create
or strengthen a dominant position.

(343)

It should also be noted that the parties’ market shares
would be even higher if the fact that approximately
[85 % to 95 %] of all Scandinavian DTH customers will

(iii) Combined Scandinavian/Nordic market for cable-TV

and DTH

(340) Some third parties have suggested that an assessment on
a Scandinavian level (or, possibly even Nordic level) may
be appropriate. Again, the Commission’s view is that
such a widening of the market would not materially

(53) All of the alternative sources have indicated a smaller total market
than that
the parties’
indicated by the parties. Consequently,
estimate tends to understate their combined market position,
relative to that which would appear using any of the alternative
sources (by up to 10 %). However,
this
Decision it is sufficient to indicate the figures provided by the
parties.

for the purposes of

(54) Neither party has significant activities in Finland. However, given
the relative size of Finland compared with the three Scandinavian
countries, the parties’ share of the Nordic market would remain
[40 % to 50 %]*.

9.2.2001

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Official Journal of the European Communities

L 40/53

be able to receive analogue DTH broadcasts
from
Telenor’s satellites, without changing their equipment
(or even moving their dish) was taken into account.
This means that
the number of directly addressable
households of Newco would be higher than indicated
above. On this basis, Newco’s market share would
increase further to [70 % to 80 %] of all DTH, cable-TV
and SMATV households in Scandinavia (or [60 % to
70 %] on the Nordic level).

(344)

least

twice

namely

proposed

concentration,

In addition to reaching at
as many
households as its closest competitor, Newco would also,
if the market were to be assessed at the Scandinavian or
Nordic level, derive all the above competitive advantages
from the
the
combination of Telia’s Swedish and Danish cable-TV
networks with Telenor’s
satellite activities; Newco’s
position as a buyer of content would be significantly
stronger
than that of either Telia or Telenor/Canal
Digital, and Newco’s position as a provider of technical
services would still create a new form of dependency
between Newco and cable-TV operators competing with
Telia. Moreover, Newco would still be in a significantly
stronger position for the transition from analogue to
digital services.

Content buying

(347) The parties are of

the view that neither of them is
significantly active as a buyer of content, since their
activities are limited to packaging and distribution of TV
channels. The investigation has however shown that this
statement is true only in respect of premium pay-TV
(mainly films and sports rights), where the
content
so far have been relatively minor buyers
parties
(although at
least Telia has acquired both film and
sports rights, and has recently launched a specific golf
channel in its cable network). Telenor is, nevertheless,
via its interest in Canal Digital, linked to Canal+, which
is one of the world’s largest buyers of such content.
inter alia, in the distribution of
Canal Digital is active,
example,
premium pay-TV content.
contracted for the Scandinavian rights to a number of
important Hollywood studios
(including Paramount,
MGM and Fox), as well as for premium sports rights,
such as English premier
league football and NBA
basketball. As mentioned above, on 1 September 1999,
Canal Digital acquired exclusive Nordic rights to Italian
league
by
Netcom/MTG). These rights have been acquired by
Canal+, which is also responsible for the acquisition of
PPV-rights for Canal Digital.

(which previously were held

football

has,

for

It

(345)

It therefore has to be concluded that also under this last
assumption, the proposed concentration would create a
dominant position.

(iv) Overall conclusion on retail TV distribution to

individual households

(346)

In conclusion, according to information submitted to
the
the Commission, Newco would, on the basis of
parties’ proposed market definition, control access to
more than [55 % to 65 %] of all cable-TV households in
Sweden. The same would remain true if
the market
were to be assessed on a combined Swedish market for
cable-TV, DTH and SMATV. Even if the markets were to
be assessed on a Scandinavian or Nordic basis, Newco
would control access to [45 % to 55 %] or more of all
households. Thus,
exact market
regardless of
definition, the combination of the parties’ distribution
activities would give Newco a volume of distribution
that exceeds, by far, the position of any of its existing
the
competitors. For
Commission has come to the conclusion that this,
in
combination with the vertical effects relating to the
integration of Telia with Telenor’s above described
satellite activities, Newco’s strengthened position as a
buyer of content and provider of
technical services,
would create or strengthen a dominant position on the
relevant market for retail TV distribution.

the above indicated reasons,

the

(348) Furthermore,

it has been indicated that Newco could
in the field of
expand its content-buying activities
premium films and sports
rights, by acquiring the
Nordic rights to, for example, Hollywood films for all
relevant existing (cid:145)windows(cid:146)
(PPV, VOD, premium and
second pay, free and basic pay). Newco would have an
incentive to adopt such a strategy in order to attract
customers to its PPV, NVOD and VOD services as it
expands its digital distribution (cable and DTH). The
premium and second pay rights could be used by
Canal+, which is exclusively distributed by Canal Digital
in the Nordic area. Finally, it could wholesale the free
and basic pay rights to other broadcasters (or develop
its own basic pay services). The Hollywood studios
normally prefer to deal with one buyer for as many
(cid:145)windows(cid:146) as possible, as this decreases the cost and risk
of selling the Nordic rights to their content.

(349) The parties have contested this argument by stating that
NetCom/MTG is a larger buyer of content
than the
parties. In this comparison the parties, however, omit to
include Canal+, which in addition to broadcasting its
premium pay-TV channels exclusively on the Canal
Digital DTH platform, is also responsible for acquiring
PPV rights for Canal Digital. Canal+ has more than 10
million subscribers in Europe. Consequently,
it cannot
be sustained that Newco would have fewer resources
than Netcom/MTG for content-buying. On the contrary,

L 40/54

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Official Journal of the European Communities

9.2.2001

in

is not

this argument
addition

on the basis of
the relative sizes of Newco and
Netcom/MTG, it is likely that Newco would have greater
resources for content-buying. The parties also maintain
that Netcom/MTG is a larger provider of pay-TV
services than Newco (see above). However, in order to
be able to reach this conclusion, the parties have again
argued that the number of connected households (where
is irrelevant. As
Newco will become the clear leader)
sustainable.
indicated above,
Moreover,
above-described
weaknesses of NetCom/MTG, it should be noted that it
is not able to transmit digital DTH or cable signals.
Value-added services, such as PPV, NVOD and VOD,
require substantially larger transmission capacities than
is
techniques.
to achieve with analogue
therefore not be able to compete
NetCom/MTG will
effectively with Newco as a buyer of all (cid:145)windows(cid:146) for
attractive film rights, as long as it has not managed to
introduce digital techniques. Moreover, even after this
competitive
transition, Netcom/MTG will be
disadvantage, since it will have access to a significantly
smaller number of connected households.

feasible

the

to

at

a

(350) The premium pay-TV content is, however, not the only
(or even the main) field of interest, as there is general
agreement in the industry that premium pay-TV has not
been the main driver of the expansion of cable-TV, DTH
and SMATV in the Nordic region.
Instead, the main
driver has been the introduction of advertising-financed
and (cid:145)mini-pay(cid:146) channels. Both Telia and Telenor are
active as buyers of content, in the sense that they both
conclude agreements for
the distribution of various
commercial TV channels by cable, DTH and SMATV,
which they subsequently sell either as packages or (cid:224) la
carte to individual households (retail sales), or to other
sales). As
cable and SMATV operators
indicated above, both Canal Digital and Viasat have
acquired exclusive DTH rights for various channels.
Cable TV rights have traditionally been granted on a
non-exclusive basis. Canal Digital has, however, been
including
able to acquire a number of bundled [(cid:133)],
DTH, SMATV and cable. In this capacity, Newco would,
following
notified
transaction, regardless of whether its above-described
Scandinavian TV distribution activities are considered as
being on one relevant market, or on a number of
neighbouring markets, be able to gear its reinforced,
vertically
integrated position in negotiations with
content providers.

implementation

(wholesale

the

the

of

and SMATV households). Newco would also be the only
distributor with good coverage of TV households in all
major population centres. Households in these areas are
particularly interesting to advertisers, and therefore to
commercial broadcasters. No other distribution system,
such as that of Netcom/MTG (which has less than half
connected households), would be
the number of
regarded as
for Newco’s distribution
substitute
a
network.

(352)

a

of

of

by

number

expensive,
channel

stating
alternatives

households,
Stj(cid:228)rn TV are

and therefore more
inclusion
The

In their Reply, the parties have sought to reduce the
importance of their advantage in having the access to a
that
greater
Netcom/MTG and
to
broadcasters who are not included in the (cid:145)basic tier(cid:146).
However, such broadcasters will still face the difficulty
that they will wish to be received by as large a number
of households as possible. The operator of cable-TV
network can choose to charge its customers for a large
(cid:145)basic tier(cid:146), which does not require the use of decoders
(as Telia and Telenor have done), or to transmit only
the (cid:145)must-carry(cid:146) channels unscrambled (as most other
cable operators do). Other cable-TV operators, even if
they have adopted a decoder-based analogue strategy,
typically offer a (cid:145)basic tier(cid:146) and one or more
will
channel
extended,
bouquets.
the
in
extended-bouquet offer of other cable-TV networks will,
in the same way as in the parties’ cable-TV networks,
mean that the channel in question is received by only a
limited proportion of all connected households. These
commercial decisions by the cable-TV operator do not
affect the basic fact that advertising-financed channels
are dependent on reaching as many viewers
as
possible
system.
individual
Advertising-financed channels will therefore, in the same
way as in the parties’ cable-TV networks, strive to be
included in these (cid:145)basic tier(cid:146) offerings. Consequently, any
advertising-financed channel which is unable to be
included in the (cid:145)basic offering(cid:146) in the parties’ distribution
networks will find largely the same difficulties in being
distributed
by
equivalent
Netcom/MTG and Stj(cid:228)rn TV. Therefore the parties’
contention cannot be accepted. The parties’ argument
will become entirely irrelevant when the transition to
the digital environment has been completed, since, as
indicated above, all households will need a digital
decoder to receive television signals (55), so that even the
must-carry signals will not be available unscrambled.

distribution

offering(cid:146)

in the

(cid:145)basic

each

in

for

any

partner

obligatory

broadcaster

(351) According to the investigation, Newco will become
an
of
advertising-financed and/or (cid:145)mini-pay(cid:146) channels wishing
to target
the Nordic market. Such broadcasters will
consider the decisive element to be the ability to reach a
in order to attract
sufficient number of households,
sufficient
subscription revenue.
and/or
advertising
Following the concentration, this will not be possible in
Sweden without access to Newco’s distribution networks
(where Newco would control access to [60 % to 70 %] of
all cable-TV households, and have access to most DTH

(353) The parties have also contended that Stj(cid:228)rn TV, would
have an equally strong bargaining position as Newco
owing to its ownership by UPC. However,
the
investigation does not support a finding that UPC’s TV
distribution activities outside the Nordic region are
likely to have any impact on its ability to compete with
the
Newco as a buyer of content. On the contrary,

(55) The parties (as well as other distributors) will continue to offer a

(cid:145)basic tier(cid:146) in the digital environment.

9.2.2001

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Official Journal of the European Communities

L 40/55

investigation indicates that Stj(cid:228)rn TV or UPC would
have to pay a significant premium to any TV channel,
for it to be granted exclusive Nordic rights, given that it
could only guarantee access to less than 10 % of all
Nordic viewers. Consequently, any TV channel
that
considered granting exclusive or preferential Nordic
rights to Stj(cid:228)rn TV or UPC would have to charge a
significant premium for the risk that the TV channel
may not be able to reach the remaining Nordic viewers,
and in particular those connected to Newco’s various
distribution networks. For any broadcaster who has
created an advertising-financed TV channel with specific
Nordic interest, it is unlikely that distribution by Stj(cid:228)rn
TV/UPC would be a viable alternative, irrespective of the
level of the premium that it theoretically could receive.
the parties’ contention as to the
For these reasons,
bargaining position of Stj(cid:228)rn TV cannot be accepted.

(354) Another contention by the parties in their Reply is that
the introduction of digital terrestrial transmissions (DTT)
will reduce the dependency of broadcasters on Newco.
DTT was introduced on 1 April 1999 in Sweden. Due
to the relatively limited available bandwidth, the number
of licences is equally limited. Licences have been granted
to the three existing (cid:145)must-carry(cid:146) analogue terrestrial
channels. In addition, four commercial channels (TV3,
Kanal5, Canal+ and TV8) and four educational/regional
channels have been given licences. So far only SVT, the
existing
have
commenced DTT broadcasting. Sales of DTT decoders
are very low (about 350 in the first four months (56)).
Thus, the parties’ suggestion that DTT will significantly
constrain their power vis-(cid:224)-vis broadcasters cannot be
accepted.

State-owned

(cid:145)must-carry(cid:146)

channels

(355) For Norway and Denmark, Newco would control access
to approximately [35 % to 45 %]* and [25 % to 35 %]* of
the cable-TV households and have a strong position in
relation to SMATV (see below), whereas the situation in
DTH appears to be similar to that in Sweden.

to achieve preferential or

(356) Newco could adopt a commercial strategy to gear this
gatekeeper position in Sweden (which has about twice
the number of households compared to either Norway
exclusive
or Denmark)
distribution rights (cable, DTH and SMATV)
for the
whole Nordic area. Whereas it is obviously true, as the
parties have stressed in their Reply, that Newco will
need attractive content in its TV-distribution business,
Newco’s dependency on any single content-supplier will
content-supplier’s
be
lower
dependency
and
(cid:145)mini-pay(cid:146) broadcasters active in the Nordic region
operate on financial models that require access to the
viewers connected to Newco’s distribution networks in

than
individual
on Newco. Advertising-financed

the

(56) Aftonbladet, 1 September 1999.

a way

channel(s)

Sweden. They would have limited possibilities to resist
Newco’s demands, and, as long as Newco provides them
with an opportunity to maintain and develop their
business, would have no reason to do so. Moreover,
Newco would not only be able to credibly threaten to
take broadcasters off its distribution (as Telia has done
in the past with one of Netcom/MTG’s channels).
It
could also request payment to carry the channel in its
distribution networks and/or package any resisting
broadcaster’s
less
in
remunerative for the broadcaster. As an example of the
effects of a distributor’s tiering decisions,
it can be
mentioned that Telia for several years has carried the
English-language version of Eurosport in its (cid:145)basic tier(cid:146),
which is accessible to all of its 1,3 million connected
the
households. At
Eurosport Nordic signal in its extended offer, which can
only be accessed with a decoder. The consequence is
that
the large majority of households connected to
Telia’s cable network (who pay only for the (cid:145)basic tier(cid:146)),
despite
a more
attractive service, have been unable to receive this
channel in their own language (57).

the same time Telia has put

the broadcaster’s

to offer

efforts

that

is

the possibilities

(357) As concerns packaging, it has also been brought to the
for a
Commission’s attention that
distributor to leverage its strengths against broadcasters
will increase with digitalisation. The reason for this is
that the increased capacity will allow the distributor to
create multiple packages or (cid:145)tiers(cid:146), each of which would
appeal to different groups of subscribers (and therefore
have varying potential
for broadcasters).
Digitalisation will
therefore increase the ability of
Newco as a dominant distributor to offer its favoured
suppliers increased revenues.

revenues

rights, will

significantly weaken

(358) Newco’s ability to achieve preferential or exclusive
distribution
the
competitive situation of other TV distributors (cable,
DTH and SMATV), as the latter’s products would suffer
from a cost disadvantage and/or a reduced number of
TV channels to offer to their customers. As existing
distribution
renewal,
broadcasters will not have any viable alternative for
therefore
their Nordic
ultimately create a dominant position for Newco as a
buyer of content for TV distribution.

This would

distribution.

agreements

come

for

up

(359) This fear is strengthened by Newco’s vertical integration
satellite transponders with a
its only competitor on

into the provision of
Nordic footprint. Since NSAB,

(57) In their Reply, the parties have pointed out that since May 1999
Eurosport Nordic is carried in Telia’s (cid:145)basic tier(cid:146), as a consequence
of a new agreement, which, however, is of limited duration ([(cid:133)]*).

L 40/56

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Official Journal of the European Communities

9.2.2001

[(cid:133)]*. This

broadcasters, where
attractive
is

the satellite side is not vertically integrated, Newco
would be the only supplier able to offer a bundled
service consisting of satellite infrastructure and retail
distribution covering a significant
share of all TV
households. Such bundling practices are to a certain
extent already employed by Telenor and Canal Digital.
for example, be seen in Canal Digital’s
This can,
the
agreements with several
to
broadcasters do not
broadcasters, since the transponder capacity,
if rented
separately, can represent 30 % or more of the channel’s
total costs. Given its control over 65 % to 77 % of the
Nordic
television
capacity
purposes, Newco’s ability to engage in such practices
cannot be matched by any alternative distributors,
strategy
whose only possibility of copying Newco’s
would be to lease, on commercial terms, a block of
transponders from Newco and/or NSAB. In addition to
this
following the
merger, be able to credibly threaten broadcasters with
less attractive distribution terms (outside the (cid:145)basic tier(cid:146)
for example),
in particular on Telia’s cable network,
unless they agree to take Newco’s bundled services.

advantage, Newco would,

transponder

suited

cost

for

(362)

Telenor has started an aggressive strategy to induce
to move from NSAB to the Telenor
broadcasters
satellites. As mentioned above, one broadcaster was
recently convinced to move to 1(cid:176) west by being offered
a penetration-based agreement. Newco could use such
strategies to further reduce or eliminate competition
from other DTH, cable and SMATV distributors and/or
NSAB, which would have
further
strengthening its position as an obligatory partner of all
commercial broadcasters. This would
considerably
strengthen its gatekeeper function and control over all
levels of the TV distribution chain in Scandinavia.

effect of

the

for

conclusion,

the
In
reasons,
all
Commission has come to the conclusion that
the
notified concentration would create a dominant position
for Newco as a buyer of content for TV distribution.

above

the

(360) The

likelihood that Newco would adopt
leveraging its

various
bundling strategies aimed at
strong
position in one area to strengthen its overall position as
a distributor must be considered to be high. Canal
Digital has,
for example, concluded several exclusive
distribution agreements, not only covering its core
business, analogue and digital DTH, but also digital
cable-TV and SMATV distribution. Similarly, Telia has
concluded agreements giving it not only advantageous
distribution rights for cable-TV, but also rights for
SMATV and DTH distribution (which it is currently not
using in its business). In their Reply, the parties have
contested these findings, stating that Canal Digital, and,
in particular, Telia only have a limited number of
exclusive rights, that these are not advantageous, that all
rights are being used, and, finally that Netcom/MTG has
more important exclusive rights. None of the parties’
contentions can be sustained. According to their own
information Canal Digital has an extensive catalogue of
exclusive rights. For example, in Sweden it has exclusive
[(cid:133)]*
digital
in
rights
cable-TV and [(cid:133)]*
far more
extensive than the rights held by Netcom/MTG. It is not
surprising
been less
interested in granting exclusive rights to Netcom/MTG,
as many broadcasters may hesitate to rely on a
their distribution in the
competing broadcaster
to the parties’ other contentions,
Nordic area. As
information submitted by broadcasters
and other
that Telia does have
distributors
clearly indicates
the relevant
advantageous distribution rights. Finally,
to the proposed
issue is not whether Telia, prior
concentration, acquired a large portfolio of SMATV and
DTH rights.
Instead, the relevant point is that Telia’s
ability to do so (without already being active in those
areas) provides an indication of the combined strength
of Newco after the concentration.

channel-providers have

in DTH,
is

to [(cid:133)]* channels

in SMATV. This

that

for

Wholesaling of rights to content

in

the

three

customers

(363) Both parties (and Canal Digital) are active as wholesalers
of rights to content. Telenor (including Canal Digital) is
the largest existing wholesaler and has more than [(cid:133)]*
wholesale
Scandinavian
countries. The customers are mainly SMATV and cable
networks. According to Telenor’s 1998 annual report
686 000 viewers in Scandinavia were offered access to
pay-TV through these activities. This represents 70 % of
all SMATV households in the region. The second largest
wholesaler in all three countries is Netcom/MTG, which,
in 1998, reached a slightly smaller number of viewers
than Telenor. According to the notification Telia’s
activities have so far been limited to Denmark, where it
supplies approximately [(cid:133)]* SMATV networks (58). A
general feature of the wholesale market has been that a
significant proportion of
the customers have been
supplied by both Telenor and Netcom/MTG.

(364) However,

it appears that the proposed concentration,
would enable Newco to further develop and significantly
strengthen this business activity, which could have
significant strategic importance for the merged entity.
Newco’s wholesaling
further
activities
strengthened by using the above-described gate-keeper
(in
position in the provision of
particular as concerns digital services), combined with

services

satellite

could

be

(361) The parties have also been able to secure rights [(cid:133)]*
their existing suppliers. Moreover,

from several of

(58) Telia has not indicated the number of households that receive

services through its wholesale activities.

9.2.2001

EN

Official Journal of the European Communities

L 40/57

its position as an obligatory retail distribution partner
for commercial TV channels. Based on these strengths,
Newco would be able to create several analogue and
digital packages. As mentioned above, Newco would be
the only company in the Nordic region that could
include value-added services, such as PPV, NVOD, VOD
and Internet access, in its digital packages. Newco could
offer such packages to any cable or SMATV operator in
the Nordic market. Newco’s incentives to adopt such a
strategy would be strong, since the additional cost of
supplying, on a wholesale basis, any such package
which it will develop for its own distribution activities,
will be very low or even non-existent.

short

term have

the
for
it would be
competing cable and SMATV operators,
likely in the medium to long term to have significant
adverse effects on competition.

certain cost

advantages

(367) First, Newco would be

able
from competing

to largely eliminate
competition
SMATV
and
cable
operators, not only by having full information on the
volume of their business and their cost structure, but
potentially also through imposing exclusivity or other
restrictive obligations, which would eliminate their
ability to compete by providing new or innovative
content.

fees

it pays

(365) Even prior to the proposed concentration, Telia, Telenor
and Canal Digital have been able to use their strong
position in their respective core activities to achieve
significantly better terms from broadcasters than their
competitors (or, expressed from the suppliers’ point of
view, broadcasters have accepted distribution in the
parties’ networks on significantly less attractive terms
than they have accepted in competing distribution
systems). Telia has, for example, in the period between
1995 and 1998 been able to reduce significantly the
to broadcasters, despite having
total
increased the number of broadcasters with whom it has
distribution agreements
the same
period. In their Reply, the parties have contested this
conclusion. In their view Telia’s reduced costs are due to
a reduction in the number of households with decoders
in its network (from [(cid:133)]* to [(cid:133)]*), and that
the
comparison should be made on the basis of Telia’s
pay-TV revenues. First, although it is unclear how a
reduced number of decoders would reduce Telia’s costs,
the fact remains that in 1995 Telia paid, on average,
[(cid:133)]* to each broadcaster.
In 1998 this figure had
decreased to [(cid:133)]*, a reduction of [(cid:133)]*. Second, as has
been indicated above, the Commission does not accept
the parties’ definition of pay-TV revenues, as
this
excludes more than half of Telia’s turnover from retail
TV distribution. Consequently,
argument put
forward by the parties in the Reply cannot be accepted.

from [(cid:133)]* over

the

(368) Second,

content

for content providers,

even monopsonistic purchaser of

such a development
would mean that they would be faced with a dominant
or
in
Scandinavia. This would not only have a negative
impact on their profitability, but also significantly
reduce their ability to influence the packaging and sales
of their content or channels. Under such circumstances,
it is likely that broadcasters will have reduced incentives
to invest in improving quality and/or in innovation of
new content. As a result of the proposed concentration,
for TV distribution may
the Scandinavian markets
therefore enter the digital era with a prognosis of
reduced consumer choice,
instead of, as foreseen, an
increased choice.

(369) The proposed concentration would therefore create a
dominant position for Newco in the field of wholesaling
rights to content, regardless of whether this market is
assessed on a Scandinavian level, or separately for the
three countries.

Technology for technical services relating to pay-TV

(366)

is widely expected that Newco,

It
following the
proposed concentration would use its position as an
obligatory partner
to achieve even
for broadcasters
better terms for bundled retail and wholesale rights.
Given its competitive advantages,
it is therefore likely
that Newco would be able to offer programme packages
at prices that would provide a strong incentive for other
cable and SMATV operators to acquire these rights from
Newco, rather than directly from individual broadcasters
(including Netcom/MTG). As
these
broadcasters would also be increasingly dependent on
Newco
three
Scandinavian countries, which will limit their ability to
challenge Newco on the wholesale level. Although a
development where Newco at least initially would offer
attractive conditions for its wholesale packages may in

retail TV distribution in the

indicated above,

for

(370) The market

for

active

technical pay-TV
the provision of
services is currently limited, since most major cable and
DTH operators perform these activities in-house (Telia,
Telenor, Netcom/MTG and others). The parties are,
however,
technical pay-TV
as providers of
services to third parties. Telenor provides these services
in its own right, as well as through Canal Digital. The
latter is currently the only provider of digital technical
pay-TV services
in the Nordic area, and has an
agreement with [(cid:133)]*, as well as with other Swedish
cable
such
and SMATV operators. Telia provides
services to cable and SMATV operators in Denmark,
and has an agreement with [(cid:133)]*, by which the latter is
licensed to use Telia’s SMS data-management software
system. Telenor has invested significant amounts in the
development of a proprietary digital Conditional Access
(CA) and Applied Programme Interface (API) system

L 40/58

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Official Journal of the European Communities

9.2.2001

called Conax. Telenor’s investment in this technology
has been increased by about [(cid:133)]* over each of the last
four years.

would use the Conax technology also in the existing
Telia cable network, and adopt a similar strategy for the
digital cable TV decoders, as described above for DTH.

standards by

(371) The parties have stated that the adoption in 1997 of the
Eurobox
several European cable-TV
operators, and in 1998 of common specifications for a
decoder box based on European standards by all major
Nordic TV distributors and broadcasters in the context
of
the Nordig discussions, will enable customers to
switch to a new supplier without changing their
further
equipment. The parties, however, accept
harmonisation would be needed in the context of the
Nordig project before this is to become possible, and
also that Conax cannot be applied to the Eurobox
standard.

that

(373)

It would therefore appear that Newco will be able to use
its current position in the field of technical services,
including the proprietary Conax technology, to further
strengthen its control over the abovementioned markets.
Moreover, as it is likely that Newco would be successful
in imposing its digital technology as a de facto standard
for
the proposed concentration
would create a dominant position in the provision of
technology for technical services to pay-TV.

the Nordic market,

Conclusion on TV distribution markets

(372) During the investigation, concerns have been raised that
the proposed concentration will give Newco the
incentive and ability either
to abandon the Nordig
project and focus on the proprietary Conax system, or
to impose Conax as the conditional access technology
to be used in the Nordig project. If Newco were to use
its advanced position in terms of digital services (Telia’s
cable network and Canal Digital’s DTH operation) to
impose Conax as a de facto standard on the market, it
would, given the number of households connected to
Newco’s distribution systems, be extremely difficult for
any other market player
to introduce a competing
system (59). As examples of how Newco could use its
proprietary technology to lock customers
into its
distribution system, third parties have submitted that
Telenor is already charging a significant additional fee
for up-linking a TV signal which is not encrypted with
the
the Conax technology. Another example is that
digital DTH decoders, which
the
in
Scandinavian countries, are locked to Canal Digital’s
programme guide and the built-in telephone modem
cannot be used to reach other suppliers. Consequently,
if NetCom/MTG or any other supplier were to launch
digital DTH services, Canal Digital’s customers would be
unable to switch supplier, unless they were to buy a
new decoder. Although Telia has, so far, used Viaccess,
a technology competing with Conax,
in its digital
decoders, the number of such decoders that have been
installed in Telia’s cable network is still relatively limited
(about [(cid:133)]* of all connected households). Moreover,
according to the parties, a combined digital decoder
(able to receive cable and DTH signals) could be
produced at a cost which is only EUR [(cid:133)]* (less than
[0 % to 20 %]) higher than for the current signal specific
It is therefore widely expected that Newco
decoders.

sold

are

(374) The

is

create

activities

levels of

proposed

concentration would

the ultimate aim of all

a
vertically-integrated entity, combining all the activities
and strengths of Telia and Telenor in the field of TV
distribution. Given that
the
above-described
allow individual
to
to receive programming produced by
households
various broadcasters, there is a strong link between the
different
the distribution chain. This will
provide Newco with a commercial incentive to gear its
particular strengths at each individual level to further its
position on all the others. It has been identified above
that
the proposed concentration would create or
strengthen a dominant position for Newco in the
provision of satellite transponder capacity, retail TV
distribution, content-buying and wholesaling, and in the
to
provision of
commercial TV. Due to the link between these activities,
the overall concern raised by the concentration is even
greater than the sum of the concerns for each individual
level of the distribution chain. It is particularly worrying
that Newco’s position, as has been described above,
would be even stronger in the digital environment. The
creation of Newco could therefore lead to a situation
where one company would have the power to decide
the shape of the new converged multimedia landscape,
without any significant restraints from its competitors,
customers or final consumers.

technology for

technical

services

(59) Directive 95/47/EC of the European Parliament and of the Council
of 24 October 1995 on the use of standards for the transmission
of television signals (OJ L 281, 23.11.1995, p. 51); ((cid:145)the Directive(cid:146))
states that operators of conditional access systems must offer
non-discriminatory access to all broadcasters. It is to be noted that
the advantages available to Newco by imposing its technology as a
de facto standard, would, in no way, require it to act in breach of
the Directive.

(375) Moreover, these concerns are compounded by the fact
that Telenor is set
to take a controlling position in
Norkring (the Norwegian terrestrial TV transmission
company, which owns
about 6 500 transmission
stations in Norway) within the near future. This would
mean that Newco would control all existing technical
platforms for TV distribution in Norway. Furthermore,
on the convergence of the media and telephony sectors

9.2.2001

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Official Journal of the European Communities

L 40/59

(including the approaching switch from analogue to
digital techniques), Newco would, through its ownership
of
the necessary infrastructures, have unparalleled
possibilities to bundle various telephony, Internet and
TV services.
It would therefore be able to create a
loyalty from its customers that no competitor offering a
more limited number of services would be able to
match, and consequently to create insurmountable
barriers to entry covering its entire scope of activities.

III. OVERALL ASSESSMENT OF THE NOTIFIED
TRANSACTION

already

competition concerns raised by the concentration (60). It
the latter undertakings were submitted
is true that
outside the time period provided for by Article 18 of
Commission Regulation (EC) No 447/98 (61); however,
that Regulation also provides that the Commission may,
in exceptional circumstances, extend the three-month
period. In this case it should be noted that the parties
had
the
three-month period, and that a request for a one-week
extension to propose the undertakings contained in the
second submission was received by the Commission
within the three-month period. Moreover, the request
for extension set out the nature of the Commitments
that would be submitted after the additional week,
which allowed the Commission to begin assessing the
remedies before they were formally presented.

undertakings within

submitted

(376) The notified transaction would create or strengthen
dominant positions on the above markets for telephony
services in Sweden, Norway and Ireland, as well on
various levels of the TV distribution chain in the Nordic
countries. These negative effects would follow partly
from the superior market power of the combined entity,
as evidenced by its high market shares in relation to its
smaller and weaker competitors. However these effects
would be substantially reinforced by the vertical effects,
resulting from the combined activities of Telia and
the operation is therefore to
Telenor. The result of
create a combined entity with strong or dominant
positions
the
the whole
telephony and TV sectors. Seen in contrast to the fact
that most of Newco’s competitors on the various levels
are not at all vertically integrated, this strengthens the
overall dominance of the company, and further reduces
the possibility that its competitors would be able to
engage
competition with Newco. The
combined entity’s wide-ranging activities, and advanced
position concerning digital technologies, will also serve
as a significant barrier to entry on all
its
activities.

value-chain of

in effective

levels of

covering

the notified concentration,

(377) For the above reasons the Commission has come to the
conclusion that
in the
absence of any modifications, would be incompatible
with the common market and the functioning of the
EEA Agreement, since it would create or strengthen
dominant positions in the markets for telephony and TV
services, as a result of which effective competition
would be significantly impeded in the common market
within the meaning of Article 2(3) of
the Merger
Regulation and in the EEA within the meaning of
Article 57(1) of the EEA Agreement.

IV. UNDERTAKINGS PROPOSED BY THE PARTIES

(378)

In order to resolve the competitive concerns identified
by the Commission on 17 and 24 September 1999,
the
the parties

submitted undertakings

to resolve

it

that

should be recognised that

(379) Telia and Telenor are owned by the Swedish and
Norwegian States. For this reason their plans to merge
had to be approved by their respective parliaments. The
Swedish and Norwegian parliaments granted such
approval for the transaction after significant debate, not
only about the transaction as such, but also about its
impact on a number of other policy issues of public
interest, such as media plurality and development of the
this
future information technology society. Against
background,
the two
governments, in their role as owners, were required to
pay additional attention to the potential impact of the
including
later remedies on such other policy issues,
discussions with representatives of
respective
the
parliaments. The fact
the parliament had to be
involved in these issues added further constraints to the
process. The fact that political bodies from two different
countries were involved was an additional obstacle in
meeting the deadline provided for in Regulation (EC) No
447/98. The exceptional circumstances are therefore not
related to the State ownership as such, but to the fact
that the business activities of the parties, and indeed
those affected by the additional commitments,
include
businesses with an impact on wider policy issues of
national concern which require political consultation.
Moreover, the publication by PTS (the Swedish telecom
regulator) of a report with a proposal
for new LLU
legislation on 16 September 1999 will have had a
delaying impact on the government’s evaluation process
as concerns the parties’ plans to submit the LLU and
cable-TV remedies. Finally, the parties would have been
required to return to their parliaments in order to
renotify the agreement, so that the agreement could not

(60) Following the Commission’s evaluation,

the parties made a
number of technical clarifications of their proposals on 1 October
1999. The
the
undertakings submitted on 17 and 24 September 1999, including
the clarifications of 1 October 1999.

term (cid:145)final proposal(cid:146)

is used to describe

(61) OJ L 61, 2.3.1998, p. 1.

L 40/60

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Official Journal of the European Communities

9.2.2001

have been withdrawn and renotified with modifications
as easily as another transaction might have been.

(c) T e l i a o r T e l e n o r d i v e s t i t u r e

(380)

It must therefore be recognised that the parties faced
additional and exceptional constraints
in submitting
these undertakings, compared with those faced by other
companies (whether publicly or privately owned), whose
activities do not have a direct impact on policy issues of
public interest. Finally, the fact that third parties had
already
submitted comments on a possible LLU
undertaking in phase one, together with the clear-cut
character of the proposed undertakings has enabled the
Commission’s services to conduct a full and proper
assessment of the modified proposal, including adequate
consultation with Member States and third parties.

(381) The parties’
follows:

final proposal

for undertakings are as

(a) T e l i a d i v e s t i t u r e s

including
1. Telia Norge,
in
activities
the
and
international
data-communication services,
PABXs and related services as well as
provision of Internet services,

Telia’s Norwegian
domestic
services,
supply of
the

provision
of
voice-telephony

the

2.

the provision of network services currently
undertaken through Telia N(cid:228)ttj(cid:228)nster Norden
AB,

3. Telia InfoMedia Television AB, including Telia’s

cable-TV business in Sweden.

(b) T e l e n o r d i v e s t i t u r e s

in

1. The 33 % shareholding in Telenordia, with
international
domestic
activities
voice-telephony
data
services,
communication services and enhanced global
services including Nordicom,

and
Internet

and

2.

the 50 % shareholding in Internordia, active in
Sweden in the supply of PABXs,

3.

the shareholdings
in Lokaldelen and Telenor
F(cid:246)retagsinfo AB, active in Sweden in the supply
of local and business-to-business directories,

4. Telenor Avidi AS, including Telenor’s cable-TV

business in Norway.

itself of

The undertakings provide that either Telia will
its entire shareholding in Eircom
divest
(formerly Telecom Eireann), or Telenor will divest
itself of its entire shareholding in ESAT Digifone.

(d) L o c a l l o o p u n b u n d l i n g

The undertaking provides that Telia and Telenor will
allow competitors access to their respective local
access networks in order to provide any technically
feasible services on non-discriminatory terms. The
undertaking will enable competitors to establish a
sole customer relationship with telecommunications
customers.

(382) The undertaking to provide unbundled local loop access
will take effect within three months of the date of the
Commission’s Decision. The divestiture of the parties’
respective cable-TV networks and other businesses set
out above are subject
to the conditions normally
imposed by the Commission in such cases, and will be
effected within [(cid:133)]* of the Commission’s Decision.

(383) Each of the businesses to be divested will be sold as a
going concern, and will
include sufficient sales staff,
production and administrative personnel, all existing
contracts and all
licences necessary to continue using
the existing technology currently used by the respective
businesses on the same terms as at present. Each
existing or
divestiture will be made
prospective
and
competitor,
independent of Telia and Telenor, and possessing the
financial resources and proven expertise enabling them
into an active
to develop the divested business
competitive force on the market. Each divestiture will be
subject to the Commission’s express approval.

to a viable
unconnected

to

(384) Prior to the divestitures,

the parties commit to hold
these businesses as distinct and saleable businesses. Telia
and Telenor will each appoint a trustee, subject to the
Commission’s approval. The trustee’s mandate,
the
terms of which will also be subject to the Commission’s
approval, will include determining and monitoring the
management and operation of
the businesses to be
divested and to report to the Commission on Telia’s and
Telenor’s adherence to their commitments, as well as on
the characteristics of potential buyers. There will also be
a reporting obligation to the Commission and the
national
regards
compliance with the LLU commitment.

telecommunication authorities

as

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Official Journal of the European Communities

L 40/61

(385) Finally, the parties have undertaken,

in the event that
the divestitures have not been completed within certain
periods, to give the trustee(s) an irrevocable mandate to
find a purchaser for the businesses to be divested.

V. ASSESSMENT OF THE PROPOSED UNDERTAKINGS

(386)

the

In the field of television services, the proposed cable-TV
divestiture would remove
additional business
activities brought by Telia into the merged entity.
Therefore, the merged entity’s television activities would
not be more extensive than those previously carried out
by Telenor. More importantly,
the total number of
households connected to the merged entity’s retail TV
distribution system would not be greater than that
previously connected to Telenor. Given that, as was
described above, the increase in connected households
was the main cause for competitive concerns also on
the vertically related markets, the cable-TV divestiture
would also remove the concerns on these related
markets. Thus, although the merged entity would retain
a strong position in several of
the vertically related
markets, it would not, following the divestiture of the
cable-TV activities be in any appreciably stronger
position than Telenor has already been, for example, as
concerns the bundling of satellite transponder services
and retail TV distribution services.

(387) The buyer(s) of

the parties’ Swedish and Norwegian
cable-TV businesses will become a significant force on
the markets for the acquisition and distribution of TV
services, and will, at least as far as the Telia cable-TV
network is concerned, immediately be in a position to
offer value-added services on the basis of a digitally
equipped distribution system. It is understood that the
buyer(s) of the parties’ cable TV networks, in line with
the established practice on ancillary restraints, may
demand that the parties undertake contractually not to
compete with the divested cable-TV businesses for a
period of three to five years.

traditional
(cid:145)bouquet(cid:146) of channels at least as far as the
commercially available forms of xDSL technology is
concerned (ADSL). Second, as the PSTN network is also
used for voice and data telephony, the introduction of
xDSL technologies is likely to entail technical problems
relating to reliability and interference of services. Third,
the investment needed to upgrade the existing PSTN
network for xDSL technology is very high, in particular
for the more advanced technology, VDSL, which can
only be used over copper lines up to 500 to 800 m
from the customer’s premises. Moreover, as the parties
would have to undertake such upgrades across the
entire PSTN networks,
this could not realistically be
done in the short to medium term, even if this were to
the necessary funds were available.
be assumed that
the
concluded
Consequently,
effectiveness
not
threatened by the parties’ ability to replace the divested
cable-TV activities with similar services based on xDSL
technologies over the PSTN network.

cable-TV divestiture

it must
the

that
is

be

of

(389)

In conclusion, therefore, the parties’ final proposal for
divestiture of
the cable-TV networks in Sweden and
Norway would remove all of the competition concerns
acquisition and
regards
above
identified
distribution of TV services.

the

as

(390) The proposal

the

that

concerns

to introduce LLU in both countries is
comprehensive, and takes as its starting point the third
party comments to the LLU proposal made in phase
one. The comments received by the Commission do not
raise
final proposal would be
ineffective due to limitations that are not justifiable by
objective criteria relating to network security. The LLU
proposal will therefore greatly reduce the competitive
concerns identified for the various telecom services, and
will, by granting new entrants the ability to establish a
unique customer relation with their clients, assure that
the merged entity will remain subject to at least the
same degree of competition as each of Telia and Telenor
were prior to the proposed merger.

(388)

In the course of the market test, it has been suggested
that the parties would be able to replace the divested
cable-TV activities with similar services based on xDSL
are,
technologies over
however, several limiting elements for the upgrading of
the PSTN networks with xDSL technologies for TV
distribution. First, these technologies are primarily suited
to the provision of
Internet access, not TV
distribution, as the bandwidth is insufficient to carry a

the PSTN network. There

fast

(391) However, it should be recognised that, at least initially,
the main beneficiaries of the LLU proposal are likely to
be larger business users. In that context, the divestiture
of the parties’ cable-TV activities will also have the effect
of complementing the LLU proposal. The new owner of
the cable-TV networks will be able to offer competition
by
parties’
to
the
networks
the
allowing
various
increased
telecommunication markets for
residential users and
small businesses, who are less likely to benefit from
LLU.

telecommunication
on
competition

L 40/62

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Official Journal of the European Communities

9.2.2001

(392) Finally,

the

the divestitures of

existing nationally
overlapping businesses, as set out above, will enable the
new owners of the respective businesses to create or
develop a stronger
foothold on the Swedish and
Norwegian telecommunication markets, which they will
the
be able to develop further on the basis of
above-described LLU commitment. For these reasons,
the parties’ final proposal for remedies would remove
all
the
competition
identified
telecommunications area as well,

concerns

the

in

HAS ADOPTED THIS DECISION:

Article 1

propose

The concentration notified by Telia AB (publ) and Telenor AS
on 28 April 1999, by which the Swedish and Norwegian
Governments
a
newly-created company, Newco, set up to hold the shares of
both notifying companies is, subject to full compliance with
the final proposal for undertakings submitted by the parties
and set out in Annexes I and II compatible with the common
market and the functioning of the EEA Agreement.

acquire

control

joint

to

of

Article 2

This Decision is addressed to:

Telia AB (publ)
M(cid:229)rbackagatan 11
S-123 86 Farsta
Sweden

and

Telenor AS
PO Box 6701, St Olavs plass
N-0130 Oslo
Norway

Done at Brussels, 13 October 1999.

For the Commission

Mario MONTI

Member of the Commission