CELEX: 32014M7458
Language: en
Date: 2014-12-15 00:00:00
Title: Commission Decision of 15/12/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7458 - IBM / INF BUSINESS OF DEUTSCHE LUFTHANSA) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |                                                                                                         |
|EUROPEAN COMMISSION               |                                                                                                         |                                                                                                         |
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Brussels, 15.12.2014
C(2014) 9988 final

|To the notifying party                                                      |                                                                   |

Dear Sir/Madam,

Subject:    Case M.7458 – IBM / INF BUSINESS OF DEUTSCHE LUFTHANSA
Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

 1) On 18 November 2014, the European Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation
    (EC) No 139/2004 by which the undertaking IBM Central Holding GmbH  ("IBM  C.H.",  Germany),  indirectly  acquires  from  Lufthansa  Systems
    Aktiengesellschaft ("LSY", Germany) within the meaning of Article 3(1)(b) of the Merger Regulation sole control over a business  responsible
    for the provision of certain IT services (the "INF Business") through acquisition of all shares in INF KG (“INF”, Germany).

 2) IBM C.H. is designated hereinafter as the "Notifying Party" and IBM C.H and INF collectively as the "Parties".

THE PARTIES AND THE OPERATION

 3) IBM C.H. is a wholly-owned indirect subsidiary of International Business Machines Corporation (“IBM”, USA). IBM is active worldwide  in  the
    development, production, and marketing of a  wide  variety  of  IT  solutions,  comprising  software,  systems  (servers,  storage  systems,
    appliances), and services (business consulting and IT infrastructure services).

 4) IBM Deutschland Aviation Industry Services GmbH ("IBM Deutschland Aviation", Germany) is a 100% owned subsidiary of IBM C.H.

 5) INF is a newly-formed company which, at the latest on the closing date of the proposed transaction, will be, directly or indirectly,  wholly
    owned by Deutsche Lufthansa Aktiengesellschaft ("DLH" or "Lufthansa", Germany).

 6) The INF Business is currently part of LSY, a wholly-owned subsidiary of DLH.  The  INF  Business  provides  certain  information  technology
    services, including the operation of data centres, electronic workplaces, data&voice communication, user helpdesk,  service  management  and
    specific individual information technology services both to the Lufthansa group and, to a limited extent, to external customers.

 7) The proposed transaction consists of IBM C.H. indirectly acquiring sole control over the INF Business through acquisition of all  shares  in
    INF by IBM Deutschland Aviation. Before the closing of the proposed transaction, LSY will transfer to  INF  the  INF  Business  as  a  going
    concern.

 8) In addition to the share purchase agreement, DLH will enter into a Framework Agreement for IT outsourcing ("FWA") with LSY.[2] The FWA  will
    be part of the INF Business to be transferred to INF (which in turn  will  be  acquired  by  IBM  Deutschland  Aviation).  Therefore,  post-
    transaction, IBM C.H. will, through the INF Business, provide IT outsourcing services to companies of the Lufthansa group  pursuant  to  the
    FWA. The FWA will be non-exclusive and of a duration of seven years, after which DLH will be free to again issue a tender for  the  relevant
    services.

 9) The proposed transaction involves the transfer of a business with access to the market. Indeed, the assets and  personnel  forming  the  INF
    Business are currently already engaged in the provision of services to third parties and will enable IBM to continue providing  services  to
    third parties in addition to Lufthansa.[3]

10) The proposed transaction therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

EU DIMENSION

11) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million (IBM: EUR […] million; INF Business:
    EUR […] million).[4] Each of them has an EU-wide turnover in excess of EUR 250  million  (IBM:  EUR  […]  million;  INF  Business:  EUR  […]
    million), but they do not achieve more than two-thirds of their aggregate EU-wide turnover  within  one  and  the  same  Member  State.  The
    proposed concentration therefore has an EU dimension.

MARKET DEFINITION

1 Introduction

12) The proposed transaction gives rise to horizontal relationships, since the Parties are both  active  in  the  provision  of  IT  outsourcing
    services,[5] particularly to customers in the transportation sector.

13) In addition, IBM (but not the INF Business) is active in the supply of  IT  software  and  IT  systems,  comprising  electronic  information
    processing systems (including servers and storage). Thus, since the use of IT software  and  IT  systems  may  be  required  to  provide  IT
    services, the proposed transaction also gives rise to a vertical relationship between the Parties' activities.

2 IT services

1 Product market definition

14) The Notifying Party submits that, from a supply-side perspective, the relevant product market comprises at least all IT services,  but  that
    the exact product market definition can be left open, since the proposed transaction does not give rise to competition  concerns  under  any
    possible market definition.

15) In its previous decisional practice,[6] the Commission considered that the market for IT services could be segmented depending  on  (i)  the
    functionality of the services and (ii) the different industries  in  which  customers  are  active,  as  identified  in  market  reports  by
    independent industry analyst companies such as Gartner. However, in its past decisions, the Commission  ultimately  left  open  the  precise
    product market definition.

1 Segmentation of IT services by functionality

16) As regards a segmentation of the IT services market by functionality, according to  the  Notifying  Party,  Gartner's  most  recent  reports
    identify the following segments: (i) consulting; (ii) implementation; (iii) IT outsourcing; (iv) business process outsourcing;  (v) software
    support; and (vi) hardware support.[7]

17) While IBM is active in a broader range of IT services, the activities of the INF Business are limited to the  provision  of  IT  outsourcing
    services.

18) The Notifying Party considers that a sub-segmentation according to the different functionalities of IT services is  not  appropriate,  since
    suppliers have gradually been expanding their service offerings to encompass multiple segments in order to offer customers a  broader  range
    of IT service solutions (either through the expansion of in-house offerings and/or acquisitions, or through  alliances  and  sub-contracting
    arrangements with other service providers).

19) In previous decisions, the Commission considered that the IT services market  could  be  segmented  into  several  categories  according  to
    functionality, based on market reports by Gartner.[8] However, the Commission ultimately left open the precise product market definition.

                             Sub-segments of IT outsourcing services

20) According to the Notifying Party, within the segment for IT outsourcing services, Gartner further identifies the following sub-segments: (a)
    public cloud computing services, (b) infrastructure as a service ("IaaS"),[9] (c) infrastructure outsourcing services  (including  potential
    further sub-segments for data  centre  services,  network  outsourcing,  end-user  device  outsourcing,  and  help  desk  outsourcing),  and
    (d) application outsourcing services.

21) Among the various sub-segments identified above, the INF Business only provides (a) cloud services, (b) infrastructure as a service and  (c)
    infrastructure outsourcing services (which accounts for [the majority] of the total IT outsourcing services provided by the  INF  Business),
    but not (d) application outsourcing services. By contrast, IBM is active across all sub-segments of IT outsourcing services.

22) The Notifying Party considers that a sub-segmentation according to the different categories of IT outsourcing services (and, in  particular,
    between categories (a), (b) and (c) above) is not appropriate since: (i) the purpose of all these  services  is  to  deliver  day-to-day  IT
    operations and management of infrastructure, applications, and the flow of information; (ii) even if a supplier would not be able  to  offer
    specific services within the IT outsourcing segment, it could act as prime contractor and entrust other suppliers with the provision of  the
    services that are not in its portfolio; (iii) infrastructure outsourcing services are generally  the  same  with  respect  to  all  industry
    sectors (whereas application outsourcing services may be tailor-made based on the specific applications needed within each industry sector);
    and (iv) there would be full demand-side substitutability between infrastructure outsourcing services, IaaS, and cloud services as they  are
    all aimed at satisfying the same needs of a customer, the difference residing in the technical way of achieving this.

 1) In a previous decision, the Commission found that, although certain factors from a demand-side perspective could point  towards  a  separate
    market for infrastructure outsourcing services, there is a high degree of substitutability between IT outsourcing services and  other  types
    of IT services from a supply-side perspective, as providers of IT services that do not currently provide IT outsourcing services would  have
    the ability to start providing these services in the short term.[10] The Commission ultimately left the precise  product  market  definition
    open.

3 Segmentation of IT services by industry sector

23) As regards a segmentation of the IT services market based on the industry sector, according to the Notifying Party,  Gartner's  more  recent
    reports identify the following segments: (i) banking & securities; (ii) communications, media & services; (iii) education; (iv)  government;
    (v) healthcare providers; (vi) insurance; (vii) manufacturing & natural resources; (viii) retail; (ix) transportation;  (x)  utilities;  and
    (xi) wholesale trade.[11]

24) The INF Business provides the vast majority of its IT (outsourcing) services to customers in transportation sector, mainly to the benefit of
    companies of the Lufthansa group. In  addition,  the  INF  Business  has  a  few  third-party  customers  in  industry  sectors  other  than
    transportation (e.g., banking, communication & media, manufacturing sectors). However, these customers together accounted for business worth
    only EUR […] million in 2013, i.e., only [0-5]% of the total turnover of the  INF  Business.[12]  As  a  result,  the  acquisition  of  such
    contracts by IBM is unlikely to lead to any significant accretion of IBM’s market share or to enable IBM to  improve  its  position  in  the
    market for provision of IT outsourcing services to any other industry segment. Accordingly, the assessment in this decision is  focussed  on
    the transportation sector.

25) According to the Notifying Party, a distinction of IT services along industry sectors is not meaningful as: (i) businesses in the  different
    vertical industries would use the same kind of IT services across all six functional segments of  IT  services;  and  (ii) the  majority  of
    skills, technology and know-how involved in providing IT services, for the large part, would be standard and  readily  transferable  between
    industries. The high degree of supply-side substitutability would be substantiated by the fact that IBM’s percentage of sales of IT services
    in each industry closely reflects its percentage of sales for all industries combined.

26) These arguments of full supply-side substitutability would be especially applicable to the  infrastructure  outsourcing  sub-segment  of  IT
    outsourcing services, since these services are exactly the same irrespective of the industry in which they are provided.  All  data  centres
    and networks would function in the same way regardless of the customer’s domain of activity. IBM does not have  industry-specific  divisions
    and the same employees often work for clients active in completely different industries.[13]

27) The Commission in previous decisions considered that the IT services market could be segmented  into  several  categories  based  on  market
    reports by Gartner.[14] However, the Commission ultimately left open the precise product market definition.

28) The majority of the respondents to the market investigation conducted in the  present  case  submitted  that  providers  of  IT  outsourcing
    services not currently active in the transportation sector would be able to easily start  providing  such  services  in  the  transportation
    sector. Indeed, according to these respondents, IT outsourcing services are becoming increasingly standardised  across  all  sectors,  which
    makes it easier for providers to gain new customers in other sectors.[15]

2 Geographic market definition

29) The Notifying Party submits that the geographic market should be considered wider  than  national  and  at  least  EEA-wide,  since:  (i) IT
    services providers offer the same IT services throughout the EEA; (ii) the pricing process is  similar  throughout  the  EEA;  and  (iii) IT
    services providers offer services on a global or at least EEA basis, either in-house  or  through  alliances,  subcontracting  or  sometimes
    distribution arrangements. This would also be confirmed by the outsourcing  agreement  between  IBM  Deutschland  Aviation  and  DLH,  which
    concerns sales of IT services to the benefit of all the subsidiaries of the Lufthansa group located worldwide.

30) While previously the Commission considered that IT services are provided on a national basis, a  more  recent  decision  pointed  towards  a
    geographic scope broader than national, as major providers of IT services operate  on  a  worldwide  basis  and  customers  frequently  have
    worldwide/EEA-wide tenders.[16]

31) The majority of the respondents to the market investigation conducted in the  present  case  submitted  that  providers  of  IT  outsourcing
    services not currently active in, e.g., Germany, would be  able  to  easily  start  providing  such  services  in  Germany.  In  particular,
    respondents pointed, e.g., to the fact that IT outsourcing services are highly standardised across all countries, that they  can  easily  be
    provided cross-border and that the award of contracts often takes place on the basis of EU-wide tenders. [17]

3 Conclusion on market definition for IT services

32) For the purpose of this decision, the exact delineation of the relevant product and geographic market(s) for the provision  of  IT  services
    can be left open, as the proposed transaction does not give rise to competition concerns under any alternative market definition.

3 IT software and IT systems

1 Product market definition

1 IT software

33) The Notifying Party submits that the relevant product market should be defined broadly, without necessarily taking into account the segments
    identified by IT research organisations.

34) In previous decisions, the Commission considered that software markets could be segmented on the basis of (i) the different  functionalities
    of the software and the sector concerned, and (ii) the end  uses  offered  by  the  particular  software.[18]  With  particular  regards  to
    functionality, the Commission considered a distinction between the following types of software: (i) infrastructure software  (i.e.,  servers
    and databases), (ii) middleware (i.e., integration platforms), (iii) application software and office  software,  and  (iv) operating/browser
    software.

2 IT systems

35) The Notifying Party submits that, within IT systems, servers could be distinguished from external storage  systems  in  light  of  the  more
    limited functions of such storage systems.

36) In previous decisions relating to servers, although suggesting a possible segmentation of the server market by price  band,  the  Commission
    ultimately left the product market definition open.[19]

37) In previous decisions relating to storage systems, the Commission identified different categories of storage, such  as  disk  storage,  tape
    storage systems and hard disk drives (HDDs), as well as further possible sub-segmentations.[20]

2 Geographic market definition

1 IT software

38) The Notifying Party submits that the relevant geographic market is worldwide.

39) In previous decisions, the Commission took the view that the geographic scope of  the  market  for  software  was  at  least  EEA-wide,  but
    ultimately left the exact geographic market definition open.[21]

2 IT systems

40) In previous decisions, the Commission concluded that the relevant geographic market for both servers[22] and storage systems[23] appeared to
    be at least EEA-wide or worldwide.

3 Conclusion on market definition for IT software and IT systems

41) For the purpose of this decision, the exact delineation of the relevant product and geographic markets for the  provision  of  IT  software,
    servers and storage systems can be left open since the  proposed  transaction   does  not  give  rise  to  competition  concerns  under  any
    alternative market definition.

COMPETITIVE ASSESSMENT

1 Assessment of horizontal relationships

42) The INF Business’ activities are mostly captive, as it currently provides the majority of its IT services  to  companies  of  the  Lufthansa
    group. In 2013, merchant sales of the INF Business amounted to approximately [10-20]% of its overall worldwide turnover (EUR […] million out
    of EUR […] million). The merchant sales of the INF Business are in decline since 2009, when DLH took  the  decision  to  withdraw  from  the
    merchant market for IT outsourcing services and focus on providing such services internally to other companies of the Lufthansa group.

43) In this section, the Commission assesses the impact of the proposed transaction in the market for the  provision  of  IT  services  and  its
    segments, by taking into account both (i) the "merchant" market for the provision of IT services (i.e., without the  INF  Business'  captive
    sales), and (ii) a broader market also including the value of the IT services  which,  pre-transaction,  were  sold  captively  by  the  INF
    Business to the Lufthansa group and which, post-transaction, will be sold by IBM to the Lufthansa group pursuant to the FWA.

1 Market shares at EEA level

44) The following tables list the market shares of IBM and of the INF Business in the various IT services markets/segments potentially concerned
    by the proposed transaction at EEA level, (i) in the merchant market and (ii) in a market also including the INF Business' captive sales:

                                            Parties’ Market Shares in Merchant Market – EEA (2013)[24]
|Party            |IT Services               |IT Outsourcing            |IT Services/              |IT Outsourcing/           |
|                 |                          |                          |Transportation            |Transportation            |
|IBM              |[5-10]%                   |[5-10]%                   |[5-10]%                   |[10-20]%                  |
|INF Business[25] |[0-5]%                    |[0-5]%                    |[0-5]%                    |[0-5]%[26]                |
|Combined         |[5-10]%                   |[5-10]%                   |[5-10]%                   |[10-20]%                  |

  Source: Notifying Party, based on Gartner Market Share Data IT 2013 and LSY internal estimations

                                       Parties’ Market Shares Incl. INF Business Captive Sales – EEA (2013)
|Party             |IT Services               |IT Outsourcing            |IT Services in            |IT Outsourcing in         |
|                  |                          |                          |Transportation            |Transportation            |
|IBM               |[5-10]%                   |[5-10]%                   |[5-10]%                   |[10-20]%                  |
|INF Business      |[0-5]%                    |[0-5]%                    |[0-5]%                    |[5-10]%                   |
|Combined          |[5-10]%                   |[5-10]%                   |[10-20]%                  |[10-20]%                  |

                      Source: Notifying Party, based on Gartner Market Share Data IT 2013 and LSY internal estimations [27]

45) According to the information provided by the Notifying Party, IBM was the market leader at EEA level in 2013 in all segments  considered  in
    the table above. However, in each of these segments, IBM faced competition from a large number  of  companies  including,  e.g.,  Accenture,
    Atos, BT, Capgemini, Deloitte, Fujitsu, HP and T-Systems.

46) As regards the sub-segments of the market for  the  provision  of  IT  outsourcing  services  where  the  Parties  are  both  active  (i.e.,
    infrastructure outsourcing services, cloud services and IaaS) in the EEA, the Notifying Party submits that,  while  Gartner  does  not  make
    available detailed market share data, the Parties' market shares in such more narrowly defined segments would not significantly differ  from
    their respective shares in the broader IT outsourcing segment at the EEA level.[28]

2 Market shares at national level

47) At national level, the Parties' activities only overlap in Germany and in the United Kingdom.

    Germany

48) The following tables list the market shares of IBM and of the INF Business in the various IT services markets/segments potentially concerned
    by the proposed transaction in Germany, (i) in the merchant market and (ii) in a market also including the INF Business' captive sales:

                                            Parties’ Market Shares in Merchant Market – Germany (2013)
|Party              |IT Services               |IT Outsourcing            |IT Services/              |IT Outsourcing/           |
|                   |                          |                          |Transportation            |Transportation            |
|IBM                |[5-10]%                   |[5-10]%                   |[5-10]%                   |[10-20]%                  |
|INF Business       |[0-5]%                    |[0-5]%                    |[0-5]%                    |[0-5]%                    |
|Combined           |[5-10]%                   |[5-10]%                   |[5-10]%                   |[10-20]%                  |

  Source: Notifying Party, based on Gartner Market Share Data IT 2013 and LSY internal estimations

                                     Parties’ Market Shares Incl. INF Business Captive Sales – Germany (2013)
|Party              |IT Services               |IT Outsourcing            |IT Services/              |IT Outsourcing/           |
|                   |                          |                          |Transportation            |Transportation            |
|IBM                |[5-10]%                   |[5-10]%                   |[5-10]%                   |[5-10]%                   |
|INF Business       |[0-5]%                    |[0-5]%                    |[10-20]%                  |[30-40]%                  |
|Combined           |[5-10]%                   |[10-20]%                  |[20-30]%                  |[30-40]%                  |

  Source: Notifying Party, based on Gartner Market Share Data IT 2013 and LSY internal estimations

49) According to the information provided by the Notifying Party, IBM was the second largest player (following T-Systems) in Germany in 2013  in
    all markets/segments considered in the table above. In each of these  markets/segments,  IBM  faced  competition  from  a  large  number  of
    companies, including T-Systems, Accenture, Atos, Capgemini, Fiducia, HP and NTT Data.

50) Post-transaction, taking into account the INF Business' captive sales, the merged entity's market share in Germany will be around 20% in the
    segment for IT services in the transportation sector and close to 40% in the sub-segment for IT outsourcing services in  the  transportation
    sector. As a result, IBM will become the leading provider in Germany in each of these potential segments.

    United Kingdom

51) The following table lists the market shares of IBM and of the INF Business in the various IT services markets/segments potentially concerned
    by the proposed transaction in the United Kingdom. Since the INF Business did not have any captive sales in the United Kingdom in 2013, only
    the merchant market is considered below.

                                        Parties’ Market Shares in Merchant Market – United Kingdom (2013)
|Party                 |IT Services               |IT Outsourcing          |IT Services/          |IT Outsourcing/           |
|                      |                          |                        |Transportation        |Transportation            |
|IBM                   |[0-5]%                    |[5-10]%                 |[5-10]%               |[5-10]%                   |
|INF Business          |[0-5]%                    |[0-5]%                  |[0-5]%                |[0-5]%                    |
|Combined              |[0-5]%                    |[5-10]%                 |[5-10]%               |[5-10]%                   |

  Source: Notifying Party, based on Gartner Market Share Data IT 2013 and LSY internal estimations

 2) According to the information provided by the Notifying Party, IBM was the third largest player in the United Kingdom in 2013 in the segments
    for IT services and IT outsourcing services, and the first largest player in the segments for IT services in the transportation  sector  and
    IT outsourcing services in the transportation sector. In each of these segments, IBM faced competition from  a  large  number  of  companies
    including Accenture, Atos, BT, Capgemini, Capita Group, Fujitsu and HP.

52) As regards the sub-segments of the market for  the  provision  of  IT  outsourcing  services  where  the  Parties  are  both  active  (i.e.,
    infrastructure outsourcing services, cloud services and IaaS) in Germany and in the United Kingdom, the Notifying Party submits that,  while
    Gartner does not make available detailed market share data, the Parties' market shares in such more  narrowly  defined  segments  would  not
    significantly differ from their respective shares in the broader IT outsourcing segment in Germany and in the United Kingdom.[29]

3 Competitive assessment

53) The Commission notes that, even if the INF Business' captive sales are taken into account, the merged  entity's  market  share  will  remain
    below 20% in any potential product market on even the narrowest geographic market definition, except  in  Germany.  Moreover,  as  described
    above at paragraphs (46), (50) and (53), several alternative providers will remain active in the market alongside the merged entity.

54) As regards Germany, the Commission considers that the proposed transaction will not raise competition concerns of a  horizontal  nature  for
    the following reasons.

55) First, although the market share increment arising from the proposed transaction is significant in certain sub-segments of the market,  such
    increment is primarily represented by the INF Business' captive sales to the Lufthansa group. Thus, the increment  arises  from  classifying
    those captive sales as merchant sales.

56) Second, post-transaction, IBM's competitors will continue to be able to compete with IBM for the provision of  IT  outsourcing  services  to
    Lufthansa for the part of its requirements that Lufthansa will not be sourcing from IBM  under  the  FWA,  i.e.,  approximately  [more  than
    65]%[30] of Lufthansa's total demand for IT outsourcing services. Moreover, once the FWA expires, after seven years, IBM's competitors  will
    be able to compete for Lufthansa's entire demand for IT outsourcing services.

57) Finally, in any event, the respondents to the market investigation did not raise any concerns as regards the possible impact of the proposed
    transaction on competition in any possible product or geographic market, including the market/segment for IT  outsourcing  services  in  the
    transportation sector in Germany.[31] Moreover, all the respondents expressing a view considered that, post-merger, there will  continue  to
    be a sufficient number of credible alternative IT service providers who are able to provide the same range of IT  outsourcing  services  for
    the transportation sector as the merged entity.[32]

4 Conclusion on horizontal relationships

58) In light of the above, the proposed transaction does not raise serious doubts as regards the  potential  market  for  the  provision  of  IT
    services and its possible sub-segments in the internal market or any substantial part of it. This conclusion applies irrespective of whether
    the INF Business' captive sales are taken into account.

2 Assessment of non-horizontal relationships

59) The provision of IT services may require the use of (i) IT software (and, in particular, in this case, system infrastructure software, since
    the INF Business' activities are focused on infrastructure outsourcing services), and (ii) IT  systems,  comprising  electronic  information
    processing systems (including servers and storage). IBM is active in all of these markets.

60) According to the Notifying Party, the proposed transaction will not have a significant impact on IBM's position in these markets.

61) First, the Notifying Party submits that IBM's market share is below 30% as regards both (i) IT software (including the potential sub-segment
    of system infrastructure software) at the global and European level;[33] and (ii) IT systems (including narrower  markets  for  servers  and
    storage) at the European level and in Germany.[34]  Moreover, while the provision of servers is part of  the  services  to  be  provided  to
    Lufthansa by IBM under the FWA, the Notifying Party submits that there will be only very limited scope for  IBM  to  increase  its  sale  of
    servers to LSY/Lufthansa Group as a result of the proposed transaction.[35]

62) Moreover, according to the Notifying Party, the part of Lufthansa's demand for IT software and IT systems that  will  be  satisfied  by  the
    services provided by IBM would only represent a negligible portion of the total European[36] demand for IT software (i.e., EUR  […]  million
    out of EUR 77 642 million) and IT systems (i.e., EUR […] million out of EUR 24 357 million).

63) The respondents to the market investigation did not raise any concerns as regards potential customer foreclosure  in  the  markets  for  the
    provision of IT software, servers and storage as a result of IBM potentially limiting competitors' access to Lufthansa's  demand  for  these
    products.

64) In light of the above, it can therefore be concluded that the proposed transaction will not give  rise  to  any  vertical  concerns  in  the
    markets for IT software, servers and storage.

CONCLUSION

65) For the above reasons, the European Commission has decided not to oppose the proposed concentration and to declare it  compatible  with  the
    internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation.

For the Commission
(Signed)
Margrethe VESTAGER
Member of the Commission

-----------------------
[1]   OJ L 24, 29.1.2004, p. 1 ("the Merger Regulation"). With effect from 1 December 2009, the Treaty on the Functioning of the  European  Union
    ("TFEU") has introduced certain changes, such as the replacement of "Community" by "Union" and "common market"  by  "internal  market".  The
    terminology of the TFEU will be used throughout this decision.

[2]   The FWA will come into effect on 1 April 2015.

[3]   See paragraph 26 of the Commission Consolidated Jurisdictional Notice (OJ C 95, 16.04.2008, p. 1).

[4]   Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Consolidated Jurisdictional  Notice  (OJ  C
    95, 16.04.2008, p. 1).

[5]   IT outsourcing services provide day-to-day management and operation of computing  and  processes,  including  infrastructure  and  business
    applications. IT outsourcing contracts are differentiated from project services in that they are  ongoing,  performance-based  contracts  to
    deliver day-to-day IT operations and management, as opposed to project-based efforts. Except for help desk services, IT  outsourcing  market
    segments are differentiated by the degree and type of vendor responsibility specified in the service contract.

[6]   See Cases M.6921 – IBM Italia / UBIS, Commission decision of  19  June  2013;  M.6237  –  Computer  Sciences  Corporation  /  iSoft  Group,
    Commission decision of 20 June 2011; M.6127 – Atos Origin / Siemens IT Solutions & Services, Commission decision of 25 March 2011; M.5666  –
    Xerox / Affiliated Computer Services, Commission decision of 19 January 2010; M.5301 – Cap Gemini / Bas, Commission decision of  13  October
    2008.

[7]   See Gartner's 2014 report named “Market Share: IT Services, 2013”.

[8]   For example, the Commission considered the following categories: (i) hardware maintenance; (ii) software  maintenance  and  support;  (iii)
    consulting; (iv) development and integration; (v)  IT  outsourcing  (formerly  referred  to  as  “IT  management”);  (vi)  business  process
    outsourcing (BPO); (vii) management services; and (viii) education and training.  See, e.g., case M.6921 – IBM  Italia  /  UBIS,  Commission
    decision of 19 June 2013.

[9]   IaaS is a standardized, highly automated offering in which compute resources, complemented by  storage  and  networking  capabilities,  are
    owned and hosted by a service provider and offered to the customer on demand.

[10]  Case M.6921 – IBM Italia / UBIS, Commission decision of 19 June 2013.

[11]  See Gartner's April 2014 pivot-table named “Market Share: IT Services, 2013”.

[12]  Within this portion of [0-5]%, the biggest contract of the INF Business is for the provision of primarily  IT  outsourcing  services  to  a
    German bank for a value of only approximately EUR […] million (part of this amount is paid for the rental for physical  space  to  house  IT
    systems (i.e. “Housing”)).

[13]  The only difference in the needs of the customers would possibly concern more stringent requirements for data security and the  privacy  of
    the persons in industries like banking and securities, insurance, healthcare, and government. However, once a  supplier  would  be  able  to
    provide services ensuring an adequate level of security, it will not reduce its security standards only because it is working with a  client
    that does not have high requirements.

[14]  For example, the Commission considered the following categories: (i) agriculture, mining  and  construction;  (ii)  process  manufacturing;
    (iii) discrete manufacturing; (iv) utilities; (v) wholesale; (vi)  retail;  (vii)  transportation;  (viii)  communications;  (ix)  financial
    services; (x) healthcare; (xi) services; (xii) education; (xiii) national  and  international  government;  and  (xiv)  local  and  regional
    government. See, e.g., Cases M.6237 – Computer Sciences Corporation  / iSoft Group, Commission decision of 20 June 2011 and M.5197  –  HP  /
    EDS, Commission decision of 25 July 2008.

[15]  See responses to the Questionnaire for Competitors and Customers, question 3.

[16]  Case M.6237 – Computer Sciences Corporation / iSoft Group, Commission decision of 20 June 2011, paras. 17-18.

[17]  See responses to the Questionnaire for Competitors and Customers, question 4.

[18]  M.6237 – Computer Sciences Corporation / iSOFT Group, Commission decision of 20 June 2011.

[19]  See Cases M.2609 – HP / Compaq, Commission decision of 1 January 2002 and M.5529 – Oracle / Sun Microsystems, Commission  decision  of   21
    January 2010.

[20]  See, e.g., Cases M..3866 – Sun / Storagetek, Commission decision of 26  August  2005  and   M.6203  –  Western  Digital  Ireland  /  Viviti
    Technologies, Commission decision of 23 November 2011.

[21]  Cases M.4944 – SAP / Business Objects, Commission decision of 27 November 2007 and M.6237 – Computer Sciences Corporation  /  iSOFT  Group,
    Commission decision of 20 June 2011.

[22]  Case M.2609 – HP / Compaq, Commission decision of 1 January 2002, paragraph 23.

[23]  See, e.g., Cases M.3866 – Sun / Storagetek, Commission decision  of  26  August  2005  and  M.6203  –  Western  Digital  Ireland  /  Viviti
    Technologies, Commission decision of 23 November 2011.

[24]  The Notifying Party notes that the data include Western European and Eastern European sales, as estimated by Gartner. Therefore, this  data
    also includes sales outside the EEA (e.g., in Switzerland and in certain Eastern European countries).

[25]  The market size data from the Gartner Report has been amended to reflect the merchant sales of the INF Business only and not the  sales  of
    the entire INF Business.

[26]  Based on the fact that EUR […] million/USD […] million of the INF Business’ total sales of EUR […]  million  are  attributable  to  sectors
    other than transportation.

[27]  For purposes of calculating shares of sales, the total 2013 merchant sales figures provided by Gartner have been grossed up to include  the
    captive sales of the INF Business.

[28]  In particular, according to the Notifying Party, the shares of the INF Business are likely to  be  lower  in  the  sub-segments  for  cloud
    services and IaaS compared to the sub-segment for infrastructure outsourcing services, as infrastructure outsourcing  services  account  for
    the majority (approximately […]%) of the total IT outsourcing services provided by the INF Business.

[29]  See footnote 28 above.

[30]  These figures have been provided by the Notifying Party on the basis of the average IBM revenue expected under the FWA  over  a  period  of
    seven years.

[31]  See Responses to the Questionnaire for Competitors and Customers, question 1.

[32]  See Responses to the Questionnaire for Competitors and Customers, questions 6-7.

[33]  Europe refers to the region including Europe, Middle East and Africa ('EMEA'). All figures are according to  Gartner,  'Market  Share:  All
    Software markets, Worldwide 2013'.

[34]  Europe refers to the region including Europe, Middle East and Africa ('EMEA'). All figures  are  according  to  IDC,  'IDC  EMEA  Quarterly
    Server Tracker, Q2' (2014), 'IDC Server Tracker Q2' (2014), 'IDC EMEA Quarterly Disk Storage Systems Tracker, Q2' (2014), and  'IDC  Storage
    Tracker Q1' (2014).

[35]  Indeed, Intel based server systems represent the majority (approximately […]%) of the servers that are in use by the INF Business  for  the
    Lufthansa Group and IBM has no servers in the Intel area.

[36]  The data have been provided by the Notifying Party on the basis of the  IDC  report  'Worldwide  Vertical  Markets  IT  Spending  2013-2018
    Forecast: 1Q14' (published in June 2014). For the purposes of this report, data for Europe only includes  data  for  UK,  Austria,  Belgium,
    Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden and Switzerland.

-----------------------
 In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC)  No  139/2004
 concerning non-disclosure of business secrets and other confidential information.  The  omissions  are  shown  thus  […].  Where  possible  the
 information omitted has been replaced by ranges of figures or a general description.

                                                                  PUBLIC VERSION

                                                                 MERGER PROCEDURE