Policy Papers on Transnational Economic Law No. 51 Totally unacceptable? The impact of the announced Vodafone/Unitymedia merger on German markets from a competition law TRANSNATIONAL ECONO- MIC LAW RESEARCH CEN- perspective TER Law School Martin Luther University Dr. Ines Zenke/ Halle-Wittenberg Universitätsplatz 5 06108 Halle (Saale) Dr. Sven Leif Erik Johannsen Germany Tel.: +49 345 / 55 23149 / 55 23180 Fax: +49 345 / 55 27201 E-Mail: [email protected] www.telc.uni-halle.de September 2018 Policy Papers on Transnational Economic Law No. 51 Totally unacceptable? e impact with regard to several German mar- of the announced Vodafone / kets. These issues are currently being Unitymedia merger on German debated among competitors and cus- markets from a competition law tomers and the academic commu- perspective nity. The Chief Executive of compet- itor Deutsche Telekom AG (herein- after referred to as “DTAG”), Timo- A. Introduction theus Höttges, already stated in Feb- On May 9th, 2018, Vodafone Group ruary 2018 that such a transaction Plc (hereinafter referred to as “Voda- would be “totally unacceptable” and fone”) confirmed press reports that it unlikely to get approval. The merger has agreed to acquire the German ca- of Vodafone and Unitymedia would ble network operator Unitymedia create a nationwide cable monopoly. GmbH (hereinafter referred to as The associations BUGLAS and “Unitymedia”). Unitymedia is cur- BREKO share this view and add that rently owned by the American tele- such fusion would also diminish eco- communication and television group nomic incentives to roll-out high- Liberty Global (hereinafter referred performance broadband networks to as “Liberty”). The concentration is like fibre to the home (FTTH). The part of a wider scheme to reshape the expansion of FTTH networks is pri- business of Vodafone and Liberty in marily carried out by regional suppli- Europe. As part of the agreement, ers, e.g. municipal utilities. BUGLAS Vodafone will also acquire Liberty’s and BREKO represent the interests operations in the Czech Republic, of these undertakings. Hungary and Romania. In Europe, In contrast, the current Chairman of Liberty remains active in the UK, Re- the German Monopolies Commis- public of Ireland, Belgium, Switzer- sion, Achim Wambach, believes the land, Poland and Slovakia. Vodafone concentration between Unitymedia and Liberty will also continue their and Vodafone would have a positive Joint Venture VodafoneZiggo in the impact on the expansion of broad- Netherlands. Vodafone’s commercial band network. It would create an- rationale is to merge its own cable other large player on the broadband and mobile networks with Liberty’s market which could be able to com- broadband and cable networks to pete with the predominant German provide integrated telecommunica- telecommunication service provider tion, broadcasting and internet net- DTAG. The competent authority work services. will have to assess whether these pos- However, the concentration will be itive impacts on the broadband mar- subject to approval from the respon- ket outweigh possible negative effects sible competition authority. It raises on Germany’s cable market and the competition concerns, especially transmission of TV programmes. Page 2 Policy Papers on Transnational Economic Law No. 51 The former Chairman of the Mo- Germany. In 2014, Vodafone al- nopolies Commission, Justus Hau- ready acquired Kabel Deutschland cap, does not believe that any com- Holding AG. The subsidiaries of petition-impairing effects will be Kabel Deutschland Holding AG op- identified. According to him, the erate the cable networks in 13 of 16 concentration is similar to a merger German Federal States. By acquiring of regional newspapers due to a lack Unitymedia, Vodafone would also of overlap between Vodafone’s and gain the major cable network assets Unitymedia’s cable network areas. in the remaining German Federal Such process is generally harmless. States of North Rhine-Westphalia, The German Monopolies Commis- Hessen and Baden-Wuerttemberg. sion is not the competent authority This scenario has to be assessed in the to investigate mergers in Germany. It light of recent court rulings and deci- is an independent expert committee sions by competition authorities. which advises the German govern- They have continuously prohibited ment on the basis of § 44 German concentrations that would have led Act against Restraints of Competi- to all major cable networks assets in tion. Germany being held by only one This article addresses the issues de- company. scribed above. First, the historical de- velopment which led to the present I. Regulatory environment and competitive situation and previous sale of DTAG’s cable networks decisions of competition authorities (1997 – 2000) and courts are outlined (see B.). Then, the question of whether it is Before 2000, DTAG controlled al- already foreseeable that the concen- most the entire cable network in Ger- tration would result in a substantial many. The Commission published lessening of competition is assessed an economic study – the so called (see C.), before a conclusion to the “Cable Review” – in 1997. This substantial issue of whether the mer- study showed that the joint owner- ger is, specifically regarding competi- ship of telecommunication and cable tion law, “unacceptable” can be TV network by the same company drawn. (see D.). hindered the development of tele- communication markets by prevent- B. Historical development ing convergence between telecom- munication, media and information The competition concerns outlined technology providers. The Commis- in the introduction are mainly raised sion recognised a conflict of interest by the fact that the concentration between maintaining an incumbent would allow Vodafone to hold al- position in voice telephony services most all major cable network assets in and the inherent capability of the ca- Page 3 Policy Papers on Transnational Economic Law No. 51 ble TV network to provide voice te- (Baden-Wuerttemberg) were estab- lephony services in competition to lished. those offered by telecommunication networks. Any substantial improve- II. Prohibition of the proposed ment in either the telecommunica- merger between Liberty and tion network or the cable TV net- Kabel Deutschland (2002) work might lead to a loss of business for one another. Moreover, this situ- In 2002, the German Federal Cartel ation was also considered to diminish Office (Bundeskartellamt, hereinaf- incentives for the incumbent to up- ter referred to as “BKartA”) prohib- grade its existing telecommunication ited the concentration between Lib- network to broadband capability (cf. erty and the six regional companies Directive 1999/64/EC, recital 10). remained partners of the DTAG By then it was obvious, that the (BKartA, decision of 22 February Commission intended to implement 2002, B 7 – 168/01). It underlined measures under former article 86(3) how unlikely the third largest cable TEC (now article 106(3) TFEU) re- network operator at that time, quiring telecommunication opera- EWT/Primacom, would have en- tors which were controlled by Mem- gaged in competition with the re- ber States to separate their cable net- gional companies, because Liberty al- work operation into independent le- ready exerted a competitively signifi- gal entities. In this context, the man- cant influence on EWT/Primacom. agement board of DTAG decided to separate the entire cable network business from the rest of the com- III. Prohibition of the proposed pany by the 24th of November 1997 merger between Kabel (see Commission, decision of 27 Deutschland and Ish, Iesy und May 1998, Case No IV/M.1027 - Kabel BW (2004) Deutsche Telekom/BetaResearch, para. According to its preliminary assess- 47). First, DTAG transferred its ca- ment in 2004, the BKartA intended ble network operations into its sub- to prohibit a concentration that sidiary Kabel Deutschland GmbH would have led to all cable networks which was then split into nine re- formerly owned by DTAG being gional companies. DTAG signed held by only one company situated agreements with different investors, just as the proposed Vodafone/Uni- which guaranteed the sale of majority tymedia merger. Kabel Deutschland stakes in those regional companies GmbH intended to acquire Ish, Iesy that held the cable network assets in and Kabel BW. The BKartA noted North Rhine-Westphalia, Hessen or that the dominant position Kabel Baden-Wuerttemberg. Thus, the Deutschland GmbH already held by companies Ish (North Rhine-West- being the owner of cable networks in phalia), Iesy (Hessen) and Kabel BW Page 4 Policy Papers on Transnational Economic Law No. 51 six regions would have been strength- IV. Prohibition of the proposed ened even further by the merger with merger between Liberty and the three other cable network compa- Kabel BW (2011/2013) nies. This conclusion was, inter alia, based on the finding, that the con- At first, the BKartA conditionally ap- centration would have restricted po- proved the acquisition of Kabel BW tential competition from regional ca- by Liberty which already controlled ble network companies. Addition- Unitymedia (BKartA, decision of 15 ally, Kabel Deutschland GmbH pur- December 2011, B 7-66/11 – Lib- sued the strategy of establishing a erty Global / Kabel BW). However, digital platform for the encryption the competitors DTAG and Net Co- and decryption of TV-signals (pay logne GmbH successfully appealed TV) covering entire Germany. In this decision. The Higher Regional this context, the BKartA