OECD kpcdb

1. Scope

 

Under Section 3 of Schedule 7, undertakings are prohibited from carrying out a merger that has, or is likely to have, the effect of substantially lessening competition in Hong Kong (the “Merger Rule”). As the Merger Rule only applies to mergers directly or indirectly involving telecommunications carrier licensees, pursuant to the MoU between the CCHK and the Communications Authority (the “Authorities”, the Communications Authority will ordinarily take the role of lead authority in handling merger cases.

Under Section 8(1) of Schedule 7, the Merger Rule does not apply where the economic efficiencies of a merger outweigh the adverse effects of the transaction.

The Guideline on the Merger Rule discusses three types of economic efficiencies, namely productive efficiency, allocative efficiency and dynamic efficiency.

According to Section 8(2) of Schedule 7, an undertaking claiming the exclusion from the Merger Rule has the burden of proving the claim.

Under Section 9 of Schedule 7 of the Ordinance, the Chief Executive in Council of Hong Kong may exempt a specified merger from the application of the Merger Rule on grounds of exceptional and compelling reasons of public policy. No such orders have been made to date.

2. Notification

Hong Kong does not require the mandatory notification of mergers.

Under Section 7 of Schedule 7, the Authorities may commence an investigation of a merger within 30 days after the day on which the Authorities first became aware, or ought to have become aware, that the merger has taken place.

A merger may be investigated if, under Section 39, the Authorities have reasonable cause to suspect that a contravention of the Merger Rule has taken place, is taking place or is about to take place. Accordingly, the Authorities encourage parties to voluntarily notify any proposed mergers at an early stage.

3. Assessment

To assess whether a merger has, or is likely to have, the effect of substantially lessen competition, a non-exhaustive list of considerations are specified in Section 6 of Schedule 7:

a)  the extent of competition from competitors outside Hong Kong

b)  whether the acquired undertaking, or part of the acquired undertaking, has failed or is likely to fail in the near future

c)  the extent to which substitutes are available or are likely to be available in the market

d)  the existence and height of any barriers to entry into the market

e)  whether the merger would result in the removal of an effective and vigorous competitor

f)   the degree of countervailing power in the market

g)  the nature and extent of change and innovation in the market

Safe harbours: The Guideline identifies two safe harbours below which the Authorities are unlikely to carry out a detailed investigation or intervention (these are indicative in nature):

 

• If the post-merger concentration ratio of the four largest firms (“CR4”) in the relevant market is less than 75%, and the merged firm has a market share of less than 40%
• Where the CR4 is 75% or more, and the combined market share of the merged entity is less than 15% of the relevant market
• Where the post-merger Herfindahl-Hirschman Index (“HHI”) is less than 1,000
• Where the post-merger HHI is between 1,000 and 1,800 and the merger produces an increase in the HHI of less than 100
• Where the post-merger HHI is more than 1,800 and the merger produces an increase in the HHI of less than 50

 

4. Remedies and sanctions

The Authorities may accept a commitment from a party to take any action or refrain from taking action to address concerns about a possible contravention of the Merger Rule under Section 60 of the Ordinance. Both structural and behavioural commitments may be considered. Section 5.12 of the Guideline indicates that in general structural remedies will be preferred.

The Communications Authorities may bring proceedings before the Tribunal if there is reasonable cause to believe that a merger contravenes the Merger Rule. Where the Competition Tribunal finds a contravention, it may make orders to bring the contravention to an end, such as, for example, prohibiting the acquisition of a business, requiring the sale of assets, or requiring certain prohibitions or restrictions to be observed.

 

 

* This information is based on Competition Law in Asia-Pacific: A Guide to Selected Jurisdictions (2018).