CELEX: 31996M0791
Language: en
Date: 1996-10-07 00:00:00
Title: COMMISSION DECISION of 07/10/1996 declaring a concentration to be compatible with the common market (Case No IV/M.791 - British Gas Trading Ltd / Group 4 Utility Services) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31996M0791

COMMISSION DECISION of 07/10/1996 declaring a concentration to be compatible with the common market (Case No IV/M.791 - British Gas Trading Ltd / Group 4 Utility Services) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 374 , 11/12/1996 P. 0008

 COMMISSION DECISION of 07/10/1996 declaring a concentration to be  compatible with the common market (Case No IV/M.791 - British Gas Trading  Ltd / Group 4 Utility Services) 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.791BRITISH GAS TRADING LTD/GROUP 4 UTILITY  SERVICES LTD Notification of 5 September 1996 pursuant to Council Regulation (EC) No.  4064/89 1.<ind> On 5 September 1996 British Gas Trading Ltd (United Kingdom) (BGT)  and Group 4 Utility Services Ltd (United Kingdom) (G4US) notified to the  Commission an intended operation whereby they acquire within the meaning  of article 3(1)(b) of Council Regulation 4064/89 joint control of AccuRead  Ltd (United Kingdom). 2.<ind> After examination of the notification, the Commission has  concluded that the notified operation falls within the scope of  application of Council Regulation No 4064/89 and does not raise serious  doubts as to its compatibility with the common market and with the  functioning of the EEA Agreement. I<ind> THE PARTIES 3.<ind> BGT is an ultimate subsidiary of British Gas plc (United Kingdom).   Its principal activity is the supply of gas through pipelines within Great  Britain to the industrial and domestic markets.  Until 1986 British Gas  enjoyed a statutory monopoly in this field, but competition is now being  introduced into both the industrial and domestic sectors.  BGT also reads  meters and undertakes some meter inspection work on behalf of TransCo, the  division of British Gas which owns the pipelines system and which  transports gas within Great Britain. 4.<ind> G4US, an ultimate subsidiary of Group 4 Securitas NV (Netherlands  Antilles) (Group 4), has been incorporated for the proposes of the present  operation.  The principal activity of Group 4 in Europe is the supply of  various security services, such as mannedguarding and the transportation  of cash and valuables. II<ind> THE OPERATION <ind> Introduction 5.<ind> AccuRead will supply meterreading services to the gas industry in  Great Britain.  It is also intended that it offers those services to the  electricity and water utilities in Great Britain (also until recently  statutory monopolies).  Meterreading services consist essentially of a  specifically requested or a cyclical visit to the premises of a consumer  of gas, electricity or water to obtain a manual (ie visible) reading. [The  technological possibility exists of remote reading of meters (telemetry)  but this has so far been implemented only to a very limited extent.]  The  data thereby obtained can be used by the utility supplier and the operator  of the relevant network for billing and for forecasting and monitoring  supply and demand conditions.  Meter reading is a normal function in the  supply of gas, electricity and (for the industrial sector) water in Great  Britain but not in the supply of water to the domestic sector, which is  subject to limited (but increasing) metering.  In Great Britain each of  the gas, electricity and water utilities has until recently obtained the  meterreading services which it requires from staff which it employs.   However, following the privatisation of these utilities their regulators  are now seeking to dismantle this vertical integration and create a  separate competitive market for meter reading. 6.<ind> The creation of AccuRead originates in particular from the  recommendation made by the Monopolies and Mergers Commission in its report  under the Gas Act 1986 (1993) that competition be introduced into the  market for the provision of meterreading services in the industry.   Initially AccuRead will in effect carry on the businessof supplying  meterreading services formerly carried on by BGT. <ind> Joint control 7.<ind> BGT will hold 49 per cent of the shares (A shares) and G4US 51 per  cent of the shares (B shares) in AccuRead.  Relations between BGT and G4US  will be governed by a shareholders agreement.  BGT will appoint two  directors (A directors), G4US four directors (B directors), and the  parties jointly will appoint the seventh member (who will also be the  chairman).  The attendance of at least one A director and of at least two  B directors is necessary for a quorum of the board.  Despite their  differing interests AccuRead will be subject to the joint control of BGT  and AccuRead.  This is because major decisions such as commercial strategy  and the appointment of senior managers require their joint decision. These  decisions include those as to the adoption and amendment of the business  plan and budget, changes in the nature and scope of the business,  acquisition of or investment in another company;  disposing of any  material part of the business or assets,  engaging employees remunerated  in excess of a specified rate,  entering into contracts outside the  business plan and budget and in excess of specified levels, and appointing  or removing the managing director and any additional director. 8.<ind> AccuRead will therefore be subject to the joint control of BGT and  G4US. <ind> Autonomous longlasting economic entity 9.<ind> AccuRead will have all the resources necessary to operate its  business activities on a lasting basis.  Its headquarters will be leased  from a subsidiary of British Gas on an arm'slength basis for 15 years.   Meter reading is highly labourintensive;  the staff needed will be  automatically transferred by BGT to AccuRead under the Transfer of  Undertakings (Protection of Employment) Regulations 1981.  BGT will  transfer to leasing companies the necessary equipment (in particular  computer hardware and vehicles);  AccuRead will lease the equipment from  those companies.  BGT will license to AccuRead or obtain licences in its  favour of the software required.  A Group 4 subsidiary will supply to  AccuRead on an arm'slength basis administrative services required for the  commencement of its business;  these arrangements can be terminated by  AccuRead after two years;  any further services of BGT or G4US must be  supplied on an arm'slength basis and on terms which are commercially fair  and reasonable. 10.<ind> The shareholders agreement is valid initially [Deleted for  publication. At least five years.], subject to prior termination for  standard commercial reasons. 11.<ind> The initial business of AccuRead will be providing meter reading  services to TransCo.  From about December 1996 it will also supply such  services to BGT. Following the demerger in 1997 of British Gas, TransCo  and BGT  and thus also TransCo and AccuRead  will be members of different  corporate groups.  AccuRead will enter into supply contracts with Transco  and BGT, but only two of them will extend beyond 1997.  One minor  agreement (relating to maintenance of meters) lasts until [Not beyond year  2001.] and an agreement to supply meter reading services to BGT expires on  [Not beyond year 2000.]; at that point BGT must seek tenders for a new  contract. Nor is it certain that AccuRead will obtain any business from  TransCo after March 1997, since TransCo has issued a call for competition  for its meterreading services. AccuRead will therefore find it necessary  to offer its services to the 52 gas shippers and the 18 licensed gas  suppliers which continue to increase their share of the United Kingdom gas  markets at the expense of BGT.  It is also intended that AccuRead will  expand its services to the reading of electricity and water meters, to the  extent that competition is introduced for these services.  AccuRead will  thus not be dependent upon sales to its parents. 12.<ind> AccuRead will therefore perform on a lasting basis all the  functions of an autonomous economic entity. <ind> Absence of coordination 13.<ind> BGT will cease completely to provide meterreading services and is  precluded by the Office of Gas Supply (the industry regulator) from  reentering the market for the supply of meterreading services.  Although  other members of the British Gas group are engaged in activities relating  to production and supply of gas, the activities of the Group 4 companies  consist of the provision of security services. 14.<ind> There is thus no possibility of coordination between BGTand G4US  or between companies in their corporate groups arising from the joint  venture. <ind> Conclusion 15.<ind> The operation accordingly constitutes a concentration within the  meaning of article 3(1)(b) of the Regulation. III<ind> CONCENTRATION OF COMMUNITY DIMENSION 16.<ind> British Gas and Group 4 Securitas have a combined aggregate  worldwide turnover in excess of 5000 million ECU (British Gas  ECU 10,378  million, Group 4 Securitas  ECU 603 million).  British Gas generates a  significant proportion of its aggregate worldwide turnover within the  European Union.  The Communitywide turnover of Group 4 Securitas is ECU  373 million. British Gas (but not Group 4 Securitas) achieves more than  twothirds of its aggregate Communitywide turnover within the United  Kingdom. 17.<ind> The operation therefore has a Community dimension within the  meaning of article 1(1) of the Regulation.  It does not qualify under the  EEA Agreement for cooperation with the EFTA Surveillance Authority. IV<ind> COMPATIBILITY WITH THE COMMON MARKET 18.<ind> The product market for this operation is the supply of  meterreading services.    19.<ind> As discussed in more detail below, the other suppliers or  potential suppliers of these services in Great Britain include electricity  companies capable of supplying metering services, most immediately the 12  regional electricity companies (RECs), companies with experience of  supplying utilities markets and security companies similar to Group 4. The  RECs and the utilities which will be the customers for meterreading  services  will operate to some extent upon a regional basis.  The  geographical market for meterreading services might thus be Great Britain  or various regions of Great Britain.  It is, however, unnecessary to  define the geographical market more accurately, since on either analysis  no competition problems arise. 20.<ind> There is no overlap between the activities of British Gas and  Group 4 Securitas.  The operation accordingly produces no horizontal  increase in market shares.  Similarly in the absence of any overlap  between the activities of AccuRead and either British Gas or Group 4 the  operation produces no vertical increase in market shares. 21.<ind> AccuRead will initially be the only supplier of meterreading  services in Great Britain. However the operation neither creates nor  strengthens a dominant position.  AccuRead simply succeeds to the position  formerly held by BGT. Furthermore AccuRead will face potential competition  from the RECs and other electricity companies, companies with experience  of supplying utilities markets and security companies similar to Group 4.  .  The RECs enjoy the advantages that they have more meters in total than  BGT, that they have a dedicated workforce and that they can combine the  reading of both gas and electricity meters on a single visit;  in addition  some of the RECs are also gas shippers or suppliers.   Some indication of  the range of companies which regard themselves as capable of providing  meterreading services is provided by the list of 58 companies which  responded to the call for competition made by British Gas for a partner  for the present joint venture and by the list of 21 companies (of which 10  were shortlisted) which responded to the call for competition made by  TransCo for a supplier of meterreading services.  Another indication is  the existence of 16 meterreading companies, including several RECs, which  have agreed to comply with the Office of Gas Supply guidance notes on best  practice for the reading of gas meters.  There are thus convincing reasons  for concluding that AccuRead will face strong competition.  In addition  barriers to entry are low. V<ind> ANCILLARY RESTRAINTS 22.<ind> The parties have requested that the following provision, if a  restriction, be considered as ancillary to the concentration. 23.<ind> AccuRead will supply meterreading services to BGT under a  nonexclusive commercial contract negotiated at arm's length.  This  contract will last until [Not beyond year 2000.] with annual price reviews  and relates primarily to the domestic gas market.  A contract of this  length is necessary in order for AccuRead to reduce its base cost  and  thus make a return on its investment  over a reasonable period.  The  principal cost is the labour force which it is obliged to inherit from BGT  as a result of the Transfer of Undertakings (Protection of Employment)  Regulations 1981. Furthermore, when in [Deleted for publication.] BGT  tenders for its meterreading service any new supplier might itself be  obliged under the regulations to inherit the labour force used by  AccuRead, with the consequence that the costs of supplying the service  will remain high.  This possibility will be reduced if AccuRead has the  opportunity to reduce its costs and if it has diversified its activities  to other customers. 24.<ind> In so far as this provision amounts to a restriction it is  directly related to and necessary for the successful implementation of the  concentration. It can therefore be treated as ancillary to the  concentration. VI<ind> CONCLUSION 25.<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. 26.<ind> For the above reasons, the Commission has decided 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 No. 4064/89. For the Commission