Case M.8797 Thales/ Gemalto Merger Procedure

EUROPEAN COMMISSION DG Competition CASE M.8797 THALES/ GEMALTO (Only the English text is authentic) MERGER PROCEDURE REGULATION (EC) 139/2004 Article 8(2) Regulation (EC) 139/2004 Date: 11/12/2018 This text is made available for information purposes only. A summary of this decision is published in all EU languages in the Official Journal of the European Union. Parts of this text have been edited to ensure that confidential information is not disclosed; those parts are enclosed in square brackets. EUROPEAN COMMISSION Brussels, 11.12.2018 C(2018) 8401 final PUBLIC VERSION COMMISSION DECISION of 11.12.2018 declaring a concentration to be compatible with the internal market and the EEA agreement (Case M.8797 Thales / Gemalto) (Only the English text is authentic) TABLE OF CONTENTS <ul style="display: flex;"><li style="flex:1">1. </li><li style="flex:1">Introduction.................................................................................................................. <a href="#9_0">8 </a></li></ul>The Parties and the Transaction ................................................................................... <a href="#10_0">9 </a>Union dimension.......................................................................................................... <a href="#10_1">9 </a>The procedure............................................................................................................... <a href="#10_2">9 </a>The investigation........................................................................................................ <a href="#11_0">10 </a>The enterprise key management solution sector ........................................................ <a href="#11_1">10 </a>Introduction................................................................................................................ <a href="#12_0">11 </a> 2. 3. 4. 5. 6. 6.1. 6.1.1. HSMs.......................................................................................................................... <a href="#12_1">11 </a>6.1.2. HSMs aaS and cloud-based key management solutions offered aaS......................... <a href="#12_2">11 </a>6.2. 6.3. 6.4. 6.5. 6.6. 7. Manufacturers of HSMs............................................................................................. <a href="#13_0">12 </a>Distribution channels ................................................................................................. <a href="#14_0">13 </a>Cloud service providers.............................................................................................. <a href="#15_0">14 </a>Standards and certification......................................................................................... <a href="#16_0">15 </a>Regulatory developments........................................................................................... <a href="#17_0">16 </a>Relevant markets........................................................................................................ <a href="#18_0">17 </a>Introduction................................................................................................................ <a href="#18_1">17 </a>Hardware Security Modules....................................................................................... <a href="#18_2">17 </a> 7.1. 7.2. 7.2.1. Product market definition........................................................................................... <a href="#18_3">17 </a>7.2.1.1. Commission precedents ............................................................................................. <a href="#18_4">17 </a>7.2.1.2. Notifying Party's views .............................................................................................. <a href="#18_5">17 </a>A. B. Overall market for KMS ............................................................................................ <a href="#18_6">17 </a>GP and Payment HSMs.............................................................................................. <a href="#20_0">19 </a> 7.2.1.3. Commission's assessment .......................................................................................... <a href="#20_1">19 </a>A. B. C. D. HSMs and other cloud-based KMS............................................................................ <a href="#20_2">19 </a>HSMs and other KMS (TPM or microprocessors) .................................................... <a href="#21_0">20 </a>HSMs and HSM aaS .................................................................................................. <a href="#21_1">20 </a>GP HSMs and Payment HSMs .................................................................................. <a href="#22_0">21 </a> 7.2.1.4. Conclusion on the product market definition............................................................. <a href="#23_0">22 </a>7.2.2. Geographic market definition .................................................................................... <a href="#23_1">22 </a>7.2.2.1. Commission precedents ............................................................................................. <a href="#23_2">22 </a>7.2.2.2. Notifying Party's views .............................................................................................. <a href="#24_0">23 </a>7.2.2.3. Commission's assessment .......................................................................................... <a href="#24_1">23 </a>7.2.2.4. Conclusion on the geographic market definition ....................................................... <a href="#24_2">23 </a>7.2.3. Overall conclusion on market definition.................................................................... <a href="#25_0">24 </a><ul style="display: flex;"><li style="flex:1">7.3. </li><li style="flex:1">Enterprise Encryption Software ................................................................................. <a href="#25_1">24 </a></li></ul>2 7.3.1. Product market definition........................................................................................... <a href="#26_0">25 </a>7.3.1.1. Commission precedents ............................................................................................. <a href="#26_1">25 </a>7.3.1.2. Notifying Party's views .............................................................................................. <a href="#27_0">26 </a>7.3.1.3. Commission's assessment .......................................................................................... <a href="#28_0">27 </a>7.3.1.4. Conclusion on the product market definition............................................................. <a href="#29_0">28 </a>7.3.2. Geographic market definition .................................................................................... <a href="#29_1">28 </a>7.3.2.1. Notifying Party's views .............................................................................................. <a href="#29_2">28 </a>7.3.2.2. Commission's assessment .......................................................................................... <a href="#30_0">29 </a>7.3.2.3. Conclusion on the geographic market definition ....................................................... <a href="#30_1">29 </a>7.3.3. Overall conclusion on market definition.................................................................... <a href="#0_0">30 </a><ul style="display: flex;"><li style="flex:1">7.4. </li><li style="flex:1">Security evaluation services....................................................................................... <a href="#0_1">30 </a></li></ul>7.4.1. Product market definition........................................................................................... <a href="#0_2">30 </a>7.4.1.1. Notifying Party's views .............................................................................................. <a href="#0_3">30 </a>7.4.1.2. Commission's assessment .......................................................................................... <a href="#0_4">31 </a>7.4.1.3. Conclusion on the product market definition............................................................. <a href="#0_5">31 </a>7.4.2. Geographic market definition .................................................................................... <a href="#0_6">31 </a>7.4.2.1. Notifying Party's views .............................................................................................. <a href="#0_7">31 </a>7.4.2.2. Commission's assessment .......................................................................................... <a href="#0_8">31 </a>7.4.2.3. Conclusion on the geographic market definition ....................................................... <a href="#0_9">32 </a>7.4.3. Overall conclusion on market definition.................................................................... <a href="#0_10">32 </a><ul style="display: flex;"><li style="flex:1">7.5. </li><li style="flex:1">SIM Cards, OTA SIM Card Administration and GSM-R integration ....................... <a href="#0_11">32 </a></li></ul>7.5.1. Product market definition........................................................................................... <a href="#0_12">32 </a>7.5.1.1. Notifying Party's views .............................................................................................. <a href="#0_13">32 </a>7.5.1.2. Commission's assessment .......................................................................................... <a href="#0_14">33 </a>7.5.1.3. Conclusion on the product market definition............................................................. <a href="#0_15">33 </a>7.5.2. Geographic market definition .................................................................................... <a href="#0_16">33 </a>7.5.2.1. Notifying Party's views .............................................................................................. <a href="#0_17">33 </a>7.5.2.2. Commission's assessment .......................................................................................... <a href="#0_18">34 </a>7.5.2.3. Conclusion on the geographic market definition ....................................................... <a href="#0_19">34 </a>7.5.3. Overall conclusion on market definition.................................................................... <a href="#0_20">34 </a><ul style="display: flex;"><li style="flex:1">7.6. </li><li style="flex:1">Access control smart cards......................................................................................... <a href="#0_21">35 </a></li></ul>7.6.1. Product market definition........................................................................................... <a href="#0_22">35 </a>7.6.1.1. Notifying Party's views .............................................................................................. <a href="#0_23">35 </a>7.6.1.2. Commission's assessment .......................................................................................... <a href="#0_24">35 </a>7.6.1.3. Conclusion on the product market definition............................................................. <a href="#0_0">36 </a>7.6.2. Geographic market definition .................................................................................... <a href="#0_25">36 </a>7.6.2.1. Notifying Party's views .............................................................................................. <a href="#0_26">36 </a>3 7.6.2.2. Commission's assessment .......................................................................................... <a href="#0_27">36 </a>7.6.2.3. Conclusion on the geographic market definition ....................................................... <a href="#0_28">36 </a>7.6.2.4. Overall conclusion on market definition.................................................................... <a href="#0_29">36 </a><ul style="display: flex;"><li style="flex:1">7.7. </li><li style="flex:1">Affected markets ........................................................................................................ <a href="#0_30">36 </a></li></ul>7.7.1. Horizontally affected markets.................................................................................... <a href="#0_31">36 </a>7.7.2. Vertically affected markets ........................................................................................ <a href="#0_32">37 </a><ul style="display: flex;"><li style="flex:1">8. </li><li style="flex:1">Competitive Assessment............................................................................................ <a href="#0_12">37 </a></li></ul><ul style="display: flex;"><li style="flex:1">Legal test .................................................................................................................... <a href="#0_14">38 </a></li><li style="flex:1">8.1. </li></ul>8.1.1. Horizontal non-coordinated effects............................................................................ <a href="#0_33">38 </a>8.1.2. Horizontal coordinated effects ................................................................................... <a href="#0_34">39 </a>8.1.3. Vertical effects ........................................................................................................... <a href="#0_35">39 </a>8.1.4. Conglomerate non-coordinated effects ...................................................................... <a href="#0_36">40 </a><ul style="display: flex;"><li style="flex:1">8.2. </li><li style="flex:1">GP HSMs ................................................................................................................... <a href="#0_37">41 </a></li></ul>8.2.1. Market shares and concentration levels ..................................................................... <a href="#0_38">41 </a>8.2.1.1. Introduction................................................................................................................ <a href="#0_39">41 </a>8.2.1.2. Market shares provided by the Notifying Party ......................................................... <a href="#0_32">42 </a>8.2.1.3. Market shares for GP HSMs as provided by the Notifying Party.............................. <a href="#0_40">42 </a>8.2.1.4. Submission on contestability of customers provided by the Notifying Party............ <a href="#0_41">44 </a>8.2.1.5. Market reconstruction undertaken by the Commission ............................................. <a href="#0_42">46 </a>8.2.1.6. The Commission's market reconstruction exercise.................................................... <a href="#0_43">47 </a>8.2.1.7. Market shares for GP HSMs based on the Commission's market reconstruction...... <a href="#0_38">47 </a>8.2.1.8. Conclusion on market shares and concentration levels.............................................. <a href="#0_39">49 </a>8.2.2. Non-coordinated horizontal effects on the EEA-wide market for GP HSMs............ <a href="#0_44">49 </a>8.2.2.1. Competitive conditions pre-Transaction.................................................................... <a href="#0_9">50 </a>8.2.2.2. Competitive constraints exerted by the Parties .......................................................... <a href="#0_45">51 </a><ul style="display: flex;"><li style="flex:1">A. </li><li style="flex:1">Closeness of competition between Thales and Gemalto............................................ <a href="#0_46">51 </a></li></ul>Notifying Party’s views............................................................................................................ <a href="#0_27">51 </a>Commission’s assessment........................................................................................................ <a href="#0_47">51 </a><ul style="display: flex;"><li style="flex:1">(i) </li><li style="flex:1">Both Thales and Gemalto are traditional vendors with a strong track record............ <a href="#0_0">52 </a></li></ul>Both Thales and Gemalto offer a wide range of neighbouring solutions .................. <a href="#0_48">52 </a>Thales and Gemalto compete head-to-head ............................................................... <a href="#0_49">53 </a>Thales and Gemalto are considered close competitors by third parties..................... <a href="#0_50">55 </a> (ii) (iii) (iv) Conclusion on closeness of competition .................................................................................. <a href="#0_51">55 </a>8.2.2.3. Specific assessment of the competitive constraint exerted by Thales........................ <a href="#0_52">55 </a>A. B. C. Notifying Party’s views.............................................................................................. <a href="#0_53">55 </a>Commission’s assessment.......................................................................................... <a href="#0_39">55 </a>Conclusion on competitive constraint exerted by Thales .......................................... <a href="#0_54">56 </a>4 8.2.2.4. Specific assessment of the competitive constraint exerted by Gemalto .................... <a href="#0_55">56 </a>A. B. C. Notifying Party’s views.............................................................................................. <a href="#0_56">56 </a>Commission’s assessment.......................................................................................... <a href="#0_13">56 </a>Conclusion on competitive constraint exerted by Gemalto ....................................... <a href="#0_57">56 </a> 8.2.3. Competitive constraints from other GP HSM manufacturers.................................... <a href="#0_0">57 </a>A. B. C. Notifying Party’s views.............................................................................................. <a href="#0_58">57 </a>Commission’s assessment.......................................................................................... <a href="#0_59">57 </a>Conclusion.................................................................................................................. <a href="#0_60">59 </a> 8.2.4. Competitive constraint from CSPs............................................................................. <a href="#0_61">59 </a>A. B. (i) Notifying Party’s views.............................................................................................. <a href="#0_62">59 </a>Commission’s assessment.......................................................................................... <a href="#0_63">59 </a>Alleged competitive constraint currently exerted by CSPs on GP HSM manufacturers .................................................................................................................................... <a href="#0_44">59 </a><ul style="display: flex;"><li style="flex:1">(ii) </li><li style="flex:1">Alleged competitive constraint expected to be exerted by CSPs on GP HSM </li></ul>manufacturers in the near future ................................................................................ <a href="#0_9">62 </a>(iii) C. Price discrimination .................................................................................................. <a href="#0_64">63 </a>Conclusion.................................................................................................................. <a href="#0_65">63 </a> 8.2.5. Conclusion on non-coordinated horizontal effects on the EEA-wide and worldwide market for GP HSMs.................................................................................................. <a href="#0_0">64 </a>8.2.6. Countervailing factors................................................................................................ <a href="#0_66">64 </a>8.2.6.1. Entry........................................................................................................................... <a href="#0_52">64 </a>A. B. C. Notifying Party's views .............................................................................................. <a href="#0_67">64 </a>Commission's assessment .......................................................................................... <a href="#0_37">65 </a>Conclusion on entry ................................................................................................... <a href="#0_1">67 </a> 8.2.6.2. Buyer power............................................................................................................... <a href="#0_68">67 </a>A. B. C. Notifying Party's views .............................................................................................. <a href="#0_69">67 </a>Commission's assessment .......................................................................................... <a href="#0_14">68 </a>Conclusion on buyer power ....................................................................................... <a href="#0_70">69 </a> 8.2.6.3. Efficiencies................................................................................................................. <a href="#0_19">69 </a>8.2.7. Coordinated horizontal effects on the EEA-wide market for GP HSMs ................... <a href="#0_33">70 </a>8.2.7.1. Notifying Party’s views.............................................................................................. <a href="#0_71">70 </a>8.2.7.2. Commission’s assessment.......................................................................................... <a href="#0_72">70 </a><ul style="display: flex;"><li style="flex:1">8.3. </li><li style="flex:1">Payment HSMs........................................................................................................... <a href="#0_33">71 </a></li></ul>8.3.1. Market shares and concentration levels ..................................................................... <a href="#0_73">71 </a>8.3.1.1. Market shares for Payment HSMs as provided by the Notifying Party..................... <a href="#0_74">71 </a>8.3.1.2. Market shares for Payment HSMs based on the Commission's market reconstruction .................................................................................................................................... <a href="#0_75">73 </a>8.3.1.3. Conclusion on market shares and concentration levels.............................................. <a href="#0_0">75 </a>5 8.3.2. Non-coordinated horizontal effects on the EEA-wide market for Payment HSMs... <a href="#0_61">75 </a>8.3.2.1. Competitive conditions pre-Transaction.................................................................... <a href="#0_76">75 </a>8.3.2.2. Competitive constraints exerted by the Parties .......................................................... <a href="#0_38">75 </a><ul style="display: flex;"><li style="flex:1">A. </li><li style="flex:1">Closeness of competition between Thales and Gemalto............................................ <a href="#0_39">75 </a></li></ul>Notifying Party’s views............................................................................................................ <a href="#0_77">75 </a>Commission’s assessment........................................................................................................ <a href="#0_7">75 </a><ul style="display: flex;"><li style="flex:1">(i) </li><li style="flex:1">Gemalto is a small player in the market for Payment HSMs..................................... <a href="#0_78">75 </a></li></ul><ul style="display: flex;"><li style="flex:1">The parties do not view each other as close competitors........................................... <a href="#0_79">76 </a></li><li style="flex:1">(ii) </li></ul>Thales' internal documents....................................................................................................... <a href="#0_80">76 </a>(ii) Gemalto does not view its product as unique............................................................. <a href="#0_81">77 </a>8.3.2.3. Competitive constraint from other Payment HSM manufacturers............................. <a href="#0_9">78 </a>A. B. Notifying Party’s views.............................................................................................. <a href="#0_82">78 </a>Commission’s assessment.......................................................................................... <a href="#0_83">78 </a> 8.3.2.4. Conclusion on non-coordinated horizontal effects on the EEA-wide market for Payment HSMs........................................................................................................... <a href="#0_75">79 </a>

Case M.8797 Thales/ Gemalto Merger Procedure

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