National Economic Prosecutor approves with conditions the merger between VTR and Claro

The National Economic Prosecutor’s Office (FNE) reported this Wednesday that it approved, subject to compliance with structural mitigation measures, the merger between VTR and Claro. The operation, says a statement from the FNE, gives rise to a joint venture between VTR and Claro for the joint development of fixed services (internet, pay TV and telephony) and mobile services (telephony, internet, and SMS and MMS messaging).

The FNE began its investigation in January 2022. The parties involved are América Móvil -a firm that is part of a business group of Mexican origin dedicated to telecommunications services- and Liberty Latin America, an international holding company of US origin dedicated to telecommunications services. Both, at the end of September 2021, had communicated to the market their decision to merge their respective operations in Chile: Claro and VTR. Days following his announcement, they entered the query to the Prosecutor’s Office.

Later, In March, the FNE had warned of certain risks from the merger of both companies. At that time, the persecuting entity warned of a possible monopolization of spectrum and the market power that they might acquire in the internet and pay television markets. In addition, he warned regarding the risk of the packaged sale of fixed and mobile services.

“The operation would generate risks related to spectrum ownership. In effect, the parties might enhance their spectrum portfolio with fewer regulatory obligations compared to their competitors,” the entity had stated at the time, adding that “the parties have high market shares in the provision of fixed services, particularly on the Internet. and Pay TV, where they exceed 40%”. “For the same reason, the operation might generate unilateral risks in the provision of fixed services, both individually and in packages,” he said at the time.

However, the FNE reported this Wednesday that ruled out the existence of unilateral risks of price increases or quality decrease in the retail segment.

In the case of fixed internet services, the investigation carried out by the FNE took into account the competitive conditions of the market, concluding that the joint venture it will be effectively disciplined by competitive pressure from other incumbent players, such as Telefónica and Entel, or new entrants, such as Mundo, both at the national and local levels. “In addition, all of them, unlike VTR and Claro, have a technological advantage by having fiber optic networks, in addition to having relevant expansion plans,” the FNE now points out.

Regarding the market for pay TVthe prosecution found that there are other relevant operators that would also put competitive pressure on the entity resulting from the joint venture and projected that new forms of visualization, such as streaming and platforms over-the-topthey would continue to do so with even greater force in the future.

Refering to fixed telephony, the risks were ruled out due to the significant drop that this segment has suffered in recent years.

However, the authority did warn that, in the absence of structural mitigation measures, the operation generated a risk capable of substantially reducing competition in wireless servicesdue to the possible hoarding of the radio spectrum, considered an essential input for the provision of mobile services.

To mitigate such risk, VTR and Claro offered the FNE various proposals for mitigation measures. After the fifth presentation of the parties, the FNE considered the solutions offered as effective, since they consisted of a feasible spectrum disinvestment package to be tendered by the Undersecretary of Telecommunications in the future and capable of attracting the interest of potential buyers.

It involves the return of 10 MHz of spectrum to the State in the medium macro band (3.5 MHz band) and another 10 MHz of spectrum in the low medium macro band (AWS band), in addition to updating the effective and efficient use plan of the spectrum that Claro currently owns.

For the FNE, these measures guarantee that the joint venture will effectively and efficiently use the entire spectrum that it will maintain under its ownership and they are effective and suitable to prevent the operation from generating a substantial reduction in competition. In addition, they are feasible to implement, execute and monitor and proportional to the competition risks detected.

Additionally, the FNE warned VTR and Claro that the joint venture might violate a resolution pronounced by the Court for the Defense of Free Competition (TDLC), in which it prohibited VTR and its controller from participating in the ownership of satellite television operating companies in Chile.

Given this, the parties undertook before the FNE to comply with said resolution, transferring the assets of Claro’s satellite television business to a fiduciary agent, outside the scope of administration of the joint venturebefore materializing it, who will be in charge of divesting them to a third party independent of VTR and Claro, within a certain term.