The Commission for the Protection of Competition decided that the channel distribution agreement between LTV and Multichoice Holdings (Cyprus) Ltd (MCC) was in violation of competition laws, but a final decision on how the agreement should be terminated will taken on June 6, 2006.
LTV dominates the pay-TV market in Cyprus with some 60,000 subscribers, and until now, it had an exclusive distribution deal with MCC, which it now wishes to break in order to offer its content to miVision, the digital platform of CYTA.
The CPC rules that the exclusive distribution agreement that LTV has signed with MCC from June 21, 2004 and another agreement with MCC majority shareholder NetMed from June 23, 2000, which prohibits LTV from entering into any commercial agreements with any other competing channel distribution platforms, are in violation of Article 4(1) of the Competition Law are null and void
The CPC also decided that a clause in the Shareholders Agreement between LTV and NetMed violates Competition Law, given its duration and the range of sectors it covers. According to the CPC, this clause gives a competitive advantage to MCC against competitors and prohibits potential competition.
The penalty for violation of the Competition Laws has not yet been decided.
The two companies were at fault for the exclusive distribution of LTV content and due to the “long duration” of their agreement.
Though the development might have come as a relief to LTV executives, the subscriber channel will not get all it wants.
Like Multichoice, LTV is now liable to stiff penalties, as high as 10% of its turnover, according to Competition Commissioner George Christofides.
“We are aware of each company’s annual revenues, and the Commission shall decide on the penalties based on the companies’ co-operation in the investigation… and the degree to which they placed barriers to competition,” he said.
With the CPC declaring the deal as uncompetitive, it now paves the way for LTV to acquire a controlling stake in MCC through its public tender offer, which was accepted by 27% of MCC shareholders.
The preliminary agreement provided that LTV and Alfa would remain on Multichoice’s satellite platform until 2010, while at the same time LTV and Alfa would supply their content to miVision.
Once all the pending issues are resolved, then LTV and CYTA will sign their content agreement deal, which will net LTV in excess of CYP 300 mln in revenue over the next 15-years.
But this arrangement itself is under the scrutiny of the competition watchdog, after private telecom providers complained of the creation of a super cartel in the market.
The crux revolves around the switch over to digital television in 2012. Any company wishing to offer pay-TV will need to either go digital – meaning they’re dependent on CYTA’s infrastructure and grip on the market – or they’ll have to settle for the more conventional satellite transmission, which supports a limited number of channels by comparison.
Meanwhile, Multichoice has taken legal action against LTV for breach of contract, saying that they have been left out in the cold with the CYTA deal. LTV counters it is not bound to its partner.
