One should not trifle with commitments agreed in a merger. On 20 September 2011, the French Competition Authority applied for the first time ever in France Article L.430-8 IV 1° of the French Commercial Code which allows, if the Authority considers that the parties have not complied with a commitment, to “withdraw the decision clearing under conditions the concentration.” In this case, it found that Canal Plus had not complied with some key commitments and, therefore, imposed a fine of €30 million on Canal Plus.
The operation in question, authorized in 2006 by the then Minister of Economy at the time in charge of reviewing concentrations, had raised serious competition concerns as it led to the merger of the two major French pay-TV operators, TPS and Canal Satellite. The concentration resulted in a monopoly on markets of premium TV channels and strengthened the dominant position of Canal Plus Groupe on the downstream market of pay‑TV distribution, due to the addition of strong market shares, the loss of a potential competitor and the existence of significant vertical effects.
Given the risks for competition, the authorization was subject to the implementation of 59 commitments made by Groupe Canal Plus and its mother company, Vivendi. The purpose of all these commitments was to allow the pay-TV distributors that would remain after the transaction (essentially cable operators and telcos) to have access to channel content which is attractive enough to allow the creation of competitive pay channels packages and thus be able to compete with the merged entity on the downstream market of pay-TV distribution.
In its decision of 20 September 2011, the Competition Authority carefully examined and found, however, that ten commitments, including some which were essential, had not been implemented.
On the intermediate market of TV channels: the aim of the commitments was to make the creation of pay channels packages that can compete with those offered by Canal Plus possible, by making available to all distributors, on a non‑discriminatory basis, seven channels necessary for the creation of attractive packages, and by guaranteeing the maintenance of the quality of the unbundled channels. The Authority pointed out however that Canal Plus had neither fulfilled its commitments concerning non‑discrimination, nor unbundled the TV channels within the specified period. This delay enabled Canal Plus to promote the migration of TPS subscribers toward its new offer ‘The New CanalSat’ containing exclusive content, while competitive providers were not able to provide a retail offer including all or part of the seven channels covered by unbundling.
Concerning the commitment to maintain the quality of the unbundled channels: the Competition Authority also noted that, contrary to the commitments, Canal Plus degraded the quality of the channels it had to make available to third party distributors, including the quality of (i) TPS Star – considered as a key channel, (ii) the three movie channels, and (iii) channels made available to one specific distributor, Parabole Réunion, which limited the attractiveness of unbundled channels.
Concerning relations with independent and third party channels: the Competition Authority highlighted that Canal Plus did not comply with certain commitments concerning relations with independent and third party channels. In 2006, it appeared necessary to ensure the sustainability to independent channels and their autonomy vis-à-vis Canal Plus Group, in order to allow third party distributors to expand their packages, by including attractive independent channels. Nonetheless, Canal Plus by keeping some of these channels in a dependency state, did not guarantee their autonomy.
Concerning the acquisition of broadcasting rights: on the upstream market, the commitments aimed to facilitate the acquisition of broadcasting rights by competitors of Canal Plus, by putting an end to all the exclusive broadcasting rights it had under current contracts and by prohibiting future acquisition of such exclusive rights. The Authority has considered that on that point as well, Canal Plus did not meet all its commitments.
A TWO-FOLD PENALTY, HEAVY AND UNPRECEDENTED
The Competition Authority, rejecting the purely mathematical argument that Canal Plus had implemented 80% of its commitments, and considering that the non-performed commitments were essential in the 2006 decision, withdrew the merger clearance decision and imposed a fine of €30 million. Consequently, unless Vivendi and Canal Plus divest TPS (which seems both unlikely and uneasy to implement in practice), they must re-notify the transaction to the Competition Authority within a month, ie before October 20th, 2011.
This decision to withdraw the authorization is the first in France. Before that, the Authority or the Minister of Economy, has only ordered the parties to implement commitments, with a daily penalty payment until full completion (decision of the Minister of Economy, 21 August 2007, Carrefour-ED/Treff). In this case however, such an option would not have been sufficient to restore competition, since the pay-TV market has experienced major changes in the last years. New commitments, relying on the current pay-TV market situation, are likely to be required by the Authority for authorizing the concentration. No doubt they will have to be more substantial, especially as competitive pressure from cable operators and telcos is not as significant as it was expected to be back in 2006.
At European level, most of the competition authorities have the same ability to withdraw the merger clearance decision if the commitments are not timely and fully implemented, but this has not yet been tested in practice (the authorities have only sanctioned failure to fulfill the commitments by ordering the parties to implement the commitments with a periodic penalty payment until full completion).