Media mergers under the current decisional practice of the Polish competition authority
At the beginning of 2021, Poland’s competition authority issued two decisions regarding concentrations of undertakings in the media market. The first decision by the president of the Office of Competition and Consumer Protection (UOKiK) banned Agora SA’s acquisition of control over Eurozet sp. z o.o., while the second allowed PKN Orlen SA to acquire control over Polska Press sp. z o.o. Both decisions are heavily commented on in the media. It is worth looking at them from the point of view of the legal constructions they raise.
The first legal institution we will discuss is the concept of horizontal coordinated effects that materially restrict competition on a relevant market, applied for the first time in Poland in a decision banning a concentration.
The second interesting legal issue is how a capital group should be understood in the case of concentrations by companies controlled by the State Treasury. Will the classic approach assuming that businesses controlled by the State Treasury do not form a single capital group always be appropriate?
Findings in Agora/Eurozet
In Agora/Eurozet (decision of 7 January 2021, no. DKK-1/2021), the president of UOKiK found that the concentration of Agora and Eurozet would lead to creation of oligopolistic markets, which would significantly limit competition in these markets. According to the authority, this oligopoly (or even duopoly) would be created by the Agora group when merged with Eurozet and its competing RMF group. According to the justification of the decision, “This oligopoly will not only mean a strong position on the national market, but first and foremost, it will unbalance much smaller local markets, as Agora will be able to create both national and local packages and eliminate other stations from its advertising offer. Moreover, a threat of coordinated behaviour in the radio advertising market will increase. At the same time, Agora’s presence and strong position in other advertising markets will further strengthen its negotiating position in relation to advertisers. … With regard to coordinated effects, it should be noted that a reduction to two significant competitors substantially increases the likelihood that these entities will abandon intense competition and, without agreement, pursue strategies that are detrimental to their counterparties.”
The authority seems to have recognised the risk of tacit coordination between the alleged duopolists (Agora/Eurozet and RMF) on the radio advertising markets, which in its view would result in limiting access to this advertising (i.e. the source of funding) for smaller competitors. In turn, a reduction in the source of funding would reduce the market share of competitors in the radio broadcasting distribution market.
The authority also found that listeners care about diversity of content, and it was likely that the merger would lead to uniformity of the opinions and commentary aired by all the stations with a common owner.
Collective dominant position leading to horizontal coordinated effects
Although not explicitly mentioned in the justification of the decision, it is apparent that the authority assumed that Agora and Eurozet would gain a collective dominant position together with their main competitor (RMF) and could engage in tacit collusion. Tacit collusion is coordination between competitors who do not explicitly exchange information and do not mutually agree on the terms of coordination. However, they achieve an analogous effect thanks to the specific conditions of the oligopolistic market, which allow them to behave for a long time in a uniform manner and in accordance with an identifiable common interest, based only on observation of the market and competitors’ behaviours, even without any communication with them.
An oligopolistic market is a market where several businesses exist, each with a comparably large market share, but none dominating the others. This means that none of the businesses has a market advantage for domination over the others, i.e. it does not have market power allowing it to prevent effective competition on the relevant market due to its ability to act independently of its competitors, counterparties and consumers. However, the market share of each oligopolist is large enough that the behaviour of one oligopolist allows it to exert a significant influence on the competitive positions of other oligopolists. As a result of this dependence, decisions regarding, in particular, price and supply made by each business depend on the expected behaviour of the other oligopolists (cf. UOKiK decision DOK-1/2018 of 2 January 2018 discontinuing proceedings against three mobile operators suspected of abusing their collective dominant position).
Oligopolistic interdependence is not in itself necessarily an obstacle to the functioning of effective competition. Nevertheless, an oligopolistic market structure may contribute to the appearance of a collective dominant position, which may in turn create grounds for anticompetitive coordination between undertakings (cf. UOKiK decision DOK-1/2018).
However, it should be remembered that the antitrust authority should prove an actual risk of occurrence of this situation. It cannot base a decision banning a concentration on a mere probability resulting from a simple change in the structure of the market (cf. T-342/99, Airtours v Commission; T-399/16, CK Telecoms UK Investments Ltd v Commission). To this end, the EU caselaw has developed a test of coordinated effects that can be applied to provide this proof. This test was (ineffectively) carried out also in arguably the only decision in which the Polish competition authority considered a finding of abuse of a collective dominant position (decision no. DOK-1/2018, concerning three mobile operators).
Under the test of coordinated effects, the authority should demonstrate all three of the following conditions:
- Characteristics of the relevant market in question are such as to enable tacit collusion.
- Businesses operating in this market may easily reach tacit collusion.
- The remaining market participants (other competitors and customers) are not able to endanger the tacit collusion.
These are the main factors indicating that a concentration may cause negative coordinated effects on the market. (These features are thoroughly analysed and discussed by Maciej Bernatt and Agata Jurkowska-Gomułka in their expert report Coordinated effects of horizontal concentrations: Selected legal aspects (CARS 2021). The following summary is based on that study.)
Characteristics of the market making it prone to tacit collusion
Similarity of competitors’ market share. In particular, a market with two to four suppliers having approximately the same market share is susceptible to tacit collusion. The greater the asymmetries in market share, the less risk of occurrence of tacit collusion. However, the number of competitors is not, in itself, determinant of tacit collusion. Only when combined with other factors (discussed below) can it indicate the vulnerability of the market to negative coordinated effects. If, on the other hand, this factor does not occur, then it is probably not a market that is susceptible to tacit collusion.
Competitors’ similarity. Coordination of behaviour is facilitated by the symmetry of businesses, i.e. economic similarities between them, in particular concerning cost structure, efficiency, profitability, business models and financing models. The more different companies are, the less likely they are to tacitly coordinate their activities. By contrast, the less complex and more stable the economic environment, the easier it is to achieve tacit coordination.
Product similarity. The more similar the products are, the greater the risk of tacit collusion.
Market transparency. As the General Court (part of the CJEU, formerly the Court of First Instance) observed in T-342/99, Airtours, “the fact that a market is sufficiently transparent to enable each member of the oligopoly to be aware of the conduct of the others is conducive to the creation of a collective dominant position.”
Elasticity of demand. The less elastic the demand (e.g. it only reacts marginally to significant changes in price), the greater the risk of tacit collusion.
Market entry barriers. Low market entry barriers make negative coordinated effects unlikely, as new competitors would quickly introduce elements of market warfare.
Competitors’ ability to coordinate behaviours
Mechanism for monitoring competitors’ activities. For tacit coordination to be sustainable, its participants must have a tool to monitor whether the others are following the unwritten rules of collusion. In particular, price transparency can be such a tool.
Mechanism of deterrence. For tacit collusion to be sustainable, there must be mechanisms in the market for taking effective retaliatory measures against an undertaking that breaks the unwritten rules of tacit collusion. A retaliatory measure could be, for example, a price war or a significant increase in production. Retaliatory measures should not cause losses to the businesses applying them.
Reactions of market participants to attempts to coordinate market behaviour
Competitors. For tacit collusion to be sustainable and effective, the non-participating competitors must be so weak that they are not able to enter into an effective competitive struggle with the participants in the tacit collusion.
Customers. Lasting coordination will not occur on markets where customers have significant buying power (in which case, the prices are not the result of coordination but the result of the buyers’ bargaining power). Indeed, large buyers may quickly and effectively break collusion by playing off individual participants and forcing them to change their offer, including decreasing prices. Coordination is also difficult when consumers or other customers can easily migrate to a similar product market.
Justification of the decision in Agora/Eurozet
An analysis of the justification of the decision in Agora/Eurozet shows that the antitrust authority did not apply the test required by the European Commission and the EU courts, and also used in the previous decisional practice of UOKiK (i.e. in the aforementioned decision DOK-1/2018 of 2 January 2018).
Most of the elements discussed above were not discussed by the authority in its justification for the decision. Therefore, it is difficult to determine whether there were in fact indications of negative coordinated effects justifying the ban on the concentration. In any event, they were not proven in the justification of the decision. However, even without detailed market data, the elements of the coordinated effects test in Agora/Eurozet do not seem to be fulfilled.
First, if the concentration occurred, four radio groups would function on the nationwide radio broadcasting market in Poland:
- RMF group (about 34% market share)
- Agora/Eurozet group (about 23% market share)
- Public radio (about 16% market share)
- Time group (about 14% market share)
plus a number of independent businesses.
Without going into details beyond the scope of this article, it can be said with a high degree of simplification that in the other relevant markets analysed in Agora/Eurozet, the tendencies regarding the market share are comparable. This balance of market power clearly shows that public radio stations and stations controlled by the Time group play an important role. It seems that they would constitute a strong counterweight to both Agora/Eurozet and RMF. This circumstance was not analysed in the justification for the decision. We should also note the relatively low market share of Agora/Eurozet, which in the vast majority of the relevant markets remains below the 40% threshold above which a dominant position is presumed. (In the markets for local radio advertising in the ten designated cities, a combined share of the participants in the concentration in both 2018 and 2019 exceeded the 40% threshold only in Poznań and Legnica.)
The justification of the decision in Agora/Eurozet also failed to demonstrate that the alleged coordination between the Agora and RMF FM groups would be lasting and possible to sustain despite the reactions of other players in this market. The characteristics of the markets for radio broadcasting and radio advertising suggest that such a risk is rather doubtful. The radio broadcasting market is a two-sided market related to the radio advertising market. This market is heavily dependent on listenership. The audience can easily, quickly and costlessly switch radio stations, many times, whenever they want. They can also switch to numerous substitutes, such as online radio shows and podcasts (available on their smartphone). On the other hand, the broadcasters of advertisements are in large part media houses—strong entities that can easily resist potential coordinated effects, e.g. by threatening to give up radio advertising in favour of TV, print press, internet, billboards, etc. Moreover, there are significant differences between the main competitors on this market in terms of potential and, in the case of the public Polskie Radio, in the programming and business strategy they pursue.
The conclusion reached by the authority that “this market is characterised by transparency, as very detailed data is available on the volume, clients and places of broadcasting radio commercials (Kantar Media research)” is also not convincing. As is apparent from the justification of the decision, the most important data, namely on transactional advertising prices, is not available. On the market, only official price lists are known, but discounts are customary given on those, of up to 90%. This makes the information on “initial prices” completely useless for implementing potential tacit collusion.
At the same time, there are some 300 radio stations operating in Poland (about 270 of them local), so it is difficult to argue that high entry barriers exist in the relevant markets.
To sum up, in our opinion, the thesis of the antitrust authority that the markets for broadcasting of radio programmes and radio advertising are susceptible to tacit coordination was not demonstrated in the justification for this decision.
Deterioration of product quality as an aspect of prohibition of concentration
In another interesting finding, the president of the UOKiK stated: “For listeners, an important value is the diversity of the content broadcast by the stations, not the quality of a single station. Meanwhile, conformity across all the stations owned by one entity seems highly probable, if only in the field of opinion and commentary.” It seems that the authority considered that the risk of reducing the availability of products representing different qualities, in favour of a uniform product, posed a significant threat to the competitive mechanism in the relevant markets. Undoubtedly, this is an intriguing thesis, but it does not seem that it should have affected the assessment of the Agora/Eurozet concentration, since the notion of a risk of tacit coordination with the RMF group, adopted by the president of UOKiK, does not apply to this consolidation. Therefore, even if we assume that product consolidation is detrimental to competition, in this case, any potential risk of such uniformity would only concern Agora and Eurozet, i.e. only the participants in the concentration under scrutiny, whose combined market share in the relevant markets does not exceed 40% (except for two local markets), and not the merging entities and other market players, e.g. RMF. Therefore, this does not justify the ban on the concentration.
Decision in Polska Press/PKN Orlen
According to the position taken by the president of UOKiK in the Polska Press/PKN Orlen case (decision of 5 February 2021, no. DKK-1/2021), the decisions in merger control cases are aimed at assessing a given transaction solely from the perspective of maintaining conditions of competition. As stated in the justification of the Polska Press/PKN Orlen decision, the antitrust authority “assesses the concentration notified by a business only from the perspective of whether competition on the market will be significantly restricted as a result of its occurrence. Therefore, the decisions issued by the president [of UOKiK] are aimed at assessing planned concentrations solely in terms of maintaining the conditions of competition. This is the power vested in the president of the office by the Competition and Consumer Protection Act. The antitrust authority does not have the competence to assess individual transactions from the point of view of other issues, including threats to pluralism or independence of media in particular markets.”
In principle, interpretation of the effects of a concentration has a strictly economic purpose. But as observed in the legal literature: “Protection of the public interest against excessive concentration in the media market is enshrined in other values, and … is primarily about preserving pluralism in the broadest sense, covering different areas of social life.” (Z. Jurczyk, “Processes of concentration and monopolisation on the regional press market in Poland,” Prace naukowe Uniwersytetu Ekonomicznego we Wrocławiu 2015 no. 405). This view has not given rise to any particular doubts so far, and has generally also been shared by the president of UOKiK (e.g. decision of 11 February 2004, no. RWR 7/2004).
If we assume that differentiation of the content presented in the media is an element of product quality that affects competition, then changes in the parameters of this element as a result of a concentration of businesses should be analysed in merger control proceedings. Therefore, the question arises of how to treat a situation where it can be assumed that a concentration may lead to the consolidation of media coverage between companies ultimately controlled by the State Treasury, which are formally separate undertakings for purposes of antitrust law, i.e. competitors from the point of view of merger control.
Pursuant to an interpretation of the regulations by UOKiK, in the context of the Competition and Consumer Protection Act, the State Treasury is not treated as an “undertaking,” and thus the State Treasury and the companies it controls do not constitute a “capital group” for purposes of the act. This position was reiterated in the current clarifications on the criteria and procedure for notifying concentrations to the president of UOKIK (from 2015) and in our view is in principle correct.
However, the question arises as to whether when assessing the economic position of an entity controlled by the State Treasury on a given relevant market, the president of UOKiK should also take into account the activity of other State Treasury companies which, although they do not formally constitute a single capital group, may be assumed to coordinate their activity. In the case of Agora/Eurozet, the president of UOKiK applied the same approach by adding to Eurozet’s market share the shares of independent radio stations with which Eurozet has signed cooperation agreements but which do not belong to the Eurozet capital group.
Following this line of reasoning, it could be assumed that when assessing the position of a company controlled by the State Treasury in the broadly defined media market, the president of UOKiK will also take into account the market positions of all other companies controlled by the State Treasury operating in this area which are likely to have their activities coordinated by a common owner, i.e. the State Treasury (even though these companies are deemed not to belong to a single capital group).
Considering the reasoning by the authority in Agora/Eurozet, the justification of the decision in the analogous case Polska Press/PKN Orlen may appear incomplete.
Dr Antoni Bolecki, attorney-at-law, Agnieszka Jelska, attorney-at-law, Competition & Consumer Protection practice, Wardyński & Partners