Saturday, February 08, 2014

The case for regulating the new Ziggo

Ziggo and UPC are trying to get their merger approved. What are the chances the regulator will approve this?

Primarily, footprints don't overlap, so nothing in fact will change and hence the merger should be approved. However, Ziggo becomes a near-nationwide player and hence the market does change, in regulator terms.

There may be some issues as a result of the fact that the new Ziggo will operate near-nationwide:
  • A level playing field with KPN is created and as a result 'symmetric' regulation would make sense, i.e. regulation of Ziggo or deregulation of KPN. Relevant markets: mostly broadband, but digital TV and triple play as well. One could assume that so far, Ziggo and UPC were not regulated because they were not nationwide - kind of a trade-off with the regulator.
  • Going nationwide will allow the company to expand, especially on the mobile market and on the business market. But these are new markets for Ziggo and as such no hurdle for approval of the merger.
  • Theoretically, both Ziggo and UPC have the option to compete against each other using KPN's networks and so the merger would reduce the number of potential competitors. Apparently, it is a non-official gentlemen's agreement that stops them from doing so. Also, technology (based around DVB-C and Docsis) prevents them from connecting their services to the KPN network (IP-based). But what really stops them, is the fact that they are vertically integrated and have no intention of becoming resellers or unbundlers. (Any provider globally could be seen as a potential competitor, so this point doesn't seem to make too much sense.)
  • On the wholesale content market, the company will have increased buying power.
Another consideration is synergy benefits. Will they be passed on to customers, or will they be re-invested into the company? Or will they be added to the dividend? The latter is the most likely choice, especially now that KPN is shifting focus from FTTH to VDSL - which could signal a truce and a duopoly.

We'll see what ACM makes of all this.

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