CELEX: 31994M0519
Language: en
Date: 1994-11-21 00:00:00
Title: COMMISSION DECISION of 21/11/1994 declaring a concentration to be compatible with the common market (Case No IV/M.519 - Ericsson / Raychem) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31994M0519

COMMISSION DECISION of 21/11/1994 declaring a concentration to be compatible with the common market (Case No IV/M.519 - Ericsson / Raychem) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 350 , 10/12/1994 P. 0003

 COMMISSION  DECISION of 21/11/1994 declaring a concentration to be compatible with the common market (Case No IV/M.519  - Ericsson / Raychem) 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 Registered with advice of delivery TO THE NOTIFYING PARTIES Dear Sirs, Subject :<tab> Case No IV/M.519  ERICSSON/RAYCHEM <ind>  <ind>  Your  notification  of  14.10.94  pursuant  to Article 4 of Council Regulation No4064/89 1.<ind>   On   14.10.94  Telefonaktiebolaget   LM   Ericsson (ERICSSON)   and   Raychem  Corporation  (RAYCHEM)   jointly notified  an  operation  by which they  will  acquire  joint control  of  a newly created company which will  incorporate all the activities and assets of Raynet Corporation (RAYNET) which  was  prior  to the above mentioned  operation  wholly controlled by RAYCHEM. 2<ind> After examination of the notification, the Commission has  concluded that the proposed operation falls within  the scope of the Council Regulation No4064/89 and does not raise serious  doubts  as  to its compatibility  with  the  common market and the functioning of the EEA Agreement. I<tab> THE PARTIES AND THE AGREEMENT 3.<ind>  ERICSSON  is  a  Swedish  company  which  develops, manufactures   and   sells   transmission   and    switching telecommunications  equipment,  electronic  components   and defense systems. <ind>   RAYCHEM   is  a  USA  enterprise   which   develops, manufactures and sells high performance industrial  products used,  inter alia, by the aerospace, automotive,  electronic and telecommunications industries. <ind>   RAYNET   activities  consist  in  the   development, manufacturing  and  selling  of  fibre  optic   transmission systems    for   narrow   and   broadband   access   (local) telecommunications networks. 4.<ind>  Under the proposed agreements ERICSSON will  first, acquirecertain  assets  of RAYNET and  then  transfer  these assets to a newly created joint venture between ERICSSON and RAYCHEM  under Delaware law.  Simultaneously,  RAYCHEM  will transfer  to  the  joint  venture  essentially  all  of  the remaining assets of RAYNET.  ERICSSON will hold 51%  of  the capital of the joint venture and RAYCHEM 49%. II<tab> CONCENTRATION 5.<ind>  The joint venture will be managed by its  board  of managers which will consist of 5 members, 2 to be designated by  RAYCHEM  and 3 by ERICSSON.  Major decisions  concerning the  activity of the joint venture such as the  approval  of the annual operating budget and capital expenditure plan and the conclusion of any agreement outside the operating budget between  the joint venture and any other partner,  including its  parents,  require  an  unanimous  vote  of  the  board. Therefore,  the joint venture will be jointly controlled  by RAYCHEM and ERICSSON. 6.<ind>  Substantially all of RAYNET's assets,  intellectual property  rights  and personnel will be transferred  to  the joint venture.  The joint venture will thus be an autonomous fullfunction undertaking which will continue the  activities of RAYNET. 7.<ind>  The  basic  activities of  RAYNET  consist  in  the manufacturing and selling of fibre optic access transmission systems  for  voice,  video and data  to  telecommunications network operators. RAYCHEM's business activities relating to the   access   part  of  telecommunications  networks   were exclusively conducted through RAYNET and the whole of  these activities  will  be transferred to the JV.   Therefore,  in spite  of the fact that ERICSSON will continue to be  active on  the  JV's  product markets, there will  be  no  risk  of coordination  of the competitive behaviour of both  parents, ERICSSON  and RAYCHEM, as far as the JV product markets  are concerned. <ind>   Regarding  other  activities  within   the   overall telecommunications  equipment markets carried  out  by  both parents,  ERICSSON  and RAYCHEM, there  are  no  significant overlaps  between  these companies.  ERICSSON  is  a  global player  in  these markets with a broad product  range  which includes  the manufacturing and sales of public and  private switching  equipment and systems, line transmission  systems equipment   for   access   and   trunk   networks,    mobile communications systems and equipment, terminal equipment and components.   RAYCHEM's activities on the telecommunications equipment area are limited to the manufacturing and sale  of several types of components. 8.<ind> Furthermore the components products manufactured  by ERICSSON  and RAYCHEM are fundamentally different.  ERICSSON is  mainly  concerned with the manufacturing  and  sales  of "active"  components which perform specialized functions  in relation  to  the  transmission  and switching  of  signals. These types of components include inter alia microelectronic products (microprocessors, memory chips and custommade  semi conductors),  cables  and  energy  systems  including  power components  for assembly in printed circuits.  By  contrast, RAYCHEM is basically active on the manufacturing and selling of "passive" components which carry no signal or data and do not  provide  power  or active functions;  rather  they  are accessories  designed to connect or protect  data  carriers. Components  products manufactured by RAYCHEM  include  inter alia  cable  connectors, wraparound sealing  and  protection products, splice enclosures and terminal blocks.   The  only "active"  component currently manufactured and  marketed  by RAYCHEM  is  a digital subscriber line multiplexing  product the  sales  of which represent an insignificant  part  [...] (business  secret   less  than 5%) of  the  total  sales  of RAYCHEM  telecommunications products.  Taking  into  account the  above mentioned elements and also the fact that outside the jointventure there are no cooperation agreements between ERICSSON  and RAYCHEM the creation of the joint  venture  is not likely to give rise to a coordination of the competitive behaviour  between ERICSSON and RAYCHEM neither  in  the  JV product  markets nor in other activities within the  overall telecommunications equipment markets. 9.<ind>  Therefore the creation of the joint venture between ERICSSON and RAYCHEM will constitute a concentration in  the sense of the Merger Regulation since the joint venture  will be  an  autonomous full function undertaking which  will  be jointly  controlled by its parents and the  potential  scope for  the  coordination of competitive behaviour between  its parents is not significant. III<tab> COMMUNITY/EEA DIMENSION 10.<ind>  The aggregate worldwide turnover of both  ERICSSON and RAYCHEM exceeds 5,000 Million ECU (ERICSSON 6,902Million and  RAYCHEM1,298Million).   Each  party  has  an  aggregate communitywide turnover exceeding 250Million ECU and none  of the  undertakings concerned achieves more than twothirds  of its  communitywide turnover in a single Member  State.   The operation has thus a community dimension. 11.<ind>   The   proposed   concentration   constitutes    a cooperation case under the EEA Agreement since the  combined turnover  of the undertakings concerned in the territory  of the  EFTA States exceeded 25% of their total turnover in the EEA. IV<ind>  COMPATIBILITY WITH THE COMMON MARKET  AND  THE  EEA AGREEMENT 12.<ind>    The   access   portion   of   telecommunications transmission  systems  (the  local  loop)  with  which  this transaction is concerned may be considered as a segment of a wider  product  market defined as line transmission  systems and equipment (see case n IV/M.042  Alcatel/Telettra) (which also includes trunk transmission systems and equipment). <ind>  Access  transmission systems  and  equipment  present different  characteristics  and applications  which  clearly distinguish them from trunk transmission systems.  <ind>  First,  trunk transmission systems are  designed  and employed  to cover long distances and high capacities.   The distances  concerned range from 10200 km and the  capacities from  5,00010,000  speech  channels.   In  contrast,  access transmission systems are designed to cover distances of  110 km  with  capacities  ranging from 31,000  speech  channels. Given the greater demands to which they are subjected, trunk transmission  systems require more expensive,  higher  grade components. <ind>   Second,  access  transmission  systems   and   trunk transmission     systems    have     different     interface characteristics.   Trunk  transmission   systems   have   an interface towards central office or transit switches at both ends  of  the systems.  Access transmission have  a  central office  switch at one end and a subscriber set interface  at the other end.  These two transmission systems are therefore not interchangeable. <ind> Third, interface specifications for both systems  also differ.   International interface specifications  for  trunk transmission  systems have long been established while those for  access  transmission  systems  are  usually  based   on national or vendor specific interfaces. 13<ind>  However, in the present circumstances there  is  no need  to  formally define the relevant product market  since even  taking  into  account  the  narrowest  product  market definition  the  notified operation will not  give  rise  to competition concerns (see below). 14.<ind>  The access portion of telecommunications  networks has  traditionally made use of copper cable.   Copper  cable technology    is   now   being   replaced   by   alternative technologies, i.e. fibre optic systems as telecom  operators are  required to meet demands for better and more  extensive service offerings.  As fibre optic systems becomes more cost effective, the penetration of this technology is expected to increase  at  the  expense  of copper  cable.   Furthermore, network  operators  also become more willing  to  invest  in systems     that     can    accommodate    new,     emerging telecommunications services.  Again, for the purposes of the present  case it is not necessary to determine wether  fibre optic and  copper access network systems belong to the  same product  market since even taking into account the narrowest product  market definition the notified operation  will  not give rise to competition concerns . 15.<ind>   In   the  present  circumstances,   the   precise definition  of the relevant geographic market  can  also  be left open for the same reasons as advanced in paragraphs  13 and 14. 16.<ind>  Total size of the market for transmission  systems and  equipment (access portion only) at worldwide  level  is estimated  by  the  parties to amount to  2530  Billion  ECU annually. 17.<ind>  ERICSSON estimates that its market share  for  the supply of copper cable access systems accounts for [business secret   less  than 5%]  on a worldwide or  EC  basis.   For fibre  optic  access  systems  ERICSSON's  market  share  at worldwide level is [business secret  less than 5%] . <ind>   If  copper  and  fibre  optic  access  systems   are considered  together  ERICSSON has  about  [business  secret less than 5%] market share at worldwide level. 18.<ind> RAYNET which only supplies fibre optic transmission systems has [business secret  less than 5%] market share  of this market segment either on a worldwide, EEA or EC basis. <ind>  RAYNET has no sales in the EFTA countries and in  the communitythe only national markets in which it is active are Germany and Spain. <ind>  If  the total market for access transmission  systems and   equipment  (copper  and  fibre  optic   together)   is considered  RAYCHEM  had market shares  of  about  [business secret  less than 5%]  in Germany and [business secret  less than 5%]  in Spain. <ind>  If  fibre optic systems only are taken  into  account RAYCHEM  estimates it has about [business secret  between  5 and  15%]  of  the sales of new installations in  those  two countries. <ind>  ERICSSON  has no activities in Spain with  regard  to access  transmission systems (either copper or fibre optic). In  Germany, ERICSSON is not active in the supply  of  fibre optic  transmission systems and has [business  secret   less than 5%] of the market for copper cable access systems. V<tab> CONCLUSION 19.<ind>  Based on the above findings, it appears  that  the proposed concentration does not raise serious doubts  as  to its compatibility with the common market.   <ind>  The Commission has decided for the above reasons  not to   oppose  the  notified  operation  and  to  declare   it compatible  with the common market and with the  functioning of   the  EEA  Agreement.   This  decision  is  adopted   in application of Article 6(1)b of Council Regulation No4064/89 and article 57 of the EEA Agreement. <tab> For the Commission,