Page 4 - Lawtext Utility Law Review Journal Sample

OPINION 16[2006/2007]4 ULR 151

OPINION

Does the Competition regulators often face situations where a proposed merger would
reduce by one an already small number of firms in a market. Examples are
Competition mergers involving the major accounting firms, tour operators (the famous Airtours

Commission care case) and, more recently, mobile phone companies in Europe. As a broad
generalisation, four-to-three mergers among equals face a serious challenge and
enough about three-to-two mergers, when they are proposed at all, stand little chance of being
approved.
competition? It is therefore surprising to learn that in March 2008, the Competition
Commission approved a two-to-one merger, which created a text book monopoly,
protected by barriers to entry in two of the markets which the Commission’s
report identified. The duopolists are not household names like Airbus and
1
Martin Cave Boeing, but are concealed within the broadcasting value chain. Nonetheless, the
issue created – the value it is worth placing on even imperfect competition – is
Warwick Business School
the same.
The background to the case is as follows. In the days of broadcasting’s
‘cosy duopoly’, the BBC ran its own transmission service and the industry
regulator ran ITV’s, which supposedly made it easier to sack the regional
franchisees. The transmission services were later privatised and subsequently
acquired by, respectively, the National Grid Company and Macquarie Bank. Each
provided sites and towers for mobile telephone companies, where they face
competition from other site owners, and for radio and television broadcasters,
where they do not.
In providing services to broadcasters, the two companies offered reciprocal
access to their sites and towers, which are difficult or impossible to duplicate,
but they competed in providing managed transmission services, which deliver
programmes to customers’ homes. There was particularly fierce competition
for a recent BBC contract, and an analysis by Ofcom which sought to show that
the companies were ‘jointly dominant’ in managed transmission services was
abandoned. The Competition Commission report acknowledges that each
constrains the other’s pricing.
When National Grid auctioned its business, it was bought by Macquarie.
Naturally, the transaction was sent to the Competition Commission, whose
market analysis confirmed that it created a complete monopoly in radio and
television transmission, and one behind high barriers to entry. There was therefore
a ‘significant lessening of competition’.
The normal response would be to prevent or unwind the merger, but the
Commission, in its final report, has proposed another solution. It is prepared to
tolerate the monopoly and accept behavioural undertakings by the acquirer, if
the latter will accept them.
Not surprisingly, this response is likely to appeal to the acquirer, which has
already completed the transaction. It would be accompanied by undertakings
which give customers – the broadcasters – significant discounts. This is said to
have won their ‘broad consensus’ support, and to have enabled the Commission
to identify a relevant customer benefit, which it can take into account in deciding
the question of remedies, even if it did not investigate, as it was entitled to, the
impact on final consumers of broadcasting services.
The regulator, Ofcom, was also finally supportive of the merger, being
concerned about the effect of any divestment on the current programme of
digital switchover, in which analogue television broadcasting transmission will
progressively be switched off. Thus Macquarie derives an advantage from having
riskily completed the transaction before the reference.
Does this justify the Commission’s conduct in authorising a monopoly? It
seems very doubtful. The Commission has too much faith in regulation, and
not enough in competition, which is effectively foreclosed. Broadcasters may be
seduced by price cuts, and it may also be in their interest to have a predictably
regulated monopoly supplier charging everyone the same rather than a more
1 Macquarie UK Broadcast Ventures Limited/
National Grid Wireless Group, Competition competitive and potentially innovative supplier market, which might yield
Commission, 11 March 2008. surprises. The Commission’s failure to consider end users’ interests, particularly

UTILITIES LAW REVIEW PUBLISHED BY LAWTEXT PUBLISHING LIMITED
www.lawtext.com