CELEX: 31993M0353
Language: en
Date: 1993-09-13 00:00:00
Title: COMMISSION DECISION of 13.09.1993 declaring a concentration to be compatible with the common market (Case No IV/M.353 - BRITISH TELECOM / MCI) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31993M0353

COMMISSION DECISION of 13.09.1993 declaring a concentration to be compatible with the common market (Case No IV/M.353 - BRITISH TELECOM / MCI) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 253 , 23/09/1993 P. 0000

 COMMISSION DECISION of 13.09.1993 declaring a concentration to  be compatible with the common market (Case No IV/M.353 -  BRITISH TELECOM / MCI) 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)(a) DECISION Registered with advice of delivery To the notifying parties Dear Sirs, Subject : <tab> Case No IV/M.353 - British Telecom / MCI  <ind>  <ind> Your notification of 12.08.1993 pursuant to  Article 4 of Council Regulation No 4064/89 (Merger Regulation)  On 12 August 1993, British Telecommunications plc ("BT") and  MCI Communications Corporation ("MCI") notified to the  Commission a series of agreements under which BT is to take a  stake in MCI and both companies are to establish a joint  venture to provide advanced business telecom services to  multinational companies.  The Parties  1. <ind> British Telecom ("BT") is the former UK monopolist  telecommunications operator ("TO"), and supplies telephone  exchange lines to homes and businesses; local, trunk and  international (to and from the UK) telephone calls; other  telecoms services and telecoms equipment for customers'  premises.  2. <ind> MCI is a telecommunications common carrier in the US  providing a broad range of US and international voice and data  communications services including long distance telephone,  record communications and electronic mail services to and from  the US. It is the second largest long-distance operator in the  US after AT&T.  The Operation  3. <ind> BT and MCI have notified the agreements between them  as one operation although it comprises several different  transactions :   <ind> (i) <ind> the creation of a joint-venture, Newco, for  the provision of enhanced and value-added global telecoms  services to multinational businesses. The parties will  contribute their existing non-correspondent international  network facilities, including Syncordia, BT's existing  "outsourcing" business, to Newco. BT will hold 75.1% of Newco's  capital, MCI the balance. The parties will also rationalise  their respective holdings in other TOs and groupings;   <ind> (ii) <ind> BT is to take a 20% stake in MCI, thus  becoming the largest single shareholder in MCI, with  proportionate board representation and investor protection.   <ind> (iii) <ind> MCI will acquire BT's existing North  American subsidiary.  (i) <ind> NEWCO   <ind> Joint control  4. <ind> The joint venture agreement between the parents  provides for BT to own 75.1% of Newco's equity and MCI 24.9%.  MCI will, however, be granted extensive consent rights over the  activities of Newco, allowing it to veto any decision relating  to, among other things, changes in business direction,  management appointments and approval of the five year business  plan and annual operating plan and budget. MCI thus has joint  control with BT over Newco within the meaning of Article 3(3)  of the Merger Regulation.   <ind> Joint venture performing on a lasting basis all the  functions of an autonomous economic entity  5. <ind> BT and MCI will transfer their existing business and  facilities geared to providing global value-added/enhanced  telecom services to business customers, to Newco and will also  make available on an irrevocable basis all necessary  intellectual property rights. The parties envisage considerable  capital investment in Newco ($1 billion over the course of the  first 5 years including the businesses transferred to Newco)  and Newco will employ over 1,000 people. The joint venture  agreement is of indefinite duration.  6. <ind> Newco is to build a global network over which to  provide the enhanced services. It will sell those services  exclusively to its parents and will not, as a consequence, have  a direct relationship with the end customer. The parents will  act as distributors of Newco's services and will have the  exclusive right to promote, sell and distribute these services  in their respective home territories (the Americas for MCI and  the rest of the world for BT). The parents will thus set the  price and other product parameters such as levels of  performance and service and will be responsible for client  defaults in payment. Newco will undertake not to sell its  services to any entity other than its parents, and must supply  its parents with services on request. Newco shall "assist" in  identifying customers, "advise" on the best way to meet  customers' needs and "support" the parents' account management.  The parties argue that it would not be economically viable to  create a separate sales force for Newco and that in any case  potential customers would want the security of doing business  with a supplier they already knew before entrusting something  as important as their telecommunications network to them.  7. <ind> The entirety of the services offered by Newco will  thus be sold to its parents who will not act on the  instructions of Newco as agents but rather will request the  supply of services which Newco is obliged to meet (within  certain limits) and decide the price and terms on which that  service is to be provided to the end customer. The Commission  therefore has serious doubts as to the genuine autonomy of  Newco, notwithstanding the asset, financial and personnel  resources to be made available to it.   <ind> Absence of coordination of competitive behaviour  8. <ind> Newco services will be sold exclusively through its  parents who will then sell them to end customers in their  respective allotted territorities: the Americas for MCI and the  rest of the world for BT. The market for the provision of  global advanced telecom services to MNCs is clearly itself  global and the provisions in the Distribution Agreements which  allot sales territories to the parents would appear to  constitute an agreement to partition this market. The  possibility provided for of passive sales (by which a customer  might elect to be supplied by MCI outside the Americas or by BT  inside the Americas), does not undermine this conclusion. Given  that BT and MCI remain otherwise independent (BT's 20% stake in  MCI notwithstanding - see below), these clauses would appear to  indicate that the operation could have as its object or effect  the coordination of the competitive behaviour of Newco's  parents.  9. <ind> Furthermore, there is a risk of coordination of  competitive behaviour between the parents and Newco itself.  Newco is to build a global, intelligent, overlay network over  which it will provide a range of value-added or enhanced  services defined in the Joint Venture Agreement as any  international telecommunications service which regulation  permits to be offered between two or more countries by the same  corporate group (this definition excludes voice international  simple resale and the provision of international private leased  circuits as well as all services operated on correspondent  basis such as normal international direct dial). These  "liberalised" services include electronic mail, a range of data  transmission services, video conferencing, global cashless  calling and automatic call forwarding or call-back. In  marketing these services to international clients such as  multinationals (MNCs), Newco will in addition hope to replace  the MNC's existing private network ("outsourcing" from the  MNC's point of view). It will also use its expertise in running  such networks to manage an MNC's existing private network.  10. <ind> The parties state that they will transfer their  activities in these fields to Newco. The question remains,  however, whether Newco will be active upon a distinct market  from its parents, and even if it is, whether the parents'  activities in neighbouring markets such as domestic value-added  services, international correspondent services or international  private leased circuits could be expected to result in any  coordination of competitive behaviour.  11. <ind> In terms of international voice services, a potential  NEWCO client has the alternatives of normal international  direct dial services offered by TO's such as BT and MCI on a  correspondent basis and that of an international private leased  circuit (IPLC - a dedicated line offering a certain capacity at  a fixed tariff independent of the level of usage) which it  equally purchases from TO's. The exact choice will depend on  matters such as usage levels, performance requirements and  pricing.   <ind> Similarly for international data, a potential NEWCO  customer can also opt to self-provide by purchasing  transmission (and if necessary switching) equipment and  attaching it to an IPLC bought from a TO. There are drawbacks  in self-provision such as the variation in data protocols  between national networks and the speed of transmission may be  lower than for NEWCO services, but again the choice is there  and the alternative adopted will reflect issues such as  pricing, usage and performance.   <ind> The parties argue that the enhancements which Newco will  offer in the way of a technically superior product, user- friendly attributes such as multilingualism, uniformity of  standards and data protocols across the whole network and a  single global point of contact with a TO for a company, place  the product sets into two clearly differentiated markets.  Whilst this may or may not be so, in as much as these markets  were separate, they would also be neighbouring and the issue  remains of whether there is a sensible competitive relationship  between the two sets of markets which could allow coordination  of behaviour.  12. <ind> Newco's network is international and it will rely on  local TO's to assure the final link from its nodes to a  customer's premises. The parents have therefore suggested that  Newco's product range is not aimed at purely national accounts  since the value-added is in the global nature of the services  offered. Whilst this may be true, organisations which are  intensive users of telecoms but which have no sites outside  their home country may turn to Newco because of the  sophistication of its products for purely domestic use. This  would put Newco squarely in competition with its parents in the  US and the UK. Furthermore, customers may be international, but  have such a concentration of traffic in either the UK or US  that the relevant parent's offering could be directly  competitive with that of Newco were the company to decide to  forego Newco's international spread in order to get a good deal  on domestic telecommunications which formed the bulk of its  needs.  13. <ind> Given that   <ind> - <ind> Newco will be selling to the same companies to  which its parents will continue to provide other basic telecom  services; and that  <ind> - <ind> certain products will be common to both the  offerings of the parents and Newco, or if not actually common  then in neighbouring markets and with a competitive  relationship between them; and that  <ind> - <ind> the parents will continue to provide IPLCs which  are the building blocks of self-provided network  and thus will  be supplying products which indirectly compete with Newco's  products; and that  <ind> - <ind> for certain clients, Newco services may be an  alternative to the parents' national services   <ind> the Commission considers that this operation could lead  to coordination of competitive behaviour both between the  parents and between the parents and the joint venture.   <ind> Conclusion  14. <ind> In the light of the above, it must be concluded that  Newco is cooperative rather than concentrative in nature and  does not constitute a concentration within the terms of Article  3 of the Merger Regulation.  (ii) <ind> BT stake in MCI   <ind> Concentration  15. <ind> Under the terms of an investment agreement BT is to  purchase 20% of the outstanding shares of common stock of MCI.  It will be entitled to three out of fifteen seats on MCI's  board and will hold a veto over certain decisions such as the  issuance of fresh equity, substantial acquisitions or disposals  and borrowings taking the company over a certain gearing  threshold. These are normal minority shareholder protection  rights and do not constitute a power of veto over competitive  behaviour and commercial strategy.  16. <ind> Simultaneous with the closing of the transaction MCI  will adopt a shareholder rights plan under which it would take  a vote of 95% of non-BT shareholders in MCI for control to pass  to a third party against BT's wishes for a period of four  years. For the following six years control cannot pass to a  third party unless BT is given the right to compete against any  such bidder in an auction process. While this effectively  enables BT to block any third party from acquiring control of  MCI in any other than extraordinary circumstances, it does not  in and of itself confer positive control.  17. <ind> In the absence of any explicit agreement between BT  and MCI, or of any compelling commonality of interest between  the two, it can only be concluded that BT will not acquire  joint control over MCI and that this part of the notified  operation does not constitute a concentration under Article 3  of the Merger Regulation.  (iii) <ind> MCI's acquisition of BT North America  18. <ind> The acquisition by MCI of BT North America will not  be of Community dimension since BT North America does not  attain the EC turnover threshold of 250 million Ecu (USD 230  million).   <ind> Conclusion  19. <ind> In light of the above, the Commission has concluded  that none of the three transactions notified to it by the  parties and described earlier in paragraph 3 constitute a  concentration of Community dimension. This decision is adopted  in application of Article 6(1)(a) of Council Regulation No  4064/89.  20. <ind> The Commission will treat the notification pursuant  to Article 5 of Commission Regulation No 2367/90 as an  application within the meaning of Article 2 or a notification  within the meaning of Article 4 of Council Regulation No 17/62  as requested by the parties in their notification.  For the Commission