COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: 85/LM/Oct06
In the matter between:
Nokia Corporation Primary Acquiring Firm
and
Siemens Aktiengeselleschaft Primary Target Firm
Panel : DH Lewis (Presiding Member), Marumo Moerane (Tribunal
Member), and Medi Mokuena (Tribunal Member)
Heard on : 4 December 2006
Decided on : 4 December 2006
Reasons Issued: 13 February 2007
Reasons for Decision
Approval
1] On 4 December 2006 the Competition Tribunal issued a merger clearance
certificate unconditionally approving the merger between Nokia Corporation
and Siemens Aktiengeselleschaft. The reasons follow.
The parties
2] The primary acquiring firm is Nokia Corporation (‘Nokia’), a company
incorporated under the laws of Finland. 1 Nokia is listed on the New York,
Frankfurt, Stockholm and Helsinki Stock Exchanges. No single shareholder
controls Nokia, but Nokia controls a number of subsidiaries worldwide. 2
3] The primary target firm is Siemens Aktiengesellschaft (‘Siemens’), a company
incorporated under the laws of Munich, Germany. 3 Siemens is listed on the
1 Nokia has its principal place of business at Keilalahdentie 24, FIN02150 Espoo, Finland.
2 See Annexure A in record for a comprehensive list of these subsidiaries.
3 Siemens’ principal place of business is Wittesbacherplatz 2, D – 80333 Munich, Germany.
New York and Frankfurt Stock Exchanges. No single shareholder controls
Siemens but it controls a significant number of subsidiaries worldwide, as well
as in South Africa. Siemens’ participating subsidiary in this transaction is
Siemens Telecommunications (Pty) Ltd. 4
The transaction
4] This transaction forms part of an international merger which was notified in
several jurisdictions and has been approved in Israel and the United States. 5
5] On 19 June 2006, Nokia and Siemens entered into a Framework Agreement in
which they agreed to transfer their mobile and their fixedline equipment
businesses to a newly created joint venture to be called Nokia Siemens
Network (‘NSN’). This new company will have its headquarters in Finland and
its regional headquarters in Munich, Germany.
6] The business of Siemens which will be transferred to NSN is housed in a
subsidiary, Siemens Telecommunications (Pty) Ltd (‘Siestel’). Siemens will
transfer its network business housed in Siestel to NSN and Nokia will also
transfer its network business to NSN. However, the Enterprise Networks
business will remain under the sole control of Siestel and will not form part of
the transaction. On the other hand, Nokia will retain its mobile handset
business outside the joint venture.
7] Postmerger Nokia will have sole control over NSN, the joint venture company,
by virtue of holding slightly more than 50% of NSN and the ability to appoint
more directors than Siemens. 6 However, decisions on key strategic issues such
as business plans and budgets will be taken by a simple majority at board level.
Rationale for the transaction
4 See Annexure A and B in the record for a complete list of the subsidiaries controlled by
Siemens.
Siemens.
5 This transaction has been notified in the United States of America, Argentina, Brazil, Croatia,
European Union, Israel, South Korea, Taiwan, and Turkey.
6 Record p291.
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8] The merging firms have forwarded a number of reasons as their rationale for
this transaction including that:
[8.1] the transaction will result in the merging parties achieving economies of scale
through the newly formed entity. The economies of scale will be achieved in
areas which include managerial, commercial, technical, marketing and
research and development;
[8.2] the transaction will enable the merging parties to compete more effectively on a
global scale. The geographic complimentarity between the parties’ mobile
network equipment business will also improve the joint venture’s ability to
compete for the major new opportunities that are likely to arise in emerging
markets; and
[8.3] the transaction will enable the parties to save costs by avoiding unnecessary
duplication of research and development functions but will also facilitate the
development of new and innovative products and services
The parties’ activities
9] Siemens is an international engineering and electronic company involved in
diverse business portfolio’s that include information and communications,
transportation, medical solutions, power and infrastructure, automation and
control lighting, financing and real estate. It conducts its business through
sixteen operating units.
10] Siemens’ participating subsidiary is Siestel. Siestel is involved in the provision
of telecommunication equipment and related services. It provides
telecommunication equipment such as radio access network and access
network equipment, core network system and applications, fixedline OSS/BSS
and associated services, transport and IP networking equipment and network
management and business management systems.
11] Nokia is an international mobile telecommunications company with a global
network of sales, customer service and operational units that are involved in the
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manufacture and sale of cellular telephony and related services.
12] Nokia South Africa is Nokia’s participating subsidiary in this transaction.
13] The other activities of the merging parties are not considered in these reasons
since they do not affect the assessment of the current transaction. These
include the enterprise business of Siemens, 7 information communication,
power, transportation, medical and financing and real estate of Siemens as well
as the mobile telecommunication business of Nokia.
RELEVANT MARKETS
Relevant geographic market
14] The Commission and the merging parties submitted that the market is global.
This is because major providers of network equipment compete worldwide for
contracts and tenders. Moreover, telecom network equipment is generally
based on international standards. Consequently, there is a standardisation and
liberalisation of services relating to telecommunication markets. The
liberalisation of services has widened the geographic scope of
telecommunication network equipment market.
15] Although the Commission and the parties defined the market as global, they
analysed the effects of this transaction on competition both on the international
and national market. It is not necessary for the Tribunal to make a finding on
the relevant geographic market since, as shall be seen below, the impact of this
transaction is minimal on both the national and the global market.
Relevant product market
16] The parties submitted that the joint venture will be active in two core markets
namely mobile network equipment and associated services and fixed line
7 The enterprise business of Siemens which will be carved out and not form part of this
transaction, relates to Private Automatic Bank Exchange (PABX). PABX is a private telephone
exchange, which ties together telephone, fax, and data systems in a company and connects
exchange, which ties together telephone, fax, and data systems in a company and connects
these to the public telephone network.
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network equipment and associated services. The Tribunal has concluded that
the parties will indeed be active in the said two core markets. We now turn to
consider these product markets in detail and the market shares.
Market for mobile network equipment and associated services
17] Mobile network equipment and associated services comprises of radio access
network, core network system, and network management and business
management systems.
[17.1] Radio Access Network (’RAN’) RAN equipment facilitates radio access
between the mobile handset and the network via multiple base transreceiver
stations (or ‘base stations’), and a smaller number of base station controllers
that control multiple base stations. The parties both supply RAN equipment.
[17.2] Core Network System CNS equipment manages information flows within the
mobile network and includes circuitswitching equipment for voice traffic,
packetswitching equipment for data traffic, and other database responsible for
storing and processing information about subscribers and handsets. CNS
elements are also linked to other telephony networks (i.e. external networks) in
order to enable communication with fixedline and mobile telecommunication
subscribers in other networks.
[17.3] Network management and business management systems Network
management and business management systems software supports carriers’
technical and commercial needs. Software includes Operations Support
Systems (‘OSS’), it supports network management functions such as fault
identification, network configuration and performance management. Business
Support Systems (‘BSS’), supports business management functions such as
billing, charging, subscriber management.
[17.4] Associated services Various services are supplied with mobile network
equipment, including deployment, delivery and installation services,
maintenance and care services; managed services; and other professional
services. Most of these network services are closely connected to the supply of
network equipment and both parties supply mobile network services.
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International market for mobile network equipment
Table 3
Company Sales figures Market shares (%)
Ericsson 13.873 23
Nokia 6.271 10
Siemens 5.157 8
Alcatel/Lucent 7.931 13
Motorola 4.627 7
Nortel 3.325 5
NEC 2.209 4
Huawei 1.190 2
Others 16.472 27
Total 61055 100
18] On the international market for mobile network equipment the merged entity will
have a market share of 18%. The Commission highlighted that this is slightly
higher than the accepted benchmark of 15% and that the change in HHI is 160
points in a moderately concentrated market. The merging firms compete with
Ericsson which has a 23% market share, Alcatel Lucent which has a market
share of 13%, Motorola with 7%, Nortel with 5%, NEC with 4% and Huawei with
2%.
National market for mobile network equipment
Table 4
Company Sales figures Market shares (%)
Siemens 327.8 48
Nokia 1.6 0.2
Ericsson 226 33
Alcatel/Lucent 62 9
Others 68.6 10
Total Sales 686 100
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19] In the national market for mobile network equipment the merging parties will
have a postmerger market share of 48.2% and will undoubtedly be the biggest
player in that market. However, premerger Siemens enjoys a market share of
48%. The market share accretion as a result of this transaction will be only
0.2%, which is relatively low. Moreover, the merging parties will compete with
Ericsson which has a market share of 33% and Alcatel with 9%.
Market for fixed line network equipment and associated services
20] The parties submitted that they have only limited overlaps with respect to public
fixedline network equipment, since Nokia has traditionally been a niche player
in this area. Fixedline network equipment comprises of access network
equipment for the local loop, core network equipment and applications,
transport and IP networking equipment and fixedline OSS/BSS.
[20.1] Access Network equipment for local loop : Access networks, also known as the
‘last/first mile’ or the ‘local loop’, connect subscribers to the core fixedline
network and, therefore, services provided by the fixed line operator. The parties
both supply access network equipment.
[20.2] Core network equipment (including public switching) and applications : Fixed
line core network equipment and applications include public switching
equipment, applications and intelligent networks (‘IN’) equipment. Public
switching equipment allows IP/data, including servers and software, hosting
and running different applications to allow customers to intercommunicate with
various services offered by the network or third party providers. IN provides
value added services in addition to the standard telecoms services.
[20.3] Transport and IP Networking Equipment : this comprises wireline transmission
equipment (namely optical network equipment), wireless microwave radio
equipment (namely optical network equipment), wireless microwave radio
transmission equipment, and data networking equipment (namely core routing
and switching).
[20.4] Fixedline OSS/BSS and associated services : Fixedline OSS/BSS and
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associated fixedline services correspond, concerning their functionality and
characteristics, to their mobile equivalents in the area of mobile network
equipment and services.
International market for fixed line network equipment
Table 1
Company Sales figures Market share (%)
Alcatel/Lucent 8.571 12
Huawei 3.978 6
Nokia 372 1
Siemens 3.192 4
Nortel 3.228 4
Ericsson 2.975 4
NEC 2.776 4
Motorola 432 1
Others 46.232 64
Total 71746 100
21] The main feature on the market shares of the international market for fixedline
network equipment is that the merging parties will have a combined post
merger market share of 5%. They will continue to face competition from many
players including Alcatel/Lucent which has a market share of 12% and Huawei
which has a market share of 6%, among others.
National market share for fixed line equipment
Table 2
Company Sales figures Market shares (%)
Siemens 30.1 8
Nokia 0.5 0.1
Alcatel/Lucent 53 14
Ericsson 23 6
Others 272.4 72
Total Sales 379 100
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22] In the national market of for fixed line network equipment the parties will have a
postmerger market share of 8.1%. The merging parties’ competitors will
continue to effectively compete with national and international players such as
Alcatel having a market share of 14% and Ericsson having a market share of
6%.
Public Interest
23] There are no public interest issues.
Conclusion
24] This transaction does not lead to a substantial prevention or lessening of
competition and there are no public interest issues. Accordingly, this
transaction is approved without any conditions.
_______________ 13 February 2007
DH Lewis Date
Presiding Member
Concurring: M Moerane and M Mokuena
Tribunal Researcher : R Kariga
For the merging parties : L Vundla and L Morphet, Deneys
Reitz Attorneys
For the Competition
Commission : L Lamola and M Mohlala
(Mergers and Acquisitions)
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