In its 1413th Commissioner’s Meeting on December 12, 2018, the Fair Trade Commission (FTC) approved, with conditions, the combination notification submitted by Hong Ce Venture Capital Co., Ltd. and Jhen Han Capital Co., Ltd. for the acquisition of Anshen Development Co., Ltd., Porken Development Co., Ltd. and their subsidiaries, including China Network System Co., Ltd., Global Digital Media Co., Ltd., CNS Broadband Co., Ltd., and 12 cable TV system operators ("SOs"). In accordance with Paragraph 2, Article 13 of the Fair Trade Act, the FTC did not prohibit the combination but attached conditions to ensure that the overall economic benefit of the combination outweighs the disadvantages resulting from competition restraint.
The FTC pointed out that the combination merely involves the change of shareholding structure and transfer of management rights in China Network System Co., Ltd. (CNS), Global Digital Media Co., Ltd., CNS Broadband Co., Ltd. and the 12 SOs. In addition, there is no horizontal or vertical relationship among the participating parties; therefore, it is a conglomerate combination. Since the implementation of the combination will not cause any substantial change to the market share, market structure, or market concentration of the relevant markets, it seems the combination will not materially lessen the competition. Instead, the overall economic benefits arising therefrom are that the combination could bring in capital for the participating parties to provide consumers with better diversity of service and to help accelerate digital convergence. As a result, after reviewing the elements that should be considered in a conglomerate combination, the FTC concluded that the subject combination should not be prohibited since the overall economic benefits will outweigh the disadvantages resulting from the competition restraints.
Nevertheless, the FTC indicated that there might be concerns about the occurrence of certain competition restraints, mainly because after the participating parties integrate the cable TV system business and the channel agency business,the motivation and possibility for them to force tied-in channel programs on newly-entered, cross-regional, or independent SOs with weaker negotiating power, could not be ruled out. The FTC also casted doubt as to whether the participating parties might engage in discriminatory treatment with regard to licensing conditions. In addition, the fair competition issue of cross-platforms between cable TV systems and Multimedia-on-Demand (MOD) has always existed. Therefore, to eliminate possible disadvantages resulting from competition restraints, the FTC attached the following conditions:
1. By December 31 each year, for 3 years starting from the next day of the closing of the combination, the notifying parties must provide the following documents to the FTC for reference and record: annual sales plan for the channels of which the participating parties or their controlled affiliates act as agents; a list of the terms imposed during the year by the participating parties or their controlled affiliates when granting licenses to SOs; and the names and the number of channels that each SO purchases during the year from the participating parties or their controlled affiliates which act as agents for those channel.
2. The participating parties and their controlled affiliates should enforce matters beneficial to the overall economy, including specific measures to diversify consumers' choices and payment plans, and to promote the dissemination of the channels they act as agents on multimedia content transmission platforms or other public platforms from the next day of the closing of the combination. By December 31 each year, for 3 years starting from the next day of the closing of the combination, the notifying parties must provide relevant documents for the aforesaid matters to the FTC for reference and record.
It is also worth noting that the FTC noticed the upper-level shareholders of Hong Ce Venture Capital Co., Ltd. include a public welfare fund and its affiliates. According to the combination notification, since the public welfare fund is merely a financial investor and has no controlling shareholding in Hong Ce Venture Capital Co., Ltd., the FTC held the view that such fund cannot be considered as a participating party of the subject combination. However, the FTC reminded that if the competent authority of the trust law later determines that the subject public welfare fund has violated the relevant laws and thus must stop investing in the subject case or must take other necessary measures, causing a change in the upper-level shareholders of the participating parties which does not conform with the notification documents submitted to the FTC, the change and the reason thereof should be reported to the FTC in advance. The FTC would then review whether or not it is necessary to re-submit the notification. In this connection, the relevant parties cannot proceed with the combination before receiving the FTC’s written notice regarding no prohibition on the combination or the re-filing request.