01 May 2015

CNMC clears Telefónica / DTS merger subject to commitments

The Spanish Competition Authority (CNMC) announced on 23 April 2015 the clearance of the concentration between Telefónica and DTS (case nr. C/0612/14 TELEFONICA/DTS) in Phase II. The clearance is subject to commitments that will be monitored over a five-year period (with a possible extension up to three years).

The CNMC’s merger proceedings started on 17 October 2014 after a referral by the European Commission through a decision taken on 22 August 2014.  On 12 November 2014 Phase II was opened. On 25 February 2015, Telefónica submitted a set of commitments in order to guarantee competition in the affected market, the fourth and final version of which was submitted on 14 April 2015.

From a corporate point of view, the operation consists in the acquisition by Telefónica of 56% of the interest in DTS (the owner of Canal Plus España), which is currently under the control of Prisa S.A. After the transaction, Telefonica will thus control DTS outright.

Telefónica’s proposed commitments cover three main areas, the most significant of which are discussed in further detail below.

Concerning the pay-per-view television market in Spain, Telefónica commits itself not to impede customers from switching to one of its competitors, thus it will limit its current permanence and retention policies. On the other hand, Telefónica commits itself to maintain the contracts that DTS currently has in effect with rival operators.

Regarding the wholesale market for individual audio-visual content and TV channels, Telefónica will offer competitors a wholesale offer including 100% of all premium channels (e.g. channels with rights to publish a "Major" movie premiere or live matches in the Spanish Football League or the Olympic Games). Every operator will be entitled to access 50% of the channels included in the wholesale offer at a price that could match the minimum retail offer launched by Telefónica.

With regard to access to Telefónica's internet network, Telefónica commits itself to guarantee that its lines and facilities will allow customers to use competitors’ services in a regular way. For this reason, Telefónica will guarantee the existence of at least three access routes with a capacity level not exceeding 80%.

The decision includes the possibility of the CNMC acting as an Arbitral Tribunal for any disputes that may arise between Telefónica and third party competitors which may be submitted to arbitration. Any arbitral award issued by the CNMC will be binding on all parties in the arbitral procedure.

The CNMC considers that by accepting commitments presented by Telefónica itself, their fulfilment and monitoring will be easier than if the remedy is imposed on Telefónica by law. Therefore, the CNMC clears the merger with a decision that will enter into force 15 working days after its publication provided the Minister of Economy and Competitiveness does not decide to submit the merger proceedings to the Council of Ministers for revision on a non-competition law basis, which would eventually end with a definitive clearance or refusal of the concentration.

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