On October 30, 2019, the Commission published its July 2019 decision to conditionally approve the acquisition by Vodafone of Liberty Global’s cable business in Germany, the Czech Republic, Hungary, and Romania, following an in-depth Phase II investigation.[1] The decision marks the first-ever cable access commitment approved by the Commission in the telecommunications sector.

The Commission raised concerns over horizontal overlaps in the retail fixed broadband services market and in the wholesale TV signal transmission market in Germany. Vodafone owns a cable network which covers urban areas within 13 of the 16 federal states in Germany. Liberty Global owns the Unitymedia cable network in the remaining three federal states where Vodafone did not own a cable network (North Rhine-Westphalia, Hesse, and Baden-Wuerttemberg).

Retail fixed broadband services in Germany

Vodafone’s and Unitymedia’s respective cable networks did not overlap in any given geographic region in Germany. However, in the three federal states where Vodafone did not operate its own cable network, it had wholesale access to Deutsche Telekom’s network, which allowed Vodafone to provide retail fixed broadband services in competition against Unitymedia, Deutsche Telekom, United Internet, and Telefónica DE. The Commission had concerns that in these three regions, the transaction would have given rise to a combined share of 40–50% in retail fixed broadband services, followed by Deutsche Telekom (approx. 20–30% share). The combined entity would have also had a 30–40% combined share at national level.

Vodafone proposed a fix-it-first remedy, offering a behavioral commitment to provide Telefónica DE, which pre-transaction had 5–10% shares in the three regions, with long-term wholesale access to the merged entity’s combined cable network in all federal states in Germany.[2] The Commission concluded that the access remedy would enable Telefónica DE to replace the pre-transaction competitive constraint exerted by Unitymedia because it would allow Telefónica DE to offer more competitive retail fixed internet access services, fixed telephony services, and over-the-top (“OTT”) TV services to consumers on Vodafone’s and Unitymedia’s network of 23.7 million German households.

Wholesale TV signal transmission market in Germany

After the transaction, the parties would have had a combined market share of 60–80% in the wholesale TV signal transmission market in Germany, where Vodafone and Liberty Global sell to TV broadcasters the transmission of TV signals through the parties’ cable networks. Though neither party was competing against TV broadcasters in the downstream market for the wholesale supply of TV channels, the Commission had horizontal concerns that the combined cable networks business would have the market power to hamper TV broadcasters’ ability to introduce innovative TV services involving hybrid broadcast broadband TV (“HbbTV”) signals[3] and OTT offers.

To address this concern, Vodafone committed to refrain, for a period of eight years, from contractually restricting the ability of TV broadcasters that transmit their content on the merged entity’s TV platform (consisting of the merged entity’s cable network, IPTV platforms, and mobile network) to also distribute their content via an OTT service. In addition, the parties committed to continue to carry the HbbTV signal of free-to-air (“FTA”) broadcasters over their cable network for a period of eight years.

The Commission also raised concerns that the merged entity could impose unfavorable contractual and financial conditions on TV broadcasters, such as payments for additional services and features for FTA and Pay TV channels, and increased feed-in-fees for FTA broadcasters. According to the Commission, these types of revenue losses for TV broadcasters could lower their incentive to continue investing in content, which could ultimately lead to quality degradation of the TV offer to final viewers.

To address the Commission’s concerns, the parties committed to not raising feed-in-fees[4] for FTA broadcasters for the transmission of their linear TV channels via the merged entity’s cable network in Germany for a period of eight years.

Conclusion

The Commission approved the acquisition, subject to the above remedies, after seven months of in-depth review. The Commission’s decision has been criticized by competitors and industry associations alike for failing to address their concerns about the transaction, which would allegedly create a de facto monopoly in the cable market in Germany, and potentially slow down fiber rollouts.[5] Several opponents of the approval, including Deutsche Telekom and an association of German small and medium-sized cable operators (the Fachverband Rundfunk- und BreitbandKommunikation), are reportedly considering appealing the decision.[6] According to Vodafone, the transaction will increase Telefónica DE’s ability to effectively compete in the high- speed broadband sector, and accelerate innovation in terms of network and service provision.

Vodafone/Liberty Global is the first-ever cable access commitment that has been approved by the Commission in the context of telecommunications mergers. The French national competition authority appears to be the only competition authority in the EEA that has previously approved a cable access commitment in such a context.[7]

Vodafone/Liberty Global also continues the trend in the recent uptick in the deployment of fix-it-first remedies in EU merger control, as reported in our July 2019 edition of the EU Competition Law Newsletter (see, for example, Valeo/FTE Group, AB InBev/SABMiller, Boehringer Ingelheim/Sanofi Animal Health Business, Hutchison 3G Italy/Wind/ JV, and Liberty Global/BASE).[8]

[1]      Vodafone/Certain Liberty Global Assets (Case COMP/M.8864), Commission decision of July 18, 2019.

[2]      The exact duration of the agreement between the parties and Telefónica DE was redacted, but other sections of the decision suggest that it was set at 10 years (e.g., paragraph 1884 of the decision mentions that “several respondents suggesting that the ten years duration would be appropriate.”).

[3]      HbbTV is a development whereby TV broadcasters are able to allow retail TV customers that have a smart TV to directly connect to those broadcasters’ own interactive OTT services.

[4]      Defined as fees per connected household that a FTA broadcaster pays to Vodafone and/or Unitymedia (or the merged entity) for the transmission of the FTA broadcaster’s FTA TV channels in their respective cable networks (or in the merged entity’s combined cable network).

[5]      See Broadband TV News, ‘German industry associations oppose Vodafone/Liberty Global cable deal,’ March 25, 2019, available at: www.broadbandtvnews. com/2019/03/25/german-industry-associations-oppose-vodafone-liberty-global-cable-deal/; and Reuters, ‘Deutsche Telekom says Vodafone-Telefonica deal bad news for German broadband,’ May 7, 2019, available at: www.reuters.com/article/us-liberty-global-m-a-vodafone-deutsche/deutsche-telekom-says- vodafone-telefonica-deal-bad-news-for-german-broadband-idUSKCN1SD0ZV/.

[6]      See Broadband TV News, ‘FRK to take legal action against Vodafone/Unitymedia merger,’ September 24, 2019, available at: www.broadbandtvnews. com/2019/09/24/frk-to-take-legal-action-against-vodafone-unitymedia-merger/; and Reuters, ‘EU clears Vodafone’s $22 billion Liberty deal,’ July 18, 2019, available at: https://www.reuters.com/article/us-liberty-global-m-a-vodafone-group-eu-idUSKCN1UD114/.

[7]      Numericable/SFR (Case 14-DCC-160), French Competition Authority decision of October 30, 2014.

[8]      Valeo/FTE Group (Case COMP/M.8102), Commission decision of October 13, 2017; AB InBev/SABMiller (Case COMP/M.7881), Commission decision of May 24, 2016; Boehringer Ingelheim/Sanofi Animal Health Business (Case COMP/M.7917), Commission decision of November 9, 2016; Hutchison 3G Italy/Wind/JV (Case COMP/M.7758), Commission decision of September 1, 2016; and Liberty Global/BASE (Case COMP/M.7637), Commission decision of February 4, 2016.