Competition Authority Decision of 17 June 1998, relating to a proceeding under Section 4 of the Competoition Act, 1991.

Notification No.  CA/17/96 - TDI Metro Limited/Coras Iompair Eireann

Decision No.  508

INTRODUCTION

1.	TDI Metro Limited and Coras Iompair Eireann (“CIE”) notified a licence agreement relating to advertising space on CIE poster sites and on buses, trains and other CIE property on 22 April 1996, with a request for a certificate under Section 4(4) of the Competition Act, 1991, or in the event of a refusal by the Authority to issue a certificate, a licence under Section 4(2).

THE FACTS

(a) Subject of the Notification

2.	The notification concerns an arrangement between TDI Metro Limited, Transport Displays Incorporated and CIE whereby TDI Metro Limited acquires the right to advertising space from CIE.   The notified agreement between the parties is dated 2 November 1995.  Transport Displays Incorporated is a parent company of TDI Metro Limited and is the guarantor of the obligations of TDI Metro Limited under the agreement.

(b) The Parties

3.	TDI Metro Limited is a company incorporated in the State.   Its ultimate parent company is the Westinghouse Electric Corporation of Pittsburgh, Pennsylvania.  It is engaged in the sale of advertising space in the transport and outdoor hoarding markets.  TDI’s turnover in 1995 was IR£3.9 million.  In September 1996 TDI Metro Limited acquired Metro Poster Advertising Limited from Thomas Goddard and James Carr.  This acquisition was the subject of a separate notification to the Authority (CA/10/97) which granted the agreement a certificate (Decision No.  501).   

4.	TDI Worldwide Incorporated is a company with its principle office in New York and is involved in the sale of advertising space in the transport and outdoor markets.  It is a company within the same corporate group as TDI Metro Limited.

5.	CIE is a company incorporated by statute in the State under the Transport Act 1950.   CIE is the national transport company.  It provides railway and bus transportation services throughout the State.

(c) The Products and the Market

6.	The market here consists of the market for outdoor advertising space.   In its decisions 
on David Allen Holdings Limited, the Authority considered the question of definition of the 
relevant market in the context of outdoor advertising.   While acknowledging that all of the 
advertising media, (television, radio, cinema and outdoor), could be considered to be substitutes to some degree, with clients choosing among them based on cost, audience and product, the Authority decided that on balance, it believed that the outdoor advertising market constituted a distinct product market and that larger size posters constituted a distinct market segment within the overall outdoor advertising sector.

7.	In its decisions on David Allen Holdings Limited, the Authority also noted that barriers to entry existed in the market.   The cost of negotiating advertising rights with a property owner, obtaining planning permission for an advertising display and erecting an advertising structure would be approximately IR£2,000 per 48-sheet site at that date (1994).  The planning regulations, which limited the number of new structures which could be erected, significantly constrained the extent to which a new entrant could construct panels or a small firm could expand.  

8.	Finally, the Authority in its David Allen decision noted that there was a trend in the market towards poster networks, which would require that a firm establish a widespread range of poster sites in order to be able to enter the market effectively.  The 1991 Annual Report of Avenir Havas Media, the parent company of David Allen Holdings, pointed out that a poster network was made up of a set of billboards linked by the same marketing idea, with local networks for cities, for urban areas, for regions or even national networks.  This tended to imply that effective entry to the market would require a firm to establish a widespread range of poster sites.  Technical advances within the industry, the growth of packages by leading firms and other improved services tended to make it more difficult and more expensive for smaller firms to compete.  

9.	In TDI Worldwide Inc./Metro Poster, the Authority considered that, for the same reasons as those given in the David Allen Holdings cases, 48-sheet posters should be considered as a separate market segment.  This treatment is also in line with the UK Monopolies and Mergers Commission’s 1987 report on a merger within the UK outdoor advertising market, which found that, while outdoor advertising represented only a small proportion of total advertising, it nevertheless constituted a distinct product market.  It also found that large outdoor posters constituted a separate market from other forms of outdoor advertising.  The Authority will therefore treat 48-sheet posters and all other poster sizes as separate markets.  The geographical market is the State.

10.	In the market for 48-sheet posters, the market shares of the various companies calculated from Table 1 are as follows:

	48-sheet	Market share	
More O’Ferrall/
Adshel	[     ]	[     ]	
David Allen	2144	59%	
CIE	371	10%	
TDI Metro	173	5%	
Roadshow	72	2%	
[              ]	[   ]	[   ]	
[              ]	[   ]	[   ]	
Other	300	8%	
Total	3613		

11.	Calculation of the market shares for all other poster sizes combined is difficult as the values per sheet vary with the poster size.  The following calculation is based on the total poster area available to each company:

	Total number of sheets	Market share	
More O’Ferrall/
Adshel	[      ]	68%        	
David Allen	942	3.3%	
CIE	3,860	13.6%	
TDI Metro	1,900	6.7%	
Other	2,422	8.5%	
Total	[     ]		

(d) The Notified Arrangements

12.	Under the notified arrangement between TDI Metro Limited, Transport Displays Incorporated and CIE, CIE grants to TDI Metro Limited an exclusive licence to carry on the business of providing advertising space to CIE selling to third parties advertising space on certain advertising sites owned by CIE.   The obligations of TDI Metro Limited under the agreement are guaranteed by Transport Displays Incorporated.  The contract area is Ireland.   The agreement has a term of five years.   

(e) Submissions of the Parties

13.	In support of their arguments for the issue of a certificate, the applicants submitted that the notified agreement does not prevent, restrict or distort competition in Ireland or in any part of Ireland.   The purpose of the agreement, from the perspective of CIE, is to best exploit its advertising resources by effectively contracting them out to a specialist undertaking.  This will exploit the asset on CIE’s behalf and save it all of the overheads and costs which it otherwise have to bear in marketing its own advertising sites.  The agreement will also allow CIE a claim on the revenue generated from the sites and to develop new sites and new products for advertising on behalf of CIE.

14.	The applicants also agrued that the exclusivity granted to TDI Metro Limited under the agreement did not prevent, restrict or distort competition.   Such exclusivity ensured the commercial viability of the arrangement because TDI Metro Limited will be investing in the sites and products.   Furthermore, t he five year exclusive term was justified in terms of the investments to be made by TDI Metro Limited in the sites and that a certain minimum period was required for TDI Metro Limited to recoup its investment.   Finally, the applicant noted that given the relatively small market shares of the parties, the agreement does not give rise to any undue concentration in the relevant market.  

15.	The applicants made extensive arguments in support of their request for a licence.   These are not deemed relevant as the Authority has decided to grant a certificate.

(f) Other Relevant Factors

16.	In 1987 the UK Monopolies and Mergers Commission investigated the acquisition by Mills and Allen, a subsidiary of Avenir Havas Media Group (the ultimate parent company of David Allen Holdings), of another firm operating in the outdoor poster advertising market in the UK.  The MMC report found that the acquisition would have increased Mills and Allen’s share of the market to 33.8% and that this was likely to reduce competition and choice of supply in the relevant market and would in time lead to higher prices.  While it found that Mills and Allen had introduced improvements to the industry which were beneficial, it concluded that there were unlikely to be sufficient benefits from the merger to offset the adverse effects identified and that it would therefore offend against the public interest.

17.	In 1994 the Competition Authority refused to issue a certificate or grant a licence to two related agreements whereby David Allen Holdings Limited (DAH) would gain effective control over advertising panels belonging to Adsites Limited.  Under one agreement, DAH would have acquired an exclusive right to market and sell advertising space on the Adsites panels.  The other would have given DAH an option to purchase some 200 48-sheet advertising panels from Adsites, provided that DAH complied with its obligations under the related licence agreement.

18.	In refusing a certificate or licence to these arrangements, the Authority noted that the market (for 48-sheet panels) was a highly concentrated one and that the effect of the agreement was to increase that level of concentration, bringing DAH’s share of such panels to 64%.  DAH’s market share in Dublin was increased by more than 20%, so that the results of the arrangements were particularly anti-competitive in Dublin.  There were significant barriers to entry in the market, particularly in the area of planning permission.  Poster advertising by its nature was not subject to competition from imports.  The Authority therefore concluded that the arrangements would result in a significant diminution of competition in the relevant market.  This would still be the case even if it considered that all outdoor posters came within the definition of the market since it would still be a highly concentrated one and the arrangements would result in one of the two largest firms increasing its market share.

ASSESSMENT

(a) Section 4(1)

19.	Section 4(1) of the Competition Act, 1991 states that “all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention restriction or distortion of competition in trade in goods or services in the State or in any part of the State are prohibited and void.”

(b) The Undertakings and the Agreement

20.	Section 3(1) of the Competition Act, 1991 defines an undertaking as “a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.” TDI Metro Limited is engaged for gain in the supply of outdoor advertising services in the State and is an undertaking.  Transport Displays Incorporated is an undertaking and is engaged for gain in the State under the terms of the agreement notified.  CIE is engaged for gain in the provision of transport services in the State.   The agreement is an agreement between undertakings.  The agreement has effect within the State.

(c) Applicability of Section 4(1)

21.	The notified agreement is an agreement between undertakings for the temporary transfer of certain assets.   These assets are relevant to the outdoor advertising market which is the principle business of one of the parties, TDI Metro Limited.   Such a transaction may gives rise to concerns about a concentration of market power, even on a temporary basis, in the licensee.  In addition, the transaction has the effect of eliminating a competitor or potential competitor from the relevant market for the duration of the agreement.   In this regards, the transaction is partly analagous in competition terms, to the sale of a business.   However, the effect of this transaction on competition is likely to be less than an outright sale of a business as the concentration effected in the relevant market may only be a temporary one.   The Authority published a Category Certificate which applies to agreements relating to mergers and/or agreements for a sale of business.  This Certificate sets out the conditions under which the Authority considers that a merger or sale of business agreement would not offend against Section 4(1).

Horizontal effects

22.	A merger would, in the Authority’s opinion, contravene Section 4(1) where it resulted in, or would be likely to result in, a lessening of competition in the relevant market such as would allow, for example, the merged undertaking or all of the remaining firms in the market to raise their prices, as the effect of the arrangement would be to restrict or distort competition.  Other factors, such as the ease with which new competitors could enter a market, are also relevant in assessing a merger in the Authority’s view.  Among the factors which the Authority believes need to be considered in order to decide whether a merger would have the effect of preventing, restricting or distorting competition is the actual level of competition in that market, the degree of market concentration and how it is affected by the merger, the ease with which new competitors may enter the market and the extent to which imports may provide competition to domestic suppliers.

Actual level of competition in the outdoor advertising market.

23.	The Authority analysed the level of concentration in the outdoor advertising market in CA/10/97, TDI Worldwide Inc./Metro Poster Advertising Limited and David Allen Holdings Ltd/Adsites Ltd.    The Authority noted that DAH then had a market share of 56% in 48-sheet advertising panels and that the acquisition of Adsites would bring this to 64% and the Authority considered that these increases indicated that competition from other media sources did not imposed a serious constraint on DAH increasing its prices.   The Authority also noted in TDI Worldwide Inc./Metro Poster Advertising Limited that the number of smaller, independent companies in the market has been reduced in recent years and an already highly concentrated market is becoming more concentrated.  TDI Metro Limited is, however, an exception to the general trend since it is a successful new entrant.   Its market share currently stands at 15% in the 48 sheet market and 20.3% for all other sizes with the inclusion of all CIE sites in the TDI Metro Limited share.

24.	The agreement between CIE and TDI Metro Limited undoubtedly results in increased concentration in what the Authority has previously characterised as an already highly concentrated market which exhibits barriers to entry and where potential competition from imports is non-existent.  The question which the Authority must answer is whether the concentrative effect is more than counterbalanced, in competitive terms, by the potential of TDI Metro Limited to act as a check on the market power of DAH, in the 48-sheet poster market, and of More O’Ferrall-Adshell, in the remaining market.  On balance, the Authority believes that it is.  The dominant feature of both markets is the strength of the big players.  Smaller competitors have not proven successful in the long term in acting as a check on this strength.  It appears that there is a certain minimum efficient size below which competitors cannot survive in the market.  The Authority does not believe that it is in the best interests of competition in this market to preclude smaller competitors from growing by acquisition or, as is the case here, by contract, since this would force them to stay small and prevent them from ever forming a viable competitive threat.

25.	The Authority considers that, in a market where one firm has a very large market share, the competitive effects of an acquisition by that firm differ from those of an acquisition by a smaller firm.  In its decision on the David Allen Holdings Ltd/Adsites Ltd option agreement, the Authority stated:

“Where there are only relatively few competitors and one firm has a large market share, the elimination of a competitor and its acquisition by the largest firm may be expected to restrict or at the very least distort competition unless there are offsetting factors at work.  Even if all outdoor posters were deemed to constitute the relevant market, the level of market concentration would be sufficiently high for an acquisition by one of the largest firms to have adverse implications for competition.  This is particularly so given that one firm accounts for a major portion of small posters.” [Emphasis added].

26.	Taking into account all the circumstances of the markets concerned, therefore, the Authority considers that the effect of the notified transaction will be, not to reduce competition, but to increase it by increasing the ability of the combined entity to act as a competitive constraint on the behaviour of the largest firm in each market.  The Authority therefore considers that, in so far as its horizontal effects are concerned, the notified agreement does not offend against Section 4(1).

THE DECISION

27.	In the Authority’s opinion, TDI Metro Limited, CIE and Transport Displays Incorporated are undertakings within the meaning of Section 3(1) of the Competition Act, 1991, as amended, and the notified agreement is an agreement between undertakings.  In the Authority’s opinion, the notified agreement does not prevent, restrict or distort competition and thus does not contravene Section 4(1) of the Competition Act.

The Certificate

The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the agreement between TDI Metro Limited, Coras Iompair Eireann and Transport Displays Incorporated relating to advertising space on CIE poster sites and on buses, trains and other CIE property, notified under Section 7 of the Competition Act on 22 April 1996(Notification No.  CA/17/97) does not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

William Prasifka
Member
17 June 1998