1 A Case of Merger Remedies Sangmin Song Korea Fair Trade Commission.
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Transcript of 1 A Case of Merger Remedies Sangmin Song Korea Fair Trade Commission.
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A Case of Merger RemediesSangmin SongKorea Fair Trade Commission
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ContentsIntroduction
Background of the Industry
Assessment of competitive harm
Merger Remedies
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IntroductionA 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
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Background of the Industry : Multi-channel Pay TV Market PP (Program Provider) SO (System Operator) RO (Retransmission Operator) IP-TV (Internet Protocol TV)PP (Program Providers)SO (Cable TV Operators), RO, Satellite TV, IPTV Consumers
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Background of the Industry : Developments in Subscribers80% of households subscribe to one of multi-channel pay TV services, which means that the market is almost saturatedCable TV dominates the multi-channel pay TV marketSatellite TV has failed in imposing a significant competitive constraint on Cable TV so far No. of Subscribers(Unit : 1,000 Household, %)
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Background of the Industry : Revenue by sourceCable 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 revenueRevenue by source (2004)(Unit : Billion won, %)
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Background of the Industry: Market ConcentrationThe Korean Broadcasting Commissions 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
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Case Study: A Merger between Two SOsHCN(Kumho Broadcast)C&T (Bukbu Broadcast)Acquired 100% of shares
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Relevant Markets and Market SharesMulti-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
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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) YxYa1b1xRegression line for monopolyRegression line for duopolya1+ b1
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Assessment of competitive harm: errors in merging parties analysisMerging 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
Merging parties dataKorean Broadcasting Commissions data MonopolyCompetitionDifferenceMonopolyCompetitionDifferenceMonthly rate (won)4,6333,9996346,1514,9501,201
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Assessment of competitive harm: errors in merging parties analysisMerging 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
Monopolistic SOCompetitive SODifferenceMonthly rate (won)6,1514,9501,201 (24%)No. of channel47.955.87.8Monthly rate per channel130.994.536.4 (38%)
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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)
HCNC&TTotalIndividual subscriber4.62.87.4Group subscriber2.91.24.1Total7.54.0011.5
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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
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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
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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
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Measures by Broadcasting AuthorityTo Promote alternative networks to cable TVs
To ease regulations on monthly rates of satellite TVTo 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
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ConclusionThe 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 TVs 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
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Thank you