20 April, 2019
On January 21, 2019, CCI through a common order, approved the acquisition by Reliance Industries Limited (‘RIL’) group companies, namely (i) Jio Futuristic Digital Holdings Private Limited (‘JFDHPL’), Jio Digital Distribution Holdings Private Limited (‘JDDHPL’), and Jio Television Distribution Holdings Private Limited (‘JTDHPL’) (collectively ‘Acquirers 1’) of 65.96% of the expanded equity share capital of Den Networks Limited (‘Den’) (‘Den Transaction’); and (ii) Jio Content Distribution Holding Private Limited (‘JCDHPL’), Jio Internet Distribution Holdings Private Limited (‘JIDHPL’), and Jio Cable and Broadband Holdings Private Limited (‘JCBHPL’) (collectively ‘Acquirers 2’) of 51.34% of the expanded equity share capital of Hathway Cable and Datacom Limited (‘Hathway’) (‘Hathway Transaction’), respectively. (Den Transaction and Hathway Transaction are collectively referred to as the ‘Proposed Combination’). The Proposed Combination would have triggered open offer obligations under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘SAST’) in relation to Den, Hathway and two listed entities controlled jointly by Hathway and a third party, i.e., Hathway Bhawani Cabletel and Datacom Limited (‘HBCDL’) and GTPL Hathway Limited (‘GTPL Hathway’). (Den, Hathway, HBCDL, GTPL Hathway are collectively referred to as ‘Targets’. Acquirers 1, Acquirers 2 and the Targets are collectively referred to as the ‘Parties’). [1]
Acquirers 1 and 2 have been recently incorporated and belong to the RIL group. RIL group is broadly engaged in the business of hydrocarbon exploration and production, petroleum refining and marketing, petrochemicals, retail, telecommunications, broadcasting and content creation. Den and Hathway are both registered Multi-system Operators (‘MSO’) under the Cable Television Networks (Regulation) Act, 1995 and categorized as national MSOs by the Telecom Regulatory Authority of India (‘TRAI’).
Additionally, both Den and Hathway also provide broadband internet services (‘BIS’), and supply advertising airtime on server based local cable television channels. Further, Den also supplies audio-visual (‘AV’) content (retail) through its online complementary streaming application i.e., ‘Den TV+’ to its cable television subscribers, whereas Hathway supplies server based local cable television channels.
Horizontal Overlaps
Based on the overlapping business activities of the Parties, CCI identified the following relevant market(s)/segment(s) (‘Relevant Market’/ or ‘Segment’ as the case may be) for the purposes of its assessment. However, CCI did not define the exact market definition, since the Proposed Combination would not have led to any AAEC in India. CCI analysed the competitive scenario in each Relevant Market/Segment for AAEC as follows:
i. Aggregation and distribution of broadcast TV channels to homes through cable TV and direct-to-home (‘DTH’) services: At the outset, CCI excluded Internet Protocol Television (‘IPTV’) and Headend in the Sky (‘HITS’) from its assessment, given that these are nascent technologies, with minimal TV household penetration. Further, CCI observed that cable TV and DTH services may be viewed at par with each other given their; (i) nearly similar pricing (pursuant to digitization of cable TV and provision for cable TV services on a pan-India basis because of national MSOs); (ii) similar end use and quality of services; and (iii) TRAI regulations treat the two to be par with each other.
In terms of the geographic scope of this market, CCI considered it to be pan-India, given that both cable TV as well as DTH service providers can operate nationwide. This is in contrast to CCI’s decisional practice of distinguishing between DTH services and cable TV services based on different inter alia packaging, pricing, infrastructure requirements, and the fact that MSOs operate locally state-wise and DTH service providers have a pan-India presence.[2]
In its assessment, CCI observed that the Parties’ post combination market share of 15-20% coupled with the presence of multiple DTH and cable TV service providers would ensure that the Proposed Combination does not cause any AAEC in this market. Additionally, CCI also noted that even within the narrower segment of cable TV only, the combined market share of the Parties would only be 20-25%, recording an increase in the range of 5-10%, which would be insufficient to raise any competition concerns.
ii. Retail supply of AV content in India: CCI noted that Parties to the Proposed Combination distributed AV content either through server based local cable TV channels or over-the-top applications (‘OTT’). Further, it noted that the provision of server based local cable TV services of Den and Hathway was complementary to their cable TV services, respectively. Accordingly, the same was disregarded as an area of overlap by CCI.
As regards the distribution of AV content through OTT, CCI firstly observed that OTT is not substitutable with cable TV and DTH given the price disparity and different modes of distribution. Additionally, it noted that in terms of monthly active users (‘MAUs’), Den had an insignificant share and this Segment comprised various enterprises with large consumer bases and varied content offerings. Thus, CCI disregarded any likelihood of AAEC pursuant to the Proposed Combination in this Segment in India.
iii. Provision for Wired-BIS: At the outset CCI distinguished between Wired-BIS and Wireless-BIS, given their distinctive pricing, speed, data usage and portability. Further, it noted that both Den and Hathway hold a pan-India Internet Service Provider license (‘ISP license’) under the Department of Telecommunications Guidelines for Granting a Unified License (‘DoT Guidelines’) and provide Wired-BIS services in Delhi and Rajasthan. However, Den has optical fiber measuring less than 25,000 kms and Hathway has optical fiber measuring less than 40,000 kms spread across India. In terms of the geographical scope of this market, CCI assessed the market for competition scenario on both pan-India as well as state-wise basis. CCI also observed that the presence of the Parties in the two segments of, business and household (total number of subscribers) may also be viewed separately.
Pursuant to its assessment, CCI noted that the Proposed Combination would not lead to any AAEC in this Relevant Market, given the (i) minimal combined market shares of the Parties at both pan-India, as well as state-wise basis; and (ii) presence of significantly large enterprises such as Bharat Sanchar Nigam Limited (‘BSNL’), Bharti Airtel Limited, etc. CCI also observed that the Parties had insignificant presence in terms of their optical fiber networks as well as in the business and household segments.
iv. Supply of advertising airtime on TV channels: CCI observed that RIL through TV18 provided advertising services on a pan-India basis, as against Den and Hathway, who catered to local audience. There further existed disparity in the services offered by RIL and the Targets, in terms of pricing. In any case, CCI was of the view that given the insignificant increment (as market share of Den and Hathway less than one percent), the Proposed Combination would not cause any AAEC in this market.
Vertical Overlaps
CCI also identified certain overlaps between the Parties, namely:
(i) Wholesale supply of TV channels in India (upstream), and aggregation and distribution of TV channels to homes in India (downstream): As per CCI, the Parties did not have considerable market shares either in the upstream or the downstream market. Further, CCI also noted the existing TRAI regulatory regime imposed various obligations on both distribution platform operators (‘DPOs’) and broadcasters, such as ‘must carry and must provide’, publication of tariff breakup on individual websites and so on. Moreover, the maximum retail price for each channel was to be determined by the retailer.
(ii) Licensing of AV content, including licensing of linear feeds of TV channels in India (upstream) and retail supply of AV content (downstream): As per CCI both the upstream and the downstream markets are highly competitive because of the presence of multiple enterprises in this Segment. Further, the increment in the market shares of the Parties, because of the Proposed Combination would be negligible to raise any competition concerns.
(iii) Advertising on TV channels (upstream) and Supply of Advertising Airtime on TV channels (downstream): CCI observed that RIL advertised on Den’s server based local cable TV channels; however, Den earned insignificant revenue from the same. To this extent, the Proposed Combination would not raise any competition concerns
In light of the above, CCI approved the Proposed Combination under Section 31(1) of the Act. However, the approval was subjected to certain voluntary obligations undertaken by the Parties, to ensure that the customers of the Parties do not have to incur the cost of any technical re-alignment which may accrue pursuant to the Proposed Combination.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
[1] Combination Registration No.C-2018/10/609 & C-2018/10/610
[2] Combination Registration No. C-2016/12/463
