The Portuguese Competition Authority (AdC) decided to terminate the merger proceedings related to the proposed acquisition of sole control of the Media Capital Group by MEO (Altice Group), a merger that could have led to increasing competitors’ costs in over 100 million euros per year, which would be passed on to consumers.

 

The decision adopted by the AdC is the result of a decision by the notifying party MEO to withdraw the notification, and is contingent on the premise that the transaction will not occur.

 

The merger transaction Altice/Media Capital was notified on 11 August 2017. On 15 February2018, the AdC decided to open an in-depth investigation on the potential negative impact the merger would have on competition in the telecom and media markets.

 

The investigation showed that, as a result of the merger, Altice would have the capability and the incentive to implement several strategies to foreclose markets to competition, which, in turn, would result in a significant increase of rivals’ costs in the markets for pay-TV and for the provision of multiple play services.

 

These cost increases – which the AdC estimated could exceed, in some scenarios, €100 million – would result in a reduction of competitive pressures ultimately lead to higher prices charged to consumers.

 

The merger involved a vertical integration between one of the main players in the telecom sector, retail distribution of pay-TV services and multiple-play services (i.e. bundled services for voice, TV and internet) on the one hand, and the market leader for the wholesale distribution of audio-visual content and Portuguese-speaking TV channels, including the top-viewing channel (measured in terms of share-view), TVI, on the other.

 

The target Media Capital Group controls, inter alia, the TV content producer Plural, the Portuguese-speaking TV channels TVI, as well as the radio-stations Comercial, M80, Cidade FM, Smooth FM and Rádio Vodafone. It also controls the internet portal IOL and the online content platform TVI Player.

MEO is a part of the Altice Group. MEO is a telecom operator and is active in the management of network infrastructures for the provision of electronic communications services, including the network for Digital Terrestrial Television. MEO supplies telecom services (voice, video, data and internet) supported on both mobile and fixed networks and is active in the retail supply of pay-TV channels through its pay-TV platform.

 

The AdC had concluded that the merger would be likely to result in serious impediments to effective competition in the telecom and media markets, with negative impact on consumers. Specifically, the investigation showed that Altice would have the capacity and clear incentive to foreclose access – totally or, at least, partially (supplying under lower quality standards or higher prices) – of rival competitors’ telecom platforms to Media Capital’s media contents and TV channels, thus jeopardizing their capability to compete, and therefore resulting in serious impediments for effective competition in the telecoms and media markets.

 

Taking into account the significant disproportion between revenues generated by the TV business and those by the telecom business, as well as the importance of TVI’s media content and TV channels (as shown in the results of a consumer survey promoted by the AdC), the investigation concluded that the merged entity Altice/Media Capital, as a vertically integrated telco operator, would use its TV business as a mean to reinforce its position in the pay-TV market and in the market for the provision of multiple play services. This would occur in a market context where audiovisual content is essential for platform differentiation and constitutes an important factor in consumer choice.

 

Moreover, access to MEO’s pay-TV platform by TVI’s rivals (i.e. competing TV channels) would likely occur in worse conditions in terms of price, quality of service and position in the channel grid, thus decreasing their ability to produce or purchase quality contents and, consequently, decreasing the competitive pressures exerted by rival TV channels.

 

On 30 April 2018, the notifying party, in order to address the AdC’s competition concerns, submitted a set of behavioural commitments (commitments package), most of which comprised of statements of intent to provide MEO’s competitors with access, for a limited period of time, to TVI channels.

 

After assessing the proposed commitments, the AdC concluded that the latter were insufficient and inadequate to properly address the negative impact of the merger on effective competition in the telecom and media markets and, ultimately, on final consumers.

 

Specifically, the AdC concluded that the proposed commitments were mere statements of intent which were very difficult to specify and monitor and could easily be circumvented or manipulated by the company. On the other hand, the commitments would introduce an undesirable level of rigidity and interference in ‘normal’ market and negotiating conditions between telecom operators and TV channel producers, which would ultimately significantly distort the market.

 

In other words, Altice’s proposed commitments would result in a series of misspecifications with significant monitoring and compliance risks and could thus be easily circumvented or manipulated. Moreover, they would entail serious market distortions and interference. As a result, they were found to be clearly unacceptable under international best-practice standards regarding the assessment of commitments in merger control proceedings.

 

On 28 May 2018, the AdC adopted a decision reflecting the aforementioned conclusions which were notified to Altice on the same date.

 

Altice did not submit structural commitments, namely related to content production, TV channels or TDT which were able to address AdC’s concerns on competition.

 

The AdC proceeded with the work and was ready to prohibit the operation, allowing for a prior hearing of the parties, within the deadline foreseen by the Portuguese Competition Act, which would end today.

 

Subsequently, and faced with the imminent adoption of a Draft Prohibition Decision by the AdC, Altice decided to withdraw the notification, which led the AdC to adopt a decision to terminate the merger proceedings. Consequently the transaction cannot occur.