Taking counsel

  • 2005-10-26
  • By Zita Ozola and Karlis Reihmanis [ LOZE, GRUNTE & CERS ]
Number of conditional mergers Increases

Recently the Latvian Competition Council adopted a number of decisions that can be considered to be the start of more intensive oversight over merger notifications. At the same time they could also be viewed as a continuation of the state's declared war against cartels with the aim to protect, preserve and promote free competition in all sectors. In particular, several merger notifications filed with the Competition Council were allowed after their investigation subject to conditions precedent to be complied with by the market players.

Pursuant to the Competition Law, market players have to file a report to the Competition Council, if:

(1) the total sales of merger participants has been not less than 25 million lats in the preceding fiscal year; or

(2) if the total market share of market players involved in the merger in the particular market exceeds 40 percent.

After evaluating the merger notification and opinions of other market players, as well as analyzing the market in detail, the Competition Council may prohibit the merger only if it has concluded that, as a result of the merger, dominance may arise or competition may be reduced in any of the relevant markets affected by the merger. However, if the Competition Council establishes any factors that might serve as a basis for prohibiting the merger, the council may allow it to proceed under certain preconditions that would allow prevent any adverse impact on overall competition.

In September the Competition Council adopted two decisions by which enterprises already dominant in their relevant markets were allowed to merge subject to fulfilment of certain preconditions.

A company dominating in the cable television market in Riga was allowed to merge with one of the smallest cable television service operators, which provided its services to a comparatively small community of Riga. There was no competition in the respective community before the merger, while the merger would result in certain increase, though minor, of the market share held by the cable television operator, which already covered more than 40 percent of the market throughout Riga.

However, the Competition Council believed that, as a result of the merger, services provided to consumers and competition in general would materially improve. Still, the council imposed an obligation on the dominating cable television operator not to apply selective prices and tariffs, including discounts on services provided, that would be aimed at pushing out competitors is they chose to enter the area serviced by the dominating cable television operator in Riga, and vice versa.

Meanwhie, Lattelekom, an operator dominating in the fixed voice telephony market, and Microlink Latvia, one of the major players in the data transmission and Internet access service markets, recently merged. The Competition Council, having evaluated the market situation, established that after the merger the market share of Lattelekom would be several times higher than that of the next biggest competitor, thus increasing and reinforcing Lattelekom's dominance.

Notwithstanding such adverse consequences of the merger, the Competition Council allowed it to proceed subject to the condition that Lattelekom would have to dispose of the assets of Microlink Latvia providing data transmission services (i.e., Lattelekom must sell the electronic communications infrastructure of Microlink Latvia providing data transmission). Furthermore, Lattelekom may not sell such assets to any person who is directly or indirectly related to Lattelekom. Lattelekom was required to obtain approval of the transaction in question from the Competition Council in order to avoid the increase of concentration of Lattelekom in the Internet access and data transmission markets.

Both decisions show that, given the increasing number of concentrations in Latvia, competition authorities have started to pay more attention to possible economic consequences of proposed mergers and have not shied from applying administrative measures in order to ensure that the provisions on fair competition are complied with by the market players.