CELEX: 32020M9843
Language: en
Date: 2020-07-07 00:00:00
Title: Commission Decision of 07/07/2020 declaring a concentration to be compatible with the common market (Case No COMP/M.9843 - COLONY CAPITAL / PSP / NGD) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 07.07.2020
                                                                C(2020) 4736 final
                                                                              PUBLIC VERSION
                                                                To the notifying parties
Subject:            Case M.9843 – Colony Capital / PSP / NGD
                    Commission decision pursuant to Article 6(1)(b) of Council Regulation
                    No 139/20041 and Article 57 of the Agreement on the European Economic
                    Area2
Dear Sir or Madam,
(1)       On 2 June 2020, the European Commission received notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation by which Colony
          Capital, Inc., United States (“Colony Capital”) and Public Sector Pension Investment
          Board, Canada (“PSP”) will, indirectly, acquire joint control of Next Generation
          Data Limited, United Kingdom (“NGD” or “Target”) within the meaning of Article
          (3)(1)(b) and 3(4) of the EUMR (the “Transaction”)3. Colony Capital and PSP are
          designated hereinafter as the “Notifying Parties” or, together with NGD, as the
          “Parties”.
1    OJ L 24, 29.1.2004, p. 1 (the “Merger Regulation” or “EUMR”). 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    OJ L 1, 3.1.1994, p. 3 (the “EEA Agreement”).
3    Publication in the Official Journal of the European Union No C 193, 9.6.2020, p. 32-33.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- 1.      THE PARTIES
(2)     Colony Capital is a publicly traded real estate and investment management firm
        headquartered in the United States. Colony Capital manages a global portfolio
        composed of, amongst other, investments in digital infrastructure, including macro
        cell towers, data centres, small cell networks and fibre networks.
(3)     PSP is the pension investment manager of the pension plans of the Canadian Federal
        Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the
        Reserve Force. It manages a diversified global portfolio including stocks, bonds and
        other fixed-income securities as well as investments in private equity, real estate,
        infrastructure, natural resources and credit investments.
(4)     NGD is a private company limited by shares incorporated and existing under the
        laws of England and Wales. NGD is active in the design, build, operation and
        ongoing management of data centre solutions in the United Kingdom (“UK”).
(5)     Colony Capital controls the subsidiaries Zayo Group Holdings Inc. (“Zayo”) (active
        in IT outsourcing and retail business connectivity) and Aptum Technologies
        (“Aptum”)4 (only active in IT outsourcing), which operate in markets that are
        vertically related to the market for colocation where NGD is active.
2.      THE CONCENTRATION
(6)     By virtue of the Transaction, each of Colony Capital and PSP will indirectly acquire
        joint control of NGD within the meaning of Article 3(1)(b) of the EUMR and 3(4).
(7)     The acquisition of the Target will occur through a non-full function joint venture
        company, namely a Cayman Islands exempted limited partnership, F1 Europe JV,
        LP, which is jointly and indirectly controlled by Colony Capital and PSP.
(8)     Colony Capital holds a jointly controlling stake in F1 Europe JV, LP via
        [Confidential]
(9)     PSP holds a jointly controlling stake in F1 Europe JV, LP via [Confidential]. Each of
        Colony Capital and PSP have joint control through unilateral veto rights over the F1
        Europe Reserved Matters (budget, business plan, appointment/removal of the CEO
        and COO). These rights do not apply to F1 Europe JV, LP only, but also to BidCo,
        and, post-closing, NGD (as NGD will become an indirect wholly-owned subsidiary
        of BidCo).
(10)    At closing of the Transaction, F1 Europe JV, LP will acquire 100% of shares and
        sole control in Next Generation Data Infrastructure 1 Limited (the ultimate holding
        company of NGD Group) through its indirect wholly-owned subsidiary Vantage
        Data Centers UK BidCo Limited (“BidCo”), a private company limited by shares
        incorporated and existing under the laws of England and Wales.
4   The company was incorporated as Cogeco Peer 1. Inc and was renamed to Aptum Technologies in 2019.
                                                       2
 ---pagebreak--- (11)   In terms of shareholdings after the closing of the Transaction, NGD’s equity will be
       distributed as follows:
       (a)     [An LP under the sole control of] Colony Capital will indirectly hold
               approximately a 45.9% equity stake in NGD;
       (b)     PSP [Confidential] will hold approximately a 23% equity stake in NGD
               [Confidential];
       (c)     NGD management will hold a non-controlling equity stake in NGD of
               approximately 8.2%; and
       (d)     the remaining 23% equity stake in NGD will be indirectly held by non-
               controlling minority investors [Confidential].
(12)   NGD has sufficient own staff, financial resources and dedicated management for its
       operation and for the management of business interests. NGD generated in FY18
       almost EUR 33.5 million from the provision of colocation data center services and
       ancillary services to third party hyperscale and enterprise customers in the UK and
       post-closing will continue to sell these services to a similar wide range of customers
       in the UK (and will not rely almost entirely on sales to or purchases from Colony
       Capital and PSP). NGD has a market presence, does not have significant sale or
       purchase relationships with its parents and is intended to operate on a lasting basis.
       Therefore, NGD is and will remain fully functional.
(13)   Therefore, the Transaction will result in the acquisition of joint control by Colony
       Capital and PSP over NGD pursuant to Articles 3(1)(b) and 3(4) of the EUMR.
3.     EU DIMENSION
(14)   The notified operation has a Union dimension pursuant to Article 1(2) of the Merger
       Regulation. The undertakings concerned have a combined aggregate worldwide
       turnover of more than EUR 5 000 million5 (Combined: [Confidential], Colony
       Capital: [Confidential], PSP: [Confidential], NGD: EUR 33.45 million). Each of the
       Notifying Parties has an EU-wide turnover in excess of EUR 250 million; Colony
       Capital: [Confidential], PSP: [Confidential]). Each of the undertakings concerned
       does not achieve more than two-thirds of its aggregate Union-wide turnover within
       one and the same Member State.
4.     RELEVANT MARKETS
(15)   The Parties are active in a number of markets of the internet connectivity value
       chain. NGD is active in the design, build, operation and ongoing management of
       data centre solutions in the UK. In particular, NGD provides carrier-neutral,
       wholesale colocation space through its data centre located in Newport, South Wales,
5  Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                         3
 ---pagebreak---         which encompasses 750,000 sqm of gross space, 18,000 rack capacity over three
        floors and 72 MW of sellable IT load.6
(16)    Colony Capital, through its subsidiary Digital Colony, invests in digital
        infrastructure such as macro cell towers, data centres, small cells and fibre networks.
        In fact, Digital Colony controls the following portfolio companies with activities in
        the colocation data centre services market or in the broader telecommunications
        market in the EEA:
        a. Etix Group SA (“Etix”) - On 10 February 2020, Colony Capital and PSP
             acquired joint control of Etix, a public limited liability company based in
             Luxembourg. Etix designs and operates data centres, in which it provides
             colocation services to medium and large companies operating in various
             industries. Etix has a worldwide network of carrier-neutral data centres located
             in (a) the EEA (11 data centres located in (i) Liège (Belgium); (ii) les Sables
             d’Olonne, la Roche-sur-Yon, Nantes and Lille (France); (iii) Asgard, Fitjar and
             Blönduós (Iceland) and (iv) Jokkmokk (Sweden) as well as a data centre under
             construction in Frankfurt (Germany)), (b) Africa (two data centres in Morocco
             and Ghana) and (c) Latin America (one data centre in Colombia). Etix does not
             operate in the UK.
        b. Zayo – Since 9 March 2020, Digital Colony has a jointly controlling interest of
             [Confidential] in Zayo, a global network solutions provider listed on the New
             York Stock Exchange and headquartered in Boulder, Colorado in the United
             States. Zayo provides medium and large enterprises in North America and
             Europe with communications infrastructure services including metro dark fibre,
             private data networks, wavelength connections, Ethernet, IP connectivity, cloud
             offerings, colocation services and other high-bandwidth offerings. Zayo’s
             colocation segment provides carrier-neutral colocation space in the United
             States, Canada and the EEA.7 Specifically in the UK, Zayo owns and operates a
             long-haul dark fibre network as well as a metro dark fibre network, with a wide
             coverage across the UK. Zayo is not active in public cloud services in the UK.
             Some of its activities, on the other hand, fall under the relevant product markets
             for retail business connectivity services,8 IT outsourcing (cloud IaaS) and
             colocation services.9
        c. Aptum – the Canada-based Aptum provides essential business-to-business
             products and services such as colocation, network connectivity, managed
6  NGD further offers its colocation customers in Newport certain complementary ancillary services in the
   form of a bundle such as (i) NGD cloud gateway, enabling NGD colocation customers to connect to cloud
   providers without going through the public Internet; (ii) NGD Connect, enabling NGD customers across
   the NGD Connect network (including Newport, Bristol, Swindon, Slough, Birmingham, Leicester and
   London) to have a high speed, relatively low one-way latency (1.5ms) broadband access to NGD’s data
   centre in Newport; and (iii) Broadband re-sale. The total turnover generated through such services is
   limited to circa [Confidential]. Neither Colony Capital nor PSP provides such services, and no vertical
   links are created either. Hence, those services are not discussed further in this decision.
7  Zayo owns and operates seven data centres in Brussels (Belgium), Düsseldorf (Germany), Paris,
   Montpellier and Toulouse (France), Amsterdam (the Netherlands) and London (UK).
8  These are dedicated internet access (DIA), interconnection services, Ethernet services, SONET services,
   wavelength services and IP transit.
9  Colocation services to enterprise customers through its carrier-neutral data centre located in Feltham,
   which encompasses [Confidential] square metres, has a capacity of [Confidential] and offers connectivity
   to six different carriers.
                                                           4
 ---pagebreak---               hosting, cloud services and managed services through its two-way broadband
              cable networks in Canada, United States and Europe. Aptum also operates in the
              business information and communications technology services industry in North
              America and Europe. Specifically in the UK, Aptum provides the following
              services: (i) colocation services through its data centre in Portsmouth, which
              encompasses [Confidential] square feet and an available capacity of
              [Confidential]; and (ii) IT outsourcing services.10
(17)    As explained above, PSP, together with Colony Capital, has joint control of Etix,
        which is active in the market for colocation services provided by third party data
        centres in the EEA, Africa and Latin America. Etix, however, is not active in the
        UK.
4.1.    Colocation services provided by third party data centres
(18)    Colocation services consist of the building, power, cooling, connectivity and security
        services provided in data centres (dedicated facilities sometimes purpose-built) in
        which companies house and operate IT equipment that supports their business (such
        as servers and data storage).
4.1.1. Product market definition
4.1.1.1. Commission precedents
(19)    The Commission has previously11 defined a market for colocation services provided
        by third party data centres (excluding in-house data centres).12 The Commission
        considered that it was not appropriate to sub-divide this product market depending
        on (i) carrier-owned and carrier-neutral data centres, (ii) wholesale and retail data
        centres, and (iii) type of customer.13
(20)    Further, the Commission has briefly touched upon the question whether
        interconnection services (i.e. connections via physical cable between the IT
        equipment of a data centre customer and that of another customer of the same data
        centre) and managed IT services (i.e. simple operations or maintenance tasks on
        behalf of data centre customers) could constitute separate markets. The Commission
        noted, in that respect, that interconnection services and managed IT services are part
        of the services that are typically provided by data centres operators on top of and in
        addition to colocation services; hence, the Commission considered that it was not
        necessary to assess the existence of possible separate markets for the provision of
        these services.14
10  These services include (i) standard and complex managed hosting and associated services to manage
    Aptum’s customers hosting and (ii) cloud services and, in particular, access and migration services to
    public clouds, such as Microsoft Azure, in exchange for a fee based on the customer’s monthly usage.
11  Case M.8251 Bite/Tele 2/Telia Lietuva/JV and case M.7678 Equinix/Telecity.
12  In case M.7678 Equinix/Telecity, paras. 16-17, the Commission found that third party data centres are not
    substitutable in terms of product characteristics and price with storing data in-house given in-house data
    centres require expertise and high investments rendering the customers unable to realise economies of
    scale associated with third party data centres.
13  Case M.7678 Equinix/Telecity, paras. 23-24.
14  Case M.7678 Equinix/Telecity, paras. 7-8.
                                                           5
 ---pagebreak--- 4.1.1.2. Notifying Parties’ views
(21)    The Notifying Parties do not contest the Commission precedents and argue that,
        insofar as NGD exclusively provides colocation services through its data centre in
        Newport, South Wales, the relevant product market for its activities is the market for
        colocation services provided by third party data centres. Colony Capital (via Aptum,
        Zayo and Etix) and PSP (via Etix) also provide colocation services in the EEA (but
        not in the UK). In any event, the Notifying Parties add, the precise definition of the
        product market can be left open in the present case since the Transaction does not
        give rise to any competition concerns irrespective of how the market is defined.
4.1.1.3. Commission’s assessment
(22)    The Commission considers that in the present case the relevant product market is
        colocation services provided by third party data centres (excluding in-house data
        centres) as nothing in the case file suggests a need to depart from the Commission’s
        precedents.
4.1.2. Geographic market definition
4.1.2.1. Commission precedents
(23)    The Commission has previously defined the relevant geographic market for
        colocation services provided by third party data centres as each metropolitan area
        corresponding to a radius of around 50 km from the centre of the city concerned.15
(24)    This is because most customers target very specific metropolitan areas when seeking
        to source colocation services and, hence, the different metropolitan areas do not
        appear substitutable from the demand side. In concluding that 50 km from the city
        centre is the appropriate geographic scope, the Commission took also into
        consideration the following: (i) the data centre should not be located too far from the
        city centre to allow the customers’ IT teams to access and install equipment in the
        data centres; (ii) there is normally a sufficient concentration of network operators in
        metropolitan areas to allow customers to connect to third parties with low latency;
        and (iii) the maximum distance between the data centre and the city centre should be
        50 km to allow customers to connect through another data centre using Dense
        Wavelength Division Multiplexing (DWDM).16
4.1.2.2. Notifying Parties’ views
(25)    The Notifying Parties submit that the same geographic scope applies to the
        Transaction. Colony Capital (via Aptum, Zayo and Etix) and PSP (via Etix) are not
        active in the same metropolitan areas as NGD. Therefore, there are no horizontal
        overlaps between the activities of the Parties and NGD.
(26)    In any event, the Notifying Parties argue that the precise definition of the relevant
        geographic market can be left open in the present case since the Transaction does not
        raise any competition concerns under any plausible geographic market definition.
15  Case M.8251 Bite/Tele 2/Telia Lietuva/JV and case M.7678 Equinix/Telecity.
16  Case M.8251 Bite/Tele 2/Telia Lietuva/JV, para. 72 and Case M.7678 Equinix/Telecity, para. 37.
                                                         6
 ---pagebreak--- 4.1.2.3. Commission’s assessment
(27)    The Commission considers that in the present case the relevant geographic market is
        metropolitan area corresponding to a radius of around 50 km from the city centre as
        nothing in the case file suggests a need to depart from the Commission’s precedent.
        In addition, the majority of the respondents to the Commission’s market
        investigation that gave a view confirmed that they procure colocation services within
        a 50km radius from the city centre.17
4.1.3. Conclusion
(28)    In light of the above, in this Decision the Commission assesses the effects of the
        Transaction with respect to the market for colocation services provided by third
        party data centres (excluding in-house data centres) within the metropolitan area
        corresponding to a radius of around 50km radius from the city centre.
4.2.    Retail business connectivity services
(29)    Retail business connectivity services consist of fixed telecommunications services
        that are purchased by large businesses, enterprises and public sector customers to
        provide data connectivity between multiple sites.
4.2.1. Product market definition
4.2.1.1. Commission precedents
(30)    In previous decisions,18 the Commission has considered a separate product market
        for retail business connectivity services. These services include various offerings
        such as virtual private network (VPN) technology, capacity services (retail leased
        lines), dark fibre (fibre connections that are not yet activated) and wavelengths
        (segmentations of dark fibre that function as separate channels for communication
        and transfer of data between end points).19
(31)    The Commission took into consideration differences between the services provided
        to residential customers and those provided to B2B customers. Indeed, the
        Commission noted that large businesses and public sector customers require internet
        access services based on higher performance in terms of security bandwidth and
        functionality as well as more complex, flexible and integrated solutions, which are
        often tailor-made to fit their existing systems. In addition, these customers require
        specific services such as dedicated internet access, leased lines and VPN technology.
        However, the precise product market definition was ultimately left open.20
(32)    The Commission further considered that the market for retail business connectivity
        services can be further segmented into: (i) Internet access services; (ii) leased lines
        (also known as dedicated internet access (DIA)); and (iii) VPN services, but
17   Replies to Questionnaire Q1 to market participants of 4 June 2020, question 3.
18  Cases M.8792 T Mobile NL/Tele2 NL, para. 281, M.7421 Jazztel/Orange, para. 42, M.7499 Altice/PT
    Portugal para.17, M.7109 Deutsche Telekom/GTS, para. 26 and M.6584 Vodafone/Cable & Wireless,
    paras. 8-9.
19 Case M.8131 Tele2 Sverige/TDC Sverige, para. 37.
20 Cases M.8131 Tele2 Sverige/TDC Sverige, para. 41, M.5730 Telefonica/Hansenet, para. 12, and M.4417
    Telecom Italia/AOL German Access Business, paras 19-20.
                                                          7
 ---pagebreak---         ultimately left the precise product market definition open.21 The Commission also
        considered retail business connectivity services as one of the markets related to
        business-to-business (“B2B”) telecommunications services, but ultimately left the
        precise product market definition open.22
4.2.1.2. Notifying Parties’ view
(33)    In the Notifying Parties’ view, the relevant product market is retail business
        connectivity services. The Notifying Parties argue that in any event the exact market
        definition can be left open, since the Transaction does not give rise to any
        competition concerns irrespective of how the market is defined.
4.2.1.3. Commission’s assessment
(34)    The Commission considers that in the present case the exact delineation of the
        relevant product market for the provision of retail business connectivity services can
        be left open since the proposed transaction does not give rise to competition
        concerns under any alternative market definition.23
4.2.2. Geographic market definition
4.2.2.1. Commission precedents
(35)    In previous decisions, the Commission considered the retail supply of business
        connectivity services to be national in scope.24 In another decision, when considering
        the geographic scope for B2B telecommunications services, including business
        connectivity services, the Commission found that the geographic market was likely
        to be national in scope (especially from the demand side), but left the geographic
        market definition open.25
4.2.2.2. Notifying Parties’ view
        The Notifying Parties do not contest the Commission’s previous findings and
        conclude that in any event the precise definition of the relevant geographic market
        can be left open.
4.2.2.3. Commission’s assessment
(36)    The Commission considers that in the present case, the precise geographic market
        definition can be left open since the Transaction does not give rise to any serious
        doubts as regards its compatibility with the internal market regardless of whether the
        market is national or EEA-wide in scope.
21  Cases M.7499 Altice/PT Portugal, paras. 54-57, M.7109 Deutsche Telekom/GTS, paras. 26-29, and
    M.6584 Vodafone/Cable Wireless, para. 9.
22  M.7499 Altice/PT Portugal, paras. 54-57
23  See below, Section 5.2.2.
24  Cases M.6584 Vodafone/Cable Wireless, para. 10, M.5532 Carphone Warehouse/Tiscali UK, paras. 56
    and M.7109 Deutsche Telekom/GTS, paras. 30-33.
25  Cases COMP/M.7499 Altice / PT Portugal, paras. 58-62, M. 6921 IBM Italia/UBIS, of 19 June 2013,
    paragraph 30.
                                                     8
 ---pagebreak--- 4.2.3. Conclusion
(37)    For the purpose of this Decision, the precise scope of the market for retail supply of
        business connectivity services can be left open as the Transaction does not give rise
        to serious doubts as regards its compatibility with the internal market irrespective of
        whether there is an overall market for retail supply of business connectivity services,
        or whether this overall market is segmented on the basis of the type of customer
        (residential or B2B customers), or segmented into (i) Internet access services; (ii)
        leased lines (also known as dedicated internet access (DIA)); and (iii) VPN services,
        or into (i) services provided to residential customers and (ii) those provided to B2B
        customers, on a national or an EEA wide market.
4.3.    IT outsourcing
4.3.1. Product market definition
4.3.1.1. Commission precedents
(38)    In previous decisions,26 the Commission has considered a segment of the IT services
        market that encompasses IT outsourcing, which could be further segmented into (i)
        public cloud computing services; (ii) Infrastructure as a Service (“IaaS”); (iii)
        infrastructure outsourcing services (including potential further sub-segments for data
        centre services, network outsourcing, end-user device outsourcing and help desk
        outsourcing); and (iv) application outsourcing services. The Commission ultimately
        left open the market definition.
4.3.1.2. Notifying Parties’ view
(39)    In the Notifying Parties’ view, in the present case, Colony Capital (via Aptum and
        Zayo) offers cloud computing services, IaaS and managed hosting (infrastructure
        outsourcing services). According to the Notifying Parties, these services fall under
        the relevant product market for IT outsourcing without further sub-segmentations.
(40)    The Notifying Parties argue that in the present case, the precise product market
        definition can be left open since the Transaction does not give rise to any
        competition concerns irrespective of how the market is defined.
4.3.1.3. Commission’s assessment
(41)    The Commission considers that in the present case the exact delineation of the
        relevant product market for IT outsourcing can be left open since the proposed
        transaction does not give rise to competition concerns under any alternative market
        definition. 27
26  Cases M.8180 Verizon/Yahoo, para. 72, M.6921 IBM Italia/UBIS, paras. 14-17, and M.7458 IBM/INF
    Business of Deutsche Lufthansa, paras, 20-29.
27 See below, Sections 5.2.1 and 5.2.3.
                                                   9
 ---pagebreak--- 4.3.2. Geographic market definition
4.3.2.1. Commission precedents
(42)    The Commission has previously considered both EEA-wide28 and national29
        markets. The Commission’s market investigation showed in those cases that IT
        solutions are often customised according to language and local business
        particularities whilst IT service suppliers need to also provide logistics, marketing,
        sales branches, distribution network and after sales maintenance services at national
        level.30 However, the Commission ultimately left the relevant geographic market
        definition open.
4.3.2.2. Notifying Parties’ view
(43)    The Notifying Parties submit that the precise definition of the relevant geographic
        market can be left open in the present case since the Transaction does not raise any
        competition concerns under any plausible geographic market definition.
4.3.2.3. Commission’s assessment
(44)    n the present case, the precise geographic market definition can be left open since the
        Transaction does not give rise to any serious doubts as regards its compatibility with
        the internal market regardless of whether the market is national or EEA-wide in
        scope.31
4.3.3. Conclusion
(45)    For the purpose of this Decision, the precise scope of the market for IT outsourcing
        can be left open as the Transaction does not give rise to serious doubts as regards its
        compatibility with the internal market irrespective of whether there is an overall
        market for IT outsourcing or whether the overall market is further segmented into (i)
        public cloud computing services; (ii) IaaS; (iii) infrastructure outsourcing services
        (including potential further sub-segments for data centre services, network
        outsourcing, end-user device outsourcing and help desk outsourcing); and (iv)
        application outsourcing services.
5.      COMPETITIVE ASSESSMENT
5.1.    Horizontal overlaps (colocation services)
(46)    The Transaction does not give rise to any horizontal overlaps in the catchment area
        of Newport where NGD is active.
(47)    Both Colony Capital and PSP have controlling stakes in companies that offer
        colocation services through their data centres in the EEA: (i) Colony Capital through
        Zayo, Aptum and Etix; and (ii) PSP through Etix. However, Etix does not have any
        data centres in the UK, while Aptum and Zayo operate smaller data centres that are
        much further than the 50 km, or even 100 km radius around the city centre of
28  Case M.8180 Verizon/Yahoo, para. 75, and M.7458 IBM/INF Business of Deutsche Lufthansa, para. 32.
29  Case M.5301 Capgemini/BAS, para. 19.
30 Case M.6921 IBM Italia/Ubis, para. 29.
31 See below, Sections 5.2.1 and 5.2.3.
                                                     10
 ---pagebreak---         Newport (South Wales) where NGD operates its data centre. In fact, Zayo has a
        single data centre in the UK in Feltham (near London) and Aptum also has a single
        data centre in the UK in Portsmouth.
(48)    The Notifying Parties observe that certain types of customers, such as large
        enterprise customers or hyperscale customers (e.g. Amazon, Google, Microsoft)
        might be less sensitive to distance, as they are global players that procure their
        requirements on a UK or even Western European basis. However, in a UK-wide
        colocation market, the horizontal overlap that would be triggered would remain well
        below [0-10%] by value and volume sold (megawatt) on a UK basis with Aptum and
        Zayo adding a limited share to NGD’s pre-existing share ([5-10%] both for value
        and volume in 2019).
(49)    The majority of the respondents to the market investigation expressed a neutral view
        on the Transaction with regard to colocation services.32 None of the respondents
        expressed a negative view or raised concerns regarding the effects of the Transaction
        on the market for colocation services provided by third party data centres. All of the
        respondents confirmed that a sufficient number of alternative providers of colocation
        services will remain post-Transaction.33
(50)    In light of the above, the Commission considers that the Transaction does not raise
        serious doubts as to its compatibility with the internal market with regard to the
        market for colocation services.
5.2.    Non-horizontal overlaps
(51)    Vertical mergers involve companies operating at different levels of the same supply
        chain. For instance, a vertical merger occurs when a manufacturer of a certain
        product merges with one of its distributors.
(52)    Pursuant to the Commission Guidelines on the assessment of non-horizontal mergers
        under the Council Regulation on the control of concentrations between undertakings
        (the "Non-Horizontal Merger Guidelines"),34 vertical mergers do not entail the loss
        of direct competition between merging firms in the same relevant market and
        provide scope for efficiencies.
(53)    However, there are circumstances in which vertical mergers may significantly
        impede effective competition. This is in particular the case if they give rise to
        foreclosure.35
(54)    The Non-Horizontal Merger Guidelines distinguish between two forms of
        foreclosure: input foreclosure, where the merger is likely to raise costs of
        downstream rivals by restricting their access to an important input, and customer
        foreclosure, where the merger is likely to foreclose upstream rivals by restricting
        their access to a sufficient customer base.36
32  Replies to Questionnaire Q1 to market participants of 4 June 2020, question 5.1.
33  Replies to Questionnaire Q1 to market participants of 4 June 2020, question 5.3.
34 OJ C 265, 18.10.2008, p. 6.
35 Non-Horizontal Merger Guidelines, para 18.
36 Non-Horizontal Merger Guidelines, para 30.
                                                         11
 ---pagebreak--- (55)  Pursuant to the Non-Horizontal Merger Guidelines, input foreclosure arises where,
      post-merger, the new entity would be likely to restrict access to the products or
      services that it would have otherwise supplied absent the merger, thereby raising its
      downstream rivals' costs by making it harder for them to obtain supplies of the input
      under similar prices and conditions as absent the merger.37
(56)  For input foreclosure to be a concern, the merged entity should have a significant
      degree of market power in the upstream market. Only when the merged entity has
      such a significant degree of market power, can it be expected that it will significantly
      influence the conditions of competition in the upstream market and thus, possibly,
      the prices and supply conditions in the downstream market.38
(57)  Pursuant to the Non-Horizontal Merger Guidelines, customer foreclosure may occur
      when a supplier integrates with an important customer in the downstream market and
      because of this downstream presence, the merged entity may foreclose access to a
      sufficient customer base to its actual or potential rivals in the upstream market (the
      input market) and reduce their ability or incentive to compete which in turn, may
      raise downstream rivals' costs by making it harder for them to obtain supplies of the
      input under similar prices and conditions as absent the merger. This may allow the
      merged entity profitably to establish higher prices on the downstream market.39
(58)  For customer foreclosure to be a concern, a vertical merger must involve a company
      which is an important customer with a significant degree of market power in the
      downstream market. If, on the contrary, there is a sufficiently large customer base, at
      present or in the future, that is likely to turn to independent suppliers, the
      Commission is unlikely to raise competition concerns on that ground.40
(59)  Three vertically affected markets arise from the potential vertical links between
      Colony Capital and NGD in the UK:
      (a)     Colocation services (NGD) as a downstream market to IT outsourcing (Zayo,
              Aptum);
      (b)     Colocation services (NGD) as a downstream market to retail business
              connectivity (Zayo); and
      (c)     Colocation services (NGD) as an upstream market to IT outsourcing (Zayo,
              Aptum).
(60)  The table below reflects the Parties’ market shares in the markets in which they are
      active:
37 Non-Horizontal Merger Guidelines, para 31.
38 Non-Horizontal Merger Guidelines, para 35.
39 Non-Horizontal Merger Guidelines, para 58.
40 Non-Horizontal Merger Guidelines, para 61.
                                                12
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---         Link, Iomart, Node4 and Centerserv and data centre providers                       with
        retail/interconnection focus such as Equinix, interxion and Telehouse.
(68)    According to the Notifying Parties, NGD can also be constrained by its competitors.
        This is reflected in the Information Memorandum for the Transaction, which
        identifies several hyperscale data centre providers as its main competitors in the UK,
        such as Virtus, Digital Realty, Ark Corsham, Colt and CyrusOne. Even though these
        providers are located outside the 50km radius from the city centre, it appears that
        NGD faces competitive constraints by these players on a UK basis. On a UK basis,
        NGD’s market share is [0-10%] by volume sold and value compared to various
        strong players such as Equinix and Digital Realty with [30-40%] and [10-20%]
        market shares by value in FY19 respectively.
5.2.1.2. Commission’s assessment
(69)    The Commission considers that the Transaction is unlikely to raise serious doubts as
        to its compatibility with the internal market as regards the position of NGD in the
        market for colocation services as a downstream market to IT outsourcing.
(70)    As a preliminary point, the Commission notes that NGD’s market share in Newport
        is mainly created by one single large customer that can easily switch providers. This
        is [Confidential] which is NGD’s hyperscale customer representing [70-80%] by
        volume. In their reply to the market investigation, [Confidential] confirmed that
        there is no shortage of alternatives and that they already have contracts in place with
        other.41 Therefore, as NGD is largely dependent on one single customer that can
        easily switch to other providers, the high market share within the Newport
        metropolitan area is not sufficient in itself to raise foreclosure concerns.
(71)    The Commission considers that the combined entity will lack both the ability and the
        incentive to engage into input foreclosure.
(72)    First, as regards the ability to engage into input foreclosure, the Commission notes
        that in light of their very low market shares shown in Table 1 above, neither Zayo
        nor Aptum has market power in the upstream market for IT outsourcing as their
        market shares are very limited under any possible product and geographic market
        delineation.
(73)    Second, the Commission considers that the combined entity will lack the incentive to
        engage into input foreclosure: because of the low market shares of Aptum and Zayo,
        the combined entity will not be in a position of generating additional profit by
        foreclosing NGD’s rivals downstream.
(74)    Third, there will remain a large number of competitors in the market for IT
        outsourcing that could meet the demand in case of input foreclosure strategy by the
        combined entity.
(75)    Fourth, the above points have also been confirmed by market investigation as none
        of the respondents indicated any concern that could potentially arise from the
41  Replies to Questionnaire Q1 to market participants of 4 June 2020, question 5.3.1.
                                                         16
 ---pagebreak---          creation of a vertical link between IT outsourcing on the upstream market and
         colocation services on the downstream market.42
(76)     The Commission considers that the combined entity will lack both the ability and the
         incentive to engage into customer foreclosure.
(77)     First, as regards the ability to engage into customer foreclosure, the Commission
         notes that in light of their very low market shares shown in Table 1 above, neither
         Zayo nor Aptum has market power in the upstream market for IT outsourcing as
         their market shares are very limited under any possible product and geographic
         market delineation.
(78)     Second, data centres represent only a tiny fraction of the total demand for IT
         outsourcing. Data centres represented less than 5% of Aptum and Zayo’s turnover in
         the UK and in the EEA.
(79)     Third, Zayo’s [Confidential] IT outsourcing customer, [Confidential].
(80)     Fourth, NGD’s share of demand for IT outsourcing is [0-5%] on a UK basis.43 Even
         if NGD decided to switch its sourcing of IT outsourcing to only Aptum and Zayo,
         the other competing suppliers of IT outsourcing would continue to have a wide range
         of alternative data centres in the UK to whom they could offer their services.
(81)     Fifth, the market investigation confirmed the above findings as all the respondents
         expressed the view that the Transaction will not have a negative impact on the
         market for IT outsourcing as a result of its link to the market for colocation
         services.44
(82)     In light of the above, the Commission considers that the Transaction does not give
         rise to serious doubts as to its compatibility with the internal market as regards the
         position of NGD in the market for colocation services as a downstream market to IT
         outsourcing.45
5.2.2. Colocation services as a downstream market to retail business connectivity
5.2.2.1. The Notifying Parties’ views
(83)     The Notifying Parties submit that NGD’s [70-80%] market share in Newport does
         not confer market power to NGD in the Newport metropolitan area.
(84)     In the Notifying Parties’ view, as explained in paragraphs (66) – (68) above, NGD is
         constrained by its customers, in particular the largest ones. NGD can also be
         constrained by its competitors even if they are located further away than the 50km
         radius from the city centre.
42  Replies to Questionnaire Q1 to market participants of 4 June 2020, question 5.4.
43  As NGD is only present in the UK, its share of demand will be even further diluted on an EEA-wide basis.
44 Replies to Questionnaire Q1 to market participants of 4 June 2020, questions 5.2 and 5.4.
45 This assessment also applies to all plausible market subsegmentations in which the Parties are active,
    namely: Public cloud computing services, Infrastructure as a service (incl. managed hosting), and
    Infrastructure outsourcing services for data centres, both on a UK and EEA market (see Table 1).
                                                           17
 ---pagebreak--- 5.2.2.2. Commission’s assessment
(85)    The Commission considers that the Transaction is unlikely to raise serious doubts as
        to its compatibility with the internal market as regards the position of NGD in the
        market for colocation services as a downstream market to retail business
        connectivity services.
(86)    As explained in paragraph 70 above, the Commission notes that NGD’s market share
        in Newport is mainly created by one single large customer that can easily switch
        providers. This is [Confidential] which is NGD’s hyperscale customer representing
        [70-80%] by volume. In their reply to the market investigation, [Confidential]
        confirmed that there is no shortage of alternatives and that they already have
        contracts in place with others.46 Therefore, as NGD is largely dependent on one
        single customer that can easily switch to other providers, the high market share
        within the Newport metropolitan area is not sufficient in itself to raise foreclosure
        concerns.
(87)    The Commission considers that the combined entity will lack both the ability and the
        incentive to engage into input foreclosure.
(88)    First, as regards the ability to engage into input foreclosure, the Commission notes
        that in light of its very low market shares shown in Table 1 above, Zayo does not
        have market power in the upstream market for retail business connectivity as its
        market shares are very limited under any possible product and geographic market
        delineation.
(89)    Second, the Commission considers that the combined entity will lack the incentive to
        engage into input foreclosure: because of the low market shares of Zayo, the
        combined entity will not be in a position of generating additional profit by
        foreclosing NGD’s rivals downstream.
(90)    Third, there will remain a large number of competitors in the market for IT
        outsourcing that could meet the demand in case of input foreclosure strategy by the
        combined entity.
(91)    Fourth, the above points have also been confirmed by market investigation as none
        of the respondents indicated any concern that could potentially arise from the
        transaction.47
(92)    The Commission considers that the combined entity will lack both the ability and the
        incentive to engage into customer foreclosure.
(93)    First, as regards the ability to engage into customer foreclosure, the Commission
        notes that in light of their very low market shares shown in Table 1 above, Zayo
        does not have market power in the upstream market for retail business connectivity
        services as its market shares are very limited under any possible product and
        geographic market delineation
(94)    Second, as regards the incentive to engage into customer foreclosure, it is noted that
        data centres represent only a tiny fraction of the total demand for retail business
46  Replies to Questionnaire Q1 to market participants of 4 June 2020, question 5.3.1.
47  Replies to Questionnaire Q1 to market participants of 4 June 2020, question 5.4.
                                                         18
 ---pagebreak---         connectivity services. Data centres represented less than 5% of Zayo’s turnover in
        the UK and in the EEA.
(95)    Third, NGD’s share of demand for retail business connectivity services is [0-5%] on
        a UK basis.48 Even if NGD decided to switch its sourcing of retail business
        connectivity to Zayo, the other competing suppliers of IT outsourcing would
        continue to have a wide range of alternative data centres in the UK to whom they
        could offer their services.
(96)    Fourth, the market investigation confirmed the above findings as all the respondents
        expressed the view that the Transaction will not have a negative impact on the
        market for retail business connectivity services as a result of its link to the market for
        colocation services.49
(97)    In light of the above, the Commission considers that the Transaction does not give
        rise to serious doubts as to its compatibility with the internal market as regards the
        position of NGD in the market for colocation services as a downstream market to
        retail business connectivity services.50
5.2.3. Colocation services as an upstream market to IT outsourcing
(98)    The market for colocation services provided by third party data centres could also be
        viewed as an upstream market to the market for IT outsourcing to the extent that IT
        outsourcing service providers need to colocate their IT equipment in third party data
        centres for the provision of cloud computing or managed hosting services in the UK.
5.2.3.1. The Notifying Parties’ views
(99)    The Notifying Parties submit that from the perspective of IT outsourcing providers,
        all colocation data centres within the UK are substitutable. The geographic
        limitations that apply to colocation data centres (i.e., geographic market of 50 km
        radius around the city centre) are not relevant for IT outsourcing providers, as they
        can source their colocation requirements across multiple locations in the UK or even
        on an EEA-wide basis (depending on the scope of their backbone network).
5.2.3.2. Commission’s assessment
(100) The Commission considers that the Transaction does not raise serious doubts as to
        its compatibility with the internal market as regards the position of NGD in the
        market for colocation services as an upstream market to IT outsourcing.
(101) The Commission considers that the combined entity will not have the ability nor the
        incentive to engage into input foreclosure vis-à-vis its IT outsourcing rivals that
        purchase collocation services.
48  As NGD is only present in the UK, its share of demand will be even further diluted on an EEA-wide basis.
49  Replies to Questionnaire Q1 to market participants of 4 June 2020, questions 5.2 and 5.4..
50 This assessment also applies to all plausible market sub-segmentations in which the Parties are active,
    namely: Internet access services and Leased lines (including traditional leased copper and fibre lines,
    ethernet circuits and dark fibre); services offered to medium and large customers (B2B); or Internet access
    services offered to B2B customers, and leased lines offered to B2B customers both on a UK and EEA
    market (see Table 1).
                                                            19
 ---pagebreak--- (102) First, NGD does not have the ability to engage into input foreclosure as it does not
       have real market power in the market for colocation services. As explained in
       paragraph 70 above, the Commission notes that NGD’s market share in Newport is
       mainly created by one single large customer that can easily switch providers. This is
       [Confidential] which is NGD’s hyperscale customer representing [70-80%] by
       volume. In their reply to the market investigation, [Confidential] confirmed that
       there is no shortage of alternatives and that they already have contracts in place with
       other. Therefore, as NGD is largely dependent on one single customer that can easily
       switch to other providers, the high market share within the Newport metropolitan
       area is not sufficient in itself to raise foreclosure concerns.
(103) Second, the Commission considers that the combined entity will also lack the
       incentive to engage into input foreclosure: the market for IT outsourcing is national
       or EEA-wide, and not local. The geographic limitations that apply to colocation data
       centres (i.e., geographic corresponding to a 50 km radius around the city centre) are
       not relevant for IT outsourcing providers, as they can source their colocation
       requirements across multiple locations in the UK or even on an EEA-wide basis
       (depending on the scope of their backbone network).
(104) Third, there will remain numerous other colocation data centre providers in the UK,
       given that NGD’s share is well below 10% (by value and volume sold) on a UK
       basis.
(105) Fourth, the market investigation confirmed the above findings as all the respondents
       expressed the view that the Transaction will not have a negative impact on the
       market for retail business connectivity services as a result of its link to the market for
       colocation services.51
(106) The Commission considers that the combined entity will not have the ability nor the
       incentive to engage into customer foreclosure vis-à-vis its IT outsourcing customers
       that purchase collocation services.
(107) First, NGD does not have the ability to engage into customer foreclosure as it does
       not have real market power in the market for colocation services. As explained in
       paragraph 70 above, the Commission notes that NGD’s market share in Newport is
       mainly created by one single large customer that can easily switch providers.
(108) Second, the Commission considers that the combined entity would lack the incentive
       to engage into customer foreclosure given the very small market shares of Zayo and
       Aptum in the market for IT outsourcing.
(109) Third, even if NGD decided to switch its offering of colocation services excusively
       to Zayo and Aptum, the customers of NGD would have a very wide range of
       alternative data centres in the UK from whom they could source colocation services.
(110) Fourth, the market investigation confirmed the above finding as all the respondents
       expressed the view that the Transaction will not have a negative impact on the
       market for IT outsourcing as a result of its link to the market for colocation services
51 Replies to Questionnaire Q1 to market participants of 4 June 2020, questions 5.1 and 5.4..
                                                        20
 ---pagebreak---         as an upstream market, and that a large number of alternative colocation services
        providers would remain post-transaction.52
(111)    In light of the above, the Commission considers that the Transaction does not give
        rise to serious doubts as to its compatibility with the internal market as regards the
        position of NGD in the market for colocation services as an upstream market to IT
        outsourcing.53
6.      CONCLUSION
(112) For the above reasons, the European Commission has decided not to oppose the
        notified operation 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 and Article 57 of the EEA Agreement.
                                                              For the Commission
                                                              (Signed)
                                                              Margrethe VESTAGER
                                                              Executive Vice-President
52 Replies to Questionnaire Q1 to market participants of 4 June 2020, question 5.1, 5.3 and 5.4.
53 This assessment also applies to all plausible market subsegmentations of the market for IT outsourcing in
   which the Parties are active, namely: Public cloud computing services, Infrastructure as a service (incl.
   managed hosting), and Infrastructure outsourcing services for data centres, both on a UK and EEA market
   (see Table 1).
                                                         21