In September 2011 the Competition Authority issued a long-awaited decision on the consolidation of two major Polish providers of pay television and the Internet - UPC Polska (a subsidiary of Liberty Global) and Aster City. The authority cleared the transaction subject to two conditions - UPC must:
- dispose of certain assets to an independent third party; and
- adopt measures to ensure that consumers' interests are not harmed by the transaction.
Acquisition of control over UPC by Aster was notified to the authority in December 2010. In its application UPC argued that the relevant markets for the competition assessment were the domestic markets for the provision of pay television and for access to broadband internet. It further argued that consolidation would not substantially affect either of these markets.
The authority generally agreed with the market definitions proposed by UPC. When considering the market for pay television, the authority acknowledged that providing television channels via cable, satellite or internet protocol is equivalent, since consumers obtain a service of comparable quality irrespective of the means of transmission. However, the authority excluded digital terrestrial television (DVB-T) from the relevant market due to the relatively early phase of development of DVB-T in Poland.
The authority also identified the services that grant access to broadband internet as a separate product market; most mobile internet providers impose limits for the transfer of data, whereas broadband internet providers generally do not.
Where there was no dispute between UPC and the authority over the relevant product markets, they disagreed with respect to their geographic scope. UPC held that the relevant markets were domestic since the parties faced competition from players active throughout Poland - commercial and pricing strategies are generally developed in relation to Poland and not particular locations or regions. Furthermore, qualification of the markets as domestic was reflected in the previous decisions of the European Commission and national competition authorities.
However, the authority disagreed with UPC's argument, instead claiming that as both companies involved were predominantly cable television providers, their activity relied on the local network infrastructure. The authority further recalled that in the past it has consecutively viewed such operations as local. A similar line of reasoning was adopted by the authority in relation to broadband internet services, as the same network is usually used for the provision of both television and the Internet. In justifying its views the authority referred to the results of its own market studies, consumers' preferences and reports of the Polish telecommunications regulator. The authority therefore concluded that, in geographical terms, both markets should be considered to be local.
As a result, the authority focused its review on Warsaw and Cracow, where the activities of the parties overlap. This approach had substantial consequences for the outcome of the proceedings, since in such local markets the combined shares of UPC and Aster were estimated at between 50% and 60%. The authority observed that such aggregation of market shares:
"would result in a significant restriction of competition on the market of chargeable television and the access to the stationary broadband Internet in the area of the two cities, which would definitely be harmful to the recipients."
In order to remedy these competition concerns, the authority ordered UPC to dispose of, within 18 months from the date of the decision, those parts of the Aster network that are located in the buildings where both UPC and Aster operate their respective networks (approximately 400 such overlapping locations were identified in the decision). UPC is required to transfer these assets to a third-party investor, which must warrant that it will continue to provide pay television and internet services to consumers. The authority reserves the right to veto any such investors.
Second, during the period before the transfer of assets to a new investor, UPC must ensure that consumers' access to services is not limited in any way and that those services are rendered to at least the same level as before. Furthermore, UPC must guarantee that following the takeover of the network by a new investor, consumers have the right to choose an alternative service provider freely without incurring any expenses (including the possibility of terminating agreements without penalty).
Judging by the outcome of this case, in practice it might be difficult to challenge the definitions of markets once such definitions have been adopted by the authority, even if an argument can be made for an alternative approach. The concept of local cable television markets was developed by the Polish authorities in antitrust matters handled in the 1990s and has only since been transposed to merger review matters.
While the rationale for imposing a structural condition was clearly driven by consumer protection considerations, it appears that the scope of the ancillary obligations was defined rather broadly and might prove onerous in practice. In particular, the decision implies that UPC is responsible for consumers' choice of obtaining an alternative service provider, even following the transfer of assets to a third party.
Finally, the decision conditions entry of an investor on prior approval of the regulator. Generally, in the past, the only criterion for an investor has been its status as an independent entity. In this and other conditional decisions rendered in the past year, the authority has demonstrated its current wish to ensure that a careful watch is kept on how conditional decisions are implemented in practice.
For further information on this topic please contact Krzysztof Kanton or Piotr Borowiec at Soltysiński Kawecki & Szlęzak by telephone (+48 22 608 7000), fax (+48 22 608 7070) or email ([email protected] or [email protected]).