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16 May 2019

EC opens phase 2 investigation into Telia’s Bonnier takeover

Nordic telco Telia’s protracted bid for Bonnier Broadcasting, owner of TV channels and ancillary rights in Sweden and Finland, is set to drag on for the rest of 2019 now that the European Commission has opened an in-depth phase 2 investigation into the proposed $1 billion acquisition. This happens when the Commission, the EU’s executive body, is unhappy with representations made by the merging parties under phase 1 designed to eliminate concerns over reduced competition.

Phase 2 is then invoked with greater information gathering, including companies’ internal documents, more extensive economic data, detailed questionnaires to market participants, and often site visits, taking at least several months usually. In this case, the Commission expressed continuing concerns that video distribution competitors in Finland and Sweden could be shut out from accessing Bonnier Broadcasting’s specific TV channels. It also worried that the merger could deny access to TV advertising space on its free-to-air and basic pay TV channels and also to its streaming applications for customers using competing mobile and fixed internet providers.

Telia was reluctant to weaken the proposed combined company and is betting on the deal eventually being waived through after some minor concessions. But this is not certain now given the Commission’s determination to preserve competition across borders shown in its intervention in other cases.

This particular bid first attracted the Commission’s attention, as opposed to just national competition authorities, because of its cross-border element, with both Telia and Bonnier being substantial forces in Norway, Sweden, Denmark and Finland. Bonnier is focused mostly on Sweden and Finland, with $781.3 million revenue in 2018, while Telia’s $8.7 billion 2018 revenues were split across the four Nordic countries for pay TV and broadband, as well as neighboring Lithuania and Estonia. The telco had 2.4 million subscribers to its pay TV services across the six countries, up from 1.78 million a year earlier with the growth accounted for mostly by a strong performance in Norway, where it added 504,000 subs.

To attract the Commission’s attention, a proposed merger has to be either sufficiently large or still quite big and have a significant cross border element. If the combined worldwide turnover of all the merging firms is over €5 billion while at least two both exceed €250 million, an investigation is triggered. Alternatively, if the worldwide turnover of all the merging firms combined is over €2.5 billion, an investigation is triggered under various conditions in which the parties operate in two or more member states. One is where the combined turnover of all merging firms exceeds €100 million in each of at least three Member States, another where turnover for each of at least two of the firms individually exceeds €25 million. However, in these latter cases, the merger is exempt from EU attention if all firms involved have more than two thirds of their EU-wide turnover within one and the same member state.

This particular case qualified on the first count because Telia’s revenue is above €5 billion while Bonnier’s is above €250 million and so did not actually need a cross border dimension, although it does have that. The Commission’s concern in that case is over the scale of impact which could potentially have wider European implications because of the size of the parties involved and overall impact on competition.

The Commission has intervened similarly on some larger pay TV mergers, such as Vodafone’s proposed €18.4 billion acquisition of Liberty Global’s cable assets in Germany, the Czech Republic, and Hungary. In December 2018, the Commission decided to open a phase 2 investigation into that, although the merger now looks like being cleared mid-2019 with relatively minor concessions.

Of wider significance has been the Commission’s longstanding investigation into territorial licensing and geoblocking in the audiovisual sector dating back to January 2014. That finally ended on March 7, 2019, when the Commission accepted commitments from Disney, Comcast’s NBCUniversal, Sky UK, Sony Pictures and AT&T’s Warner Bros over cross-border access to pay TV services.

The Commission was objecting to contractual clauses prohibiting broadcasters from accepting unsolicited requests for their pay TV services from consumers in countries outside their licensed territory, known as unsolicited sales. The Commission was also concerned over studios’ film licensing contracts for pay TV being restricted to specific countries.

Paramount caved in prematurely to the Commission’s pressure in April 2016, provoking legal challenges from others such as Groupe Canal+ that were eventually thrown out. The Court fully upheld the Commission’s decision to accept Paramount’s commitments and agreed that removing these prohibitive clauses would not undermine investment in films and on the contrary could reduce licensing fees.

The positive side for studios and operators was that this at least cleared the way for the mega mergers that were to come. Indeed, on June 15, 2018 the Commission gave unconditional approval to Comcast’s acquisition of Sky and on November 6, 2018 did the same for acquisition of parts of Fox by Disney.

But these aspects have little to do with the Telia case, which is about the scale of the vertical integration involved by combining a major supplier and distributor of content within relatively small markets.