CLN Cable TV Co., Ltd.

1351st Commissioners' Meeting (2017)

Case:

CLN Cable TV violated the Fair Trade Law by offering low prices to attract subscribers and impede competitors from competing

Keyword(s):

Cable TV, enticement with low prices

Reference:

Fair Trade Commission Decision of September 27, 2017 (the 1351st Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 106082

Industry:

Wired Telecommunications Activities (6101)

Relevant Law(s):

Articles 20(iii) of the Fair Trade Law

Summary:

1. The FTC received complaints about CLN Cable TV Co., Ltd. (hereinafter referred to as CLN Cable TV) starting in Jul. 2016 to offer one-year free services for subscribers of other new cable TV operators in Sanchong District, New Taipei City so that such subscribers will be enticed to change their cable subscriptions. The use of predatory pricing below the company's management cost to attract subscribers was in violation of Subparagraph 3 of Article 20 of the Fair Trade Law. Therefore, the FTC initiated an investigation.
2. Findings of the FTC after investigation:
   A. According to the statement from CLN Cable TV, the company offered a special plan of 18-month subscription for NT$1,500 to price-sensitive users and public-relation subscribers between June and August 2016. The text of "Special offer of 0 dollars for the first 12 months and prepayment for the following 3 months to get 3 months free of charge" was indicated in the "Plan Notes" field on the cable TV subscribers' installation form for the special plan. The so-called price-sensitive users were old CLN Cable TV subscribers who tended to be switching to other providers as a result of growing competition in the market and the price war started by competitors.
   B. The 112 cable TV subscriber installation forms provided by CLN Cable TV showed that under its special plan there were two different special offers, "True Color of Hero Special Offer" and "Target Offer" (together hereinafter referred to as special offers). 98 of them were for one-year free subscription and 14 were NT$1,500 for one-and-half-year subscription. In other words, the issue was whether CLN Cable TV's special offers of "free service for one year" and "NT$1,500 for one-and-half-year subscription" constituted the conduct of enticing subscribers with low prices to impede competitors from participating or engaging in market competition.
3. Grounds for disposition:
   A. The relevant market involved in this case was the cable TV service market in Sanchong and Luzhou Districts of New Taipei City. CLN Cable TV accounted for 50.31% of the market and had considerable market power. The investigation revealed that CLN Cable TV made two special offers in 2016, including "free service for one year" and "free service for the first year and subscription for 3 months to get 3 months free of charge in the second year (NT$1,500 in total, averaging NT$83.3 per month)". However, the average variable cost of CLN Cable TV for each subscriber in 2014, 2015 and 2016 was about NT$200. Apparently, the offers were lower than the company's average variable cost and also quite incommensurable to the prices the company had charged regular subscribers before or charges imposed by other cable TV operators. Either in view of common business concept or in the perspective of cable TV subscribers, the offers were obviously rather unusual.
   B. To respond to the situation of new cable TV operators entering the relevant market, CLN Cable TV adopted the aforesaid offers to entice subscribers of new competitors and the offers already had an effect on the customers' normal choice of cable TV service provider and its new competitors therefore suffered from losing their customers and losses due to subscription termination and refunding. Meanwhile, CLN Cable TV also used breach-of-contract provisions to deter users from dealing with its competitors and form a shield against competition from new cable TV operators. The above conducts created a negative effect on the performance competition in the relevant market and eventually could force new cable TV operators out of the market. Since CLN Cable TV had considerable market power in the relevant market, the conduct obviously had a negative impact on the competition in the cable TV service market in Sanchong and Luzhou Districts of New Taipei City and consumers' interests. It could result in the restrictions of market competition. Therefore, the FTC concluded that CLN Cable TV had violated Subparagraph 3 of Article 20 of the Fair Trade Law and imposed an administrative fine of NT$1 million on the company. However, since the special offers ended in August 2016, there was no need for the FTC to order the company to cease the unlawful act.