Dafeng TV Ltd. & DigiTai TV Ltd.

Case:

Key Words:

cable TV, joint venture, illegal merger

Reference:

Fair Trade Commission Decision of July 8, 2009 (the 922nd Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 098096

Industry:

Cable and Other Subscription Programming (6022)

Relevant Laws:

Article 11 and 13 of the Fair Trade Law

Summary:

1. An complainant reported the following matters regarding Dafeng TV Ltd. (hereinafter referred to as Dafeng) and DigiTai TV Ltd. (which used to be Hai Sun Cable Broadcasting System Co., Ltd, hereinafter referred to as DigiTai). They have the same fee structure, share common engineers, and both affixrd the wording "Araedis" on their uniforms and cars. Digital set top boxes provided by the two companies are interchangeable, just as if the two companies were merged. The companies were suspect of violations against the Fair Trade Law.

2. Results of Investigation:

   1. Dafeng and DigiTai are the only 2 cable TV operators in Panchiao District, Taipei County. Their market shares are 44% and 56% respectively; the percentages remain almost the same during 2006 to 2008.
   2. Shareholding structure: Dafeng and DigiTai each hold 20% of Araedis Broadband Ltd. (hereinafter referred to as Araedis) since June 14, 2004, and they have become Araedis's largest shareholders ever since. Dafeng holds 21.07% of DigiTai, and DigiTai Holds 10.35% of Dafeng.
   3. Directors and Supervisors: the three companies do not have same directors or supervisors according to the list of directors and supervisors in 2007 and 2009. However, DigiTai has kept one seat of Araedis's three directors, and Dafeng has become Araedis's only supervisor ever since June 14, 2004.
   4. Operation
      1. Common digital head-ends: Dafeng and DigiTai rent head-end digital equipments from Araedis. The two cable TV companies then provide analog signals of channel programs to Araedis, and the latter will compress analog signals into digital signals through its digital facilities. Signals are transferred to TV viewers through optical fibers and coaxial owned by the 2 cable TV companies. Theviewers can then decode the signals using Digital Set Top Boxes provided by Araedis.
      2. Common trademark: Dafeng has licensed the use of its trademarks to Araedis for free in order to promote business and create common brand image. On the other hand, it also agreed verbally to lend trademarks to DigiTai for the potential merger. Although the merger plan was suspended, it did not take action to terminate trademark licensing.
      3. Common service center: Araedis, Dafeng and DigiTai set up their service centers together in a same location for the installation and removal of cable TV and broadband internet. Araedis has been in charge of actual operation and marketing, using Dafeng's trademarks and Araedis's signboard.
   5. Channel programs: As of April 2009, a total of 92 channels could be downloaded from the analog channel list on Dafeng and Digitai's websites, among which only 5 were different (channel 82 to channel 86). There were 135 digital channels available (including on demand channels), including 22 on demand channels that were not available through analog signals. Except for Channel 45, the rest were all the same.
3. Grounds for Disposition: Dafeng and DigiTai set up a joint venture to compress, transmit, and decode digital TV signals. They also share trademarks and other customer services. Therefore, the digital TV services they offer are identical. In addition, the two companies have more than 50% of digital users in total, and the market shares since 2004 are roughly the same. It is clear that the long term cooperation has led to a single identify for the two companies. As a result, they do not compete in the market and lack incentive to maximize economic benefits, thus damaging market competition. The qualifications stipulated in Article 6(1)(iv) of the Fair Trade Law are met, and the two companies should have filed a pre-merger notification pursuant to Article 11(1) of the same law since exemptions under Article 11-1 do not apply. The two companies failed to file a pre-merger notification to the FTC. Their act thus violated Article 11(1) of the said act. A disposition is imposed pursuant to Article 13(1) and Article 40(1) of the Fair Trade Law. Dafeng and DigiTai were each imposed an administrative fine of NT$ 2,000,000 and ordered to make corrections.

Appendix:
Dafeng TV Ltd.'s Uniform Invoice Number: 96974228
DigiTai TV Ltd.'s Uniform Invoice Number: 97164529
Summarized by Lin, Shu-Ling; Supervised by Liou, Chi-Jung