Summary

Facts

Telefónica Móviles S.A. (TEM) acquired the Chilean subsidiaries of BellSouth Corporation (BellSouth Chile, Inc. and BellSouth Chile Holdings, Inc.). These operators requested the approval of the acquisition of BellSouth by TEM, under Law Decree Nº 211. BellSouth Comunicaciones S.A. provides mobile services in Chile (800 and 1900 MHz bands) and BellSouth Inversiones S.A. owns 99,99% of the equity shares of BellSouth Chile S.A. (operator that offers long distance services). The acquisition of BellSouth Chile qualifies as a consolidation of operations among competitors in the mobile market.

Decision

Given the characteristics of the industry, the Court found no obstacles to approving the acquisition. However, the Court established the following safeguards to maintain competition in the market.

1. TEM should transfer those concessions that jointly give it more than 25MHz in the 800 MHz band, at the national level. The transfer to unrelated third parties shall be carried out under an open and non-discriminatory bidding process, within 18 months of the notification of the decision.

2. If the operator receiving additional spectrum possesses more than 60 MHz, it must transfer the excess spectrum through an open and non-discriminatory bidding process.

3. The bidding documents must be submitted to the Court for approval.

4. The companies resulting from the approved operation must abide by the regulations of public limited companies and enlist in the securities registry of the Superintendence of Securities and Insurance.

5. During the spectrum transfer process, neither the incumbent nor the resultant operator may offer plans that include different prices for on-net and off-net calls.

6. Before the transfer process is completed, operators must provide information on changes to telephone numbers to all BellSouth clients who decide to change operators, and to all clients who are obliged to change telephone numbers due to technical reasons. This system, for a period of three months, must inform callers of the new telephone number of the client being contacted.

7. The Subsecretaría de Telecomunicaciones (SUBTEL) will supervise the reduction of switching barriers borne by end users. In particular, it should monitor the elimination of terminal blocking that restrains the usage of the terminal on other operators’ networks.

8. Any joint offering of fixed and mobile services launched by the incumbent or resultant operator that provides CTC services will be considered a CTC offer, applying the regulations of SUBTEL Decree Nº742.

9. The Court advises SUBTEL to instruct mobile operators to offer resale plans to companies without their own networks.

The National Economic Prosecutor´s Office is entitled to supervise the implementation of the foregoing conditions.

Reasoning

The markets to be analyzed are the analogue and digital mobile service markets, offered via concessions for the usage of radio spectrum within Chile. Consolidation in the mobile market will increase after the acquisition. Market share based on operator user figures were: Telefónica Móvil 48,5%; Entel 36,7%; and Smartcom 14,8%. Based on outgoing traffic, market share was: Entel 43,3%; Telefónica Móvil 43,3%; and Smartcom 13,4%.

The main entry barrier to the mobile market is the availability of spectrum, since it can only be accessed through a concession granted by public tender. Spectrum is an essential input to deliver mobile services. Moreover, the size of the spectrum band allocated to each operator determines operating costs and quality of service. Therefore, the competitive position of operators is defined by spectrum allocation. Furthermore, the Court understands that there are no plans to offer for tender additional spectrum to allow entry to bands other than 800 MHz and 1900MHz.

Greater consolidation in a market with entry barriers, sunk costs and advertising investments would assist operators to coordinate their competitive behaviour. Moreover, operators would compete under asymmetric conditions (uneven allocation of spectrum). In addition, the operator resulting from the acquisition could increase its dominant position in the market, since it could differentiate between prices of on-net and off-net calls. Furthermore, given the relationship between the dominant fixed telephony operator (Telefónica CTC) and the resultant operator, collaboration could take place.

Nevertheless, given the characteristics of the industry, the Court found that there is no obstacle to approving the acquisition. However, the Court will establish safeguards to maintain competition in the market.