1 / 19

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

herman
Download Presentation

A Case of Merger Remedies

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  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

More Related