According to the Cable Television Law, all major enterprises in the cable television-related industry, i.e. the upstream cable television channel providers (including production and sales agencies) and the downstream cable television broadcasting system operators (hereinafter referred to as the "CATV System Operators"), which shall be under the supervision and administration of the competent authority with jurisdiction over the business of such enterprises, the Government Information Office (hereinafter referred to as the "GIO"). Some CATV System Operators had already been established before the Cable Television Law came into effect on August 11, 1993. The Law, nevertheless, provides a legal basis for the GIO's administration. Pursuant to Article 69 of the Cable Television Law, the GIO promulgated the "Temporary Administration Rules for Cable Television Broadcasting Systems" on September 11, 1993, for the purposes of issuing registration certificates to and administering the then-current CATV System Operators.
It is further stipulated in Article 27 of the Cable Television Law that the number of CATV System Operators in the same operational region shall be limited to five. The drawing and adjustment of the boundaries for such regions is subject to public announcements made by the GIO after its consultation with the Ministry of Transportation and Communications. In 1994, after consultation with local governments and various communities and after obtaining approval from the Executive Yuan, the GIO made a public announcement that divided the island into 51 operational regions. In October 1994, the system operators in these regions were allowed to file applications for special permits and acquisitions of business permits, which promoted the broadcasting system operators to be converted into CATV System Operators.
The Cable Television Law was later revised, with its name changed to the "Cable Broadcast Television Law", which came into effect on February 3, 1999. The revised law lifted the restriction that limited the number of CATV System Operators in the same operational region to five. It also set new rules on cross-ownership between telecommunications enterprises and cable television-related enterprises, thus allowing for foreign investment and re-applications for special permits. The "Satellite Broadcast Television Law" came into effect on the same date and provided a legal basis for the administration of satellite broadcast television program content providers.
According to the Cable Broadcast Television Law, the operation plan of a CATV System Operator shall be approved by the GIO, and the tariff schedule shall be reported to the city government (whether it is a special municipality directly under the jurisdiction of the central or local government of Chinese Taipei). CATV System Operators are also required by law to execute written contracts with their subscribers. The GIO, which developed an example of such a contract, has been urging CATV System Operators to follow this rule. The above measures shall help to prevent any disputes that might arise between CATV System Operators and subscribers.
Other matters, such as the drawing up of the boundaries, announcements for re-applications of special permits and the distribution of shareholdings, are also stipulated in the Cable Broadcast Television Law. If a CATV System Operator's conduct does not comply with the Cable Broadcast Television Law and if such conduct involves competition restraints or unfair competition, it is possible that such conduct shall not be allowed under the Fair Trade Law.
Potential cases of violations of the Fair Trade Law include disputes between upstream CATV Channel Providers and downstream CATV System Operators such as in a "joint sale" of program contents, joint production and broadcasting, vertical combination, horizontal combination, a "joint purchase" of program contents, concerted determination with respect to tariffs or boycotts, the abuse of market power, the improper inducement of interest to trading counter parties, the holding of an exclusive agency within a specific region, differential supply and the concealment of material trading information. In consideration of the current complicated market, the Fair Trade Commission (hereafter, the "Commission") has, based on the legal structure established by the existing cable television laws and regulations, collected and analyzed the conduct referred to in the Fair Trade Law and developed this Policy Statement. This Policy Statement shall be followed by cable television-related enterprises and be used by the Commission as a reference in handling relevant cases.
2. Guidelines for Combinations of Cable Television-Related Enterprises.
2.1 Horizontal Combination of CATV System Operators
A "horizontal combination of CATV System Operators" refers to the merger of two or more CATV System Operators in the same operational region. The purposes of such a merger are to expand scale of business and to increase market share. However, such a merger usually results in the survival of only a single operator in one region, which consequently impedes the market function for competition and falls within the scope of Article 11, Paragraph 1 of the Fair Trade Law. According to the law, an application for such a merger shall be filed with the Commission in advance, unless it is exempted by Article 11-1 of the Fair Trade Law; otherwise, such a merger may be deemed to be a violation of Article 11 of the Fair Trade Law. After consulting with the GIO, the following was resolved in the resolution dated December 24, 1996 and passed in the 269th meeting of the Commission:
2.1.1 The GIO has been encouraging combinations of cable television-related enterprises and bearing this in mind, the Commission would ignore such cases where CATV System Operators2 had completed a horizontal combination that met the criteria for a merger provided in the Fair Trade Law but had not obtained prior approval from the Commission. However, the Commission had sent official notices to all CATV System Operators on December 5, 1996 to inform them that any future combinations shall be carried out in accordance with the law. Thus, effective January 1, 1997, any combination cases that violated Article 11, Paragraph 1 and Paragraph 3 of the Fair Trade Law, that had been filed and later carried out despite not having received approval from the central competent authority, or that failed to perform such obligations subordinated to such combination as stipulated in Article 12, Paragraph 2 of the Fair Trade Law, shall be investigated and processed by the Commission.
2.1.2 To ensure fair competition, the Commission has advised the GIO that when handling relevant cases, the minimum number of CATV System Operators in one region shall be kept at two; except in isolated operational regions or for other de facto reasons, the survival of a sole CATV System Operator in a single region shall be avoided.
2.2 Vertical Combination of CATV Channel Providers and CATV System Operators
The vertical combination between enterprises aims to integrate upstream and downstream resources and to adjust the management or organization structure of the participating entities. In line with the principle of "freedom of business operations", it is not necessary to restrict such vertical combinations. However, if a vertical combination falls within the scope of Article 11, Paragraph 1 of the Fair Trade Law, such a combination will have an impact on market competition, and, therefore, it shall be filed with the Commission in advance. Where the cable television-related industry is concerned, the penetration rate of cable television services has exceeded seventy per cent in most areas, meaning that watching cable television programs has become a major recreation of the public and an important source of information as well.
Most of the existing fifty-one cable television operational regions currently have only one or two CATV System Operators. Thus, cable television subscribers do not have many options in terms of CATV System Operators. Consequently, should a CATV System Operator engage in improper conduct, the rights and benefits of numerous subscribers will be affected and the subscribers have no ability to move to an alternative CATV System Operator. When a vertical combination of cable television-related enterprises is under review, the Commission shall take into account the nature of the industry and handle the matter with care, so as to ensure that it conforms with the legislative purposes of the Fair Trade Law, which is "to maintain trading order, protect consumers' interests, ensure fair competition and promote economic stability and prosperity".
2.2.1 Criteria of a merger that must be filed with the Commission: whether a combination between a CATV Channel Provider and a CATV System Operator constitutes a "merger" as defined in the Fair Trade Law shall be determined pursuant to Article 6, Paragraph 1 of the Fair Trade Law. Whether it is required that such a merger be filed with the Commission shall be determined in accordance with Article 11, Paragraph 1 and Article 11-1 of the Fair Trade Law. In other words, provided that the vertical combination of a CATV Channel Provider and a CATV Operator does not constitute a merger and/or does not meet the criteria for a prior application, it is not required that such a combination be filed with the Commission.
2.2.2 Factors that shall be considered in the decision of a merger: according to Article 12 of the Fair Trade Law, if the overall economic advantages derived from the merger outweigh the disadvantages resulting from restraints on competition, the Commission shall not prohibit such a merger. Possible advantages that may be generated by vertical combinations in the cable television industry include: reduced trading costs, ensuring a stable broadcast of program contents and provision of diversified network services. However, whether or not such advantages only exist inside combined enterprises and do not create a material impact on the overall economy is subject to further examination.
Possible disadvantages resulting from restraints on competition in a vertical combination of cable television-related enterprises include: differential treatment of CATV Channel Providers, such as refusing to grant licenses or CATV System Operators refusing to broadcast program contents, and the blockading of both upstream and downstream markets by squeezing competitors out of the market or forcing competitors to participate in a combination or other concerted action. Although such disadvantages do not directly result from vertical combinations, the inherent strong market power, if abused by a vertically combined enterprise that consolidates upstream and downstream markets, may severely damage trading order and infringe upon consumers' rights and interests.
To minimize any possible disadvantages and to make combinations consistent with the criteria set out in Article 12 of the Fair Trade Law, enterprises participating in such combinations should, besides making their internal interests known, propose positive self-restricting measures that could prevent competition restraints both at present and in the future. Based on the above, when a merger is filed with the Commission by cable television-related enterprises, the Commission's review will focus on whether the advantages derived from the vertical combination may be shared by the public and whether the disadvantages resulting from competition restraints may be eliminated.
2.2.3 Situations where the disadvantages resulting from competition restraints obviously outweigh the advantages for the overall economy:
2.2.3.1 Vertical combinations involving CATV Channel Providers with market power: there are a large number of CATV Channel Providers in this country, each with varying scales of business operations. Therefore, the advantages for the overall economy and the disadvantages of competition restraints resulting from vertical combinations shall not be weighed on the same scale. However, the market power of a CATV Channel Provider may be evaluated by the number of programs it provides and/or the importance of the market where the program contents are distributed. The evaluation method is as follows:
A. Where the number of program contents exceeds a quarter of the number of available channels: according to surveys conducted by market research consulting firms, the "number of channels" provided by a CATV System Operator is a crucial factor in subscribers' choices of CATV System Operators. However, the bandwidth of a CATV System Operator remains limited; until digital compress technology is widely deployed, the number of channels a CATV System Operator may provide will remain a limited resource. Consequently, the number of program contents provided by CATV Channel Providers will certainly have an impact on CATV System Operators.
As stipulated in Article 42, Paragraph 3 of the Cable Broadcast Television Law, "where the program contents is provided by the CATV System Operator or its affiliates, the number of such program contents shall not exceed a quarter of the number of available channels". This may be used as an indicator of the market power of CATV System Operators. If the program contents provided by CATV Channel Providers generally outnumber a quarter of the available channels to CATV System Operators, these available channels will be fully occupied once any CATV System Operator reaches purchase agreements with four CATV Channel Providers. When a CATV Channel Provider meets the above criterion, it will have market power. Thus, the disadvantages of competition restraints resulting from vertical combinations between CATV Channel Providers and CATV System Operators shall be deemed to outweigh the advantages to the overall economy.
B. Where a specific program contents is indispensable in the market: when a specific program contents becomes indispensable in the market, the CATV Channel Provider will have a certain market power. Therefore, the Commission, in reviewing relevant vertical combination cases, will, in particular, focus its attention on the disadvantages of competition restraints initiated by market power.
2.2.3.2 Vertical combinations involving CATV System Operators with market power: generally speaking, the market share of a single CATV System Operator shall be determined by the ratio of the number of subscribers to the total number of subscribers in the operational region where the CATV System Operator is located. Where any CATV System Operator participating in a vertical combination has over one-quarter of the market share in a single operational region, an application for such a vertical combination shall be filed with the Commission. However, a CATV System Operator with over one-quarter of the market share in a single operational region does not necessarily have significant power in the CATV System Operators market as a whole. Market shares held by other CATV System Operators that have a controlling or subordinate relationship with the participating CATV System Operator shall be taken into account in the evaluation of the market power of the participating CATV System Operators. The disadvantages of competition restraints shall be deemed to outweigh the advantages to the overall economy if the CATV System Operator in a vertical combination fulfills any one of the following:
A. Where the total number of subscribers of the participating CATV System Operator and other CATV System Operators, which have a controlling or subordinate relationship with the participating CATV System Operator, exceeds one-third of the total number of subscribers nationwide: when the number of subscribers of CATV System Operators strikes this threshold, the decision to terminate broadcasting a particular channel will not only have an impact on the interests of over one-third of the subscribers nationwide, but will also severely damage CATV Channel Providers.
B. Where the number of CATV System Operators, which have a controlling or subordinate relationship with the CATV System Operator participating in the vertical combination, exceeds one-third of the total number of CATV System Operators nationwide: if the number of CATV System Operators having a controlling and subordinate relationship with the participating CATV System Operator is more than one-third of the total number of CATV System Operators nationwide, such a participating CATV System Operator obviously has a significant market presence.
C. Where the number of participating CATV System Operators exceeds one-half of the total number of CATV System Operators within the same district; this rule shall not apply if there is only one CATV System Operator in a given district: vertical combinations in the cable television-related industry may increase the risk of "transmission interruption" of the program contents provided by other CATV Channel Providers that do not participate in the vertical combination. To protect the interests of subscribers, a higher barrier shall be erected against vertical combinations between CATV System Operators and upstream CATV Channel Providers in the same district. However, if there is only one CATV System Operator providing cable television services in a specific district due to geographical or other de facto reasons, such a rule shall not apply.
2.2.4 Comments from the relevant competent authorities: when a particular combination may result in disadvantages from high competition restraints, yet such a combination is (1) essential due to de facto reasons such as industry policies, government administration and management, culture policies on broadcast and media and technological development; (2) the grounds of such a need has been stated; and (3) such a need is supported by the relevant competent authorities, the Commission, in compliance with the "principle of a unified administration", shall take into account the strength of the competent authorities' supporting opinion.
3. Guidelines for Concerted Actions by Cable Television-Related Enterprises
3.1 "Joint Sale" by CATV Channel Providers
CATV Channel Providers and CATV System Operators are often engaged in disputes concerning trading terms and conditions. These disputes give rise to market disorder and may cause harm to subscribers' interests. After looking closely into these disputes, the Commission has determined that some disputes arise from simple commercial issues, for example, a disagreement over price or other terms and conditions. Other disputes may be in connection with a "sale jointly adopted" by CATV Channel Providers. Such action is customarily referred to as "Joint Sale" in the cable television-related industry.
The core business of CATV Channel Providers is the production or sale of program contents. Although program contents differ and each unique program contents is protected under the Copyright Law, from the point of view that all program contents are to provide information and recreation to subscribers, one set of program contents may be replaced by another. It is evident that CATV Channel Providers are horizontal competitors at the same production and/or marketing stage. If CATV Channel Providers intend to boost their bargaining power over CATV System Operators by using their collective market power generated from contracts, negotiations or other forms of mutual understandings to jointly sell program contents, such conduct will have an adverse impact on competition among CATV Channel Providers. In addition, vertical trading restrictions may result in a crowding-out effect with respect to the trading opportunities of other CATV Channel Providers. Consequently, the selling channels of program contents will be blocked, giving rise to anti-competitive consequences.
3.1.1 According to Article 7 of the Fair Trade Law, "The term 'concerted action' as used in this Law means the conduct of any enterprise, by means of contract, negotiation or any other form of mutual understanding, with any other competing enterprise, to jointly determine the price of goods or services, or to limit the trading terms pertaining to quantity, technology, products, facilities, trading counter parties or trading area with respect to such goods and services, etc., and thereby restrict each other's business activities. The term "concerted action" as used in the preceding paragraph is limited to horizontal concerted action at the same production and/or marketing stage that evidently would affect the market function of production, trade in goods, or the supply and demand of services. The term "any other form of mutual understanding" as used in Paragraph 1 refers to, other than contract and negotiation, a meeting of minds, whether legally binding or not, that would, in fact, lead to joint actions. A resolution of a general meeting of members, a board meeting of directors or supervisors or any other means, which restricts the business activities of enterprises is also deemed to be a horizontal concerted action, as used in Paragraph 2."
Article 14 of the Fair Trade Law further stipulates restrictions to concerted actions.
Whether "Joint Sale" constitutes a "concerted action" as referred to in Article 7 of the Fair Trade Law shall be determined by the actual content and performance of the agreement pertaining to the Joint Sale on a case-by-case basis. Where (1) a CATV Channel Provider who engages in a Joint Sale of program contents requires that the trading counter party purchase other program contents provided by other CATV Channel Providers, (2) though not required, the result of the joint action may lead to the trading counter party's purchase of all program contents (such as giving an obviously unreasonable discount to the counter party if it purchases all the program contents provided by different CATV Channel Providers), or (3) any other vertical trading restrictions are imposed on CATV System Operators for the purpose of horizontal concerted action among CATV Channel Providers, such that the Joint Sale of CATV Channel Providers is deemed to have a substantial impact on the trade and decision procedures of the trading counter party. Thus, a Joint Sale may be considered to constitute a "concerted action" as defined in Article 7 of the Fair Trade Law.
3.1.2 In practice, if the Joint Sale of a CATV Channel Provider has any of the characteristics set out below, there is a high possibility that such Joint Sale may be determined as a "concerted action":
3.1.2.1 The price is quoted to the counter party jointly;
3.1.2.2 There is a joint negotiation with the trading counter party;
3.1.2.3 CATV Channel Providers (including the producer and the sale agent) agree to jointly receive payments and then divide the payments; or
3.1.2.4 CATV Channel Providers assist other channel providers in promoting their programs. However, in cases that the assisting providers prevent other enterprises from price competition or cause other enterprises to engage in joint sales of programs through provisions having the effect of restraining competition and entered into by coercion, inducement, or other improper means, they are still likely to be in violation of Article 19, Subparagraph 4 of the Fair Trade Law.
3.2 "Joint Purchase" of CATV System Operators
The term "Joint Purchase" as used here refers to CATV System Operators negotiating the price and purchasing program contents from CATV Channel Providers on a joint basis by way of contract, negotiation or other form of mutual understanding (for example, by organizing a league, an alliance or the like). The purpose of a Joint Purchase is to use the combined market power of CATV System Operators to enhance their bargaining power against CATV Channel Providers. However, such a horizontal combination at the same production and/or marketing stage may be considered a violation of Article 14 of the Fair Trade Law. On the other hand, if the enterprise (including any third party, such as a CATV Channel Provider) causes other CATV System Operators to participate in the Joint Sale by coercion, inducement of interest or other improper means, it may be considered to have violated Article 19, Subparagraph 4 of the Fair Trade Law.
3.2.1 Where CATV System Operators within the same operational region agree to jointly purchase program contents and it is evident that such a Joint Purchase will adversely affect market competition or overall economic and public interests, such action may be deemed to be a violation of Article 14 of the Fair Trade Law.
3.2.2 Where CATV System Operators which operate in different operational regions but which are affiliates to or directly or indirectly controlled by a CATV System Operator jointly purchase program contents from CATV Channel Providers, such a Joint Purchase may be determined to be a violation of Article 24 of the Fair Trade Law if any one of the following criteria is met:
3.2.2.1 The total number of CATV System Operators' subscribers exceeds one-third of the total number of subscribers nationwide;
3.2.2.2 The number of CATV System Operators exceeds one-half of the total number of CATV System Operators within the same district (this is not applicable when there is only one CATV System Operator within the district); or
3.2.2.3 The number of CATV System Operators exceeds one-third of the total number of CATV System Operators nationwide.
3.2.3 Where the total number of program contents sold by an enterprise and its affiliates exceeds a quarter of the number of available channels, and such enterprise and/or its affiliates request CATV System Operators of the same operational region to jointly purchase program contents, such a request may be deemed a violation of Article 19, Subparagraph 4 of the Fair Trade Law.
3.2.4 Where the enterprise mentioned in the above paragraph requests CATV System Operators of different operational regions to jointly purchase program contents, such a request may be deemed a violation of Article 24 of the Fair Trade Law.
3.2.5 Where CATV System Operators engage in the Joint Purchase of cable television program contents, or where CATV Channel Providers improperly request that the trading counter party jointly purchase program contents, and such conduct falls within the scope of any of the relevant provisions of the Fair Trade Law, such conduct shall be considered a violation of the said provisions and will be penalized accordingly.
3.3 Concerted Determination of Tariffs or Boycotts by CATV System Operators
CATV System Operators who jointly determine tariffs for cable television services or who boycott the broadcast of certain program contents by way of contract, negotiation or other form of mutual understanding, may be considered to be undertaking "concerted actions" in violation of Article 14 of the Fair Trade Law. In addition, where Multi-System Operators (MSO) that enjoy the advantage of negotiation from the number of subscribers request the major channel providers in the market to employ licensing fee distribution and agree to jointly receive payments and then divide the payments, it may also be deemed to be in violation of Article 14 of the Fair Trade Law.
4. Regulations on Other Competition Restraints and Unfair Competition in the Cable Television-Related Industry
4.1 CATV System Operators Abusing Market Power
If a CATV System Operator of a particular region, without competition or with a dominant position in the market, makes inadequate decisions pertaining to tariffs or otherwise abuses its market power, such conduct may be considered a violation of Article 10 of the Fair Trade Law. Such a CATV System Operator, though not a monopolistic enterprise as defined in the Fair Trade Law, abuses its superior market position to force its trading counter parties (such as the subscribers or channel providers) to accept unfair terms and conditions, and it is evident that such abuse has an impact on trading order, such abuse may be considered a violation of Article 24 of the Fair Trade Law. In cases where protracted negotiation for CATV channel licensing is involved, if a CATV System Operator already collects the subscription fee for more than one month from the subscribers, but, on the other hand, stalls the licensing fee for the extended licensing period by taking advantage of the channel provider's extension of licensing period based upon the consideration of the rights and interests of the viewing public and avoiding signal interruption, such a behavior shall be considered as an aberration of normal commercial activity. If such a CATV System Operator improperly sets, maintains or changes the price for goods or the remuneration for services, or causes hardship to the channel provider in business operation, it may be deemed to be in violation of Article 10 of the Fair Trade Law.
4.2 Exclusive Agency Within a Specific Operational Region
There are two types of exclusive agency within a specific operational region:
4.2.1 A specific CATV System Operator is authorized to be the exclusive agent to sell the program contents of the authorizing CATV Channel Provider: given that the specified CATV System Operator is at the same production and/or marketing stage as other CATV System Operators in the same region, other CATV System Operators in the same region will have to rely on their competitor who has been exclusively authorized to be the sales agent, as the source of their program contents. Thus, such other CATV System Operators will be forced to assume an inferior position in terms of competition.
This situation is very similar to that where CATV Channel Providers offer differential trading terms and conditions when dealing with different enterprises at the same production and/or marketing stage in a specific market. That such agency is exclusive may lead to competition restraints or may impede fair competition and, if without justification, may consequently be deemed as being in violation of Article 19, Subparagraph 2 of the Fair Trade Law.
4.2.2 A CATV System Operator, for the purposes of assuming control over competitors' sources of program contents and taking a superior position in competition, requests that upstream CATV Channel Providers not deal with other CATV System Operators within the same operational region by licensing the requesting CATV System Operator for the exclusive broadcasting rights of program contents or authorizing it as the exclusive agent to sell the program contents. This action aims at making the CATV Channel Provider cut off supply to other CATV System Operators in the same operational region or which trade with the CATV Channel Provider by limiting a trading counter party's (i.e. other CATV Channel Providers) commercial activities without justification. Such a request may lead to competition restraints or impede fair competition, and thus, may be deemed to be in violation of Article 19, Subparagraph 1 or Subparagraph 6 of the Fair Trade Law.
4.3 Differential Supply of Cable Television Program Contents
The differential supply of cable television program contents refers to a CATV Channel Provider's refusal to trade with specific CATV System Operators without justification or a CATV Channel Provider's offer to CATV System Operators, without justification, of different trading terms and conditions pertaining to the price or otherwise for the purchase of the same program contents. Such differential supply may lead to competition restraints or impede fair competition and, if without justification, may be considered a violation of Article 19, Subparagraph 2 of the Fair Trade Law.
4.4 Improper Inducement of Interest to the Trading Counter Parties
Where (1) a gift or prize-giving activity held by a CATV System Operator is against the "Fair Trade commission Guidelines on Cases Concerning Promotion by means of Gifts and Prizes , as promulgated by the Commission, or (2) a CATV System Operator induces its competitors' trading counter parties with obviously and unreasonably lower prices, and where such action may lead to competition restraints or impede fair competition, it may be considered a violation of Article 19, Subparagraph 3 of the Fair Trade Law.
4.5 Program Contents Bundling by CATV Channel Providers
4.5.1 The production, sale and viewing of cable television program contents are three processes that are independent of each other; it is not necessary that production, sale and viewing be arranged simultaneously. Besides, each of the program contents is unique and protected by the Copyright Law. Consumers tend to become a loyal audience over a prolonged period of viewing; thus, it follows that each of the program contents appeals to a certain group of regular viewers. Given that it is the business model of CATV System Operators to transmit program contents to the subscribing public through cables, each program contents is an important factor in CATV System Operators' operations. As stipulated in the Copyright Law, CATV System Operators may not legally broadcast program contents unless they have been duly licensed by the CATV Channel Providers. Based on the above, CATV System Operators greatly rely upon the regular supply of program contents.
In the case where a CATV Channel Provider uses its superior market position as described above to request that CATV System Operators negotiate the price of a group of program contents and trade in bundles, such requests will lead to competition restraints, which are described as follows: (1) the market power of CATV Channel Providers will inadequately be extended or expanded through bundling; (2) CATV System Operators will be denied the opportunity to make sensible choices concerning one single program contents; in other words, a buyer's surplus will not be realized; and (3) a CATV System Operator will have a reduced capacity for program contents, and such bundling will result in crowding-out of other CATV Channel Providers in their trading with the CATV System Operator; consequently, it is reasonable to claim that such bundling blocks the selling channels of program contents.
Based on the above, if a CATV Channel Provider forces a CATV System Operator to negotiate the price of a set of program contents and to trade in bundles, such action may constitute "improperly limiting the trading counter party's business activity by means of business engagement", as defined in Article 19, Subparagraph 6 of the Fair Trade Law.
4.5.2 Where the CATV Channel Provider compels a CATV System Operator to purchase program contents in bundles, such action will be considered as improperly limiting the trading counter party's business activity, which falls within the scope of Article 19, Subparagraph 6 of the Fair Trade Law. Nevertheless, a CATV Channel Provider may provide quotations for individual program contents without excluding the possibility of selling individual program contents to CATV System Operators; in addition, it may offer a lower price to CATV System Operators who purchase a group of program contents (i.e. "a discount price offered for a group of program contents"). Whether such lower pricing would constitute forced bundling shall be determined by the discount given.
The cost incurred by a CATV Channel Provider in the production or sale of program contents is usually fixed. The program contents, however, may be repeatedly licensed to CATV System Operators almost without limitation. From the CATV Channel Provider's perspective, granting a license to another CATV System Operator for the right to broadcast a program contents has little, if any, impact on the total amount of the cost. If the CATV Channel Provider takes advantage of the nature of the cost as described above and attempts to manipulate CATV System Operators' sensible choices of program contents by adjusting the price for individual program contents and the bundle price at its own will, such manipulation will definitely impede market efficiency and competition, as well as deprive trading counter parties of the opportunity to have freedom of choice in respect of program contents.
Based on the above, CATV Channel Providers shall be required to provide CATV System Operators with the information and the opportunity to purchase individual program contents during the quotation and trading stages. In addition, a CATV Channel Provider's offer of a large discount to CATV System Operators who purchase a group of program contents shall be appropriately regulated.
4.5.3 If it is evident that the "individual price" and the "discount price for a group of program contents" as offered by CATV Channel Providers would prevent CATV System Operators from purchasing one single program contents and force them to purchase a group of program contents, such an offer may be considered to constitute bundling in violation of Article 19, Subparagraph 6 of the Fair Trade Law. However, whether the "individual price" and the "discount price" have the effect of bundling shall be determined by the following two-phase test:
4.5.3.1 First, take a quick look and eliminate cases that absolutely do not constitute bundling: generally speaking, a "discount price" does not represent a bundling case if the CATV Channel Provider offers a discount price to CATV System Operators who purchase N program contents and such discount price is no lower than the accumulated amount of the prices for any N-1 of the program contents purchased. Because the cost of purchasing N-1 program contents does not exceed the cost of purchasing N program contents, such discount price for a group of program contents does not make CATV System Operators who intended to only purchase N-1 of the program contents eventually purchase N program contents. Thus, it is not likely that offering such a discount price for a whole set would constitute a case of bundling.
4.5.3.2 The following will be considered for cases that do not pass the first-phase of the test for "bundle price":
A. The arrangement and the relationship between the "individual price" and the "bundle price" for a group of program contents;
B. A sensible explanation provided by the CATV Channel Provider regarding the cost reduction from selling program contents as a group;
C. Quantity and contents of the programs as a group;
D. Impact on other competitive program contents;
E. Impact on the options available to trading counter parties; and
F. Other sensible reasons.
The Commission will rely on the "principle of sensibility" to determine whether the offering of a "discount price" constitutes a bundling case and a violation of Article 19, Subparagraph 6 of the Fair Trade Law.
4.5.3.3 Nevertheless, CATV Channel Providers may, while trading program contents with CATV System Operators, give appropriate discounts to CATV System Operators based on the actual trading amount, the method of payment, credit risk, cost difference, subordinate trading terms and conditions (such as broadcasting the complete program contents or on a specific channel) and other sensible reasons, as long as such discount does not involve differential treatment or the limiting of business activities of the trading counter parties without justification, as referred to in the Fair Trade Law.
4.6 CATV Channel Providers Concealing Important Trade Information
4.6.1 A CATV Channel Provider's conduct may be considered as obviously unfair conduct that would clearly affect trading order, as provided by Article 24 of the Fair Trade Law if it falls within the scope of any of the following:
4.6.1.1 The licensing fee or the method of calculating a discount for each individual program contents is not fully disclosed to the trading counter party;
4.6.1.2 The discount for purchasing two or more program contents is not fully disclosed to the trading counter party; or
4.6.1.3 In the actual trading process, the CATV Channel Provider refuses without justification to undertake the terms of the licensing fee or the method of calculating a discount, as disclosed to the public.
4.6.2 If adjustments are made to the licensing fee or to the method of calculating a discount, such adjustments shall be fully disclosed to the trading counter parties.
5. Concluding Remarks
This Policy Statement focuses on operations within the cable television-related industry and provides an outline and examples of violations of the Fair Trade Law. Specific cases shall be processed and determined by their substantial facts.