The Competition Authority sets conditions on the merger of Vodafone and 365 to ensure competition in the telecommunications and media markets.

The Competition Authority has today authorised the acquisition by Fjarskipta hf. (Vodafone) of certain assets and operations of 365 miðla hf. (365). The merger is subject to conditions agreed between the Competition Authority and the merging parties. The merging parties have therefore committed to undertaking measures to ensure competition in the telecommunications and media market. The measures are also intended to promote pluralism and diversity in the media market.

The merger sees 365 disappear from the telecoms market as an independent competitor, but the company's pricing policy has created considerable competition in that area. Furthermore, as things stand, the merger means that the number of competitors able to offer a „bundled“ telecommunications and television service will be reduced from three to two. Likewise, the merger would concentrate the strong position of 365 in the television and radio market and the strong position of Vodafone in television and radio distribution networks into a single hand. Among other reasons, the Competition Authority considered it necessary to intervene regarding the merger.

As previously reported, the merger parties have committed to taking measures to ensure competition in the telecommunications and media market and to promote pluralism and diversity in the latter market. The measures include, among others, the following:

1. NIt makes it easier for start-ups and smaller competitors to provide Vodafone and other competitors with competitive pressure.
   VOdeon is required to sell important television channels wholesale to new and smaller competitors (e.g. Stöð 2 and Stöð 2 Sport). This allows them to offer a bundle of telecommunications and television services, thereby effectively increasing competition. They can either purchase television channels exclusively, or, in addition, wholesale access to distribution on Vodafone's networks and other support services. This allows new and smaller players to choose whether to distribute television content via their own networks (e.g. using an open over-the-top (OTT) television distribution system) or to also purchase distribution services from, for example, Vodafone.

   The above entails significant and positive changes to the market. Smaller competitors have not previously been offered such wholesale access, which is likely to create significant opportunities for them and thereby increase competition for the benefit of the public. The conditions applicable to Vodafone are also structured to create a realistic opportunity for increased competition between television distribution systems. New entrants can now step forward and offer new options in competition with the traditional form of television distribution in this country. This promotes greater development than would otherwise be the case in both the media and telecommunications markets.

   In discussions with Vodafone, the Competition Authority insisted that the merger would not be carried out until an agreement had been reached with at least one new or smaller player to purchase the key television channels. As a result of this, Vodafone decided to enter into negotiations with a specific company in the telecommunications market for such an agreement. A contract has now been signed. Other new and smaller companies are offered the opportunity to enter into comparable agreements or to enter into discussions with Vodafone about another type of agreement tailored to their needs.

   The aforementioned obligation rests temporarily with Vodafone, but this creates the groundwork for new and effective competition, in place of that which disappears with the merger.

   See in particular Articles 3, 5-7 and 15 of the settlement with Vodafone.

2. Measures to promote pluralism and diversity in the television market
   TV channels need to rely on access to Vodafone's distribution network, including in competition with the company's own television operations. In order to increase pluralism and diversity, Vodafone has committed to facilitating distribution for smaller television channels that produce programming with domestic news and cultural content.

   See article 17 of the settlement with Vodafone for further details.

3. Consumers should enjoy a fair share of the benefits that the merger is intended to achieve.
   During the merger proceedings, Vodafone has submitted plans for efficiencies and improved operations of the combined company. Based on these plans, Vodafone has committed to ensuring that consumers enjoy these benefits. The settlement includes provisions intended to secure this.

   See article 22 of the settlement with Vodafone for further details.

4. Measures to counteract the harmful effects of ownership
   Following the merger, the broadcast media of 365 and visir.is will transfer to Vodafone, while Fréttablaðið and frett.is/frettabladid.is will remain the property of 365 miðlar hf. Thus, 365 miðlar hf. and Vodafone will be competitors following the merger. Furthermore, 365 miðlar hf. will become a major shareholder in Vodafone. For this reason, there will be significant ownership links between these competitors in the media market. This situation could have a negative impact on competition, diversity and pluralism.

   Accordingly, 365 miðlar hf. has committed to severing the aforementioned ownership links between Fréttablaðið and Vodafone, within a specified timeframe. Thus, 365 miðlar hf. will either sell the operations of Fréttablaðið and frett.is/frettabladid.is or its shareholding in Vodafone (Fjarskiptum hf.). Until this has been done, 365 miðlar hf. has committed not to increase its shareholding in Vodafone. Furthermore, the company will not have a representative on the board or be involved in the selection of board members, nor will it interfere in matters concerning Vodafone that are directly competitive with the Fréttablaðið.

   See the settlement with 365 Media Ltd.

   There are also significant ownership links between Vodafone and Síminn, as the same shareholders hold large stakes in both companies. That competition problem was not created by the merger of Vodafone and 365. The disappearance of 365 as an independent competitor, however, makes it more urgent to address this common ownership. To mitigate the resulting barriers to competition, Vodafone has committed to ensuring the operational independence of its board and key personnel, and to preventing the flow of sensitive business information to shareholders who hold stakes in Vodafone's competitors. A competition compliance programme shall be established, which shall specifically address the barriers to competition that may arise from these ownership links.

   See section IV of the settlement with Vodafone for further details.

5. Working to counter the risk of coordinated behaviour in the market.
   The merger will create a strong vertically integrated company in the telecommunications and media market, alongside Síminn, which also operates in the same markets. If these companies do not face sufficient competitive constraint, the ground could be laid for tacit coordination and, consequently, competitive distortion. The measures Vodafone has committed to undertake counteract this risk. With this in mind, Vodafone's obligations to offer key television channels and its television service wholesale are limited to new and smaller companies.

In addition to the above, the settlement with Vodafone provides for a ban on unfair delays and technical barriers in wholesale services, sets out the arrangements for organisation and information sharing within the company, and provides for monitoring to ensure the settlement is properly implemented, etc. Furthermore, the continued production of Icelandic content and the ongoing operation of newsrooms have been secured.

A partnership agreement was made between Vodafone and 365 in connection with the merger, under which Vodafone was granted access to news content from Fréttablaðið for publication on Vísir. The Competition Authority considered the term of this agreement to be too long, and discussions between the Authority and Vodafone led to the term being shortened.

The aforementioned settlement with Telecommunications Ltd. and 365 Media Ltd. are available on the Competition Authority's website, www.samkeppni.is. In due course, the Competition Authority will also publish a detailed decision, setting out its investigation and findings in more detail.

Background information

The Competition Authority's investigation into the merger began on 27 April 2017, when it received a complete merger filing and the deadlines in the case started to run. During the proceedings, Vodafone requested talks on the imposition of conditions to remedy any competition concerns that might arise from the merger. These talks have been ongoing since July.

 In August, the merger parties were served with an objection letter, which set out the Competition Authority's preliminary assessment of the merger's effects. The objection letter formed the basis for further discussions on conditions, which have now been concluded. In the course of the proceedings, the Competition Authority has obtained evidence and views from numerous market participants and other stakeholders, as well as from the Post and Telecommunications Authority and the Media Commission.

 The investigation was conducted under the merger provisions of the Competition Act No. 44/2005 and the Media Act No. 38/2011. Under these laws, the Competition Authority is required to investigate whether a merger involving media providers may have a detrimental effect on plurality and diversity in the media.