The Taiwan Fair Trade Commission (TFTC) rendered a decision at its 1344th Commissioners' Meeting on August 9, 2017, determining that TWT Communication Inc., Da-An Wen-Shan CATV Co., Ltd., and Ching Ping Tao CATV Co., Ltd. (collectively, "Penalized Enterprises ") have violated Subparagraph 3, Article 20 of the Taiwan Fair Trade Act ("TFTA") by stipulating exclusivity clauses in their cable television service agreements with management committees of condominiums ("Management Committees"). According to the TFTC, the aforesaid clauses can be viewed as unfair means of impeding other competitors to compete in the relevant markets where each Penalized Enterprise operates. Thus, the TFTC imposed administrative fines of NT$1.6 million, NT$0.9 million, and NT$1.2 million on the Penalized Enterprises, respectively and ordered them to rectify such violation within two months.
According to the TFTC's investigation, in response to new entrants' (cross-franchise area operators) participation in the relevant markets, the Penalized Enterprises novated cable television service agreements with the Management Committees. In the new agreements, exclusivity clauses were included which demand that the Management Committees shall not enter into cable television service agreements with other cable TV operators regardless of whether there is enough space for laying cables and relevant equipment in such condominiums; otherwise, the Penalized Enterprises will be entitled to cancel special offers and claim punitive damages from the Management Committees. The TFTC is of the view that the foregoing exclusivity clauses along with punitive damages provisions have deprived competitors of the opportunity to solicit counterparties by offering more favorable prices, quality or other transaction conditions and thus can be deemed as an unfair business practice that interferes with competitors' ability to compete.
Moreover, the TFTC indicates that new entrants solicit their customers mainly from subscribers of existing cable TV operators. Since all Penalized Enterprises are existing cable TV operators in their relevant markets with market shares of approximately 50%, such exclusivity clauses will hinder new entrants' ability to reach new customers. Furthermore, as all the relevant geographic markets concerned are densely populated urban areas which mostly are apartment complexes and communities, as long as the Penalized Enterprises include exclusivity clauses in their cable television service agreements with the Management Committees, they may exclude other cable TV operators from the relevant markets and prevent all residents in such condominiums from transferring to other cable TV operators. Lastly, with punitive damages provisions, other competitors will have to absorb, not only the costs of transfer but also the amount of punitive damages so as to successfully obtain the deals with the Management Committees, which is viewed by the TFTC as inflating the operating costs of competitors and reducing their ability to compete on price. Therefore, the TFTC is of the view that the above-mentioned conduct of the Penalized Enterprises is likely to restrain competition in the relevant markets.
Based on the intention and market position of the Penalized Enterprises, the structure of relevant markets, the characteristics of commodities/services, and the impact on market competition, the TFTC determined that such exclusivity clauses would block or exclude other cable TV operators (especially new entrants) from competing and should be deemed anti-competitive and likely to restrain competition, thus violating Subparagraph 3, Article 20 of the TFTA. It is noteworthy that providing special offers by cable TV operators to the Management Committees has been in place for years. Whether such special offer practice will be changed and how the terms and conditions of the offer will be modified deserve continuing observation.