CELEX: 31995M0538
Language: en
Date: 1995-03-27 00:00:00
Title: COMMISSION DECISION of 27/03/1995 declaring a concentration to be compatible with the common market (Case No IV/M.538 - Omnitel) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0538

COMMISSION DECISION of 27/03/1995 declaring a concentration to be compatible with the common market (Case No IV/M.538 - Omnitel) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 096 , 20/04/1995 P. 0003

 COMMISSION  DECISION of 27/03/1995 declaring a concentration to be compatible with the common market (Case No IV/M.538  - Omnitel) according to Council Regulation (EEC) No 4064/89  (Only the English text is authentic).  The  paper version of the decision is available through  the sales offices of the Office of Official Publications of  the European Communities PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)(a) DECISION To the notifying party Dear Sirs, Subject :<ind> Case No IV/M.538  OMNITEL <tab> <ind> Notification of 24.02.1995 pursuant to Article 4 of Council Regulation No 4064/89 1.<ind>  The  above  mentioned  operation  consists  in  the creation  of Omnitel Pronto Italia S.p.A. ("OPI"),  a  joint venture  between  Omnitel  Sistemi  Radiocellulari  Italiani S.p.A. ("OSR") and Pronto Italia S.p.A. ("PI"). OPI has been granted by the Italian Government the second cellular mobile GSM licence in Italy. 2.<ind> After examination of the notification the Commission has  concluded  that the proposed operation  does  not  fall within the scope of Council Regulation No 4064/89. I.<ind> THE OPERATION AND THE PARTIES 3. <ind> On February 23, 1994, OPI was created by OSR and PI with  the  purpose of submitting a joint bid for the  second cellular mobileGSM (Global System for Mobile Communications) licence  in Italy to be awarded by the Ministry of Post  and Telecommunications.  4.<ind> The economic sector involved in the concentration is that  of  the  mobile GSM telecommunications services.   GSM (Global  System  for  Mobile  Communications)  is  now   the European  standard  for digital mobile  telephones  and  has become  a  worldwide  success. Its implementation  has  been strongly  supported by the EC and it has been  sponsored  by the GSM Memorandum of Understanding, a trade organisation to which all GSM operators belong. 5.  <ind>  Both  OSR  and  PI, which had  been  individually invited to submit bids following the prequalification phase, are consortia formed by mobile telecom network operators  in other  countries  and  by  other  industrial  and  financial partners with a view to building and operating a GSM  mobile cellular  infrastructure network in  Italy.   OPI  has  been granted the GSM licence by a decree of the President of  the Republic  of Italy issued on 2 December 1994 and  registered with the Corte dei Conti on 30 January 1995.  6.   <ind>  By  its  decision  of  December  22,  1994,  the Commission  has  granted  to  OPI  a  derogation  from   the obligation to suspend the concentration, imposed by  Article 7(1) of the Merger Regulation. This was necessary for OPI to be  in  a position to meet the deadlines established by  the licence  and to operate in competition with Telecom  Italia, which   has  already  built  its  GSM  network  and  has   a significant  presence  in  the  market  for  analog   mobile telephony  in  Italy.  At  this  purpose  OPI  has   already undertaken  some  activities which are  preliminary  to  the start  up  of  its cellular service (such as  the  award  of contracts  for the construction of the network, the  funding agreements, construction and installation of sites).  7.  <ind> The share capital of OPI is held by OSR (70%)  and by  PI  (30%).  OSR  and PI do not carry  out  any  activity directly. Their shares are held as follows: <ind> Omnitel Sistemi Radiocellulari <tab> % <ind> Olivetti S.p.A. <tab> 51.0 <ind> Bell Atlantic International <tab> 16.6 <ind> Cellular Communications International <tab> 14.7 <ind> Telia International AB <tab>  9.7 <ind> Lehman Brothers <tab>  8.0 <ind> Pronto Italia <tab> % <ind> Air Touch International <tab> 34 <ind> Mannesmann Eurokom GmbH <tab> 15 <ind> Banca di Roma S.p.A. <tab> 15 <ind> European Mobile Communications S.A. <tab> 12 <ind> Sesterzio s.s. <tab>  4.25 <ind> Asse s.s. <tab>  4.25 <ind> Sogersel Gestione Fondersel S.p.A. <tab>  4 <ind> Famiglia Giacometti <tab>  1.5 <ind> Tege Belegg Ingsmaatschappij B.V. <tab>  2.5 <ind> Merum s.r.l. <tab>  4.2 <ind> SITE S.p.A. <tab>  0.25 <ind> SPAL s.r.l. <tab>  0.25 <ind> Famiglia Marzotto <tab>  1.8 <ind> Gustavo Denegri <tab>  1 8.  <ind>  According to a put agreement dated  February  24, 1994   all   the  Italian  shareholders  of  PI   (all   the shareholders  other than Mannesmann) have a  put  option  to sell their participation in PI to Air Touch Communications. <ind> 9.<ind> Olivetti is an Italian stock company active in the  field  of electronic data systems, computers,  networks and telecommunications equipment and services.  <ind>  Bell Atlantic International Inc. is a holding company for   a  number  of  Bell  Atlantic's  investments.  It   is controlled  by Bell Atlantic Enterprises International  Inc. which  in  turn  is  controlled by Bell Atlantic  Investment Inc.,  which  is a wholly owned subsidiary of Bell  Atlantic Corporation,  a  publicly  traded  company   in   which   no individual  shareholder owns more  than  5%  of  the  shares outstanding. The Bell Atlantic group is active in  different fields  of  telecommunications services, including  cellular telecommunication. <ind>  Cellular Communications International  Inc.  develops opportunities  in cellular markets outside the  USA  and  is active  in telecommunications services, marketing and users' assistance.  It  is  controlled by  Cellular  Communications which  is  a  publicly traded company in which no individual shareholder owns more than 15% of the shares outstanding. <ind>  Telia  International AB is a  company  controlled  by Telia  AB,the  operator  of  the  Swedish  public  telephone network.  Both companies are active as operators of cellular telecommunications networks and services. The parent company Telia AB is 100% owned and controlled by the Swedish State. <ind> Lehman Brothers is a global investment bank.  <ind>  Air  Touch International is a company  which  pursues throughout  the  world  international ventures  involved  in wireless  telecommunications opportunities such as  cellular and  paging.  It is wholly owned by Air Touch Communications of California, which in turn is a wholly owned subsidiary of Air Touch Communications Inc., Delaware. <ind> Mannesmann Eurokom GmbH is controlled by Mannesmann AG and  has  as its activity the construction and operation  of telecommunications  networks and the  provision  of  related services, as well as the acquisition of companies active  in the field of telecommunications.  10.  <ind> The activity of all the other shareholders of  PI (with the exception of Banca di Roma, a commercial bank,  of SITE   which   is   involved   in   the   installation    of telecommunications  networks and of SPAL  which  distributes cellular   telephones)  consists  in  the   acquisition   of shareholdings in other undertakings. II.<ind> COMMUNITY DIMENSION 11.<ind>  The  operation  has a  Community  dimension.   The worldwide turnover of all undertakings concerned amounts  to more than ECU 5,000 million.  The Communitywide turnover  of each  of  at least two of the undertakings concerned exceeds ECU  250  million  and  the undertakings  concerned  do  not achieve more than twothirds of their aggregate Communitywide turnover within one and the same Member State. III.<ind> CONCENTRATION Joint control <ind>  12.  <ind> The share capital of OPI is  held  by  OSR (70%)  and  by PI (30%)  The board of directors  of  OPI  is composed of ten members. Pursuant to the bylaws of OPI,  OSR and  PI  have the right to appoint seven and three directors respectively.  According to Article  8.7  of  the  agreement between the shareholders of OPI, the favourable vote  of  at least  eight  out  of  ten directors  is  required  for  the adoption   of  major  decisions  relating  to  the  business activities of the company, and in particular those  relating to   its  commercial  strategy  (including  inter  alia  the adoption  and  amendment of annual budgets and  of  business plans).  Therefore the affirmative vote of at least  one  of the  directors  appointed by PI is required.   According  to OPI's  shareholders' agreement certain key officers  of  the company,  including  the  managing director  and  the  chief financial  officer, have to be appointed by OSR,  and  other key  officers  (the  non  executive  chairman)  are  to   be appointed  by PI; the chief technical officer is  designated jointly by Bell Atlantic and by Air Touch 13.  <ind>  With  regard to OSR, its board of  directors  is composed  of 9 members. According to the  agreement  between the  shareholders  of  OSR,  Olivetti  will  designate  five directors and one each the other shareholders. All essential decisions,  including the adoption or amendment of  business plans  and annual budgets, require the affirmative  vote  of directors representing Olivetti and all the shareholders  of OSR.  14. <ind> As regards PI,  the proportional representation of all   the   shareholders  on  the  board  of  directors   is established by the bylaws. The members of the present  board of  PI  have  been  appointed as follows:  5  by  Air  Touch International, 1 by Mannesmann Eurokom, 2 by Banca di  Roma, and 5 by the remaining shareholders. According to the bylaws and  the shareholders' agreement of PI, the affirmative vote of at least 10 directors is required for all main decisions, including the adoption of business plans and annual budgets, the  exercise  of  voting  rights in  OPI,  investments  for amounts in excess of lit. 500 million and capital increases. The  effect  of these provisions is that, on the  one  hand, none of the above mentioned decisions can be adopted without the affirmative vote of the directors appointed by Air Touch and  that,  on the other, these directors can not adopt  any decision without the affirmative vote of at least five other directors. 15.  <ind>  In accordance with the above, and in  particular given  the cumulative effect of the bylaws and shareholders' agreements  of  OPI, OSR and PI, all main decisions  of  OPI require the affirmative vote of PI, as well as that  of  all the   shareholders  of  OSR.  Therefore,  OPI   is   jointly controlled by OSR and by PI. Full function entity 16.  <ind> OPI has been granted by the Italian Government  a licence to operate the second cellular mobile GSM in  Italy. The  licensee is to activate the service within  18  months, ensuring coverage of at least 40% of the territory of  Italy and  of  all  regional capitals. The licence  requires  that within  5  years the coverage reaches 70%. Upon the granting of  the Licence, OPI has been required to make a payment  of 750 billion lire, paid on 5 December 1994. The company has a fully   paid  up  capital  of  Lit.  650  billion  and   the shareholders  meeting  of OPI has authorized  the  Board  of Directors  to  make  additional  capital  calls  up  to   an aggregate  of Lit. 1,450 billion. According to the  business plan of OPI which has been submitted to the Ministry of Post and   Telecommunications  together  with  the  bid  for  the licence, the total investment for the creation and operation of  the  company's GSM network is estimated at approximately lit 1,800 billion. 17.  <ind>  OPI  is therefore and will be in a  position  to operate  the market as an autonomous participant as it  will have  all the assets and resources necessary to perform  all the  functions of an autonomous entity. It will have its own personnel   and   sufficient   financial   means   to    act independently   of   its   shareholders.    Its   commercial independence  is  ensured  by  the  safeguards  set  in  the shareholders'  agreement for what regards its entering  into agreements  with  its  shareholders. In  particular  OPI  is allowed   to  enter  into  business  agreements   with   its shareholders only in relation to their contribution  to  the GSM  project  and the utilization of their assets  at  arm's length and subject to special authorization of the board. Coordination 18.<ind>  The purpose of OmnitelPronto Italia is  to  create and operate a GSM network in Italy and to offer GSM services to subscribers.  19.<ind> Although each GSM network is legally limited to the territory   in  which  it  is  licensed,  GSM  systems   are technically compatible throughout Europe, so that a customer who  subscribed to the services offered by one  network  can use his phone on any other GSM network. <ind>  This  possibility of using one's phone in  a  country different  from the country of subscription is  specific  to GSM  technology  when  compared to  other  mobile  telephone technologies.  However,  it  depends  on  the  existence  of "roaming   agreements"   between   the   different   network operators,  whereby  the  network  operator  who  takes  the subscription  (the home network) pays the network  operators for  the calls performed on the latter's network  i.e.  that one  in  which the customer "roams"  (the visited  network). These roaming agreements are currently developing fast as it is  in  the  interest  of a GSM operator  to  offer  to  the subscribers  the broadest possible  service  which  includes the  possibility  to  use  its  phone  all  over  Europe  at affordable prices. 20.<ind>  Roaming agreements  are concluded in the framework of  a  global  agreement  defined at  European  level  which foresees that the visited network can not charge to the home network   more  than  the  price  it  charges  to  its   own subscribers. The home network is then free to charge  up  to 115%  of  the forementioned price for the roaming  call.  In fact,  a  number  of network operators charge  the  "roamer" exactly  the same amount as  they are charged by the visited network. <ind>  However,  with  regard to calls  received  through  a visited network and originated from the same country, as the roamer's  phone  number  corresponds  to  his  home  network country,  a  call  issued from the visited country  will  be treated  and  charged as an international call,  whereas  it would  have been treated and charged as a national  call  if the  roamer  had taken a subscription in this country.  This situation  is due to the obligation for mobile operators  to route international calls through fixed networks and also to current limitation of the telecommunication protocols  which do not allow direct local treatment of such calls. 21.<ind> It results from the above that any GSM subscription already  widely allows the use of the mobile  phone  in  any European  country irrespective of the place of subscription. However,  the fore mentioned pricing practices have  reduced so  far the degree of substitutability between subscriptions from different countries. Nonetheless, as on average half of the  cost  incurred by a subscriber, is constituted  by  the subscription  cost  while the otherhalf  is  constituted  by phone   call   charges,   subscribing  abroad   is   already technically  possible  and, where the  subscriber  can  take advantage  of  sufficient differences  in  the  subscription price,  an   economically  reasonable  alternative  to   the subscription in the home country.  This is all the more true as a large part of the subscribers are companies subscribing for  business use and is further evidenced by the fact  that network operators already market, either directly or through resellers, their own GSM service to individual customers for use  outside of the territory in which this network operator is licensed. 22.<ind> In addition, the degree of substitutability between the  various  subscriptions is expected to increase  in  the middle term for the following reasons: <ind> <ind> the gap between international and national  call prices    is    diminishing   due   to   the    increasingly distanceinsensitive nature of telecommunication costs; <ind>  <ind> as GSM infrastructure is developing  throughout Europe,  the  mobile to mobile interconnection  of  networks foreseen in the Commission's green book, will develop <ind>  <ind>  ongoing improvements of the  telecommunication protocols  used  by  the operators will allow  direct  local treatment of roaming calls. 23.<ind>  It results from the above that there is already  a certain  degree  of  substitutability  amongst  the  various subscriptions  which  can be taken in the  different  Member States  and that this substitutability is going to  increase in  the  foreseeable future. This increasing trend toward  a European  market for GSM service provision is likely  to  be further  fastened by the development of independent  service providers  which are not network operators in  any  country. These  service providers purchase high volumes of  air  time throughout  Europe  and  resell it to  individual  customers irrespective of their geographical location. The  result  is that  network  operators and independent  service  providers already  compete  with  each other in  the  provision  of  a onestopshop service to individual customers, and  will  more and more do so at European level. 24.<ind>  The considerable amount of investment required  by the  establishment  of  a  network  explains  why  most  GSM operators   in  the  various  countries  all  over   Europe, including  those  set up by public telephone  operators  are joint ventures in which several shareholders participate. As a  result, most of the "industrial" shareholders of OPI  are already  involved  in GSM services or are  competing  to  be licensed in other European countries either in the  same  or in competing joint ventures.  <ind> Air Touch, Bell Atlantic, Cellular Communications  and Telia  are  all  active  in  these businesses  and  together operate  nine  GSM cellular networks and 32 analog  cellular networks all over the world.  In the EU Telia operates a GSM network  and  two analog networks in Sweden.  Air  Touch  is already active or has been awarded GSM licences in the EU in Sweden,  Germany, Spain, Portugal, Netherlands and  Belgium. In  this  respect,  it should be noted that  Telia  operates through its 100% subsidiary Telia Mobiltel, a GSM network in Sweden  while Air Touch holds a 51% interest in a  competing operator <ind>  Moreover,  although it does not  hold  a  controlling interest in the joint venture, Mannesmann is already  active in   Germany  together  with  Air  Touch  as  it  holds  58% shareholding in Mannesmann Mobilfunk Gmbh (Air Touch 32.7%). Mannesmann  also  holds non controlling interests  in  other network operators in Europe. <ind>  Finally,  "industrial" shareholders of  OPI,  and  in particular Air Touch, do compete currently for the  granting of  licences in other European countries, so that it  cannot be  excluded that they will be controlling either jointly or solely additional network operators in the future. The  same applies to Bell Atlantic and Cellular Communications  which, although they are not yet active in EU countries other  than Italy are already active in other European countries and  do not  exclude  to develop GSM activities in  the  EU  in  the future. Conclusion 25.<ind>  Where the parent companies and the  joint  venture are  all  active  in  the  same business  but  in  different geographic areas, the Commission assesses the likelihood  of coordination  between the parent companies in the  light  of the  existing interaction between these areas as well as the foreseeable developments in the emergence of wider markets. <ind>  In the present case, a number of the parent companies of  OPI are active or potentially active in the same product market  as  the Joint venture, while there already  exist  a certain  degree of competition amongst the various  possible subscriptions  irrespective  of  their  location.  There  is therefore  interaction between the various  areas  in  which network  operators  primarily  operate.  In  addition,  this substitutability is to increase in the foreseeable future as the market is fast integrating. 26.<ind> Two of the parents (namely Air Touch and Telia) are holding  control  of two competing GSM operators  in  Sweden which account for twothird of the GSM activity in Sweden (8% of the overall GSM activity in the EU). The GSM market is in general  more  mature in nordic countries, the  fixed  costs (mainly due to infrastructure) incurred per subscription  is usually  lower than in markets in a takeoff phase. For  this reason and due to currency moves, subscription costs are  in general lower than in other areas. In the framework  of  the abovementioned  market interaction, subscribers  located  in other  member  states,  and  in  particular  in  Italy   may therefore  have  an  interest  in  subscribing  to   Swedish operators.  In this respect, both Telia and Air Touch  would have  an  interest  in not being competing  with  the  joint venture  in  Italy  for the marketing of subscriptions.  The same applies to the activities of Mannesmann Mobilfunk GmbH, a   joint  venture  jointly  controlled  by  Air  Touch  and Mannesmann  in Germany which holds around 50% of the  German market  (23.5% of the overall EU GSM subscribers).  This  is further reflected in the non compete clause contained in the agreement. <ind>  In addition, as Air Touch enjoys veto rights  in  OPI through  PI. Therefore, it will be in a position to  prevent the  JV  to  take  advantage of favourable  price  (due  for example  to currency moves) by offering subscription   inter alia  in Germany. 28.<ind>  The  notified  operation is  therefore  likely  to create  or  reinforce  a cooperation amongst  those  of  its parents that are already active (as well as those which  are likely  to be active in the near future) in the GSM  service provision. <ind>  For  the  above reasons the Commission has  concluded that   the   notified  operation  does  not   constitute   a concentration within the meaning of article  3  (2)  of  the Merger Regulation and consequently does not fall within  the scope  of  this  regulation. This  decision  is  adopted  in application  of  Article 6(1)(a) of  Council  Regulation  No 4064/89. <ind> The Commission will treat the notification pursuant to Article  5  of  Commission  Regulation  No.  2367/90  as  an application   within  the  meaning  of  Article   2   or   a notification  within  the meaning of Article  4  of  Council Regulation  17/62  as  requested by  the  parties  in  their notification. For the Commission