TWT Communication Inc.

1344th Commissioners' Meeting (2017)

Case:

TWT Communication Inc. violated the Fair Trade Law by adopting illegitimate practices to impede competitors from competing

Keyword(s):

Cable TV, apartment building, exclusive management rights

Reference:

Fair Trade Commission Decision of August 9, 2017 (the 1344th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 106064

Industry:

Wired Telecommunications Activities (6101)

Relevant Law(s):

Articles 20(iii) of the Fair Trade Law

Summary:

1. When conducting an investigation on other cable TV network operators (hereinafter referred to as cable TV operators) in their potential violation of the Fair Trade Law, the FTC discovered that TWT Communication Inc. (hereinafter referred to as TWT Inc.) had signed contracts with some apartment building management committees (hereinafter referred to as management committees) in Sanchong District, New Taipei City and demanded that the management committees could not enter agreements with other cable TV operators for their services. It was using illegitimate measures to impede competitors from participating or engaging in market competition and this was likely to restrict competition. Therefore, the FTC initiated an ex officio investigation on TWT Inc.
2. Findings of the FTC after investigation:
   TWT Inc. began in 2012 to sign with the management committees collective cable TV subscription contract in which an exclusive managements condition was stipulated in Article 2. Starting in July 2015, a new collective cable TV subscription contract was adopted. In its Article 5, community management rights and protection of the right to use concealed pipes were specified. Later, the first paragraph of its Article 5 of the digital cable TV and value-added service special offer agreement that was signed in May 2015 carried provisions regarding community management rights and guarantee of the right to use concealed pipes. All the aforementioned contracts and agreements also contained regulations on breaches of contract. It was using illegitimate measures to impede or exclude other competitors from participating or engaging in market competition. As TWT Inc. accounted for close to 50% of the relevant market, its adoption of provisions on exclusive management rights and breaches of contract could block or exclude opportunities for other cable TV operators to enter contracts with the management committees. The practice could also cause difficulties to the business management of competitors and increase their costs. It could lead to competition restrictions.
3. Grounds for disposition:
   A. TWT Inc. started to sign with the management committee contracts that guaranteed the company's exclusive management and community management rights and its right to use concealed pipes. It could be expected that the cables of other cable TV operators could no longer be set up for the apartment buildings of management committees that had signed contracts with TWT Inc. If such management committees insisted on allowing the cables of other cable TV operators to be set up in their buildings for the purposes of providing services, TWT Inc., besides the right to determine that the management committees have breached the contract and to cancel special subscription packages, had the right to ask the management committees to pay five times the total amount of contract value or to return the amount equivalent to the total special subscription packages as a punitive damages. Obviously, this already had resulted in the effect of obstructing competitors from participating or engaging in market competition.
   B. In early 2015, when new cable TV operators began to enter the relevant market in this case to operate and promote their services, TWT Inc. immediately sent warning letters to management committees that had signed contracts with it, reminding them that allowing the cables of new cable TV operators to enter their buildings would constitute in violation of the subscription contract. The company also demanded the management committees to ask new Cable TV operators to remove the equipment they had set up. Apparently, the new subscription contracts signed with the management committees and the warning letters issued were intended to impede new cable TV operators from participating or engaging in competition in the relevant market. Meanwhile, when promoting their business, new cable TV operators were told by some apartment building management committees that they were bound by the exclusive management contracts signed with TWT Inc. and, therefore, could not conduct any transactions with the new cable TV operators. That was proof that the provisions of the exclusive management right in the contract had indeed deterred the management committees from doing business with other competitors.
   C. TWT Inc. was an existing business with 41.9% market share the cable TV service market at issue and thus enjoyed considerable market power. However, the conduct described above apparently had led to competition restrictions in the cable TV service market in Sanchong and Luzhou Districts in New Taipei City. For new cable TV operators in the area, there were two sources of customers: households that had not subscribed to any service providers, and subscribers to existing cable TV services. For this reason, it seems fair to say that the conduct of TWT Inc. had to have a certain impact on new cable TV operators. In particular, Sanchong District and Luzhou District were part of a densely populated metropolitan area filled with apartment buildings and other collective housing units and communities. By signing with a single apartment building management committee a contract including the aforementioned provisions, a cable TV operator would be able to restrict the freedom of all the households in the same community to switch to other cable TV operators for their services, and competition from other cable TV operators could thus be eliminated. On the other hand, it is true that consumers originally could get certain benefits from the competition between new cable TV operators and existing cable TV operators, such as lower subscription fees and higher service quality. However, TWT Inc.'s adoption of illegitimate measures obstructed competitors from entering the market and made it impossible to realize the above potential benefits for consumers. If the unlawful practice was not stopped, the result would be competitors (especially new cable TV operators) withdrawing from the relevant market and the overall benefits of consumers would be jeopardized. Then, the existing cable TV operators could go back to the original subscription fee and reduce or cancel the feedback money to the community, and this will in turn lead to significant and immediate loss of consumer benefits. Therefore, the conduct of TWT Inc. apparently had a negative effect on competition in the cable TV service market and the interests of consumers in Sanchong and Luzhou Districts of New Taipei City, leading to market competition restrictions. Therefore, in addition to ordering TWT Inc. to immediately cease the unlawful act, the FTC imposed on it an administrative fine of NT$1.6 million.