KDG acquisition ban confirmed

Germany’s competition authority, the Bundeskartellamt has formally confirmed that it has prohibited plans by cable MSO Kabel Deutschland Holding (KDG) to acquire cable network operator Tele Columbus. KDG revealed February 18 that the Bundeskartellamt had judged KDG’s proposed divestment of network assets as insufficient to overcome its concerns.

Andreas Mundt, President of the Bundeskartellamt, said that after intensive investigations, in particular with regard to the commitments offered by KDG, the Bundeskartellamt had concluded that the anti-competitive effects of the concentration were too substantial to allow for a clearance of the project. “Tele Columbus is KDG’s main competitor in the new Länder. Both companies are direct competitors in Berlin and in almost all other conurbations in eastern Germany. With the merger, the housing industry in many areas would lose a competitive alternative to KDG. The disappearance of Tele Columbus from the market would therefore further strengthen the nationwide oligopoly of the two major regional cable network operators,” he advised.

Kabel Deutschland had claimed that the acquisition of Tele Columbus would enable it to competitively challenge Unitymedia KabelBW in NRW and Hesse. The investigations of the Bundeskartellamt revealed, however, that from an objective perspective this was most likely not to be expected in the near future. “Post merger, only a small proportion of the acquired household connections would have been directly connected to Kabel Deutschland networks. On account of existing contracts, the majority of the household connections could for the time being not have been connected to Kabel Deutschland. For this reason, the acquisition of Tele Columbus would have only marginally improved Kabel Deutschland’s chances of entering the markets in NRW and Hesse. Moreover, even without the merger it would require little economic effort for Kabel Deutschland to become active in NRW and Hesse,” suggested the Bundeskartellamt.

According to the Bundeskartellamt, in addition to the retail TV services market, two other markets would have been adversely affected by the extension of range of operation which KDG would have gained from the acquisition. One is the so-called ‘feed-in’ market which concerns the relationship between the cable network operators and TV channels, and the other is the market for the provision of TV signals by so-called ‘network level 3’ operators to network level 4 operators.

Although the Bundeskartellamt suggested that the merger of KDG and Tele Columbus would to a certain extent have improved the offer of telephony and Internet access in competition with Deutsche Telekom, it judged these improvements would have been too weak to outweigh the substantial worsening of structures and competition in the supply of TV services. “As a consequence, the balancing clause used in German competition law does not apply to this case,” it said.

Mundt said the merger would only have resulted to a limited extent in structural improvements. “In some regions KDG would have been able to combine several network levels and subsequently offer broadband connections via cable. However, there is already Internet availability of at least 16 MBit/s in most parts of these regions, which means that this improvement also needs to be seen in perspective. All other improvements that have been claimed by KDG can also be achieved at limited costs without the concentration. The claim that only the merger will make broadband expansion for 900,000 additional households possible is therefore simply not true,” he stated.

KDG was ultimately not prepared to sell the urban network areas operated by Tele Columbus, which in the Bundeskartellamt’s view raised the most competition concerns, to a third party in order to eliminate the negative effects on competition. KDG only offered to sell the Tele Columbus networks in Berlin, Dresden and Cottbus; this corresponded to less than half of the volume that would have been required.

The decision is not yet final. The companies have a month to appeal the decision to the Düsseldorf Higher Regional Court.

KDG said February 18 that irrespective of the outcome on the Tele Columbus acquisition, it would continue to pursue its strong organic growth strategy focusing on Internet and Phone and Premium TV. “The Company’s superior broadband infrastructure and products provide a unique basis for sustained growth over the coming years,” it declared.

Announcing its Q3 results February 20, KDG said it intended to lift its dividend by 67 per cent and increase investment as funds became available following the blocked merger.

 

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