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Mergers: Commission clears Cisco's proposed acquisition of Tandberg, subject to conditions

The European Commission has approved under the EU Merger Regulation the proposed acquisition of Tandberg, a vendor of videoconferencing products with dual headquarters in Norway and in the US, by Cisco of the US. The approval is notably conditional upon the divestment of a protocol developed by Cisco for its videoconference solutions, called "TIP", to ensure the interoperability of the merged entity's products with those of its competitors.

The Commission's investigation had identified serious competition concerns in some of these markets due to interoperability issues between the merged entity's solutions and those of its competitors. However, in light of the remedies offered by the parties, the Commission has now concluded that the proposed concentration, as modified by the commitments, would not significantly impede effective competition in the European Economic Area or any substantial part of it. The investigation was conducted in close relationship with the US Department of Justice, which cleared the transaction on the same day as the Commission.

"The remedies package offered by Cisco is suitable to safeguard competition in the market for video communications where the merged entity will have a strong presence. I'm also satisfied with the overall review process that was carried out in close co-operation with the US Department of Justice," said Vice-President for Competition Joaquín Almunia.

Cisco Systems is globally active in the development and sale of networking products. In particular it designs, manufactures, and sells Internet Protocol (IP)-based networking products related to the communications and information technology industry, and, specifically, video communications solutions systems. Tandberg is also a vendor of a broad range of video communications solutions systems. In addition, Tandberg produces Multipoint Control Units ("MCUs") which are devices needed for communications that are not simply "point-to-point" connections between comparable videoconferencing formats.

The proposed transaction would result in horizontal overlaps in the markets for video conferencing solutions. The concentration would also give rise to vertical and conglomerate effects, as Tandberg is active in the upstream MCUs market and Cisco in the neighbouring markets for networking products. The Commission's market investigation confirmed that there were no significant concerns with regard to the markets for multipurpose room and desktop solutions, nor regarding vertical or conglomerate effects of the proposed transaction.

In the course of the investigation, the Commission identified serious competitive concerns in relation to the market for high-end video conferencing products and video conferencing solutions (dedicated-room solutions) often referred to as "telepresence", where the combined entity would have high market shares.

In order to address these concerns, Cisco committed, inter alia, to divest the rights attached to its proprietary protocol TIP to an independent industry body, to ensure interoperability with Cisco's solutions and to allow other vendors to participate in the development and in the updates of such protocol. Following a market test, the Commission concluded that the commitments were suitable to remove the competition concerns identified.

This structural remedy facilitates market entry or expansion irrespective of where the competitor or its target customers are located. Moreover, the remedy is designed in a manner ensuring that an independent industry body will elaborate an industry-based proposal for a standard protocol; this proposal will then be submitted to a standard setting organization.

The transaction was notified to the Commission on 8 February 2010. More information on the case is available here.

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