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A Case of Merger Remedies

A Case of Merger Remedies. Sangmin Song Korea Fair Trade Commission. Contents. Introduction Background of the Industry Assessment of competitive harm Merger Remedies. Introduction. A merger case between two cable TV operators The case has involved several important issues regarding

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A Case of Merger Remedies

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  1. A Case of Merger Remedies Sangmin Song Korea Fair Trade Commission

  2. Contents • Introduction • Background of the Industry • Assessment of competitive harm • Merger Remedies

  3. Introduction • A merger case between two cable TV operators • The case has involved several important issues regarding • Nexus between the nature of competitive harm and proposed remedies • Cooperation between industry-specific regulators and antitrust authorities • A choice between structural and behavioral remedies

  4. Background of the Industry : Multi-channel Pay TV Market PP (Program Providers) SO (Cable TV Operators), RO, Satellite TV, IPTV Consumers ㅇ PP (Program Provider) ㅇ SO (System Operator) ㅇ RO (Retransmission Operator) ㅇ IP-TV (Internet Protocol TV)

  5. Background of the Industry : Developments in Subscribers • 80% of households subscribe to one of multi-channel pay TV services, which means that the market is almost saturated • Cable TV dominates the multi-channel pay TV market • Satellite TV has failed in imposing a significant competitive constraint on Cable TV so far No. of Subscribers (Unit : 1,000 Household, %)

  6. Background of the Industry : Revenue by source • Cable TV has experienced a significant increase in revenue since 1997 • Total Revenue (Billion won) : 1,596 (’97) -> 2,360 (’99) -> 6,003 (2001) • Cable TV revenue has increased partly due to the internet business and airing TV-home-shopping-service, and partly due to the growth in subscribers • In 2004, the Internet business accounted for 21.2% and fees from airing home shopping service, 16.1% of the total revenue Revenue by source (2004) (Unit : Billion won, %)

  7. Background of the Industry: Market Concentration • The Korean Broadcasting Commission’s Policy toward the cable TV industry : 1 Area 1 SO, Development of MSOs • Deepening of local monopolization in 77 broadcasting Areas • Monopolized broadcasting area: 44 areas (2004) → 57 areas (2006.3) • Acceleration of market concentration by MSOs • Out of 117 SOs, only 21 of them are independent SOs (2005) • Market share of Top 3 MSOs (subscriber basis)：6.8%(2004.6) → 46.7%(2005.6) • Restrictions on market share for the diversification of broadcasting • Prohibition of exceeding 33% of the market (in terms of subscribers) and 1/5 of 77 broadcasting areas

  8. Case Study: A Merger between Two SOs HCN (Kumho Broadcast) Acquired 100% of shares C&T (Bukbu Broadcast)

  9. Relevant Markets and Market Shares • Multi-channel pay TV market in Bukgu, Daegu • A practical monopolist would appear through the merger • The market share of satellite TV is far less than the national average

  10. Assessment of competitive harm: Regression Analysis Monthly rate = f (a dummy for monopolist, a set of dummies for entry years, proportion of apartment/no. of household/population density in each area) Regression line for monopoly Y Regression line for duopoly △Y a1+ b1 b1 △x a1 x

  11. Assessment of competitive harm: errors in merging parties’ analysis • Merging parties did not know the existence of quality data for monthly rates, which are published by the KBC, making a big mistake in the process of constructing monthly rates data • A Huge difference in monthly rates used in the regression analysis exists between the merging parties and the KFTC • The KFTC used official figures that KBC published on monthly rates of each SO every six month

  12. Assessment of competitive harm: errors in merging parties’ analysis • Merging parties simply compared monthly rates without taking account of differences in the number of channels supplied • Real price can be different depending on the number of channels even if the absolute price is the same • In terms of monthly rates per channel, a large price difference can occur because monthly rates and no. of channels are different between monopolistic and competitive areas

  13. Assessment of competitive harm • When carrying out the regression analysis with proper data set, monthly rates of monopolized areas are 28.1 won more expensive than those of competitive areas • Based on this, assessing competitive harm yields 11.5 billion won • 6-7 times higher than the one claimed by the merging parties, i.e., 1.7 billion won (Unit: Billion Won)

  14. Remedies Allowed in the Korean Antitrust Laws □ KFTC can order the followings to address competitive concerns of a proposed merger - Prohibition of the act in question - Disposition of all or part of shares - Transfer of business - Resignation of an officer - Other corrective measures necessary to correct violation of law □ The first three measures are structural remedies, while the last two behavioral remedies

  15. Remedies taken in the case • In this case, the possibility of price increase post merger was a main concern • In this regard, the KFTC banned following actions until Dec. 31st 2010 • Act of raising monthly rates higher than inflation rate • Act of raising monthly rates indirectly through cancelling group contracts • Act of raising monthly rates by reorganizing packages or reducing no. of channels included in Packages • Act of refusing to sell a Basic Package • On top of that, the KFTC Imposed on merging parties a duty to consult with the KFTC in advance when they are in a difficult condition to carry out the above corrective measures

  16. Why Behavioral Remedies? The KFTC took behavioral remedies rather than structural remedies, considering the following facts • This merger case was a part of the policy initiatives toward the cable TV industry pursued by the KBC • Competition in the multi-channel pay TV market would be expected to increase due to the growth of satellite TV • Even though efficiency effect was not greater than negative effect, efficiency effect would occur to some extent, including the elimination of overlapping investment in digital networks • The KBC notified the KFTC of their plans to come up with comprehensive measures in order to promote competition in the multi-channel pay TV market

  17. Measures by Broadcasting Authority • To Promote alternative networks to cable TVs • To ease regulations on monthly rates of satellite TV • To discuss the introduction of IPTV • To Review the ceiling of monthly rates for cable TV • To Promote a sale of Basic package • To Extend the minimum period within which cable TVs are not allowed to change package contents (6 months → 1 year) and to diversify notification methods to inform consumers of the change

  18. Conclusion • The introduction of alternative network such as IPTV would be a fundamental solution to the problem in the cable TV market • The Analysis of competitive harm indicates that cable TV’s monthly rates will go down when there is a competition • The policy direction of KBC is very important to make the market competitive, so that the close cooperation between the KBC and the KFTC is needed

  19. Thank you

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