On 18 October 2017, the Court of the Administrative Council for Economic Defense – CADE approved with restriction the acquisition of the corporate control of Time Warner by AT&T in Brazil. The transaction was conditioned to the execution of Merger Control Agreement (known in Portuguese as ACC), which foresees the compliance with commitments which would eliminate the risks of anticompetitive acts in the market of Pay-TV.
In Brazil, the merger will result in a vertical relationship between Sky Brasil, a packing and distribution company controlled by AT&T Group, and Time Warner, a content programming and channel licensing company. As noted by the General Superintendence of CADE, both companies have high market power and could align interests, exchange sensitive information about competitors and negotiate more favorable conditions, harming the competition in the pay-tv sector.
Before the judgment section of 18 October, the General Superintendence of the CADE had recommended the CADE’s Court to deny the merger, which could not be approved as initially presented. However, CADE’s Court decided that a better alternative would be to submit the approval to an ACC that imposes a number of obligations for at least five years.
The purpose of the ACC is to cover all the competition problems pointed by CADE and prevent that the vertical structure resulting from the operation brings substantial losses to free competition in the sector, such as the closure of the market and/or significant disadvantages to other players.
Firstly, the ACC imposes a structural separation of the companies, which shall remain as different legal entities. In this regard, the Rapporteur of the case, Gilvandro Araújo, explained that the companies must act as distinct legal entities, as autonomous agents, with their own administration, accounting and governance, in order to avoid the sensitive information sharing among agents of the economic group as well as anticompetitive discriminations.
The ACC also commits AT&T to offer Time Warner’s programming channels to non-affiliated packers and providers of pay-tv with all the programming channels licensed to Sky, in a non-discriminatory basis. The company should also formalize the current licensing agreements.
In turns, Sky will not be allowed to refuse to broadcasting or to impose terms to broadcasting that could be considered discriminatory to the programmers not affiliated to AT&T, compared to those applicable to the Time Warner’s channel programmers.
It was also established that an independent consultant will be appointed to monitor compliance with the ACC, and the companies still have the obligation to inform CADE any request, termination and complaint about discriminatory practices.
Any conflicts related to contractual terms and conditions – including if any competitor have difficulty to negotiating appropriate conditions – shall be resolved via arbitration.
The non-compliance with the ACC may incur in penalties of warning, fines and extension of the ACC terms for more five years, without prejudice to other penalties to be applied by CADE.
Finally, it bears to mention that CADE’s Court judgment was based on the antitrust perspective. The regulatory impacts of the merger – specially as regards the restrictions to verticalization established by the Pay-TV Law (Law 12,485/2012) – will be examined by the regulatory agencies Anatel (the National Telecommunications Agency) and Ancine (the National Cinema Agency).
*This article was written with the valuable contribution of Vitor Koketu da Cunha, legal trainee of Azevedo Sette Advogados.