NTL Incorporated and Cable & Wireless Communications
Plc: A report on the proposed acquisition
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Summary
On 12 November 1999, the Secretary of State for Trade and Industry asked
us (see Appendix 1.1) to investigate and report on the proposed acquisition
by NTL Incorporated (NTL) of the cable business of Cable & Wireless
Communications plc (CWC).
NTL is the second largest operator of cable telephone and pay-TV services
in the UK, and CWC the third largest. The combined company would account
for 27 per cent of all subscribers to pay-TV in the UK, the leading supplier
of which is British Sky Broadcasting Group plc (BSkyB) which uses satellite
transmission with a 50 per cent share. BSkyB through its innovation and
investment has built up a strong position in supply of content, particularly
as a result of having acquired rights to premium sport and film: it has
also been the first operator to introduce digital and interactive services
and has done so at considerable cost. NTL and CWC both argued that the
further industry consolidation which the merger would bring about was
necessary to enable the cable industry to achieve competitive scale and
to compete more effectively with BSkyB.
The reference elicited strong expressions of concern about a number of
issues important to the further development of the cable industry, although
views were divided. Main concerns were about the mergers effect
on the wholesale market for pay-TV content and on the balance of market
power between pay-TV platforms and, in particular, between cable and satellite
services. But there was also some concern about the effect of the merger
on telecommunications services. In several cases, the concern was based
on a perception of the market strength of cable operators arising from
the particular technological capacity of cable to deliver pay-TV, telephony
and also digital interactive services; the closed nature of
the cable networks whereby the cable operator is in the sole position
to determine which programme services can be accessed by its subscribers;
and the ability of cable operators to bundle the supply of a range of
services and the charges to subscribers for them. Others, however, saw
scope for the merger to enhance competition and particularly competition
with BSkyB.
NTL and CWC operate in different geographical areas, and hence the merger
has no direct effect on competition between them. Nor did we find any
evidence that the merger would materially reduce potential direct competition
or indirect competition, such as competition among cable operators themselves
in innovation or the copying of best ideas.
A main concern was whether the merger could increase or enhance the market
power of the merged entity in relation to that of pay-TV channel or programme
providers, arising, for example, from NTLs ability following the
merger to threaten in contract negotiations to deny content providers
access to two of the three substantial cable companies, representing a
population of over a quarter of all pay-TV subscribers. We do not believe
the merger should substantially affect the market power of NTL relative
to content providers. Although NTL has the objective of securing better
terms from content providers, it will continue to need to offer consumers
a variety of content equivalent to that of other pay-TV platforms, and
this need will increase when the introduction of digital technology increases
the number of channels that can be carried. Also, the content providers
will themselves have a degree of countervailing power. Nor do we believe
that NTLs intention to acquire broadcasting rights will distort
competition in the market for the acquisition of such rights.
Neither do we believe that the merger may be expected adversely to affect
competition between platforms, but rather that it may enhance the efficiency
with which the technological advantages of cable can be deployed. This
would have a beneficial effect particularly on competition between pay-TV
platforms, though BSkyB will retain a strong position in the market. Thus
there should be benefit to consumers in the longer term. Nor do we see
adverse effects on competition in telecommunications given the low market
shares of both NTL and CWC, compared with British Telecommunications plc.
We do not therefore believe the merger would adversely affect competition
or impact adversely on consumers. We acknowledge, however, that there
is considerable uncertainty about how the relevant markets will develop.
There could be a significant increase in competition from other platforms,
including new use of the ordinary telephone network to transmit pay-TV
services. But conversely cable could successfully deploy its technological
superiority over other platforms. Some of the issues raised with us, for
example whether there should be forced or open access to the cable networks,
as opposed to the current closed nature of the cable network referred
to above, went in our view substantially wider than the effect of the
merger. Should NTLor the cable industry in generalprove to
have market power in future, the industry is already subject to a regulatory
structure with the powers to examine such issues at that time to remedy
any adverse effects that may be seen to have arisen.
We have concluded that the merger may not be expected to operate against
the public interest.
Full text
Contents
|
Part I
|
Summary and Conclusions
|
| Chapter
1 |
Summary |
| Chapter
2 |
Conclusions |
Part II
|
Background and evidence
|
| Chapter
3 |
The companies and the merger situation |
| Chapter
4 |
The relevant markets |
| Chapter
5 |
Views of third parties |
| Chapter
6 |
The views of NTL and CWC |
| |
List of signatories |
Appendices
|
|
| (The numbering of the appendices indicates
the chapters to which they relate) |
| 1.1 |
The reference and conduct of the inquiry |
| 2.1 |
Issues statement |
| 3.1 |
Companies or businesses connected with the NTL/CWC merger
situation |
| 3.2 |
Major companies or businesses involved in pay-TV and
interactive TV services in the UK |
| 3.3 |
Description of CWCs services and network |
| 3.4 |
Summary of information from NTLs legal advisers
on its constitution and relevant law relating to shareholder
approvals |
| 3.5 |
Description of the structure of the proposals between
C&W, CWC and NTL |
| 4.1 |
Relevant reports on broadcasting and telecommunication
markets |
| 4.2 |
Regulation of TV and telecommunications in the UK |
| 4.3 |
Audience share for selected TV channels (analogue and
digital) received in the British Isles, 1999 |
| 4.4 |
Sports rights |
| 4.5 |
Film rights |
| Glossary |
|
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