UFO Co., Ltd & Broadcasting Corporation of China.

Case:

Key Words:

broadcasting services

Reference:

Fair Trade Commission Decision of December 20, 2007 (the 841st Commissioners' Meeting)

Industry:

Radio Broadcasting (6010)

Relevant Laws:

Article 6 and 11 of the Fair Trade Law

Summary:

1. Investigations showed Good Sound Co. Ltd., Yue-Yue Co. Ltd., Announcer Co. Ltd., Broadcaster Co. Ltd. signed "Share Transfer Contract" and "Addendum to Share Alterations Agreement" with Hwa-Xia Investment Co. Ltd. on December 22, 2006 and December 26, 2006, obtained 97% of Broadcasting Corporation of China's (hereinafter referred to as "BCC") shares. Over 50﹪of the fund source for the 4 companies to buy the shares from Hwa-Xia Co. Ltd. came from UFO Co. Ltd. (hereinafter referred to as "UFO") and its affiliates. Furthermore, among the 16 directors of the 4 companies, 7 were current UFO employees, 6 were UFO ex-employees, and 4 were UFO's ex-employees transferred to China Broadcasting (2 of the 4 transferred back to UFO). In addition among the 16 directors of the 4 companies, more than 8 persons did not hold any shares but served as company directors. All these facts sufficient to establish that UFO's control over BCC's operation and staff employment via these 4 companies, which fits into the definition of merger type specified in Article 6(1)(v) of the Fair Trade Law.
2. In accordance with Article 10 of the Radio and Television Law, for the establishment of a station, an application shall be filed with the Government Information Office of the Executive Yuan for forwarding to the Ministry of Transportation and Communications for issuance of a station installation permit before installation can begin. Upon the completion of facilities installations, an application shall be filed with the Ministry of Transportation and Communications for inspection. Upon passing the inspection, a station license shall be issued by the Ministry of Transportation and Communications, and a radio/television station operating license issued by the Government Information Office of the Executive Yuan before formal broadcasting can begin. Broadcasting business is a special permit industry and must obtain broadcasting license before operation, thus this case should adopt "broadcasting service" as the product market. Further, as the central competent authority categorizes the radio station based on high-powered frequency modulation, medium-powered frequency modulation, low-powered frequency modulation, and amplitude modulation. Moreover, the broadcasting service providers are specified in the broadcasting license designated service region and operate in different regions in accordance with its transmitter's power. With regards to investigation on participants in this merger, UFO itself is a medium-powered frequency modulation radio station. According to Rainmaker XKM International Corp's radio listen rate survey of 2005, first quarter of 2006, and second quarter of 2006, UFO and BCC's aggregated market share in the northern region are 41.2%、42.7%、34.6% respectively. On average, the market shares attained the mandatory merger-filing threshold specified in Article 11(1)(i) of the Fair Trade Law and should provide merger application the Commission. As for the nationwide radio station market, according to the Article 1-1(1)(ii) of the Enforcement Rules for the Radio and Television Act, the minimum paid-in capital or total endowment assets of nationwide radio station is NT$200 million; this threshold is way over the minimum paid-in capital of NT$30 million for a regional radio station. Furthermore, regional broadcasting, being more limited by power, transmission radius, program hookup percentile, servicing boundary, or other restrictions, would be unable to compete against nationwide radio station. In addition, the main revenue of a radio station is income from commercials. An owner of an advertisement would consider the location of its potential customer when choosing between nationwide or regional radio stations to broadcast its commercial. Although some of the medium- and low- powered frequency modulation radio stations in regional broadcasting would adopt "spontaneous simultaneous broadcast" as a strategic alliance to reduce cost, compete for listen rate. But most alliances are medium scale or small-scaled simultaneous broadcasting network and has not yet break-through the fundamental characteristics of regional operation. So nationwide radio station and regional radio station cannot substitute for the other and hence are two different markets. Calculating the operation revenue information of 2005 and 2006 provided by each enterprise, BCC's nationwide broadcasting service revenues in 2005 and 2006 took up 63.92% and 62.75% of the market. Thus, this merger attained the minimum threshold in the Article 11(1)(ii) of the Fair Trade Law for merger application and should provide this Commission with merger filing.
3. UFO's control over BCC's business operation and staff employment fits into the definition of merger specified in Article 6(1)(v) of the Fair Trade Law. Also as UFO and BCC possess more than 1/3 of the northern broadcasting service market, and BCC holds more than 1/4 of the nationwide broadcasting market, result in such merger action meets the threshold for merger filing required in Article 11(1)(i) and (ii) of the same Law and should report such merger action. UFO's failure to file the merger report to the Commission constitutes a violation of Article 11(1) of the Fair Trade Law. In lights of UFO.'s motivation, purpose, and expected improper benefit of the unlawful acts; the degree of the unlawful act's harm to market order; the duration of the unlawful act's harm to market order; benefits derived on account of the unlawful act; scale, operating condition, and market position of the enterprise; whether or not the type of unlawful act involved in the violation has been the subject of correction or warning by the central competent authority; types of, number of, and intervening time between past violations, and the punishment for such violations; remorse shown for the unlawful act and attitude of cooperation in the investigation, and other factors, UFO is therefore being ordered to immediately correct the unlawful acts and is also fined NT$ 3 million, in accordance with the fore-section of the Article 13(1) and 40(1) of the Fair Trade Law.

Appendix:
UFO Co., Ltd.'s Uniform Invoice Number: 96954150

Summarized by Hsu, Cho-Yuan; Supervised by Lu, Li-Na