2003/176/EC: Commission Decision of 19 July 2000 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.1882 — Pirelli/BICC) (Text with EEA relevance) (notified under document number C(2000) 2156)
Date: 2000-07-19
Institutions: European Commission
Subjects: European Economic Area, bar, competition, copper, economic concentration, electric cable

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COMMISSION

COMMISSION DECISION

of 19 July 2000

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

(Case COMP/M.1882 — Pirelli/BICC)

(notified under document number C(2000) 2156)

(Only the English text is authentic)

(Text with EEA relevance)

(2003/176/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

Having regard to the Treaty establishing the European
Community,

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

After preliminary examination of the notification, the
Commission concluded that the proposed concentration
could create or strengthen a dominant position as a
result of which effective competition would be signifi-
cantly impeded in the common market or in a substan-
tial part of it, and as such raised serious doubts as to its
compatibility with the common market.

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

(3)

On 17 April 2000 the Commission decided, in accor-
dance with Article 6(1)(c) of the Merger Regulation to
initiate proceedings in this case.

Having regard to the Commission's decision of 17 April 2000
to initiate proceedings in this case,

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

I. THE PARTIES

Whereas:

(1)

On 14 March 2000, the Commission received a notifica-
tion pursuant to Article 4 of Regulation (EEC) No 4064/
89 (the Merger Regulation) of a proposed concentration
whereby Pirelli Cavi e Sistemi SpA (Pirelli) acquires
control within the meaning of Article 3(1)b of
the
the business of BICC
Merger Regulation of part of
General
in the field of
general wiring and power cables in the United Kingdom,
Italy, Asia and Africa, by way of purchase of all the
shares in these companies.

‘BICC’ companies)

(the target

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

21.9.1990, p. 13).

(2) OJ C 180, 9.7.1997, p. 1.
(3) OJ C 59, 14.3.2003, p. 25.

(4)

(5)

is a company established under

Italian law
Pirelli
belonging to the Pirelli Group. Pirelli is the group's oper-
ating company for its production activities in respect of
cables and cable systems.

BICC is a company based in the United Kingdom which
is active worldwide in the development, design and
manufacture of cable products, copper, aluminium and
fibre optic wire products. In 1998 BICC put its world-
wide energy cable business up for sale. In May 1999 the
entire business, including the companies subject to the
proposed acquisition by Pirelli, was acquired by the firm
General of the United States of America.

(6)

(7)

(8)

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II. THE OPERATION

The parties concluded a share purchase agreement on 9
February 2000 according to which Pirelli will acquire
four manufacturing plants in the United Kingdom (situ-
ated in Leigh, Prescot, Wrexham and Erith) and two
plants in Italy (Settimo Torinese and Ascoli Piceno).
According to this agreement Pirelli will acquire 100 % of
the shares in the following companies currently owned
by BICC:

achieves more than two-thirds of its aggregate Commu-
nity-wide turnover within one and the same Member
State. The notified operation therefore has a Community
dimension within the meaning of Article 1(2) of the
Merger Regulation. It does not constitute a cooperation
case under the EEA Agreement.

‘BICC General UK Cables Limited’ (United Kingdom),

V. ASSESSMENT UNDER ARTICLE 2 OF THE MERGER

‘Industrial Cables’ (United Kingdom),

‘Compounds’ (United Kingdom),

‘BICC Rod Rollers Ltd’ (United Kingdom),

‘Supertension and Subsea Systems’ (United Kingdom),

‘BICC General Ceat Cavi Srl Settimo Torinese’ (Italy)
and

(11)

‘BICC General Cavi Srl Ascoli’.

BICC will retain three manufacturing plants in Spain
(BICC General Cables Barcelona) and one in Portugal
(BICC Celcat) as well as one manufacturing plant in the
UK (BICC Pyrotenax) producing mineral
insulated fire
resistant wiring cables and thermo-electric heating and
measuring cables.

III. CONCENTRATION

The operation includes the acquisition of the production
units, distribution and technology units but also of the
intellectual property rights owned by BICC (1) or
conceived in a country where one of the target compa-
nies is located. According to the share purchase agree-
ment Pirelli will acquire sole control of
the target
companies.

(9)

The operation therefore constitutes a concentration
within the meaning of Article 3(1)(b) of the Merger
Regulation.

REGULATION

A. Relevant product markets

The products concerned by the operation are general
the production of copper rod and insulated
wiring,
power cables of
low, medium, high and extra-high
voltage ranges. Power cables are, for example, used for
underground and submarine electricity lines. By contrast,
bare wire, as typically used in overhead transmission
lines, belongs
separate product market not
concerned by the operation.

to a

Production and sale of general wiring

(12) General wiring covers a variety of low-voltage cables,
used for example for building and industrial applications
and for power and signal supply of mobile devices as
used in railways or petrochemical installations. General
wiring products are usually sold through electric whole-
salers and cable distributors or directly to installers and
original equipment manufacturers (OEMs). The parties
do not consider a further segmentation of the market to
be relevant. The market test confirmed this view. There-
the relevant
fore,
product market
for general
wiring (3).

this Decision,
the overall market

for the purposes of

is

IV. COMMUNITY DIMENSION

Production and sale of copper rod

(10)

The undertakings concerned have a combined aggregate
worldwide turnover of more than EUR 5 000 million (2)
(Pirelli […]* (*) BICC: EUR […]* million). They each have
an aggregate Community-wide turnover in excess of
EUR 250 million (Pirelli: EUR […]* million; BICC: EUR
[…]* million), and neither of the undertakings concerned

(13)

(1) With the exception of the intellectual property rights owned by

BICC General Pyrotenax Cables Limited.

(2) Turnover calculated in accordance with Article 5(1) of the Merger
Regulation and the Commission Notice on the calculation of turn-
over (OJ C 66, 2.3.1998, p. 25). To the extent that figures include
turnover for the period before 1 January 1999, they are calculated
on the basis of average ECU exchange rates and translated into EUR
on a one-for-one basis.

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

Copper rod is one of the principal raw materials used in
the manufacture of some power cables, winding wires,
general cables and metallic communications cables (elec-
tric grade copper rod). Before being converted into
rod must be converted into a solid
cables, copper
conductor element or into copper wire. The parties
maintain that virtually all cable manufacturers have their
own facilities for transforming copper rod into copper
wire and conductor elements. The Commission's investi-
gation has confirmed this view. Therefore, the relevant
product market, for the purposes of this Decision, is the
production and sale of copper rod.

(3) See also Case IV/M.1271 — Pirelli/Siemens, paragraph 8 (OJ C 336,

4.11.1998, p. 11).

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Production and sale of energy power cables

(14)

Power cables can be distinguished, among other criteria,
according to their voltage level: extra-high voltage (EHV)
and high voltage (HV) power cables are used for the
transmission of electric power. Low voltage (‘LV’) and
medium voltage (MV) power cables are employed mainly
for the distribution of electricity. The parties maintain
that the relevant product market for power cables is the
overall power cable market including LV (up to 1 kV),
MV (1 to 33 or 1 to 45 kV), HV (33/45 to 132 kV) and
EHV (275 kV, 400 kV) power cables (1). The parties
argue that the distinction according to voltage levels is
made for historical reasons and is no longer meaningful.
The Commission, by contrast, has established that LV
and MV, on the one hand, and HV and EHV power
cables, on the other, belong to different product
markets.

Pow e r ca b le s of
(HV , E H V) voltag e rang e s

low e r

(L V, M V ) a n d h i g h e r

(18)

(15) On the demand side, the parties claim that cables of MV
and HV may, to some extent, be found in similar appli-
cations within a distribution system: customers could
choose between connecting directly to the transmission
network or connecting at a series of intermediate points
to the existing distribution network, when supplying
electricity to an area of significant consumption for the
first time (for example a business park or a large housing
estate). The market test has revealed that, theoretically,
several MV connections could be substituted for one HV
connection. However, due to increased energy losses and
extra costs resulting from the additional equipment
required (substations, etc.), this is generally regarded as
unattractive and therefore not a viable option for the
customer. Furthermore, customers explained they were
not free in their choice of a certain voltage level since
this choice would be determined by the configuration of
the existing grid (2).

(16)

In the parties' view this limited demand-side substitut-
justify a segmentation of markets
ability does not
according to voltage ranges. The parties argue that
according to the concept of ‘indirect and direct chains of
substitution’, as referred to in paragraphs 57 and 58 of
the Commission Notice on the definition of relevant
market (3), power cables of all voltage ranges could be
regarded as substitutable from the demand-side, thereby
leading to the definition of one single market for energy
power cables.

(17)

There is no evidence to support this market definition.
The concept of ‘chains of substitution’ refers inter alia to

(1) The voltage levels mentioned are the most commonly used voltage
levels; however, there are also other levels used by different custo-
mers.

(2) The price differential between LV and MV cables amounts to
approximately 45 to 60 %, between MV and HV it is approximately
79 %.

(3) OJ C 372, 9.12.1997, p. 5.

a situation where two or more products can be regarded
as belonging to the same product market, without being
direct substitutes for each other, because their pricing
might be constrained by another product, which is a
substitute for the first products.
In the present case,
prices of HV or EHV power cables do not constrain
prices in the lower voltage ranges (LV, MV) and vice
versa. There are, to a lesser extent, differences in price
and intended use even between cables within one and
the same voltage range, for example between cables of
the MV segment).
(both part of
3 kV and 30 kV,
However, this does not warrant a distinction between
power cables within one voltage range since the charac-
teristics of demand do not substantially differ for these
cables. There are, by contrast, a number of differences in
the structure of demand for LV and MV on the one
hand, and HV and EHV power cables on the other hand,
which are likely to have an impact on the competitive
conditions prevailing in these markets.

First, there are differences in the customer base of HV/
EHV and MV/LV power cables. EHV and HV cables are
used for the transmission of power and are mainly
purchased by the large national grid operators such as
ENEL in Italy (80 % of domestic demand), whereas MV
and LV cables are predominantly used in the distribution
of electricity. They are purchased by national utilities,
but also by regional and local utilities as well as industry
(for example, railways, manufacturing enterprises etc.).
Regional utilities (municipalities in Italy or in the United
Kingdom, for example) to a certain extent also purchase
HV power cables but their share of the total demand is
minimal compared to the national
transmission grid
operators, who often continue to operate as (regulated)
monopolies.

(19)

Furthermore, there are differences in the frequency of
transaction between the lower and higher voltage ranges
and in the process by which the customer selects its
suppliers. HV and EHV cables, unlike LV and MV cables,
are usually purchased by the customer on a project by
project basis, thereby defining the type of cable required
for a specific project. Customers order complete installa-
tion with cable terminations, design and construction,
often including accessories, installation, supervision and
systems integration. In the lower voltage ranges, power
cables and accessories are ordered separately. LV and
MV power cables are standardised products and manu-
factured to stock. Suppliers have pointed out that deliv-
eries are made weekly or even daily on requirements,
which is also why LV and MV are often purchased
through distributors, wholesalers or, with multi-year
purchase agreements, directly from the manufacturer.

(20) On the supply side, the parties submit that there is
substitutability in the supply of power cables of different
voltage ranges. In their view, most cable suppliers are
able to offer and sell the various product types without
significant switching costs and lead times. Supply-side

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the parties maintain, does not

require
substitution,
significant adjustment of existing tangible and intangible
assets, major investment or set-up time.

(25)

(21)

(22)

Two factors are of particular relevance in determining
whether power cables of different voltages are indeed
the time and costs
supply-side substitutable. First,
required to set up a new production line and distribution
channels in a new voltage range and secondly, the costs
involved in switching between voltage ranges within an
existing production facility.

The main European suppliers of cables in the EHV and
HV ranges include the five large manufacturers ABB,
Alcatel, NKT, Pirelli and BICC. LV and/or MV power
cables are produced by the five large firms but also by a
‘second-tier’ manufac-
smaller
significant number of
turers, such as Draka (specialising in LV and MV power
cables) and Carena Cavi, Ariston Cavi, Triveneta, Tratos,
AEI etc. These smaller firms tend to cover more limited
product and/or geographic markets, particularly in the
lower voltage ranges for the supply of regional utilities.
Some of the suppliers active in the LV and MV voltage
ranges have the technical capability to manufacture HV/
EHV products, but have not yet gained significant
market shares (for example, the Greek company Fulgor).

(26)

(27)

(23) With respect to the barriers faced by a power cable
producer who intends to enter a new voltage range, the
results of the market test suggest that producers of EHV
and HV usually have the know-how to provide the lower
voltage ranges but that such a switch might not be envi-
saged for economic reasons (for example, investment in
the necessary equipment and machinery). All suppliers
stressed that producers of LV and MV power cables
could not easily switch to the production of higher
voltage cables, which is more know-how intensive.
Rather, the switch between the individual voltage ranges
required considerable investments in terms of time and
capital.

Based on these estimates, technical switching costs and
times would already be significant. Moreover, many
suppliers pointed out that, in addition to pure technical
production resources, a successful entry into the HV and
EHV power cable markets required considerable know-
how and customer goodwill, especially as far as the main
customers, namely the energy utilities, are concerned.
The potential entrant has to pass a number of pre-quali-
fication tests to become an eligible supplier in the higher
voltage ranges.

including installation of

Some suppliers suggested that switching from lower to
the
higher voltage ranges,
production line and completion of the necessary tests
could take as long as two years. This aspect has been
confirmed by a number of customers, who require each
new supplier of HV and EHV cables to build competence
in installation and systems integration. In addition, to
successfully market EHV cables, a track record of
successful reference projects is crucial. Manufacturers
would usually have to move progressively up the voltage
ranges to build up sufficient customer goodwill.

Regarding the costs of switching between the different
voltage ranges within an existing production facility,
manufacturers stated that a polymeric insulation extru-
sion line was normally designed to efficiently produce a
specific range of cable types. Production of cable types
outside this range is often technically possible, but leads
to a loss of efficiency and, hence, higher unit costs
resulting from suboptimal line speed, under-utilisation of
assets etc. (for example, if an HV line is used for produc-
tion of MV/LV cables) (1).
In addition, each switch
between different cable types on the same line involves
retooling and increased scrap rates. One competitor esti-
mated that a factory dedicated to a small number of
different cable types could operate up to 10 % more effi-
ciently, due to lower scrap rates and retooling costs, than
a less specialised plant.

therefore involves

(28) Upgrading production from lower to higher voltage
levels
time and cost.
Switching production between different voltages on
existing machinery, can lead to significant increases in
unit production cost. Supply-side substitutability is
therefore relatively low.

significant

(24)

Pirelli provides the following estimates of time and costs
required to switch between different voltage ranges. The
costs of switching from LV to the production of MV
power cables is estimated by Pirelli at approximately
EUR 7,2 million and to take 14 months (for an up-grade
with new equipment). A switch from MV to HV, would
cost approximately EUR 10 to 12 million, and would
take on average 16 months. Finally, a switch from HV to
EHV power cables would involve costs of between
EUR 13 million and EUR 17 million and could be
achieved within 18 months.

X L PE a n d fl u i d- f i l le d p o w e r ca bl e s

(29)

Two different basic technologies are currently used in
the production of energy power cables,
‘fluid-filled’ or
technology and cross-linked polyethylene
‘oil-filled’

(1) For the production of HV and EHV cables, for example, the stan-
dards of cleanliness are much higher, requiring the producer to
adapt the production process accordingly.

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extrusion (XLPE) technology. The first involves a process
based on the use of insulating laminar paper wrapped
around the conductor and impregnated with a dielectric
fluid. It was generally used for all types of cables until
the early 1970's, when it started to be gradually replaced
by the newer XLPE-technology, beginning with lower
voltages. XLPE technology is based on extruded insula-
tion achieved with the help of cross-linked polyethylene.
The oil-filled technology involved significant process
know-how not widely available to competitors. Produc-
tion equipment was partly developed in-house by the
major cable manufacturers. The XLPE technology, by
contrast, is reported to be more widely available with
most equipment being supplied by external machinery
makers. It is thus significantly more accessible by poten-
tial new entrants. Equipment used in the production of
oil-filled cables cannot be used for XLPE production, and
vice versa. It can therefore be concluded that the two
technologies are not substitutable from the supply-side.

From the demand-side, however, there is strong evidence
that fluid-filled power cables and XLPE cables are substi-
tutes. The XLPE technology was initially used only in the
LV and MV ranges but has, since the early 1990's,
become increasingly common also for HV and EHV
applications. Compared to oil-filled cables, XLPE cables
are simpler to install, require less maintenance and are
more environmentally friendly (no risk of leakage). As a
result, the share of fluid-filled cables in EHV in Europe is
decreasing rapidly. In 1999, oil-filled cables accounted
the total EHV power cable market.
for 38 % of
According to the parties' estimates,
the technology's
market share will fall to 20 % in 2000 and less than
10 % in 2001. All competitors have confirmed this
decline in customer demand for oil-filled cables. The
technology is considered increasingly obsolete.

test, however, has shown that most of

For LV, MV and HV power cables, virtually all customers
thus regard XLPE and oil-filled cables as substitutes. In
the EHV market, two customers stated that they did not
consider XLPE and oil-filled power cables as readily
substitutable. These customers argued that the long-term
reliability of XLPE products had not yet been sufficiently
proven and that specific features of their grids (diameter
of existing ducts) made a switch costly at present. The
market
the
European utilities who still use oil-filled cables in EHV
plan to switch to XLPE technology in future projects.
for
Electricité de France (EDF),
example, already began to use XLPE-power cables in
EHV in the mid-1980's. According to the majority of
customers and suppliers,
there remain no technical
obstacles either to the use of XLPE-power cables at EHV,
or to the installation of such cables into an existing
network of fluid-filled cables. ENEL, the Italian electricity
provider, for example, who in the past used oil-filled or
EPR-insulated power cables
for EHV, will purchase
XLPE-EHV power cables in the period of 2000 to 2002.
Regional utilities have stated similar views (for example,

the French utility,

(30)

(31)

Edison and AEM Torino in Italy, Scottish and Southern
Energy plc.). Where specific obstacles to the use of XLPE
exist (for example, due to XLPE cables' larger conductor
size), they can be assumed to be transitory.

Conc lusi on

(32)

The Commission concludes that the production and sale
of LV/MV power cables on the one hand and HV/EHV
power cables on the other hand, are distinct markets:
First, there is no demand-side substitutability between
these products. Secondly, switching costs and time from
production of lower to higher voltages are significant.
Thirdly, the limited supply-side substitutability does not
have an impact equivalent
to the (missing) demand-
substitution effect. Switching to higher voltage ranges
with existing machinery but outside efficient range is
possible, but at significantly increased production cost.
Finally, a distinction between LV and MV on the one
hand and the higher voltage ranges (HV/EHV) on the
other hand is required due to the different competitive
conditions governing the supply and demand of these
products (1). However, the Commission considers that
there is not enough evidence to maintain that fluid-filled
power cables of extra-high voltages form a distinct
product market from EHV power cables manufactured
with the use of other techniques (mainly XLPE), given
that all producers and a large majority of customers in
Europe consider these cable types as substitutes.

B. Relevant geographical markets

Production and sale of general wiring

(33)

The parties submit that the market for general wiring is
a Community-wide market due to the harmonisation of
cable specifications and the presence of multinational
operators, whose commercial policy is established at
investigation in the
Community level. The market
present case has confirmed this view. Therefore, for the
purposes of this Decision, the market for general wiring
is considered to be a Community-wide market.

(1) Based on similar considerations, a study on power cables and
conductors (Databank, Cavi e conduttori isolati; June 1999; Refer-
ence ISTAT 31.3, Codice B.d.I. 059.341) applies a distinction
between high technology power cables (cavi ad alta tecnologia) and
standard power cables (cavi e conduttori standard). HV power cables
(from > 36 kV) and EHV power cables (up to 500 to 600 kV)
belong to the first group, LV and MV power cables to the second.

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Production and sale of copper rod

(34)

The parties submit that the relevant geographic market
for copper rod is at least Community-wide since copper
rod is a standardised commodity product, which is
widely traded throughout Europe at comparable prices.
Furthermore, the parties hold that transport costs do not
constitute a barrier to the import of copper rod. The
Commission's investigation has confirmed this assess-
ment.

cables are covered by European standards (EN's), except
for specialist niche applications, for which no European
standards exist. For ENs transposition into a corre-
standard is compulsory. For HD
sponding national
(harmonised documents)
transposition is voluntary.
Cenelec reports that 90 % of ENs and HDs are imple-
mented at the national
less than one year after
level
adoption. Most utilities have reported that they apply
EN's,
international standards (IEC's), or national stan-
dards compliant with European standards.

(35)

(36)

Production and sale of power cables

The parties maintain that power cable markets have
progressively
evolved to become Community-wide
markets. According to this view, there are no barriers to
market entry on the supply-side. Harmonisation of tech-
nical standards for power cables has, according to the
parties, removed all remaining obstacles for Community-
based suppliers to participate in tenders in all Member
States. From a demand side perspective, power cable
markets are bidding markets, where customers increas-
ingly source power cables at a European level on the
basis of the procedures provided for in the Community
public procurement directives. These elements, together
with the low impact of transportation costs, the parties
argue, are reflected by the increasing level of imports
and exports of power cables between Member States.
The Commission's investigation has confirmed that the
markets for power cables are indeed Community-wide.

Ha r moni sa t i on
adva nce d si g ni fi cantly

of

p r odu c t

st a nda r ds

h a s

In its Decision concerning Alcatel/AEG Kabel (1)
the
Commission found that cable markets in the Community
are at a transitional stage, shifting from national markets
to one that is Community-wide. However, at that time,
it concluded that the transition was not yet completed
due to a number of factors including the existence of
different cable specifications hindering imports, compli-
cated and lengthy approval requirements for suppliers to
meet national standards and the related adaptation costs.
In its Decision concerning
the
Commission recognised that there is a tendency towards
harmonisation of technical standards across Europe, but
the question of the national or European dimension of
geographic markets was left open.

Pirelli/Siemens (2),

(37)

In the present case the Commission has found that,
according to the European Committee for Electro-tech-
nical Standardisation (Cenelec), most LV and MV power

(1) Case No IV M165–AEG/Alcatel Kabel (OJ C 6; 10.1.1992).
(2) Case No IV/M1271–Pirelli/Siemens, (OJ C 336, 4.11.1998, p. 11).

(38)

(39)

(40)

For LV and MV cables, a mix of IEC and Cenelec stan-
dards prevails in each Member State. In addition, the
individual utility customer usually applies a set of
different product
instance
applies 24 different specifications for LV and MV power
cables) related to product quality, raw material and
product safety. These specifications are stipulated by the
different utilities to fit their respective cable networks
(joints, accessories, switching gear) (3).

specifications

(ENEL for

significant barriers-to-entry

There are no indications that the different specifications
for potential
constitute
competitors. Apart from the parties, there are a number
of European cable suppliers, such as ABB, Alcatel, NKT,
Sagem or the remaining BICC facilities in Spain and
Portugal (4), who possess
capability,
production capacity and certifications required to supply
the major European electricity utilities, which they have
put to use in a large number of tenders outside their
traditional home markets. All these first-tier manufac-
turers, with the possible addition of some smaller manu-
facturers, are able to supply cables to specifications
required for LV/MV power
the
Community.

throughout

technical

cables

the

In the HV/EHV market, by contrast, there are no set
product standards. For each project, utility customers
specify their own design standards, based on national,
IEC and Cenelec standards. Hence, cables are custom-
designed for each high or extra-high voltage project and
national standards do not normally constitute a barrier-
to-entry. In order to become a qualified supplier of HV/
the supplier usually has to meet
EHV power cables,
comprehensive test requirements, which, according to
customers, can take between 12 and 18 months.
However,
the main suppliers of HV/EHV cables,
including Pirelli, BICC, Alcatel, ABB, NKT, but also some
second-tier manufacturers, are already qualified suppliers
to most European power utilities. All of these companies
could meet the necessary certification requirements for
any tendered project, given that utilities are usually
obliged to indicate their estimated purchases one year in
advance.

(3) Utilities but also suppliers have reported that the number of specifi-
cations will be reduced in the future, due the need to increase effi-
ciency and reduce production costs.

(4) There is no non-compete clause between the new entity and BICC.

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(41)

the foregoing,

it can be concluded that
In view of
different product standards are largely harmonised at a
European level and existing national specifications are
not any longer obstacles to market entry.

national suppliers with a long-established supplier rela-
is, utilities'
tionship with the utility customer. That
incumbent
traditional
suppliers have defended their
national strongholds despite the opening-up of procure-
ment procedures.

(42)

(43)

Pr i c e di ffe r e nc e s a r e du e
c h a r a c t e r i s t i c s of e a c h te n de r

to t h e

i ndi vi dua l

For

customers.

The Commission's investigation has revealed that a
comparison of price levels across different countries for
individual products is not meaningful because prices for
power cables depend strongly on quantities purchased in
each transaction and the specifications stipulated in each
individual tender. Batch-sizes can vary widely between
the different
framework
contracts in the LV/MV market can cover several thou-
sand kilometres of cable, while other contracts may
relate to relatively short cable links. In addition, the indi-
vidual customers typically require different cable designs
even for
for example single or
multiple core cable types, different kinds of conductors
(round or sectoral), or different types of screens. These
differences, combined with varying contract sizes, lead
to price differentials between Member States, although
they do not constitute barriers-to-entry (1).

identical voltages,

example,

(45) ABB, for instance, has an HV/EHV market share of [50
to 60]* % in Sweden, [45 to 55]* % in Norway and [5 to
15]* % in Germany and is not present in any other
Member State. SAT-Sagem has [10 to 20]* % in France,
[below 5]* % in Belgium and is not present in any other
Member State. NKT has [35 to 45]* % in Denmark and
[5 to 15]* % in Germany through acquisition of Felten &
Guillaume (4). Fulgor has a [45 to 55]* % market share
in Greece and only a minor presence in other Member
States. These market shares have changed only margin-
ally over the past three years. Only Pirelli, BICC and
large
Alcatel have significant market
Member States: Pirelli has [40 to 50]* % in Italy, [40 to
50]* % in France, [40 to 50]* % in Spain, [35 to 45]* %
in Germany and [30 to 40]* % in the United Kingdom.
BICC has [45 to 55]* % in the United Kingdom, [15 to
25]* % in Germany, [25 to 35]* % in Italy, [35 to 45]* %
in Portugal and [50 to 60]* % in Spain. Alcatel has [25
to 35]* % in France, [35 to 45]* % in Belgium and [20
to 30]* % in Italy. These companies, especially the two
largely base
market leaders Pirelli and BICC, however,
these market positions on local production facilities and/
or acquisition of
In the LV and MV
segment, very similar trends can be observed.

local players.

in all

shares

U ti l i ti e s ca n p u r c h a se Commu ni t y- w i de

(46)

This significant asymmetry of market shares across
Europe could suggest that markets might still be national
in scope. However, the market investigation conducted
by the Commission did not support this initial assump-
tion.

energy,

Traditionally, that is to say prior to deregulation, the
electricity market was marked by monopoly suppliers
purchasing largely from domestic cable suppliers. Under
the public procurement directives, in particular Council
Directive 93/38/EEC of 14 June 1993 coordinating the
procurement procedures of entities operating in the
telecommunications
water,
sectors (2), as last amended by Commission Directive
2001/78/EC (3), contracting entities are required to
ensure that there is no discrimination between suppliers,
contractors or service providers from different Member
States. Under the public procurement directives, utilities
are legally required to tender their cable requirements on
a European basis through publication in the Official
Journal of the European Union.

transport

and

(44) However, the contract award notices examined in the
course of
that,
although contracts are tendered Community-wide, in the
majority of cases the successful bidder(s) continue to be

the Commission's investigation reveal

(47) Over-capacity combined with the threat of losing out to
foreign competitors at present enables utilities to achieve
highly competitive bids from their incumbent domestic
suppliers. Nevertheless, cross-border bids are increasingly
frequent and a number of European cable manufacturers
regularly participate in tenders across various Member
States. For example in the United Kingdom, the import
ratio in 1999 was 32 %. Several non-domestic suppliers
such as NKT, Studer, Fulgor, Alcatel, Wessel or Tratos
have submitted bids for LV/MV power cables. In Italy,
the
(approximately 9 % of
lower
consumption) but has been increasing significantly over
the past three years (from 5 % in 1997, 6,4 % in 1998
to 9 to 10 % in 1999/2000) (5). In Italy, several non-
domestic suppliers like for example, ABB, NKT and
Sagem have recently participated in ENEL-tenders for
HV and EHV power cables.
In the United Kingdom,
Alcatel, who recently became qualified supplier for EHV
to NGC, have participated in NGC tenders,
cables
amongst
in Northern
Yorkshire.

them the high-voltage project

ratio is

import

(1) Price comparisons have been conducted on a hollow basis, i.e. strip-

ping out fluctuations in the copper price.

(2) OJ L 199, 9.8.1993, p. 84.
(3) OJ L 285, 29.10.2001, p. 1.

(4) NKT also has a minor presence in Finland (5 %) and in Belgium

(7 %).

(5) Trade statistics given by CRU.

L 70/42

EN

Official Journal of the European Union

14.3.2003

(48) Hence, liberalisation and Community procurement legis-
lation have not yet
led to a substantial change in
national market shares, mainly because low price levels
currently make further aggressive undercutting unattrac-
tive. Competitive pressure is nevertheless exerted by
foreign suppliers, because utilities would face no obsta-
cles in switching to foreign suppliers if local prices rose
above competitive levels. The switch would be facilitated
by the fact that most large energy utilities are sophisti-
cated customers with significant buyer power, which
could easily turn to foreign firms. The utilities, which
were addressed in Italy, the United Kingdom, Germany
and France have confirmed that they would not hesitate
to move orders to foreign suppliers, if domestic manu-
facturers attempted to raise prices by an appreciable
extent (by 5 to 10 %). In addition, utilities have actually
achieved substantial price reductions by confronting
their
incumbents with alternative bids from foreign
competitors.

(49) At the same time, deregulation has increased utilities'
incentives to bargain more aggressively with their cable
suppliers. Most countries either have or are planning to
introduce regulatory systems, whereby efficiency gains
above a set level accrue to the utilities. For example, in
the United Kingdom, RPI-X price controls, which are
reassessed every five years, ensure that a minimum level
of efficiency gains is passed on to the consumer, while
setting strong incentives for utilities to perform. The
RPI-X price controls on the various parts of the electri-
city industry require the average price (or revenue) to
decrease in real terms by a specified annual rate X. The
price controls reflect
future
operating costs and capital expenditure that might be
incurred and are set to provide an adequate return to
shareholders consistent with efficient performance.

the anticipated levels of

Inc r e a si ng i n tr a - C ommu n i ty t r a de f low s

(50)

The parties argue that due to deregulation of electricity
markets, the absence of entry barriers and low transport
costs all over western Europe, imports as well as exports
have increased in recent years. According to the parties,
20,8 % of the total western European consumption was
imported while 27 % of total production was exported
in 1999.

(51)

The Commission's inquiry has revealed that, in general,
imports of power cables are increasing within the
Community. This trend partly reflects the strategy of
most first-tier cable manufacturers to improve efficiency

capacity

production

realignment

by consolidating production of specific cable types in
dedicated plants on a European basis. This strategy of
European
is
of
currently pursued by all first-tier cable manufacturers
(i.e. Pirelli, BICC, Alcatel, ABB, NKT). For example,
Alcatel supplies large quantities of cables from its French
production plants to other countries, while NKT and
ABB have created international production hubs in
Copenhagen and Karlskrona, respectively,
from where
they supply cables to several European countries. Hence,
supply of power cables increasingly takes place through
European production networks, rather than domestic
sources.

(52)

(53)

(54)

Import ratios differ between Member States. Whereas in
the United Kingdom one third of consumption was
imports account for only approxi-
imported in 1999,
mately 9 % of consumption in Italy (although they are
increasing).
In Germany, 21,9 % of consumption is
imported, in France 23,9 % and in the Nordic countries
17,4 %. However, the lower level of imports in certain
Member States is not due to the existence of entry
barriers but reflects differences in the speed and extent
to which deregulation and privatisation has taken place.

Furthermore, the inquiry has revealed that local produc-
tion capacity is not a prerequisite for successful market
entry since transportation costs are relatively low (1): on
average, intra-Community transportation costs are esti-
mated at between 3 and 7 % of production cost (2). As
such, they lie in the same range as in other industries
with well-established European production systems.

Similarly, the market investigation has revealed that a
local presence is not necessary for a supplier to meet
customers' just-in-time delivery requirements for LV/MV
power cables, which the customer may need within one
to two weeks from the order. These requirements can be
met by imports of these products, which can usually be
carried out within one to two weeks. If necessary, local
storage facilities can be established at relatively short
notice and moderate cost. For HV/EHV power cables,
just-in-time delivery requirements do not arise. A local
presence for reasons of maintenance or installation does
not seem essential. In the case of LV/MV cables, installa-
tion and maintenance is done by the customers. In the
case of HV/EHV power cables installation or mainte-
nance (3) is usually performed by the large suppliers with
the help of local contractors. This view was supported
both by customers and competitors covered by the
Commission's investigation.

(1) Due to the higher product value of EHV and HV power cables,
transportation costs are relatively lower than for LV and MV power
cables.

(2) According to most customers, transportation costs mainly represent
a barrier-to-entry for imports of low-value added (i.e. LV/MV) cables
from outside Europe, where they can account for approximately 10
to 15 % of product value.

(3) Periodic maintenance is usually not required for HV/EHV voltage

power cables.

14.3.2003

EN

Official Journal of the European Union

L 70/43

Conclu si on

(55)

To summarise, the gradual
liberalisation of electricity
markets has led the markets for production and sale of
to evolve as
(LV/MV and HV/EHV)
power cables
Community-wide, even if this is not yet reflected in
current market shares. The demand side is dominated by
large sophisticated customers with significant buyer
power, which can be used strategically (for example, to
encourage foreign firm entry). Barriers-to-entry are low.
The Commission therefore concludes that the relevant
geographical market is Community-wide.

C. Competitive assessment

General wiring

20 %]*. The market for general wiring is a rather frag-
mented market with numerous suppliers competing
against the merged entity. The proposed concentration
will only marginally increase Pirelli's current market
share in general wiring and will not lead to the creation
of a dominant position for Pirelli/BICC In general wiring,
there are no significant entry barriers since the manufac-
turing process does not require complex know-how, and
customer loyalty is reported to be low. An important
proportion of the production of general wiring products
is sold through independent distributors (which are not
affiliated to cable producers) which themselves have
significant market positions in several Member States.
Important distributors
example, Rexel,
include,
Sonepar or Edmundson in France and Belgium or Newey
& Eyre, Rexel and Sonepar in the United Kingdom. The
market investigation has confirmed that the proposed
concentration will not give rise to competitive concerns
in the field of general wiring.

for

(56)

The market shares achieved by Pirelli, the target compa-
nies and their main competitors within the Community
in 1997, 1998 and 1999, according to the notification,
are set out in the table below:

Production and sale of copper rod

Competitor/
Product

1997

1998

1999/2000

Pirelli

[below
10%]*

[5 to 15%]*

[10 to 20%]*

BICC/The target
companies

[below
10%]*

[below 5%]*

[below 5%]*

Pirelli/BICC

/

/

[10 to 20%]*

Alcatel

[10 to
20%]*

[10 to
20%]*

[10 to 20%]*

Delta

[below 5%]*

[1 to 10%]*

[1 to 10%]*

Triveneta

[below 5%]*

[below 5%]*

[below 5%]*

in 1999,

(58) At the Community level, Pirelli's and BICC's sales of
copper rod each account for approximately 5 % of total
market
their combined shares being 10 %,
while Alcatel has 13,7 %. (1) Pirelli/BICC (2) and Alcatel
would be the only power cable producers vertically inte-
grated towards the production of copper rod, selling
about 25 % of the total EEA copper rod production.
Independent manufacturers sell 75 % of the supply. The
proposed concentration will not lead to the creation of a
dominant position in the market for copper rod as a
result of which competition would be significantly
impeded in the common market since competitors of
Pirelli/BICC and/or Alcatel can source copper rod from
independent suppliers.

Draka

[below 5%]*

[below 5%]*

[below 5%]*

Power cables

BICC General (1)

[below 5%]*

[below 5%]*

[below 5%]*

ABB

[below 5%]*

[below 5%]*

[below 5%]*

Re ce nt
i ndu st r y

de v e lopme nts

i n

the

p owe r

c able

General Cavi

[below 5%]*

[below 5%]*

[below 5%]*

(59)

(1) The remaining business in Spain and Portugal.

Power cable markets traditionally used to be closed
markets, where national suppliers (3) covered most of the
national electricity utilities' requirements without facing
significant competition from foreign competitors. In the

(57) As shown in the table in paragraph 56, the parties will
have a combined market share of [10 to 20 %]*, with
only a small distance to Alcatel, which holds [10 to

(1) Figures given in the notification.
(2) Through its joint venture with AEI.
(3) Suppliers with domestic production capacity, not necessarily domes-

tically owned ones.

L 70/44

EN

Official Journal of the European Union

14.3.2003

to ‘over-engineer’

the public utilities
absence of competitive pressure,
tended to favour domestic suppliers. They were only
moderately price-sensitive, with a tendency,
in some
countries,
their networks. Power
cables, in addition, typically account for only a minor
share of a utility's capital expenditure (low single-digit
percentages) and as such did not initially constitute a
priority target
for cost reduction. Especially in high-
voltage transmission, most European utilities' electricity
grids predominantly use overhead lines, a market not
concerned by the operation (1).

(60)

started

liberalisation of

the electricity
Following the gradual
the Community public
markets and introduction of
the cable industry's competitive
procurement regime,
environment has
to change. Demand is
decreasing as a result of the restructuring of the utilities
(for example, privatisation, separation of transmission,
distribution and maintenance) and the high level of
market saturation (most Member States have a fairly
developed electricity system). Many utilities have reduced
their investment budgets due to a tightened regulatory
regime, leading to significant industry-wide over-capacity
(of approximately 30 to 50 %).

(61) Due to these and other factors (2), cable suppliers have
found themselves confronted over the past three years
with rapidly declining prices (by up to 60 %) and
decreasing profit margins. Prices have not always moved
uniformly in the different Member States, but
they
appear to have generally declined between 1996 and
1999 by 16 % to 24 % in LV and by 7 % to 36 % in MV
in the larger Member States (France, Italy, the United
Kingdom and Spain), apart from Germany (3). In the HV/
EHV segment, specific features of each individual project
and the small overall number of transactions blur any
price trend or cross-country comparison. Nevertheless,
customers have reported significant price decreases of
up to 60 % in this market. The fact, however, that prices
have not always declined uniformly across different
European countries does not indicate that markets are
national, but rather reflects the different speeds at which
electricity markets have been deregulated and, hence, the
point at which national utilities have become more
price-sensitive.

(62) At present, price levels are at a historical

low. This
market environment has led several cable manufacturers
to exit the market and many of the remaining ones to
merge with competitors, thereby reducing over-capacity

(1) In Europe approximately 0,7 % of 400 kV lines, 2 % of 220 kV

lines and 5 % of 45 to 220 kV lines use underground cables.

(2) Including the decision of the Bundeskartellamt breaking up the
power cable cartel in Germany in 1996; B 7-31301-A-105/96.
(3) In Germany, a large cable cartel was broken up in 1996. As a result,
prices for HV/EHV cables have dropped by up to 60 % in the past
three years, while LV and MV rates have recovered from their lows
in the wake of the collapse of the 1996 cable cartel.

and gaining efficiencies through better capacity utilisa-
tion and consolidating production of specific cable types
in dedicated plants on a European basis.

(63) Hence,

the present operation has to be seen in the
context of the general consolidation and restructuring
trend in the cable industry. The underlying business
rationale of the proposed take-over for Pirelli/BICC is to
rationalise production capacity, including the possibility
of plant closures. While the operation is likely to reduce
industry capacity, the parties' market power after the
operation will be constrained by several other viable
suppliers as well as utilities' significant buyer power,
which should prevent prices from increasing above
competitive levels.

M a r k e t sh a r e s

(64)

The table below sets out market shares in the HV/EHV
market in the Community in 1997, 1998 and 1999 to
2000, as given in the notification.

Competitor

1997

1998

1999 to 2000

Pirelli

[20 to 30]*
%

[20 to 30]*
%

[30 to 40]* %

BICC (the target
companies)

[5 to 15%]*

Pirelli/BICC

/

/

[45 to 55%]*

Alcatel

[10 to
20%]*

[10 to
20%]*

[10 to 20%]*

ABB

[1 to 10%]*

[1 to 10%]*

[1 to 10%]*

BICC (1)

[15 to
25%]*

[15 to
25%]*

[1 to 10%]*

NKT

[below 5%]*

[below 5%]*

[below 5%]*

SAT/Sagem

[below 5%]*

[below 5%]*

[below 5%]*

(1) The business remaining with BICC, that is, essentially, BICC's produc-

tion plants in Spain and Portugal.

(65)

Pirelli/BICC have a combined market share of [45 to
55 %]*, while the next player, Alcatel, has only [10 to
20 %]*. The operation will combine the largest and the
third largest manufacturer of HV/EHV power cables.

14.3.2003

EN

Official Journal of the European Union

L 70/45

(66)

The table below sets out the market shares in the LV/MV market in the Community in 1997, 1998
and 1999 to 2000, as given in the notification.

1997

1998

1999/2000

LV

MV

LV

MV

LV

MV

Pirelli

[5 to 15%]*

[10 to
20%]*

[5 to 15%]*

[10 to
20%]*

[20 to
30%]*

[25 to 35%]*

BICC (the target
companies)

Pirelli/BICC

Alcatel

[15 to
25%]*

[15 to
25%]*

[15 to
25%]*

[15 to
25%]*

[1 to 10%]*

[1 to 10%]*

[25 to
35%]*

[15 to
25%]*

[30 to 40%]*

[15 to 25%]*

Draka

[5 to 15%]*

[1 to 10%]*

[1 to 10%]*

[1 to 10%]*

[5 to 15%]*

[5 to 15%]*

SAT-Sagem

[1 to 10%]*

[1 to 10%]*

[1 to 10%]*

[1 to 10%]*

[1 to 10%]*

[below 5%]*

BICC (1)

[1 to 10%]*

[5 to 15%]*

[5 to 15%]*

[5 to 15%]*

[below 5%]*

[1 to 10%]*

NKT

ABB

[below 5%]*

[below 5%]*

[below 5%]*

[below 5%]*

[below 5%]*

[below 5%]*

[below 5%]*

[below 5%]*

[below 5%]*

[below 5%]*

[below 5%]*

[below 5%]*

(1) The business remaining with BICC, that is, essentially, BICC's production plants in Spain and Portugal.

(67)

Pirelli/BICC's combined market share amounts to [25 to
35 %]*.
In the LV segment Pirelli/BICC together with
Alcatel account for approximately [45 to 55 %]* of the
market, whilst in the MV segment they account for [50
to 60 %]*.

(70)

(68) Due to Pirelli/BICC's high combined market shares in
both the LV/MV and the HV/EHV market, the Commis-
sion has investigated the following possibilities:

(a) creation of single dominance of Pirelli/BICC in the

HV/EHV market;

(b) creation of collective dominance of Pirelli/BICC and

Alcatel in the HV/EHV market;

(c) creation of collective dominance of Pirelli/BICC and

Alcatel in the LV/MV market.

European level with a considerable distance to the
second-largest firm, Alcatel with [10 to 20 %]*.

To properly assess the parties' market position, it has to
be borne in mind that in several Member States the
demand for high-voltage power cables consists mainly of
the respective national grid operators, such as National
Grid Company (NGC) in the United Kingdom, ENEL in
Italy and EDF in France, who account for up to 90 % of
domestic demand. Hence, the prevailing market structure
is not
these dominant customers'
purchasing policies. These utilities may move purchases
to alternative suppliers in order to maintain a desired
number of sources.

least a result of

(71) As a result,

it

is unlikely that Pirelli/BICC's current
combined Community market share will be sustained by
the merged entity. Several competitors of Pirelli and
BICC stated that they anticipated new opportunities to
arise for foreign suppliers because utilities currently
using Pirelli and BICC as their main suppliers are likely
to diversify their supplier-base (1). Due to the current
situation of over-capacity, all of the main European cable
manufacturers have significant spare capacity and would
therefore be able to fill additional orders.

Possible creation of single dominance in the HV/EHV market

Imp a c t of th e ma r ke t sh a r e i nc r e me nt r e su lti ng
fr o m t h e op e r a t i on

(69)

In the HV/EHV market, the combined entity would be
market leader with [45 to 55 %]* market share at the

(72) At present, depressed price levels enable utilities to
obtain highly competitive bids from their traditional
suppliers. Market shares have thus remained relatively
stable over the past years. Competitive pressure is never-
theless exerted by foreign competitors. Utilities have
achieved considerable price reductions (by up to 40 %)

(1) ENEL and EDF, for example, according to internal guidelines usually
tend to have at least 3 suppliers for power cables of all voltage
ranges. Some German utility customers tend to have at least two
suppliers for each cable type in the HV/EHV ranges for safety
reasons.

L 70/46

EN

Official Journal of the European Union

14.3.2003

by confronting incumbent suppliers with lower bids
from foreign competitors (for example, ABB and Brugg
in Italy, Alcatel and Fulgor in the United Kingdom, NKT
in Germany).

(76)

Finally, due to their substantial purchasing power, utili-
ties have the possibility to attract additional cable
suppliers through strategic allocation of orders and, thus,
to broaden their supplier base, if necessary. Fulgor, for
example, was encouraged by a British utility to enter the
United Kingdom market. The company has the technical
capability to manufacture XLPE power cables of EHV up
to 420 kV and may in the future become a first-tier
manufacturer in terms of Community market share,
product range and geographical market penetration. The
same principle potentially applies to other second-tier
manufacturers, such as AEI or Tratos.

A fte r th e ope r a ti on cust ome r s wi ll sti ll h a ve at
le a s t fo u r a l t e r na t i v e s u p p li e r s

(73) Apart from the parties, there are a number of large
European cable suppliers such as ABB, Alcatel, NKT,
Brugg (and possibly Sagem and BICC General (1)), which
possess the technical capabilities, production capacity
and quality certifications to supply the major European
utilities with know-how intensive HV/EHV voltage cables
in large quantities. As such, they are credible bidders in
any major European tender for HV/EHV power cables.
In addition, smaller companies like Fulgor ([below 5 %]
market share at a Community level), which has recently
been added to ENEL's list of pre-qualified suppliers for
HV and EHV power cables, have the technical capabil-
ities to supply HV/EHV, provided customers guarantee
sufficient orders to justify the necessary investment. As
shown in recitals 36 to 40, technical and administrative
barriers to entry are relatively low. Where specific type
qualifications are required, they can be obtained within a
reasonable time period, if the customer provides assis-
tance. All of the first-tier manufacturers could supply
In
power cables of HV/EHV using XLPE technology.
addition, all market participants agreed that transport
costs are moderate (between 3 % and 5 % of the product
price) and that import levels are increasing.

(74)

The competitors'
relatively low Community market
shares (compared with Pirelli/BICC) do not adequately
reflect their competitive strength and production capa-
city, because the low prevailing price levels have led
these manufacturers to focus on overseas markets (for
example ABB) or traditional home markets (for example
these
Alcatel). However, when price levels
companies can be expected to bid more actively in
Europe.

recover,

(75)

In addition, customers have confirmed that existing
contractual relationships with their incumbent suppliers
do not represent an obstacle to switching suppliers at
short notice. Due to their strong bargaining position,
several utility customers have, in the past, renegotiated
framework-contracts when they felt that market prices
had decreased during the contract term.

T h e u ti l i ty c u stome r s h a v e si g ni f i c a nt b u y e r
a nd b a r g a i ni n g p o w e r , w h i c h th e y e x e r c i se i n a
biddi ng p roc e ss

(77)

The major utilities ENEL and NGC as well as EDF and
the main German electricity utilities, but also regional
utilities, are able to exercise considerable buyer power.
Virtually all demand for HV/EHV cables stems from
these customer groups. They purchase large volumes of
power cables and account for a significant share of Pirelli
and BICC's turnover. ENEL represents around [70 to
80 %]* of the Italian demand for HV/EHV power cables
and represents between 80 % and 100 % of BICC's and
[70 to 80 %]* of Pirellis sales of power cables to utilities
in Italy. NGC represents between 80 % and 100 % of
BICC's sales in the United Kingdom and has a very
important share of BICC's Community-wide sales.

(78) According to Directive 93/38/EEC, public undertakings
(contracting entities) are obliged to regularly publish in
the Official Journal of the European Union all the contracts
which they intend to award over the following 12
months (obligatory call for competition) (2). They must
also publish contract award notices which must indicate,
inter alia, the products concerned, the award procedure,
the tenders received and the name and address of the
successful suppliers. In the procedure, contracting enti-
ties are required to ensure that there is no discrimination
between different suppliers or service providers. Many
contracting entities have established a system of qualifi-
cation for suppliers, mostly using European standards as
a reference. The criteria for this qualification system
have to be made available to interested suppliers.
Contracting entities requiring certificates for attesting
conformity of the supplier to certain quality assurance
standards have to use the relevant EN standards series
and have to recognise equivalent certificates from bodies
established in other Member States.

(1) BICC's remaining facilities in Spain and Portugal.

(2) This applies to contracts with an estimated value of no less than

EUR 400 000.

14.3.2003

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Official Journal of the European Union

L 70/47

(83)

(84)

(79) However, the existence of bidding markets by themselves
does not automatically ensure effective competition in
highly concentrated markets. The application and impact
of the public procurement directives has to be examined
in each individual case.
In the HV/EHV power cable
market, tenders take place infrequently, while the value
of each individual contracts usually is very significant.
Contracts are typically awarded to a single successful
bidder
Strong
(so-called
for all competitors to bid
incentives therefore exist
aggressively for each contract.

‘winner-take-all’-principle).

Conclu si on

(80)

In summary, there is insufficient evidence to conclude
that the operation would result in the creation of a
dominant position of Pirelli/BICC in the market for the
supply of HV/EHV power cables in the Community,
because there remain at least four first-tier competitors
as credible bidders and because the demand side is domi-
nated by large sophisticated customers, purchasing
power cables in a bidding process.

In addition, the benefits of collusive strategies would be
asymmetric, because both the value of individual tenders
and the size of the competitors' respective traditional
geographic strongholds vary significantly.
In addition,
Pirelli/BICC and Alcatel's existing market shares are
asymmetric. Furthermore, prices for HV/EHV power
cables are not transparent since they include an impor-
tant element of services (for example installation and
maintenance),
and
switches) and civil works, which can amount to more
total project value (especially for
than two-thirds of
inter-urban underground cable links).

accessories

example

joints

(for

large utilities, the main customers of HV/EHV
Finally,
power cables typically purchase large quantities. In some
Member States, one single monopoly grid operator
accounts for almost all HV/EHV purchases. By virtue of
their substantial purchasing power, these customers have
the possibility to actively develop new supply sources
through strategic allocation of orders to selected cable
producers. Smaller manufacturers can thus be encour-
aged to submit bids, provided they are offered sufficient
quantities at viable prices to justify the necessary invest-
ment.

Conc lusi on

(81)

(82)

Possible creation of a collective dominant position of Pirelli/
BICC together with Alcatel in the HV/EHV market

In the HV/EHV market, the two leading firms, Pirelli/
BICC and Alcatel, would achieve a combined market
share of [55 to 65 %]*. Given the considerable lead of
Pirelli/BICC and Alcatel over the next largest competitors
and the high degree of existing market concentration,
the creation of a collective dominant position of Pirelli/
BICC and Alcatel in the HV/EHV market could a priori
not be excluded. A collective dominant position could
be exploited, in particular, by bidding less aggressively
against each other than under competitive conditions or
by tacitly dividing up markets along geographic lines
(for example traditional home markets). The market
investigation has, however, revealed that the underlying
transaction structure of the HV/EHV market does not
foster conscious parallel behaviour.

Bidding transactions in the HV/EHV market take place
infrequently (there are generally no more than a few HV/
EHV contracts placed per year in each country, even less
in smaller countries), while the value of each individual
contract
is very significant. Contracts are typically
awarded to a single successful bidder (winner-take-all-
for all
principle). Strong incentives
competitors to bid aggressively for each contact. The
bidding
contracts)
prevailing in the HV/EHV market makes conscious
parallel behaviour unattractive, because the benefits of
is likely to outweigh
winning each current contract
potential future gains from collusion.

(infrequent, high-value

therefore exist

structure

(85) No conclusive evidence was found that the operation
would lead to the creation of collective dominance of
Pirelli/BICC together with Alcatel in the HV/EHV market,
since the market structure does not appear to lend itself
to conscious parallel behaviour among bidders and
customers can be expected to exercise their considerable
buyer power.

(86)

(87)

Possible creation of collective dominant position of Pirelli/
BICC together with Alcatel in the LV/MV market

In LV/MV power cables, Pirelli/BICC, together with the
second largest firm, Alcatel, would account for [50 to
60 %]* % of the market. Pirelli/BICC and Alcatel collec-
tively would be market leaders with some distance to the
next largest competitors. The market investigation has,
however, not provided evidence supporting the creation
of a collective dominant position of Pirelli/BICC and
Alcatel in the supply of LV/MV power cables.

Compared to HV/EHV, Pirelli/BICC and Alcatel's market
shares are more symmetric ([25 to 35 %]* and [15 to
25 %]*, respectively), but their combined market share is
lower ([50 to 60 %]*). Barriers-to-entry to the LV/MV
market are lower than in HV/EHV, because the products
are less know-how intensive.
In the LV/MV market,
Pirelli/BICC's main competitors include the large manu-
facturers Alcatel, NKT, Draka, Sagem, Brugg in addition
to a number of smaller firms such as Fulgor, Waskonig,
AEI, Tratos, Carena, Triveneta and others, who are active
in more limited geographic and/or product markets.

L 70/48

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Official Journal of the European Union

14.3.2003

(88)

Competitive pressure in the LV/MV market is therefore
exercised not only by the remaining first-tier manufac-
turers, but also by a large number of second-tier firms.
Apart from the second-tier manufacturers mentioned in
recital 87, who typically hold established market posi-
tions as suppliers to regional utilities and, as members of
bidding consortia, to national grid operators, customers
have stated that even hitherto less known (third-tier)
manufacturers could be eligible for LV/MV contracts, if
prices available from existing suppliers were to rise.
Given the existence of this large competitive fringe, it
appears unlikely that Pirelli/BICC and Alcatel would be
able to use their combined market share to impose price
increases in the LV/MV market.

(89)

In contrast to tenders in HV/EHV power cables, LV/MV
transactions tend to take place more frequently and the
average batch value is lower. Given the lower average
batch value and higher frequency of bidding occasions
the individual supplier could be tempted to abstain from
aggressive bidding rather than risk a decline in prices
and retaliation by rival suppliers.

(90) However, the Commission's inquiry in the present case
has concluded that utilities have various possibilities to
thwart attempts of conscious parallel behaviour among
bidders. For example, customers can use framework
contracts, which aggregate a utility's demand over a
period of time (up to two years) and hence, create less
frequent more valuable transactions, in order to increase
bidders' incentives to compete aggressively. In addition,
utilities frequently use a ‘bids-for-allocations’ process to
exercise gradual pressure on large suppliers by reducing
their allocation. By offering a higher allocation to
smaller (second-tier) players, and thus reducing existing
suppliers' volumes, pressure can be exerted on suppliers
with a significant fixed cost base. Both strategies are
employed by ENEL in Italy and other large utility custo-
mers.

(91)

(92)

Furthermore, the results of the market investigation indi-
cate that price transparency for LV/MV products is
rather low due to the absence of meaningful list prices
specifications.
and varying customer-defined product
Collusive strategies are thus further complicated.

Finally, LV/MV power cables are also purchased by a
number of smaller regional utilities active in the distribu-
tion of electricity. Their more limited buyer power,
compared to the national grid operators, is balanced by
their ability to source cable requirements from the large
in addition to the first-tier
number of
manufacturers. These smaller
firms, such as Tratos,
Carena and Triveneta in Italy and AEI in the United
Kingdom, are all able to cover the smaller quantities
demanded by regional utilities.

fringe firms,

Conc lusi on

(93)

The risk that the transaction might create a position of
in
oligopolistic dominance by Pirelli/BICC and Alcatel
the market
for LV/MV power cables appears small,
because of the low barriers to entry, a large competitive
fringe, the two leading firms' asymmetric market shares
and low price transparency.

VI. CONCLUSION

(94)

(95)

(96)

The combination of Pirelli/BICC's activities in the United
Kingdom and in Italy will remove (or at least weaken
significantly) one of the main competitors in an already
concentrated market. The merged entity will be the
leading cable manufacturer on the EEA level. The opera-
tion continues a restructuring process in the cable
industry, which has been triggered by the gradual liberal-
isation of the electricity sector and has led several cable
(Siemens, KWO Kabel,
suppliers to exit
Delta). Given the high level of market concentration, the
Commission had to carefully evaluate the impact of the
operation in the context of
the ongoing structural
change in the electricity industry. Further consolidation
amongst the market leaders would have to be viewed
extremely critically.

the market

In the present case,
the Commission has found no
conclusive evidence that the merger would create or
strengthen a dominant position of Pirelli/BICC or a
oligopolistic dominant position of
for Pirelli/BICC
together with Alcatel in the markets for LV/MV and HV/
EHV power cables in the Community, as a result of
which competition would be significantly impeded in
the common market. After the proposed transaction,
there would appear to be a sufficient number of credible
European bidders left to maintain prices at competitive
levels. Demand is characterised by large sophisticated
customers with substantial buyer power, which enables
them to encourage further market entry through stra-
tegic contract allocation, if necessary.

In view of the fact that no fewer than four first-tier
competitors in addition to a number of second-tier
manufacturers would continue to exist after the opera-
tion, the likely continued participation of these suppliers
in the calls for tenders constituting the competitive
process in the relevant markets, and the considerable
scope for customers to structure these bidding processes
in a way conducive to effective competition,
it can
accordingly be accepted that the proposed transaction
will not create or strengthen a dominant position as a
result of which effective competition would be signifi-
cantly impeded in a substantial part of the common

14.3.2003

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Official Journal of the European Union

L 70/49

market. The transaction is therefore to be declared
compatible with the common market, pursuant
to
Article 8(2) of the Merger Regulation and with the EEA
Agreement, pursuant to Article 57 thereof,

Article 2

This Decision is addressed to:

Pirelli Cavi e Sistemi SpA
Viale Sarca, 222
I-20126 Milano

HAS ADOPTED THIS DECISION:

Article 1

Done at Brussels, 19 July 2000.

The operation whereby Pirelli Cavi e Sistemi SpA acquires
control of part of the business of BICC General
is hereby
declared compatible with the common market and with the
functioning of the EEA Agreement.

For the Commission

Mario MONTI

Member of the Commission