CADE’s General Superintendence concludes opinion on AT&T / Time Warner merger
On 22 August, the General Superintendence of the Administrative Council for Economic Defense – CADE forwarded its opinion on the acquisition of Time Warner by AT&T (Merger No. 08700.001390/2017-14) to the Administrative Tribunal for final analysis in a decision published in the Federal Official Gazette.
After concluding the analysis of market information, the General Superintendence verified that the vertical integration, which would be resulted from the transaction, could coordinate the interests between Time Warner and Sky, the pay TV operator controlled by the AT&T Group.
Both Sky and Time Warner have considerable market power. The transaction would create incentives for market foreclosure in the licensing/programming market and in the pay TV market, causing competition concerns.
According to the General Superintendence, the structure resulting from the transaction would allow Time Warner to access sensitive information on all of its competitors through Sky. In the same way, AT&T would have access to the conditions negotiated by its rivals through Time Warner. In addition, the merged entity would have the ability and incentives to adopt several discriminative measures against its competitors in both markets, weakening the competition environment.
The General Superintendence also understood that the transaction would create new incentives towards coordination – even tacit – between the two biggest pay TV programmers (Globosat and Time Warner) and the two biggest operators in the sector (Net/Claro and Sky) in the country, thus potentially significantly harming the consumers and other companies operating in the pay TV segment.
The Superintendence’s opinion also concluded that the application of the norm, which foresees the conditional access to audiovisual communication and provides limits to verticalization in the sector - Law 12,485/2011 - is not under CADE’s mandate. The conclusion coincides with the opinion of the Attorney General’s Office at CADE (ProCade in its acronym in Portuguese), which had already given its opinion on the case files. In this analysis, only the effects on competition were taken into account, as per CADE’s jurisdiction.
For the Superintendence, the transaction should not be approved in the form that it was presented. As a result, the General Superintendence challenged the merger and forwarded it to CADE’s Tribunal for further analysis. The Tribunal will decide to either approve or disapprove the merger. The Tribunal can also approve it with conditions, imposing remedies that eliminate competition issues identified, or sign a Merger Control Agreement (ACC in its acronym in Portuguese) with the parties, aiming at a negotiated solution that address the identified concerns.
The merger was filed on 28 March 2017 and CADE is legally due to issue a final decision within 240 days, which could be extended for 90 more days.