CELEX: 31995M0676
Language: en
Date: 1995-12-22 00:00:00
Title: COMMISSION DECISION of 22/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.676 - Ericsson / Ascom II) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0676

COMMISSION DECISION of 22/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.676 - Ericsson / Ascom II) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 019 , 23/01/1996 P. 0010

 COMMISSION  DECISION of 22/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.676  - Ericsson  / Ascom II) 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)(b) DECISION TO THE NOTIFYING PARTIES Dear Sirs, Subject :<ind> Case No IV/M.676  ERICSSON/ASCOM II <ind>  <ind> Notification of 27.11.1995  pursuant to Article 4 of Council Regulation No 4064/89 1.<ind>  On 27 November 1995 TELEFONAKTIEBOLAGET LM ERICSSON (publ)  ("ERICSSON") and ASCOM HOLDING AG ("ASCOM") notified to  the Commission their agreement, together with ASCOM (UK) HOLDING  LTD  ("ASCOM  UK"), to establish  a  joint  venture company  for which Ascom's Swedish subsidiary, Ascom  Tateco AB  ("ASCOM  TATECO"), will serve as vehicle and will  carry out  activities  in  the  wireless  business  communications sector,   in  particular  in  onsite  paging  and   cordless telephony. I<ind> THE PARTIES 2.<ind>  Ericsson, a Swedish company, is a  manufacturer  of telecommunications  systems  and  equipment  for  wired  and mobile communications in private and public networks. It  is carrying  out the operation through its whollyowned  Swedish subsidiary,  Ericsson  Radio Systems AB  ("ERA"),  which  is involved  in  the development, manufacturing, marketing  and sales  of  onsite paging equipment and systems ("OSP"),  the proposed activity of the JV company. 3.<ind>  ASCOM,  a company incorporated in  Switzerland  and controlled  by the Hasler Works Foundation, has  three  core areas  of  business activity: telecommunications, enterprise networking    and    service    automation.    Within    its telecommunications  activities,the  development  of  OSP  is carried  out by ASCOM principally through ASCOM TATECO,  the vehicle company for the proposed operation. II<ind> THE OPERATION 4.<ind>  The joint venture agreement states that Ascom  will transfer to the JV the whole of its subsidiary Ascom  Tateco AB,  including the existing sales subsidiaries of this  last undertaking in France, Germany, Norway, Sweden and the  USA. The  capital of the JV will then be increased and  ERA  will acquire 30% of the capital of the JV through a cash payment. Finally,  ERA agrees to sell to the JV and the JV agrees  to buy from ERA all the shares of some ERA subsidiaries located in  Germany,  Australia,  France and the Netherlands as well as certain assets. III<ind> CONCENTRATION <ind> Joint Control 5<ind>  After the above mentioned operation, the JV will  be owned  by  Ascom/Ascom UK which will hold 70% of  the  share capital and by ERA with the remaining 30%. 6.<ind>  However, in spite of the fact that Ascom will  have the  majority  of  the  votes at the  general  shareholders' meeting  and will have the right to appoint the majority  of the Board of Directors, the JV will be jointlycontrolled  by Ascom/Ascom UK and ERA since major decisions concerning  the conduct  of  the business of the JV, such as the appointment of  the  Managing Director and the approval of the  Business Plan, require the consent of both parties. <ind> Autonomy 7.<ind>  The  JV  will perform on a lasting  basis  all  the functions of an autonomous economic unit. It will  have  its own  research  and development and manufacturing  activities and  will  distribute its products mainly  through  its  own marketing  and  sales  outlets and these  products  will  be marketed  under trademarks assigned or licensed by  ERA  and Ascom to the joint venture. <ind> Coordination 8.<ind> The main activity of the joint venture will  be  the development, manufacturing, sales and installation  of  OSP. The  joint venture will also develop, manufacture  and  sell cordless  telephony  systems and equipment  designed  to  be combined with an OSP system to provide the end user customer with an integrated OSP/cordless functionality.  Both parents will  transfer all their existing OSP activities to  the  JV and  will  completely withdrew from the market and therefore in  what regards OSP the core activity of the JV, there will be no risk of coordination of its parents activities. 9.<ind> Both parents, Ericsson and Ascom, will remain active in the market for cordless telephony systems which can to  a certain  extent  be  regarded, at least for  some  types  of applications,  as  a possible substitute  for  OSP  systems. However,  it  is not likely that the creation of  the  joint venture  will  give  raise  to  the  coordination   of   the competitive  behaviour  of  its  parents  in  the   cordless telephony  market  as  the cordless telephony   products  of Ericsson   and  Ascom,  being  partly  based  on   different technologies,  have   different types  of  customers.  Thus, Ericsson's  cordless  telephony  systems  will  continue  to compete  in the upper end of the market and the endcustomers will  be  big enterprises and independent telephone  service providers.  Ericsson will provide these clients  with  addon cordless systems which will be connected to a large capacity central   PABX  (supplied  by  Ericsson  or  a  competitor). Ascom's  cordless  products  are  integrated  systems  which already include a small PABX and these products are targeted to small and mediumsized enterprises. 10.<ind>  Therefore,  taking into  account  that  the  joint venture   will   constitute  an  autonomous  full   function undertaking,  jointly controlled by ERA and  Ascom/Ascom  UK and that it is not likely that its creation will lead to the coordination  of the competitive behaviour of  its  parents, either  on  the  OSP  market or in  any  other  neighbouring market,  the  notified  operation  is  considered  to  be  a concentration  within the meaning of  Article  3(2)  of  the Merger Regulation. IV.<ind> COMMUNITY DIMENSION 11.<ind>  The  operation  has  a  community  dimension.  The worldwide   turnover  of  the  two  undertakings  concerned, Ericsson  and  Ascom amounted to 9,009 million  ECU  and  to 1,872  million  ECU  respectively  in  1994.  The  aggregate communitywide turnover of each party exceeded, in 1994,  250 million  ECU and the undertakings concerned did not  achieve more   than   twothirds  of  their  aggregate  communitywide turnover within one and the same Member State. V.<ind> COMPATIBILITY WITH THE COMMON MARKET <ind> A. Relevant Product Markets 12.<ind> The JV's business will cover broadly two main areas of  activity: i) OSP and ii) cordless telephone products and systems  designed  to be combined with an OSP  system.  With regard  to  both  OSP  and cordless telephony  products  and systems,  the  JV's activities will consist of  development, manufacture,    distribution    and    service,    including installation, technical support and training. 13.<ind>  Within the abovementioned business  activities  of the  JV  the concentration will only lead to combined market shares  in OSP. The parties describe this product market  as arguably  belonging to a larger market for wireless business messaging systems.   14.<ind>  An  OSP  system is a privatelyowned  and  operated wireless  communication system, used to alert and/or  inform mobile  people.  The  parties describe  the  OSP  market  as consisting  of  i)  hardcore  onsite  paging  equipment  and systems  and  ii)  applications,  which  cover  related  OSP equipment,    such    as   nursecall    systems,    personal alarm/security   systems,  extended   range   and   cordless equipment. 15.<ind>  As the actual overlap between Ericsson  and  Ascom exists  only  in  hardcore  OSP systems  and  alarm/security systems,  these  products together constitute  the  affected product market. <ind> B. Relevant Geographic Markets 16.<ind> The parties contend that the market for the  supply of  OSP  systems is EEAwide. Their analysis is based on  the lack  of  regulatory barriers to entry in  different  Member States  with the adoption of harmonized technical standards, the sale of the same technology and equipment throughout the EEA, the fact that the parties and their leading competitors (Bosch,  Philips  and Multitone) market  their  products  in almost  every  Member State and that there  are  substantial trade  flows,  since producers supply the  entire  EEA  from single  manufacturing plants. Furthermore, the  parties  and their leading competitors use the same trademarks across the EEA.  Information  provided  by  the  main  competitors  and endusers confirms this analysis. 17.<ind>  Nevertheless, the market of OSP  presents  certain national  characteristics,  such  as  the  need  to  provide installation and aftersales service. Therefore,  a  national presence is to a certain extent required. However, there are many  factors to be taken into account with respect to this. Firstly,  a part of the clients is composed of international companies which negotiate the conditions of supply centrally with   the  headquarters  of  OSP  manufacturers,  and   the resulting  conditions determine the conditions  of  sale  to each subsidiary of the client at a national level. Secondly, there  are  a  number  of  independent  distributors  (small companies and large multinational groups such as Alcatel  or Siemens)   in  different  Members  States  with   sufficient expertise to provide aftersales service for the OSP  systems of  manufacturers  who  do  not  have  a  national  presence themselves.  Even  small suppliers of  OSP  have  access  to distributors  located  in other Member States.  Furthermore, several  OSP  suppliers express the view  that  no  obstacle exists which would limit their ability to expand into  other Member  States where they do not have a  presence.  However, the main competitors have already nonnegligiblemarket shares in several Member States. 18.<ind>  Given  all these factors, the relevant  geographic market is considered to be at least EEAwide and, as it  does not  present any competition concern at EEA level, it is not deemed necessary to consider a broader market definition  in this case.  <ind> C. Assessment <ind> Market shares 19.<ind> The combined turnover of the jointventure  for  OSP systems  at enduser level and inclusive of installation  and aftersales  services amounted in 1995 to [Deleted   business secret]  Ecus.  This  would give the  parties  an  estimated market   share  for  the  jointventure  of  around  [Deleted business  secret ] of the relevant market  and  a  share  of between  [Deleted  business secret ] to each of  their  main competitors (Philips, Bosch and Multitone). This estimate is a  maximum market share, since it has been calculated on the basis   of  the  turnover  declaration  of  only  the   main competitors  of  the  parties and the parties  own  turnover figures.  In the absence of reliable market value estimates, it  is  not  possible to calculate with better accuracy  the share of the joint venture. 20.<ind>  The  professional association, the Association  of European  Manufacturers of Personal Wireless  Communications Equipment (ESPA), does not collect the sales figures of  its members.  It  only  calculates total  volume  sales  of  OSP receivers of those suppliers who, as members, report  these. On  this basis, the joint venture would have a market  share of  [Deleted   business secret ], again a  maximum,  because there  are  a number of OSP suppliers that do not report  to ESPA. <ind> Main Competitors 21.<ind>  The  joint venture will be subject to  competition from  large multinational groups such as Philips, Bosch,  or Motorola,   which  are  groups  with  significant  financial resources, distribution networks spread throughout the  EEA, and with a large technological base. 22.<ind> Furthermore, it will face competition from a number of companies of a smaller size, but which are specialised to a  large extent in OSP systems. Companies such as Multitone, Blick or Swissphone sell their OSP systems in several Member States,  while still others, such as Technel  and  TOA   are active in particular Member States. <ind> Technological Aspects 23.<ind> Even if the merged entity will enjoy synergies  and benefit  from  economies  of  scale  as  a  result  of   the operation, it is to be noted that the three main competitors Philips,  Bosch  and  Multitone  are  also  active  in   the neighbouring  market  of  wide  area  paging   systems   and equipment (WAP) which is a market which generates  a  higher turnover  at  EEA level than OSP. WAP and OSP equipment  are usually  manufactured  at the same sites,  within  the  same factories  and there are a lot of components  which  can  be used by these two technologies in particular with regard  to the  manufacturing of the receivers, where about 85% of  the components  included in an WAP receiver can  be  used  in  a standard  OSP receiver. These important synergies allow  the above  mentioned  companies to spread R&D and  manufacturing costs  of  OSP receivers and therefore significant economics of scale are achieved allowing the OSP competitors' products to  be  competitive. Neither Ericsson nor Ascom are  on  the market  for WAP receivers and they are forced to join forces in OSP in order to achieve economies of scale. 24.<ind>  In  view of the characteristics  of  this  market, there  is  no  significant risk of  prices  being  adversely affected  as a result of this operation. In fact the  prices have  fallen significantly in the last few years. OSP  is  a declining  market which will suffer significant  competitive pressures by other wireless communications technologies such as,  in  particular,  cordless telephony  but  also  private mobile  radio,  WAP, GSM etc. Competitors,  in  general,  in reply  to the Commission's inquiry have stated that  in  the long term the OSP business will be replaced to a significant degree by the abovementioned new technologies, in particular cordless  telephony. The threat of new technologies becoming comparatively  cheap alternatives to OSP adds  an  important competitive pressure on the OSP suppliers who at present are fighting to maintain their current level of sales. <ind>  Demand Aspects 25.<ind> Furthermore, a large part of OSP customers  have  a significant bargaining power, as demand in the OSP market is characterized  by  the  existence  of  large  and/or  highly sophisticatedprofessional  purchasers  and   tends   to   be relatively  concentrated. The public sector accounts  for  a large part of total OSP customers ([Deleted  business secret ] for the parties)  in the various Member States, especially in  areas such as health care, prisons, transport and  other public  utilities. Many private customers, such  as  service industries  (banks,  hotels,  etc.)  manufacturing   plants, retail outlets and offices, are also large organizations. In the  public  sector  OSP  contracts are  frequently  awarded through calls for tenders and many large organizations  also invite  bids from several potential  suppliers,  creating  a competitive environment. 26.<ind> Based on the above findings, it is not likely  that the  JV will create or strengthen a dominant position in the market for OSP systems and equipment. VI.<ind> ANCILLARY RESTRAINTS 27.<ind>  While it is explicitly provided for in Article  23 of  the  joint  venture  agreement  that  the  parties  will continue  to compete with each other in other areas  of  the telecommunications business, the same Article also  provides that  the  parents will neither directly nor  indirectly  be engaged  in  any  OSP  business, except  through  the  joint venture.  As  this clause is the expression of  the  lasting withdrawal of the parents from the JV product market, it can be   considered  as  directly  related  and  necessary   and therefore ancillary to the notified operation. VII<ind> CONCLUSION 28.<ind>    For   the   foregoing   reasons   the   proposed concentration  does  not  raise serious  doubts  as  to  its compatibility   with  the  common  market   and   with   the functioning of the EEA agreement. For  the  above reasons, the Commission has decided  not  to oppose  the  notified operation and to declare it compatible with  the  common  market  and the functioning  of  the  EEA Agreement.  This  decision  is  adopted  in  application  of Article 6(1)b of Council Regulation No. 4064/89. For the Commission,