Control in Competition: A departure from conventions
On May 28 2012, the Competition Commission of India (“CCI”), permitted Independent Media Trust (“IMT”) to subscribe to Zero Coupon Optionally Convertible Debentures (“ZCOD”) issued by promoter companies (“Promoter Companies”),1 making IMT the largest shareholder of Network18 Media and Investments Limited (“Net18”).2 While assessing this complex and multi layered transaction, CCI identified and assessed the impact of the proposed combination and the downstream investments despite the fact that IMT would be controlling only 40% of Net18’s shareholding. The present bulletin analyses the reasoning of the CCI and its assessment while approving the proposed combination.
1. Factual Matrix
Reliance Industries Limited’s (“RIL”) is the sole beneficiary of IMTs assets. By subscribing to the ZCODs, IMT will control 40% shareholding of Net18, which through its subsidiaries and joint ventures operates some prominent television channels (All joint ventures and subsidiaries of Net18 are together referred to as “Net18 group”).
The agreement executed between IMT, Net18 and Net18 group envisages that all the Net18 group channels, alongwith regional channels under the ETV banner will come together under IMT to form a single large group of channels under the Net18 umbrella (“Combination”). A diagrammatic chart below represents the transaction structure in detail:-
Further, RIL also owns Infotel Broadband Services Private Limited (“Infotel”), the only operator to have pan India internet and broadband wireless access (i) spectrum and (ii) licenses, apart from state owned Bharat Sanchar Nigam Limited. Parallel to signing the agreement for the Combination and for the ZCODs with the Promoter Companies, Infotel also entered into a Content License Agreement with the Net18 group, whereby it would get preferential access to the programming and digital content created by the television channels as a “most preferred customer.”
In view of this and the proposed arrangement between the Net18 group and Infotel, the CCI determined that the Combination should be analysed in terms of its impact on competition in the industries where there is going to be a presence of the resultant Combination.
2. CCI’s assessment and findings
In accordance with Section 6 of Competition Act, 2002 (“Act”) and the Regulation 5(2) of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011, an application Form I3 was filed by IMT with the CCI on March 27, 2012. CCI assessed the Combination from 3 principal perspectives based upon the business of the companies, namely (i) event management, (ii) television programming and distribution and (iii) internet services.
2.1 Event Management
Both RIL and the Net18 group operate companies which undertake pan-India event management services. The CCI observed that this part of the Combination poses the least adverse threat to competition as there are several important and prominent players in the relevant event management market. It concluded that RIL, despite its partnership with IMG Worldwide,4 would not be a competitive threat in the market after obtaining an interest in Net18s event management companies. The assessment was based upon the current turnover of the event management businesses of both RIL and Net18 and their proportion to the overall industry size.
2.2 Television Channels
The impact of the Combination in the television sector was a matter of intense discussion within the CCI. The CCI determined that due to the maturity of the television market, it did not foresee the Combination posing any significant competitive threat to the television industry as a whole. In coming to its conclusion, the CCI primarily took cognizance of reports published by the Ministry of Information and Broadcasting and KPMG on the media and entertainment industry alongwith TRAI’s consultation paper on the cable television industry. CCI’s views were based on the fact that there are currently 831 television channels (both free to air and subscription based) operated by over 200 broadcasters. The Combination would be operating a small handful of channels in an industry with intense competition. Despite the Combination having a substantial presence across the whole spectrum of news, entertainment and regional entertainment channels, the presence of the Combination would not significantly affect the competitive environment of the industry as a whole.
2.3 Internet services
One of the concerns of the CCI was that Net18 group had entered into an agreement with Infotel as a preferential content provider. As mentioned above, Infotel is the only service provider with pan India 4G licence. The only other service provider with an equivalently extensive licence is BSNL. Technological reasons have caused BSNL to abandon the development of their infrastructure for providing 4G services. CCI reasoned that despite the developments limiting the competition for Infotel’s 4G presence, the services have a very limited market potential at present and therefore there is no current threat to any competition in the 4G services ecosystem.
In view of the above findings, the CCI ruled that the Combination does not pose any potential adverse effect on competition and the parties were allowed to proceed with the proposed investment.
This is the first media industry combination order issued by the CCI. This order has established the efficacy with which the CCI operates. Section 6(2A) read with section 31(11) of the Act provides the CCI with a period of 210 days to assess and approve any proposed combination. CCI assessed the present Combination within 2 months, despite the complexity of documentation, multiple levels, various branches and large arena of impact. CCI has displayed this efficacy in almost all its orders, which will go a long way in establishing industry’s faith in the CCI and encourage the M&A space in India.
1 The Promoter Companies are RB Mediasoft Private Limited, RRB Mediasoft Private Limited, RB Media Holdings Private Limited, Adventure Marketing Private Limited, Watermark Infratech Private Limited and Colorful Media Private Limited.
2 After conversion the ZCODs into equity, IMT would have 99.99% stake in the Promoter Companies.
3 This is the basic form filed with the CCI to obtain approval of a proposed combination. The fee for filing this form is INR 1 million.
4 IMG is one of the world’s largest event management companies and has established themselves as a joint venture in India alongwith Reliance group of companies called IMG Reliance.