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The OFT today referred the anticipated acquisition by Telefonaktiebolaget LM Ericsson (Ericsson) of Red Bee Media Limited (RBM) to the Competition Commission (CC).

After careful consideration, the OFT has found that the merger might lead to an increase in prices or a worsening of service levels in the supply of linear playout services in the UK. Many broadcasters pay for linear playout services, which ensure that individual television programmes, advertising, and other television content are lined up and ready for broadcast, according to the programme schedule. Playout service providers also manage the fluctuations around the schedule according to the broadcaster's wishes, for example in reaction to live sports.

The OFT found broadcasters' requirements for linear playout services varied in complexity, based on a number of factors such as the degree of live content, number of channels and regional variations involved. On the basis of the evidence available, the OFT concluded that the parties competed closely to win contracts from broadcasters with the most complex category of requirements.

Although a minority of broadcasters provide playout services themselves, and all UK broadcasters self-supplied before 2005, the OFT did not consider that the threat to take these services back in-house would be sufficient to prevent prices from rising in the short to medium term. A number of broadcasters and competitors have complained about the merger and the loss of choice it entails.

The parties offered behavioural remedies in reaction to the OFT's concerns, but the OFT considered that these were insufficient in terms of scope and certainty of outcome to offer a clear cut solution to its competition concerns.

Clive Maxwell, OFT Chief Executive and Decision Maker in this case said:

'Not only is there the possibility of price rises as a result of the merger, there is a risk the most complex channels will suffer a reduction in quality in their service levels.

'We are therefore referring the anticipated merger to the Competition Commission for an in-depth investigation.'

The CC is expected to report by 16 March 2014.

NOTES

1. Ericsson (the acquirer) is a leading provider of telecommunications equipment and services to mobile and fixed network operators. In 2012 Ericsson acquired Technicolor Broadcast Services, a provider of broadcast chain services including television playout. RBM (the target) is one of the leading providers of broadcast services in the UK, in particular it is one of the leading suppliers of television playout services. RBM is wholly owned by Creative Broadcast Services Limited, which in turn is owned by Creative Broadcast Services Holdings (2) Limited.
2. Both Ericsson and RBM provide outsourced linear playout services to some of the largest broadcasters in the UK. RBM also provides a full suite of other ancillary services essential to supporting playout services  and Ericsson provides certain ancillary services, mainly media logistics (converting tape content into digital format) and digital media services (provision of video on demand content with all the ancillary services).
3. The Reference Test - The OFT has a duty to make a reference to the CC if the OFT believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services. 
4. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced. 
5. The CC may extend the 24-week period within which it is required to publish its report by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.
6. The text of these decisions will be placed in the mergers section as soon as is reasonably practicable.