CELEX: 31996M0651
Language: en
Date: 1996-02-05 00:00:00
Title: COMMISSION DECISION of 05/02/1996 declaring a concentration to be compatible with the common market (Case No IV/M.651 - AT&T / Philips) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31996M0651

COMMISSION DECISION of 05/02/1996 declaring a concentration to be compatible with the common market (Case No IV/M.651 - AT&T / Philips) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 099 , 02/04/1996 P. 0008

 COMMISSION DECISION of 05/02/1996 declaring a concentration to be compatible with the  common market (Case No IV/M.651 - AT&T / Philips) 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: Case N* IV/M.651- AT&T-Philips <ind> Notification of a concentration pursuant to Article 4 of Council Regulation N* 4064/89. On 03.01.1996, AT&T Corp. (AT&T) notified its intention to  acquire sole control over certain  business units (Acquired Businesses) from Philips Electronics N.V. (Philips). After examination of the notification, the Commission has concluded that the notified operation falls  within the scope of Council Regulation 4064/89 and does not raise serious doubts as to its  compatibility with the common market. I THE PARTIES AT&T, the American telecommunications company, provides a broad range of voice and data  communications services, in particular US and international long-distance carrier services. AT&T is  the ultimate parent company of a group engaged in the full range of telecoms operator activities.  AT&T's activities are organised into a number of different businesses. The telecoms equipment  manufacturing activities are in the Network Systems Group. The acquisition takes place in the  framework of the process of restructuring of AT&T which will lead to the separation of the  telecommunications equipment business from other groups (including telecoms services) by  01.01.97.  Philips, the dutch company, is one of the world's largest electronics companies. Its products include  lighting, industrial and consumer electronics, recorded music, components, semiconductors, medical  systems, and communications systems.  The two divisions from which the Acquired Businesses are to be divested are Télécommunications  Radioélectriques et Téléphoniques (TRT) and Philips Kommunikations Industrie AG (PKI). Both of  these divisions are within the Philips Communication Systems division and are engaged in the  development, production and distribution of telecommunication equipment. II THE OPERATION Through the notified operation, AT&T is acquiring the following three business units from Philips: -Transmission Networks (TN) -Microwave Transmission and Access (MTA) -Cellular Infrastructure Systems (CIS) Prior to the closing of the transaction, all assets and shares which are to be divested to AT&T will be  transferred to the Philips parent company. Upon closing, the said assets and shares will be  transferred to AT&T. In the case of PKI, the transaction with Philips will take the form of an  acquisition of the relevant assets from this business unit. In the case of TRT, the transaction will take  the form of an acquisition of the shares of TRT. Prior to the transfer of the shares of TRT to AT&T,  those parts of TRT which Philips intends to retain will be divested from the current TRT company. A number of National Sales Organizations (NSOs) will also be acquired by AT&T in the operation.  The NSOs concerned are those located in Austria, Belgium, Denmark, Greece, Ireland, Italy,  Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. III THE CONCENTRATION The notified operation is a concentration consisting of the acquisition of sole control by AT&T of the  Acquired Businesses of Philips. Upon completion of the transaction, the Acquired Businesses will be  integrated into the Network Systems group of AT&T. Indeed, following the acquisition agreements and the related agreements signed between AT&T and  Philips, the acquisitions of 100% of the shares of TRT by AT&T and the ownership of all the assets  which pertain to the Acquired Businesses in the case of PKI will confer, legally and factually,  exclusive control to AT&T over the Acquired Businesses. Philips will lose any possibility of  exercising any kind of influence on the businesses transferred. With regard to the NSOs acquired by AT&T, it must be said that they will also be under its sole  control taking into account that there will be a transfer of the assets, contracts, employees (in as far  as the applicable contractual and legal provisions allow this) and leases to AT&T. Therefore, the operation constitutes a concentration within the meaning of article 3(1)b of the  Merger Regulation. IV COMMUNITY DIMENSION AT&T and the parts of Philips to be divested have a combined aggregate worldwide turnover in  excess of 5000 million ECU (AT&T: 63,129 million ECU and the Philips Acquired Business  [Deleted: Business secret] ECU. Each of the entities has a Community-wide turnover in excess of  250 million ECU (AT&T [Deleted: Business secret] ECU and the Acquired Business [Deleted:  Business secret] ECU). Both AT&T and the Acquired Businesses do not achieve more than two- thirds of their aggregate Community-wide turnover within one and the same Member State. The  notified operation therefore has a Community dimension. V COMPATIBILITY WITH THE COMMON MARKET A. Relevant Product Markets The relevant product markets in this operation are in the public telecommunications equipment  sector. With regard to Commission decisions under Article 85.3 and the Merger Control Regulation  (in particular the Siemens/Italtel case - N*IV/M.468, decision of 17.02.95), the following relevant  product markets have been suggested: 1. Public switching 2. Cable transmission 3. Point-to-point digital radio transmission 4. Local loop 5. Customer premises equipment (CPE)   5.1 Network operator owned equipment   5.2 Customer owned equipment 6. Wireless access (Point-to-multipoint wireless)   6.1 Fixed wireless for urban applications   6.2 Fixed wireless for rural applications 7. Cellular infrastructure According to the notifying party the above markets cover all the products which are manufactured  and/or distributed by the Acquired Businesses, and can be described as follows;  Description of relevant product markets 1. Public switching systems allow the interconnection of service users. The switched services can  cover voice, data, image and text. The three main network switching nodes are characterized by: (a) local switching functions which interconnect end-users; (b) transit exchanges which interconnect transmission links; (c) international transit exchanges which provide international services. In Europe, the public switching equipment with analogue technology is being gradually replaced by  digital equipment and new extensions in networks are likewise being carried out using digital  technology.  2. Cable transmission provides the transport function for: a) traffic between local central switching offices and transit central switching offices; b) leased line traffic between business customers, by cable and fibre-optics. The notifying party argues that the market for cable transmission products may be further divided  into different product categories based on whether the technology used is PDH or SDH.  However,SDH is rapidly becoming dominant. The notifying party and the competitors and customers  surveyed by the Commission have confirmed that SDH will be dominant by the year 2000. There are  also differences in the functionality of the equipment but to an increasing extent, multifunctional  equipment is being introduced with SDH technology equipment. 3. Point-to-point digital radio transmission or line-of-sight radio technology provides an alternative  to cables for information transport. Radio systems are, like cable transmission, migrating towards  SDH. 4. The local loop product market comprises a wide range of electronic products connecting  homes/premises to the network.  5. Customer premises equipment (CPE) relates to the telecommunications equipment which is  installed on the customer's premises. According to AT&T it should be divided into two individual  product markets, namely (i) network operator owned equipment which would include the network  termination equipment (considered to be part of the network) and (ii) user owned equipment which  comprises principally of ISDN terminal adapters. ISDN terminal adapters may be further subdivided  into two categories: PC card adapters and stand-alone adapters. The competitors and customers  contacted by the Commission agreed with these subdivisions. 6. Wireless access (Point-to-multipoint wireless). Wireless access covers point-to-multipoint  transmission systems and networks which can be, and generally are, interconnected with the fixed  telecommunications networks and are used to deliver normal voice telephone services and ISDN.  For AT&T this category of equipment covers two product markets: fixed wireless for urban  applications, and fixed wireless for rural applications. The distinction between the urban and the  rural applications is that the former would allow a much higher number of suscribers and that its  geographic reach would be shorter than the rural equipment. Most of the companies which answered  to the Commission's request of information agreed with this subdivision. 7. Cellular infrastructure. The Commission referred to this product in former decisions as "mobile  radio networks" (Siemens/Italtel decision of 17.02.1995). Mobile radio networks allow for  communication: (a) within its own network and (b) to or from another fixed or mobile network as  long as the user is within radio coverage of his mobile network.  A product market definition is not necessary as, given the respective market positions of the parties  in the sectors referred to above or even in separate narrower markets, such a definition would not  alter the Commission's conclusion with regard to dominance in this case described under Assesment  bleow. B. Relevant Geographic Markets 1. Public switching equipment is considered by the notifying party to be in transition from national  to European-wide. It is true that the Commission in the Siemens/Italtel decision, without defining  exactly the geographic market in public switching, made a distinction between the existing digital  switch technology (where significant differences amongst Member States remain) and the new  technologies such as ATM switches where, due to the liberalization of services and infrastructure  and the process of European standardisation, it could be argued that a European-wide market  exists. 2. The notifying party refers to the Siemens/Italtel decision where the Commission recognised that  standardisation of cable transmission equipment is more widespread than switching equipment,  partly because the interface aspects of the equipment are more important than for switches. In this  context, the geographic market may be viewed as European wide or becoming European wide. In any  event, a customer for these products could reasonably expect to have a choice of suppliers from a  number of regions. 3. The notifying party's opinion is that the geographic market for point-to-point digital radio  equipment is also in transition from national to European-wide. 4. The notifying party considers that the geographic market for local loop products is still influenced  by the regulatory climate which differs from one Member State to the other. 5. With regard to customer premises equipment and in particular in relation to the network operator  owned equipment, the notifying party states that the geographic market definition is still influenced  by standardisation issues. The notifying party remarks that there are two different standards which  are used within the EEA for network termination equipment, the 2B1Q standard and the 4B3T  standard. The 4B3T standard is the older standard which is used in Belgium and Germany. In the  other EEA countries, the 2B1Q standard is used. Therefore, according to AT&T, two geographic  markets are considered to exist in network operator owned equipment. Standards for user owned  equipment are based on the European ISDN standard and hence, a European wide market in these  products could be considered. 6. The notifying party considers that the geographic market for wireless access (both for rural and  urban applications) is at least European and possibly global. The notifying party provides  information about various suppliers of different nationality which are active in this area through  trials and sales in the various countries within Europe and the world. 7. In relation with cellular infrastructure the notifying party refers to the Commission decision  Siemens/Italtel which stated that operators of mobile radio networks in western Europe had  confirmed that they purchased telecommunications equipment through tender procedures and that  the geographic location of the equipment manufacturers had little relevance. However, the  Siemens/Italtel decision did not finally define the geographic market. It would seem clear that the geographic market for GSM standard cellular infrastructure is at least  European as this standard has been set as the EEA standard. Some of the competitors and customers contacted by the Commission have defined the relevant  product markets referred to above as worldwide product markets. Some others prefer a distinction  based on standards. For instance a distinction between ETSI (Europe and other non-European  countries) and ANSI (especially North America). However, given that the operation does not result in any problem of dominance in the EU/EEA area,  for the reasons exposed in the assesment below, it is not necessary to define the relevant geographic  market in the present case. VI-ASSESSMENT A. Horizontal Effects According to the information provided by the notifying party and essentially confirmed by the  competitors and customers surveyed by the Commission the following conclusions can be drawn on  the impact of the notified operation on competition in the common market: 1. Public switching: The activities in Europe of AT&T and the Acquired Businesses are limited both  from a geographical point of view and from a product point of view. The combined market share of AT&T and the Acquired Businesses are estimated at a level of  [between 0 % and 10 %] of the EC market for public switching equipment in 1994. In addition there  is no overlap between the activities of AT&T and those of the Acquired Businesses in terms of sales  in Member States.  The only country within the EEA in which sales by AT&T of public switching equipment are  substantial is the Netherlands [ between 50 % and 60 %] but as the Acquired Businesses currently  have no sales of public switching equipment in the Netherlands the notified operation will not lead  to any increase of AT&T's share of the Dutch market. In addition, a significant number of  competitors of AT&T are active in this sector such as Siemens and Alcatel. Thus, given the  existence of actual competition and the existence of substantial potential competition  (NEC,Ericsson,Nokia...) in the market, the proposed acquisition will not lead to the creation or  the  strengthening of a dominant position in the common market. 2. Cable transmission: The combined market shares of AT&T and the Acquired Businesses in the  cable transmission market (including all products) was [ between 20 % and 30 %] 1992 and  [between 10 % and 20 %] 1994 at the EC level. If we just consider the combined market share with  regard to SDH cable transmission products, in 1992 was of [between 15 % and 25 %] in 1993 of  [between 5 % and 15 %] and, in 1994 of [between 5 % and 15 %] at the Community level.  In the cable transmision sector at the Community level, it is observed that Alcatel and Siemens/GPT  both have a significant presence (probably over 20% according to information for 1993).  Furthermore, the demand side of the market for transmission equipment shows a high degree of  concentration and the customers seem to have substantial bargaining power with regard to the  purchases which they make. At the Community level in the SDH sector, AT&T has a very low market share [Deleted: Business  secret] and at a national level, there is zero or extremely limited overlap between AT&T and the  Acquired Businesses.  Given the low overlap on both the Member State and the Community level,it does not appear that the  operation would lead to any anti-competitive problems in the SDH and PDH cable transmission  markets. This has been supported by the results of the Commission's investigation which proved the  existence of effective competition in the market. 3. Point-to-point digital radio transmission: AT&T sales of digital radio transmission products  within Europe are extremely limited and almost all in Germany where AT&T attains a market share  between 20 and 30 %.Sales by the Acquired Businesses within this sector represent a minor part of  the European market for digital point-to-point transmission equipment with the only significant sales  in France [between 10 % and 20 %] and to a lesser extent the United Kingdom [between 5 % and 15  %]  On a EEA level, the combined market share is [between 0% and 10 %.]. The impact of the operation  in this product market is small and will not lead to any significant change in the market. 4. Local loop: AT&T had a very low presence in this market in 1994 in the Community. The  Acquired Businesses have a certain presence in this market with a share of [between 15 % and 25 %]  in 1994 at the Community level. At national level the Acquired Businesses has particularly high  market shares in two countries: Belgium [between 70 % and 80 %] and Germany [between 30 % and  40 %] in 1994. However, AT&T was only active in Italy in 1994 where it had [between 40 % and 50  %] of an extremely small market. The Acquired Business was not present in Italy in 1994. Given the  small effect of the operation, as for point to point digital radio transmission, and the existence of  sufficient present and potential competition in the national markets referred to as Siemens, Alcatel,  Nortel ,Ericsson,Nokia..., the notified operation will not create or strengthen a dominant position in  the common market. 5. Customer premises equipment: In relation to network operator owned equipment the sales of the  Acquired Businesses are limited to the geographic market consisting of Belgium (less than 5% in the  last three years) and Germany where it ranges between 20% and 25%. AT&T has no sales in this  sector in Belgium and Germany and therefore, there is no overlap of geographical markets.  With regard to the user owned equipment sector AT&T does not have a position within the EEA.  The notified operation should therefore not have any impact on the current market structure for these  products. 6. Wireless access: In relation to the fixed wireless urban applications AT&T manufactures one fixed  wireless product called AirLoop based on CDMA technology which is currently the subject of a trial  in the United Kingdom. The Acquired Businesses manufacture one fixed wireless product for urban  applications which is called Swing. Swing is the subject of trials in Spain and Switzerland. Both  AT&T and the Acquired Businesses list zero revenue in this sector for 1994. In addition, according  to the information obtained by the Commission other alternative technologies are available to a  sufficient number of the competitors of AT&T.  With regard to rural applications,this sector could be classed as a niche product with limited  deployment. In any case AT&T currently does not have any products falling within this market and  the Acquired Businesses' activity appears to be limited. 7. Cellular infrastructure: In this equipment sector the combined market share of AT&T and the  Acquired Businesses in the Community is [less than 5 %] in 1994. Within Europe, AT&T makes  only very limited sales of cellular infrastructure equipment in Italy and Spain (both less than  [Deleted: Business secret] market share). There is no significant overlap between sales by AT&T and  sales by the Acquired Businesses in the geographic market defined as the EEA. Therefore, the  operation does not pose any competition problem with regard to this sector. B. Vertical Effects AT&T has limited activities as an operator of telecommunications infrastructure within the EEA,  mainly through AT&T Communications UK Ltd, which provides fixed network telecommunications  services in the United Kingdom. AT&T Communications UK is a purchaser of switching and  transmission equipment. However, it has to be taken into account that AT&T Communications UK's  purchases of telecommunications equipment represent a negligible part of the total purchases of  public telecommunications equipment within the EC and the EEA and a minor part (below 5%) of  the total purchases of public telecommunications equipment in the United Kingdom. Also, the  telecommunications services license granted to AT&T Communications UK forbids preference being  given to AT&T group equipment manufacturers. The notifying party has also informed the Commission that through data and messaging operations  in Europe (namely through the BCS-E and Easylink business units), AT&T operates a limited  amount of telecommunications equipment within the EC/EEA. This equipment primarily does not  fall within the affected market of cable transmission referred to above. In addition, the purchases of  telecommunications equipment by BCS-E and Easylink represent a negligible portion in overall  market terms. Given the circumstances referred to above it can be considered that the vertical relationships  described are of minor importance and will not create or strengthen a dominant position in the  common market. VII- ANCILLARY RESTRAINTS In article 5.8 of the Purchase and Sale Agreement signed between the parties it has been agreed that  Philips will not compete for a period of [Less than five years], following the closing date, with  AT&T in respect of the products propietary to the Acquired Businesses or products which have  undergone serious development therein or products that would be considered to be natural successors  of product currently offered by the Acquired Businesses. This clause reflects a reasonable purchaser's  protection against competitive acts of the vendor in order to take over fully the value of the assets  transferred. Therefore it can be regarded as ancillary to the concentration. Exhibit C to the Purchase and Sales Agreement contains a number  of Transitional Operating  Agreements. Its goals are to ensure smooth transfer of Acquired Business from Philips to AT&T.  The interim supply and services agreements have been signed for an initial transitional period which  amounts, as a general rule, [Less than five years], having as target reducing the negative effects of  disruption of traditional lines of internal procurement and supply. Certain of these agreements are  combined with a management services agreement with the same duration. However, is spite of this  [Less than five years] initial period there is a clause applicable to these agreements which establishes  that the Agreement shall automatically continue in effect after the expiration of the [Less than five  years] year term unless terminated by one of the parties. The parties have not justified to the  Commission that there is an objective need for agreements of potentially indefinite duration and  therefore the period necessary for the replacement of the relationship of dependency by autonomy in  the market will only be covered by the present decision for a maximum period of [Less than five  years] (equivalent to the period that the parties initially considered sufficient). In addition, these Transitional Operating Agreements contain a number of lease Agreements for  premises which will (i) either be acquired by AT&T but part of which will be leased to Philips - at  least during transitional periods not exceding [Less than five years] with optional extensions -(ii) or  will remain with Philips but will be partly used by AT&T. In so far as these lease Agreements could  be regarded as restrictive they are ancillary to the concentration.  Furthermore, the Transitional Operating Agreements cover another category of Agreements related  to the provision of certain services, the transfer of certain activities and the assignment of certain  contracts which are considered necessary to ensure the transition from businesses units within an  integrated economic entity to a independent undertaking. These Transitional Operating Agreements  in so far as could contain provisions that may be regarded as restrictive do not go beyond what is  directly related and necessary to the implementation of the notified concentration. These latter  notified agreements are covered by the present decision for a maximum period of five years which  has been justified by the parties as a necessary restriction in the sectors involved for the replacement  of the relationship of dependency by autonomy in the market.    Finally, the notifying party submits an Intellectual Property Agreement where its provisions are  related to the implementation of the notified concentration and to ensure adequat access by the  parties to those IPRs which are necessary for the operations which are either being transferred or  retained by Philips. The parties agree to license certain software, copyrights and patent rights. In so  far as they could be regarded as restrictive they must be considered ancillary to the concentration. VIII- CONCLUSION For the above reasons, the Commission has decided not to oppose the notified concentration and to  declare it copmatible with the common market. This decision is adopted in application of Article 6  (1) b of Council Regulation 4064/89. For the Commission