Joint Committee on The Draft Communications Bill Minutes of Evidence



Memorandum by the Bill Team on Reforming the Newspaper Merger Regime

 

1.  EXECUTIVE SUMMARY

Key aspects of reform

  1.1  The new regime will deliver lighter touch regulation for the vast majority of newspaper cases that do not raise competition or plurality concerns, whilst retaining appropriate powers to intervene in those cases that do Executive Summary raise concerns. In particular:

    —  The removal of criminal penalties will mark the end of an increasingly anomalous distinction between the newspaper regime and transactions in other media and non-media sectors;

    —  The regime will be integrated with the normal merger control regime. There will also be greater procedural consistency as between newspaper transactions and non-newspaper transactions;

    —  By focusing only on transactions that are individually identified as raising real problems, the regime will be more efficient;

    —  Removal of the prior consent provisions will lift an unnecessary legal hurdle for uncontentious transactions. As under the mainstream merger regime, powers will be put in place to prevent steps being taken that would preclude effective intervention by the relevant authorities in relation to difficult transactions;

    —  The regime will be fairer and more consistent. Currently newspaper acquisitions are subject to different regulatory processes depending on whether or not the purchaser is an existing newspaper proprietor.

The rationale for the newspaper regime and for its reform

  1.2  The rationale for the introduction of a special regime for newspaper mergers in 1965, following the Report of the Royal Commission on the Press in 1962, [17]was that control of the Press was a matter of particular public sensitivity, and that the increasing concentration of newspaper ownership in too few hands could stifle the expression of opinion and argument, and distort the presentation of news. [18]

  1.3  A regime was introduced by the Monopolies and Mergers Act 1965—now found in the Fair Trading Act 1973—whereby most newspaper mergers are subject to a stricter regime than general mergers. [19]A newspaper transfer that meets the criteria for the application of the regime is unlawful and void if it proceeds without the prior consent of the Secretary of State. With certain limited exceptions the Secretary of State cannot consent to qualifying newspaper transfers without a reference to the CC. Criminal penalties attach to breach of the consent requirements.

  1.4  The regime has imposed significant costs on the industry and the vast majority of cases considered by the Secretary of State under the newspaper regime have been given unconditional consent, whether following or without a CC reference. Nonetheless, the small number of cases where the Government has intervened to address freedom of expression concerns indicate that there is a continued role for measures to protect these interests.

  1.5  Provisions that were appropriate in 1965 and 1973 require re-evaluation today, to reflect developments in merger control practice and changes in the nature of the newspaper industry. The Communications Bill is an opportunity to rationalise and better target the regime. Where consistent with the overall protection of the particular public interest in newspapers it is also appropriate to seek to reduce the regulatory burden on business.

Jurisdictional criteria (see section 3 below)

  1.6  The newspaper public interest consideration will be potentially applicable to all newspaper transfers that satisfy the general jurisdictional criteria for mergers in the EB.

  1.7  In addition, there will be an extended jurisdiction to ensure that the newspaper public interest consideration will be applicable regardless of the identity or existing business interests of the parties to the merger if two or more enterprises have ceased to be distinct and the merger involves an enterprise that has a 25 per cent or more share of supply of newspapers or advertising in newspapers (or any category thereof) in the UK or in a substantial part of the UK. [20]

 

  1.8  Any reference will have to be made within the timelimits imposed by the EB—normally within four months of the later of completion of a transfer or its publication.

Substantive assessment (see section 4 below)

  1.9  Cases satisfying either the standard or extended jurisdictional criteria, and in relation to which an intervention notice is served, will be assessed by reference to a specified newspaper public interest test. If the transaction qualifies under the existing EB jurisdiction this assessment will be in addition to the standard competition assessment and the analysis of any other public interest criteria that are specified in the intervention notice.

  1.10  The newspaper public interest consideration will encompass the public interest in:

    (a)  accurate presentation of the news,

    (b)  free expression of opinion, and

    (c)  the maintenance of plurality of views

  in the UK press.

Procedure (see section 5 below)

  1.11  As the Minister accountable to Parliament it is appropriate that the Secretary of State retains powers of intervention in relation to transfers raising plurality considerations. She will be able to refer transactions that are subject to an intervention notice to the CC for investigation. In so deciding she will balance the overall public interest in both competition and plurality, but she will accept the judgment of the OFT, as the specialist regulator, as to whether the transaction might result in a substantial lessening of competition that should be looked at in detail by the CC.

  1.12  At the detailed investigation stage the CC will have a wider remit in conducting its investigation than will apply to other mergers under the EB procedure. In particular it will be directed to consider the impact of the transfer on the accurate presentation of news, free expression of opinion and plurality of views in the UK press.

  1.13  There will be an advisory role for OFCOM, in relation to plurality issues, both at the point of decision to make a reference and on remedies following report.

  1.14  So far as possible, procedures will be identical to those applying to standard mergers and public interest consideration cases under the existing EB provisions. However, the role of OFCOM, and the extended jurisdictional provisions, will require some modifications to the EB processes. These issues are explored in further detail below. Flowcharts showing an overview of procedures under the new newspaper regime are attached at Annexes D and E.

Remedies

  1.15  The CC will report to the Secretary of State. She will be required to accept the CC's views as to whether the transaction may be expected to result in a substantial lessening of competition. However the overall decision and the decision on remedies will be for the Secretary of State alone, although she will have regard to any recommendations in the CC's report and will be advised by OFCOM on plurality issues. The Secretary of State will decide on the basis of a test that will take account of both plurality and competition.

  1.16  As under the EB appeals will lie to the Appeals Tribunal. [21]

2.  RELATIONSHIP WITH ENTERPRISE BILL

  2.1  The EB makes substantial revisions to the UK merger regime and the new newspaper regime will need to be fully integrated with the new arrangements. A separate memorandum exploring, inter alia, the interrelation between the EB and the new newspaper regime, has been provided to the Committee. These issues are not further explored in this memorandum.

  2.2  Flowcharts illustrating the procedures that will apply under the standard EB regime and the EB public interest consideration provisions are attached at Annexes B and C.

 

 

3.  ESTABLISHING JURISDICTION FOR THE APPLICATION OF THE NEW NEWSPAPER REGIME

Concept of a "newspaper"

  3.1  It is proposed that the term "newspaper" should continue to be defined in the legislation and the policy preference is to make no change to its scope as set out in the current legislation. This defines a newspaper as "a daily, Sunday or local (other than daily or Sunday) newspaper circulating wholly or mainly in the United Kingdom or in a part of the United Kingdom".[22]

  3.2  These provisions will be aimed at newspapers produced and circulated in paper form. However, changes in technology may mean that there will be some evolution in our understanding of what constitutes a newspaper. Accordingly, it is proposed to include a power by statutory instrument with affirmative resolution procedure to adapt the definitions of newspaper and related expressions to enable this regime to be extended. Such an instrument might also need to modify the provisions setting the extended jurisdiction criteria for newspapers. We can also envisage that the reference to "circulating wholly or mainly in the UK" could cease to be the appropriate test—for example, if there were a consolidation of titles across English-speaking nations, or perhaps more plausibly across Eire and Northern Ireland. In such a case an alteration to this definition would be appropriate.

 "Newspaper proprietor" and "transfer of newspaper assets"

  3.3  The FTA gives extended meanings to the expressions "newspaper proprietor" and "transfer of newspaper assets". It is thought that the new provisions, which build on the EB concept of enterprises ceasing to be distinct, will avoid the need to define these terms.

"Standard" jurisdiction

  3.4  In order to provide consistency with the procedures and scope of the EB merger provisions and the national security public interest consideration regime, the jurisdictional criteria established in the EB provide an appropriate starting point in delimiting the scope of the new regime.

  3.5  Under the EB provisions, the Secretary of State is able to intervene where she believes the merger may raise a specified public interest consideration so long as the standard jurisdictional tests are met. Clauses 22(1) and (2) of the EB set out the criteria which will determine whether a merger will qualify for investigation by the competition authorities, thereby making it a "relevant merger situation". A relevant merger situation is created where two or more enterprises cease to be distinct (as defined in clause 25 EB) within a certain time period (in accordance with clause 23 EB) and where at least one of the following thresholds is met, namely:

    —  the value of the turnover in the UK of the enterprise being taken over exceeds 45 million; or

    —  the merger would result in the creation or enhancement of at least a 25 per cent share of supply of goods or services in the UK or in a substantial part of the UK.

  3.6  We intend the newspaper public interest consideration to be available in relation to all transactions that are "relevant merger situations" as defined in clauses 22(1) and (2) EB. Thus, if the transaction satisfies the standard jurisdictional test, the Secretary of State should be able to issue an intervention notice, just as she can for public interest cases under the EB and, subject to the modifications described in this memorandum, the procedures which attach to the public interest regime in Part 3, Chapter 2 of the EB should apply.

"Extended" jurisdiction

  3.7  It is important to recognise that the mainstream merger regime in the EB is focused on transactions that (a) involve acquisitions of companies with relatively high overall economic significance (the turnover test) and/or (b) will have a consolidating impact in a relevant market (the share of supply test). This is entirely appropriate in the context of a competition based regime.

  3.8  However, plurality concerns are not necessarily so limited. Where the concern relates to the likely impact of a change of owner on accurate presentation of the news or free expression of opinion, it is not relevant whether the acquiror has a consolidating effect. Equally, a 45 million turnover threshold in the context of the newspaper industry is a relatively high threshold; many local newspapers fall below this level and yet such newspapers can be of key significance for their local communities, which if small may not be able to support a great diversity of newspaper titles.

  3.9  There is therefore a need for an extension to the jurisdictional scope of the EB as regards plurality concerns. In this respect there is a precedent in the form of the exceptional provisions available in relation to national security under the special public interest regime. As with these provisions the intention is that the extended jurisdiction for the newspaper regime will be focused on the newspaper public interest consideration; the mainstream EB provisions are entirely appropriate to deal with the competition impact of transactions in the market and it is not intended to provide for any extension of the competition regime.

  3.10  Equally, it is not intended to impose regulatory burdens on the very smallest transactions, where any impact on competition or plurality would be de minimis.

  3.11  The policy intention is therefore to ensure that the newspaper public interest consideration will not be restricted to transactions leading to an accretion of share of supply (as is the case under the mainstream share of supply provisions as explained above); if either of the enterprises that cease to be distinct have, pre-merger, at least a 25 per cent share of supply of newspapers or advertising in newspapers (or any category thereof), then the transaction should be open to intervention. This should be the case even if the purchaser has no existing presence in the market (and vice versa).

  3.12  To summarise, the Secretary of State will also be able to intervene to consider newspaper public interest issues where:

    —  Two or more enterprises cease to be distinct within the time limits set out in clause 23EB; and

    —  One of the enterprises involved in the relevant merger situation has at least a 25 per cent share of supply of newspapers or advertising in newspapers (or any category thereof) in the UK or in a substantial part of the UK.

De minimis

  3.13  The following types of transaction will therefore be completely excluded:

    —  Transactions where the turnover of the company acquired is below 45 million and there is no share of supply of 25 per cent or more;

    —  Transactions where the turnover of the company acquired is below 45 million and there is no share of supply of 25 per cent or more in a substantial part of the United Kingdom. It is intended that this phrase will bear the same meaning as under clause 22(3) EB. [23]

  3.14  In addition it should be noted that no consequences will flow from the fact that a transaction falls within the extended jurisdiction unless and until there is an intervention on the facts of a particular case.

  3.15  For the avoidance of doubt, the provisions of the existing regime where jurisdiction is determined (in part) by paid for circulation figures will not be carried forward. These measures have proved inflexible and in any event inappropriate in a regime that is to apply equally to free-sheets. Share of supply for the purposes of the newspaper regime will be determined in the same way as for the mainstream merger regime.

Share of supply of newspapers or advertising in newspapers

  3.16  It is necessary to define the goods or services to which the extended jurisdiction is to apply, in order to avoid too many transactions falling within the technical scope of the extended regime.

  3.17  The policy intention is to identify the generic sector to which the extended jurisdiction should apply—ie, the supply of newspapers or advertising in newspapers—but to allow this to be broken down more specifically in identifying the category of goods or services in relation to which the 25 per cent share of supply is held in any particular case.

  3.18  This will be a share of supply test consistent with that applied under the EB. In respect of the calculation of the share of supply, this will be determined in the same way as for the mainstream merger regime (clause 22(5)). Thus, the criteria for determining whether the share of supply has been fulfilled would be up to the competition authorities to determine in each case and could, for example, be based on circulation, value, cost or advertising revenue.

Acquisitions short of control

  3.19  The current newspaper regime only applies to direct or indirect acquisitions of a 25 per cent voting interest (see section 57 FTA), whereas the standard merger provisions and the new EB regime apply to acquisitions of "material influence" over an enterprise, which can arise at lower levels of interest and conceivably in the absence of an equity interest. [24]The different provisions in the newspaper regime were justified by reference to the criminal sanctions that applied, meaning that a high premium was placed on certainty as to the application of the regime. With the removal of criminal sanctions there is not the same justification for applying a different concept of what constitutes a merger to that used in the standard merger regime.

Time Limits

  3.20  We do not wish to continue the requirement for prenotification. Parties to newspaper transfers will in future be under no positive obligation to notify transfers. Like all UK merger parties they will have the option to proceed to close the transaction before clearance is obtained, subject to the power of the OFT to examine and refer transfers post-completion. These powers will be subject to the standard longstop on intervention of four months from the later of announcement or the date that the transfer becomes unconditional. Further details on procedural aspects of our proposals are discussed in section 5 below.

 

 

4.  SCOPE OF THE PUBLIC INTEREST CONSIDERATION

  4.1  Cases satisfying either the standard or extended jurisdictional criteria, and in relation to which an intervention notice is served, will be assessed by reference to a newspaper public interest test (see paragraphs 4.9 to 4.15 below). If the transaction qualifies under the existing EB jurisdiction this assessment will be in addition to the standard competition assessment and the analysis of any other public interest criteria that are specified in the intervention notice.

  4.2  Although the jurisdictional criteria set the basic requirements beyond which transactions can be considered wholly de minimis, the terms of the public interest consideration will mean that intervention will only be appropriate for those newspaper transactions that potentially raise real plurality concerns.

  4.3  The additional public interest assessment will only apply to those transactions in relation to which an intervention notice is served.

Precedents

  4.4  Under the existing regime the CC is required to look at "whether the transfer in question may be expected to operate against the public interest, taking into account all matters which appear in the circumstances to be relevant and, in particular, the need for accurate presentation of the news and free expression of opinion" (section 59(3) FTA). This should be compared to the criteria for assessment currently applying to mainstream mergers under section 69(1) that a merger situation "operates, or may be expected to operate, against the public interest".[25]

  4.5  Of the 46 newspaper cases referred to it since 1979, the CC has made adverse findings (in relation to all or part of the transfers in question), in nine published reports. [26]Of these, the particular criteria specified for the newspaper regime that are not of general application (free expression of opinion and the accurate presentation of news) were relevant to five decisions, and were the key reason for an adverse conclusion in two (The Observer/George Outram & Company Limited (June 1981), where the concern was a conflict of interest between the Observer and the wider group of the purchaser, and Mr David Sullivan/The Bristol Evening Post (May 1990), where the concern was that the purchaser would seek to interfere with editorial policy and the character and content of the newspapers, and the acquisition was liable to harm the standing of the newspaper in their community).

  4.6  For an example of a recent case where plurality concerns—as well as competition concerns—were relevant there is Trinity plc/Mirror Group plc and Regional Independent Media Holdings Ltd/Mirror Group plc (July 1999). Here the CC was concerned that the common ownership of two Northern Irish publications with a unionist stance was likely to lead to convergence in the perspectives of the two papers and the loss of a distinctive voice in representing unionist opinion. Issues of editorial interference were also examined in the CC's most recent report on a newspaper merger reference—Johnston Press plc/Trinity Mirror plc (May 2002)—where an allegation of editorial interference was raised part way through the reference and was investigated by the CC, although the concern was ultimately not upheld. [27]

  4.7  However, the wider public interest aspects of the current regime are important not only as regards those cases that are subjected to a full investigation by the CC, but also in relation to those transactions which either are never pursued, because the clear public interest detriments would mean that consent would not be forthcoming, or those transactions where the Secretary of State is able to grant consent without a reference, but does so subject to conditions designed to protect the wider public interests that may be in issue.

New Regime

  4.8  We consider that the existence of these cases, where on detailed examination plurality concerns have been identified, illustrate the continued need for special provisions to protect the additional public interest concerns that arise in relation to newspaper transfers. The fact that these cases are a minority of all newspaper transfers illustrates the need to develop a better focused and targeted regime.

  4.9  Further detail is set out below, but broadly it is proposed that the new newspaper public interest consideration will encompass the public interest in:

    (a)  accurate presentation of the news,

    (b)  free expression of opinion, and

    (c)  the maintenance of plurality of views,

  in the UK press.

  4.10  The phrase "in the UK press" is intended to focus the consideration on newspapers published in paper form. For the purpose of establishing whether the newspaper public interest consideration is met, the perspective is the United Kingdom rather than Europe or the English speaking world. In any particular case though it might be the whole of the United Kingdom, or any geographical part of it, or any relevant market within it that is relevant.

(a)  Accurate presentation of the news

  4.11  The impact of a relevant merger situation on accurate presentation of the news is likely to be assessed by reference to evidence of past behaviour by the enterprises in question, or by the persons with control of such enterprises, in relation to that or other enterprises, including but not limited to newspapers.

  4.12  In the 1990 case of David Sullivan and the Bristol Evening Post the MMC (predecessor of the CC) concluded that evidence of David Sullivan's connection with the Daily Star (plus his holdings in the Sport and the Sunday Sport) suggested that he would seek to influence editorial policy and the character and content of the newspapers in a manner which would harm both the accurate presentation of news and the free expression of opinion.

(b)  Free expression of opinion

  4.13  The key concept here is normally the potential impact on editorial decision-making of the two enterprises ceasing to be distinct ie the extent to which the transfer would affect the freedom of editors to operate without interference from the proprietor.

  4.14  The CC has generally found that to maintain or increase circulation, regional or local newspapers must reflect the views and concerns of readers in their area, and that local editors are best placed to judge this (see for example para 2.22 of the Trinity/Mirror Group/Regional Independent Media Holdings report). Market forces therefore tend to ensure a significant degree of independence for local editors, whether the owner is a national publisher or a local publisher. However, there are exceptional cases—for example the Sullivan case—where these forces were found to be insufficient to give confidence of editorial independence. At a national level there is the finding in George Outram & Company Ltd/The Observer (June 1981) that remedies were required to safeguard editorial independence against a potential conflict of interest arising out of the extensive business interests of Lonrho (the parent company of the purchaser George Outram & Company Ltd).

(c)  Plurality/diversity of views

  4.15  The concept of "plurality of views" is intended to encompass the maintenance of the diversity of different viewpoints currently exhibited in the relevant sector of the press. It is also aimed at identifying issues such as those arising in the Trinity/Mirror Group/Regional Independent Media Holdings report, where the concern was that the two newspapers should remain in separate ownership, so that the existing distinctness of view and opinion would be maintained. It is not intended to replicate or import aspects of the SLC test that (where appropriate) will be applied separately.

Future proofing

  4.16  Powers equivalent to those already provided for in the EB to add, remove or amend specified public interest considerations will apply to the newspaper public interest consideration.

 

 

5.  PROCEDURE

Stage I

(a)  Existing EB provisions

  5.1  The EB establishes two public interest regimes. There is a power in Part 3, Chapter 2 to intervene in relation to specified public interest considerations in relation to any transaction satisfying the mainstream merger criteria. At present the only specified consideration is "[t]he interests of national security" (clause 57 EB). There is then a "special public interest" regime in Part 3, Chapter 3 that applies to transactions involving "relevant government contractors". The provisions extend the possibility of intervention by the SoS to transactions with such contractors that do not qualify as a merger situation under the mainstream EB provisions solely because they do not satisfy the turnover/share of supply thresholds. Any intervention under these latter provisions is in relation to specified public interest issues only. There is no competition analysis.

  5.2  Under the provisions currently included in the EB the Secretary of State has a discretion (but not an obligation) to intervene in relation to any case where she believes a public interest consideration may be raised, however she becomes aware of a case.

(i)  Intervention notices and OFT report

  5.3  The Secretary of State intervenes by serving a notice on the OFT. Only once the notice is served is a case diverted from the standard procedure. A notice cannot be served if a reference decision has already been taken by the OFT.

  5.4  Once an intervention notice is served, the OFT is then required to produce a report for the Secretary of State covering (a) its view on the issues it would have considered in a competition-only case (including whether a relevant merger situation has been or will be created, whether the creation of that situation will or may be expected to result in an SLC, the importance of the market, whether there are any relevant customer benefits and whether undertakings in lieu would be appropriate); and (b) a summary of the representations that it has received on the public interest consideration (see clause 43 EB). However, for special public interest cases, in the case of (a) above, competition aspects will not be relevant and the OFT must report only on whether it believes that a special merger situation has been or will be created (together with a summary of third party views) (see clause 60 EB).

  5.5  The OFT may also include in its report advice and recommendations on any public interest consideration mentioned in the notice that may be relevant to the Secretary of State's decision.

(ii)  Reference to the CC

  5.6  Where an intervention notice has been given and an OFT report received, the Secretary of State is then able to:

    (1)  refer the case to the CC for examination where she believes that there could be a relevant merger situation that—taking into account only specified public interest considerations and where appropriate a possible SLC—might be adverse to the public interest. Where the OFT has concluded that there is no SLC the reference can only be on public interest grounds. Where the OFT believes that there is or may be an SLC it could be on public interest and competition grounds. [28]

    (2)  accept undertakings in lieu (such undertakings are accepted by the Secretary of State but the OFT has a role in settling the text);

    (3)  clear the merger—even where the OFT have identified competition problems—on an overall assessment of the public interest. The Secretary of State will be bound by the OFT's findings on the competition aspects and any anti-competitive outcome will be treated as being adverse to the public interest unless she considers this to be outweighed in the overall assessment; or

    (4)  decide that no public interest issue is relevant in which case the matter reverts to the OFT to make the reference decision.

  5.7  In reaching her decision the Secretary of State balances competition concerns with the public interest considerations, but she is bound by the OFT's finding as to the possibility of a substantial lessening of competition. If the OFT advises that there is no anticipated impact on competition then a reference can only be made in relation to the public interest consideration aspects of the transfer.

(b)  Proposed new newspaper public interest consideration

  5.8  The procedure for the newspaper public interest consideration will be largely aligned with the provisions already included in the EB, although the need to provide for extended jurisdiction, and for the role of OFCOM, means that some modifications are required. The extended jurisdiction will, so far as possible, be consistent with the procedures applying under the existing special public interest regime.

(i)  Market monitoring

  5.9  Consistent with its obligations as the body responsible for the operation of the mainstream merger provisions, the OFT will carry out the initial market monitoring activity in relation to newspaper cases, with the obligation (equivalent to its duties under the national security regime) to inform OFCOM and the Secretary of State of cases that appear to raise the newspaper public interest consideration issues. The Secretary of State will also retain the ability to look at cases of her own initiative, and it would equally be open to OFCOM to draw cases to her attention.

(ii)  Intervention notice

  5.10  Where a transaction is identified as giving rise to the newspaper public interest consideration—the public interest in the accurate presentation of news, free expression of opinion, and plurality of views in the UK press—the Secretary of State will be able to serve an intervention notice as under the current public interest/special public interest provisions. She will then be able to consider whether to refer the transfer to the CC for examination of the newspaper public interest consideration together with any competition issues that are identified by the OFT, or to direct the OFT to seek undertakings in lieu. In so deciding she will seek the advice of OFT and OFCOM. Mechanisms will be introduced to ensure that both of these will provide advice in a timely manner and, in the context of a merger notice, in sufficient time for an informed decision to be made within the statutory timetable.

  5.11  In practice OFCOM will carry out any substantive consultation on plurality issues, with OFT taking responsibility only for the competition aspects of the transaction.

  5.12  In the event that the Secretary of State decides that the newspaper public interest consideration is not relevant to a transaction, the case will revert to the OFT and to the standard procedure. Otherwise the Secretary of State will balance the interests of competition and plurality in making the decision as to reference. The Secretary of State's range of options will therefore be the same as described in relation to the existing EB provisions above (see paragraph 5.6 above).

  5.13  As under the current EB arrangements, the Secretary of State will not be able to dispute the OFT's finding as to competition; if no competition concerns are identified the Secretary of State will not be able to make a competition reference, but she will still be able to make a reference of the public interest consideration aspects alone.

  5.14  In relation to cases falling within the extended jurisdiction, broadly the same procedures will apply as for mainstream mergers, but the OFT will assess only jurisdiction and will not carry out any competition analysis.

Stage II

(a)  CC procedures

  5.15  Once seized of a newspaper transfer under a newspaper public interest consideration reference, the CC will be required:

    (1)  to assess jurisdiction—whether or not the transfer is a relevant merger situation within the standard EB regime or, in the alternative, whether it satisfies the extended newspaper jurisdiction;

    (2)  where mentioned in the reference, to consider whether the merger may be expected to result in a substantial lessening of competition;

    (3)  taking account only of competition aspects (if referred) and the identified public interest consideration, to form a view as to whether the transfer operates or may be expected to operate against the public interest;

    (4)  to propose remedies to (a) any competition detriment and (b) any overall adverse public interest finding.

(i)  Consultation obligations

  5.16  In general, the CC will to be able to adopt its own procedures, within the limits already prescribed for public interest consideration cases in the EB. However, where a reference is made to the CC under the newspaper public interest consideration there will be a specific requirement on the CC to consult with a view to obtaining a representative cross section of opinion of those who may be affected by the newspaper merger. It is envisaged that this could, for instance, be in the form of Citizens' Juries.

(ii)  Newspaper Panels

  5.17  Currently the Secretary of State is required to maintain a specialist newspaper panel pursuant to paragraph 22 of Schedule 7 to the Competition Act 1998 and can appoint up to three members from the newspaper panel to the group constituted to deal with a newspaper merger reference (paragraph 15(5) of that Schedule) who must then be member(s) of the group. The EB amends these provisions so that the appointment of a newspaper panel member to a group constituted for a newspaper merger reference is a matter for the Chairman of the CC, and not the Secretary of State (see paragraphs 10 and 12 of Schedule 11 to the EB).

  5.18  The Chairman will only be able to select a newspaper panel member to be a member of the group where a reference is made specifying the newspaper public interest consideration. Cases that are not subject to intervention will be dealt with under the general mergers regime in the same way as any other transaction. This reflects the policy of aligning, so far as possible, the newspaper merger regime with the general merger regime.

  5.19  On completion of its report, the CC will deliver the report to the Secretary of State, and at the same time will supply copies to OFCOM.

(b)  Secretary of State's obligations

  5.20  On receipt of the report, the Secretary of State will:

    —  Publish her decision on whether or not there is an adverse public interest within 30 days of receipt of the report. As under the existing EB public interest provisions she will accept the CC's conclusions on competition (where applicable);

    —  Consider the question of remedies where the decision made is that there is an adverse public interest. As under the EB provisions, she must have regard to the report of the CC, but the final question on remedies will rest with her; and

    —  Publish the report, subject to any excisions that may be required.

Mixed Transactions

  5.21  An acquisition may involve both newspaper and non-newspaper assets and once the Secretary of State intervenes in relation to a transfer on the basis of the newspaper public interest consideration, the whole transaction (not just the newspaper aspects) will divert onto the newspaper public interest consideration procedural regime. However, because the Secretary of State will be bound by the findings of both the OFT and the CC as to competition, it is anticipated that the substantive outcome for the non-newspaper aspects of the transaction will be unchanged. [29]

6.  ENFORCEMENT

  6.1  Under the current newspaper regime, the primary means of enforcement is through the requirement for prior consent, with criminal sanctions and nullity of the transaction applying in the event of a breach. With the removal of prenotification requirements and criminal sanctions, more extensive provision will be required in relation to remedies and enforcement powers.

Interim measures

  6.2  In particular, there will be a need for more extensive interim powers for the OFT and the Secretary of State, in order to ensure that the effectiveness of a reference or subsequent remedies is not prejudiced by action taken by the parties in the interim. The provisions for newspaper mergers will be modelled on those applying to the national security public interest consideration (Schedule 7 EB), which largely follow the main enforcement regime applying under the EB, but gives the Secretary of State equivalent powers to OFT/CC.

Final measures

  6.3  As described above, where the Secretary of State has made an adverse public interest finding, the final decision on remedies will be hers, although the CC may make recommendations in its report, and there will also be provision for OFCOM to give advice.

  6.4  The powers that will be available to Ministers in the event of an adverse public interest finding will be essentially equivalent to those applying to the mainstream EB regime under Schedule 8 EB. The policy intention is that powers will be available that would allow all remedies that have been considered appropriate in the past to be used in the future. In this respect remedies relating to the constitutional structure of newspaper companies eg requirements for an editorial board, or provisions to entrench editorial independence, that have been used in a number of newspaper cases to date, are being closely examined. [30]

Appeals

  6.5  As under the current EB provisions an appeal should lie to the Competition Appeal Tribunal who would apply the same principles as would be applied by a court on an application for judicial review (clause 117 EB).

7.  MISCELLANEOUS

Review

  7.1  Provisions in the Communications Bill by which OFCOM will keep the operation of the media ownership rules under review will be extended to cover the new newspaper merger provisions.

Public interest considerations in relation to market investigations

  7.2  The Secretary of State's intervention powers under the newspaper public interest consideration will not extend to the market investigation provisions of the EB.

Extent

  7.3  The newspaper merger provisions will apply to England and Wales, Scotland and Northern Ireland.

ABBREVIATIONS USED IN THIS DOCUMENT:

  CC  Competition Commission.

  CP  Joint DCMS/DTI consultation paper "Consultation on Media Ownership Rules" (November 2002).

  EB  Enterprise Bill as printed 19 June, 2002*.

  ECMR  EC Council Regulation 4064/89, as amended.

  FTA  Fair Trading Act 1973.

  HRA  Human Rights Act 1998.

  OFCOM  The Office for Communications, the new single media regulator to be established under the Communications Bill, that will replace the Independent Television Commission, the Radio Authority, the Director General of Telecommunications, and the Broadcasting Standards Commission, and will also take on some of the functions currently exercised by the Radiocommunications Agency within the DTI.

  OFT  Office of Fair Trading.

  MMC  Monopolies and Mergers Commission, the precursor to the Competition Commission.

  SLC  Substantial lessening of competition (as used in clause 21 EB).

*This memorandum is written on the basis that the Enterprise Bill will be enacted in its present form. The policy described herein will need to be updated in the light of the progress of this Bill.

 


17   Cmnd 1811. Back

18   See paragraph 6.4.3 CP. Back

19   A flowchart illustrating the operation of the current regime is attached at Annex A. Back

20   There is therefore no requirement that the transaction leads to an increase or change in any shore of supply. Back

21   See clause 117 EB. Back

22   Section 57(1)(a) FTA. Back

23   In the context of the FTA the meaning of "a substantial part of the UK" has been clarified by caselaw as meaning the part must be of "such a size, character and importance as to make it worthy of consideration for purposes of the Act" (Nourse LJ in South Yorkshire Transport Ltd v MMC [1983] 1 All E.R. 289). Back

24   On this subject see in particular OFT 036 Mergers (paragraph 2.6), the OFT press release on BskyB/Leeds Sporting (PN8/00, 3 February, 2000) and the Competition Commission report on NTL Communications Corporation/Newcastle United (Cm 4411, July 1999). Back

25   In applying the public interest test under section 69(1), section 84 FTA sets out a non-exhaustive list of factors to which the Competition Commission is directed to have regard, which covers both competition and non-competition issues. Back

26   Bristol United Press/West Somerset Free Press (April 1980); Reed Internations/Berrows Organisation (April 1981); George Outram & Company Ltd/The Observer (June 1981); TR Beckett Ltd/EMAP plc (February 1989); Century Newpapers/TRN (April 1989); Bristol Evening Post/David Sullivan (May 1990); DMGT/T Bailey Forman Ltd (October 1994); Trinity plc/Mirror Group plc (March 1999); Johnston Press/Trinity Mirror (May 2002) Back

27   The CC's summary of this aspect of its investigation can be found at paragraphs 2.122-2.136 of its report. Back

28   In the case of special public interest cases, the Secretary of State may make a reference if a special intervention notice has been given and an OFT report received, where she believes that a special merger situation has been created and, taking into account only the public interest consideration(s) specified, that situation might be adverse to the public interest. Back

29   But note that as regards remedies following a reference, the Secretary of State will be able to balance competition and public interest aspects in deciding on the appropriate remedies. Back

30   See for example the conditions imposed on the consent given following the 1994 DMGT plc/T Bailey Foreman Ltd report (P/94/730, 5 December, 1994). See also the press release P/2002/203 of 28 March 2002 announcing the revocation of all but one of the conditions. The provisions relating to the editorial board were retained. Back

 
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