Summary of Commission Decision of 4 December 2007 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.4662 — Syniverse/BSG) (Text with EEA relevance)
Date: 2007-12-04
Institutions: Advisory Committee on Restrictive Practices and Dominant Positions
Subjects: competition law, economic concentration, merger control, radio telecommunications, restrictive-practice authorisation, service

23.4.2008

EN

Official Journal of the European Union

C 101/25

Summary of Commission Decision

of 4 December 2007

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

the

EEA Agreement

(Case COMP/M.4662 — Syniverse/BSG)

(Only the English version is authentic)

(Text with EEA relevance)

(2008/C 101/09)

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

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

I. SUMMARY

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

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

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

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

I.1. Relevant Product Market

5. This transaction concerns a part of the billing services
market for mobile network operators (‘MNOs’), namely the

(1) OJ L 24, 29.1.2004 p. 1

and

services

financial

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

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

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

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

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

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Official Journal of the European Union

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

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

10. The market investigation clearly confirmed that there are
separate markets for data clearing and financial clearing
services. The vast majority of respondents considered these
to be separate markets (1). Accordingly, the purposes of the
two services are considered to be different and do not
seem to be substitutable. The market investigation showed
that MNOs frequently use a different data clearing service
provider and a different financial clearing service provider.
Financial clearing services are much more frequently done
in-house than data clearing services, as MNOs tend to
outsource their data clearing services (only one major
MNO in the EEA does it in-house) (2). In contrast to what
the notifying party suggests, customers do not require that
a service provider provides both data clearing and financial
clearing services (3).

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

I.2. Relevant Geographic Markets

12. The Commission has not defined the geographic scope of
in previous cases. The notifying party

these markets

(1) 30 customers out of 34 defined data clearing and financial clearing

services as separate product markets.

(2) Only one MNO out of 38 answered that it does data clearing in-house.
Five others responded that they have outsourced 70-95 % of their data
clearing needs. 32 MNOs have completely outsourced this service.
(3) Only 10 % of the MNOs that responded indicated that they require
both services from the same supplier. The other 90 % were very clear
that it was not a requirement for them.

that

the geographic location of

suggests that the geographic market for GSM data clearing
services is worldwide in scope. The parties submit, firstly,
that roaming data, by its very definition has an interna-
tional dimension and is not limited to national borders.
Secondly, they maintain that global standards apply to the
way that roaming data is exchanged and cleared (these are
confirmed by the market survey). Thirdly, the notifying
party maintains
the
customer and of the service provider is irrelevant as the
service provider can provide services from any location
worldwide. By way of example,
the notifying party
describes how Syniverse provides its data clearing services
to all of its worldwide customers (including all of its custo-
mers in Europe) from its headquarters in Tampa, Florida.
The market investigation partly confirmed the view of the
notifying party that
the geographic market could be
considered to be global. In reply to the general question
on the scope of the market, a majority of the customers
who responded considered the market for data clearing to
be worldwide. A number of
respondents, however,
considered the market to be EEA-wide (4).

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

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

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

16. The exact definition of

the relevant geographic market
may be left open for the purposes of the present case, as

(4) 30 respondents indicated that the geographic market would be global,

5 others suggest EEA-wide.

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Official Journal of the European Union

C 101/27

the proposed transaction does not significantly impede
effective competition in the common market even in the
narrowest possible (EEA-wide) geographic market.

although during the market investigation some customers
considered ARCH to be a credible bidder, the Commission
did not find it likely that ARCH would imminently enter
an EEA market for data clearing.

I.3. Competitive Assessment

I.3.1. Market Structure

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

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

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

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

21. Another competitor providing data clearing services is
ARCH, a subsidiary of China Mobile with offices in Hong
Kong and in Shenzhen in the People's Republic of China.
ARCH services the world's largest MNO, China Mobile as
well as other MNOs. It has no presence in Europe and,

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

23. Post merger,

[30-40] %. With respect

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

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

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

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Official Journal of the European Union

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26. The market

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

I.3.2. Unilateral Effects

the bidding and switching data has

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

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

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

switching between BSG and Syniverse (or vice versa) is very
rare.

for

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

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

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

their operations. Therefore,

I.3.3. Co-ordinated effects

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

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

35. Although deviation may be detected easily after a tender
has taken place, bidders would not be able to detect

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Official Journal of the European Union

C 101/29

deviation during the tender. Retaliation would only be
possible by bidding very aggressively for
the next
contracts. Since tenders for new contracts are relatively
infrequent — the contract durations and volumes vary
strongly from one MNO to another — such a strategy
does not constitute a credible deterrent mechanism.
Finally, effective collusion is unlikely to take place as outsi-
ders would most
the
expected co-ordination. Therefore, as a result, one can
conclude that the proposed operation does not lead to
concerns with respect to co-ordinated effects.

likely jeopardise the outcome of

I.4. Conclusion

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