May 2012 – On 29 March 2012, the Hungarian Competition Office approved the creation of a joint venture for the provision of mobile phone services. The newly established joint venture company, MPVI, intends to provide mobile radio telephone services on the basis of its right to use a frequency.
The newly established joint venture company, MPVI, which was approved by the HCO intends to provide mobile radio telephone services on the basis of its right to use a frequency use. The Hungarian mobile telephone market is currently dominated by three key players (Magyar Telekom, Telenor and Vodafone). Virtual service providers (so-called MVNOs) supported by the aforementioned service providers are also present in the market. Magyar Posta Zrt. (“Hungarian Post”) owns 10 per cent, Magyar Villamos Művek Zrt. (“MVM”) 45 per cent and MFB Invest Befektetési és Vagyonkezelő Zrt. (“MFB Invest”) 45 per cent of the shares in MPVI (Hungarian Post, MVM and MFB are together the “Applicants”).
The supreme body of MPVI is the General Assembly. Pursuant to its bylaws, the following decisions fall within the exclusive competence of the General Assembly by unanimous decision of all shareholders: (i) adopting and amending the bylaws; (ii) approving and changing company strategy; (iii) electing and/or removing the members of the board of directors and/or the supervisory board and deciding on their remuneration. The Applicants take part in the practical implementation of the concentration as founding shareholders of the joint venture. The joint venture will do business (under joint governance) independently and will set the business terms regarding all functions required for normal independent operation, as specified above.
The majority shareholder of Hungarian Post and MVM is the Hungarian State (with 100 and 99.98 per cent of the shares, respectively). All ownership rights and obligations of the Hungarian State over both enterprises are exercised by the National Development Minister (the “Minister”) responsible for the supervision of state assets, who carries out this duty through the Hungarian National Asset Manager Zrt. (“HNA”). MFB Invest is a wholly-owned subsidiary of Magyar Fejlesztési Bank Zrt (“MFB”), a state owned financial institution controlled by the Minister.
MVM and the enterprises under its control (“MVM Group”) are active in the electric power industry. The activities of MVM Group include electricity generation, transmission, system operation and electricity trading (i.e. MVM Group can be regarded as a vertically integrated group of undertakings which also renders other services related to the electricity market). MVM Group sells dark-fibre and leased line services from infrastructure services companies to mobile telephone service providers present on the mobile telephone services market (it has the capacity for substructure services, but does not actually provide such services). MVM’s share does not reach 25 per cent of the market in dark fibre and leased line services (calculated on the basis of actual sales and capacity) and its share of substructure capacities is less than 10 per cent (as it does not actually provide this service). Hungarian Post offers mainly postal services.
Controlling entity by state-owned companies
Pursuant to the Hungarian Competition Act, enterprises which belong to the same group of undertakings and which are under the same management are deemed not to be independent. However, enterprises that are majority-owned by the state or local government but which have independent decision-making powers over the determination of their market practices are deemed to be independent. When calculating the net revenue of an enterprise that is majority-owned by the state or local government, the revenues of the enterprise itself shall only be taken into account if it has independent decision-making power to determine its market practices.
Independent decision-making power to determine market behaviour is not a term related to certain behaviour, but a permanent condition pursuant to which the state does not exercise control on the basis of its majority ownership. According to the HCO, independent decision-making power should be judged on a case-by-case basis. The decisions to be assessed in this regard can be categorised as follows: (i) decisions related to the mode of operation, basic policies, liquidation, and the disposal of the enterprise; (ii) strategic decisions related to the business policies of the enterprise (i.e. the business plan); (iii) decisions related to the daily operation of the enterprise.
Regarding the independence of the enterprise from a competition law point of view, only those decisions that are specifically and directly related to the business strategy, and the competitive practices of the enterprise concerned are relevant. As regards competition law, it does not constitute a lack of decision-making power if the party exercising state ownership rights retains for that party the decisions that are relevant from a company law point of view.
A “business unit” can be interpreted within the framework of the definition of a group of undertakings under the Hungarian Competition Act. Enterprises that are majority-owned by the state constitute a group of undertakings under the Hungarian Competition Act. However, enterprises (groups of undertakings) within that group, with independent decision-making power, are separate and constitute so-called business units. The state has the right to delegate the exercise of its ownership rights to several control centres. In the case of the delegation of rights, the enterprises belonging to different decision centres, irrespective of their decision-making powers, do not belong to the same business unit.
With regard to the above, the HCO examined whether MFB Invest and Hungarian Post and/or MVM belong to separate control centres, despite the fact that all three companies are controlled by the Minister (MFB Invest through MFB; Hungarian Post and MVM through HNA). As MFB Invest is controlled by MFB, it should be examined in practice whether MFB constitutes an independent control centre. The Minister’s control powers are restricted in the case of MFB to the approval of business plans (this being the main independent decision-making power), which falls within the scope of authority of MFB, and the Minister is not permitted to take this over. In this regard, the acting competition council holds the view that MFB constitutes a separate control centre, and is independent from Hungarian Post and MVM.
Joint control
The HCO did not object to the Applicants (jointly) controlling MPVI, as they must come to an agreement in respect of all important issues determining its market practices; this is sufficient to establish joint control.
Full function
In the HCO’s view, under a resolution of the NMHH (National Media and Infocommunication Authority), MPVI will be able to permanently perform all functions of an independent unit, as it will have the resources necessary for the viable performance of its activities permanently and independent of the founders. These activities include primarily telecommunications, constructing infrastructure and the management of its labour force (although it will use or may use certain services provided by specific owners, but always on an “arm’s length” basis).
Effect on competition
In the case of establishing a joint venture, if the founding enterprises combine their activities (as in the present case), no horizontal effect can be identified. However, if the founders are present in other identical markets, then their inevitable cooperation within the framework of the joint venture could entail the risk of market-restricting coordination in the other markets in which they are present. In the case of the present concentration, only the services of Hungarian Post group and the activities of the MFB group overlap in respect of certain banking, financial, insurance services, as the Hungarian Post group is present in the residential banking, financial, insurance markets. The MFB group essentially provides client-based investment banking and insurance services to enterprises. There is no substantial overlap or connection between the parties’ activities of a financial nature. Therefore, no coordinative effect is expected in this regard. Other enterprises belonging to HNA do not perform any activity that would generate a horizontal effect in respect of the MFB group.
The infrastructural services of the MVM Group (dark fibre, leased line and potentially the substructure) are connected to the market activities (i.e. activities on the mobile electronic telecommunications services market) of MPVI. Therefore, following entry to the market, one of the controllers of MPVI (MVM) could be interested in refusing to provide the same services to mobile service providers that are already present in the market. Although the realisation of this interest may be restrained by the other two controllers, MVM Group’s share in the Hungarian market of these services does not exceed the benchmark (25 per cent) above which vertical effects giving rise to competition concerns may arise.
No detrimental portfolio effects could be identified during the investigation, and a conglomerate effect in the case of establishing a new enterprise does not arise.
Consequently, the HCO authorised the planned concentration.
Source: Zsuzsanna Németh, Tamás Oláh, The Hungarian Competition Office approves the creation of a joint venture for mobile phone services (MPVI Mobil), 21 March 2012, e-Competitions, No45894, www.concurrences.com