Related Articles
- UK Digital Markets, Competition and Consumers Act 2024 Comes Into Force
- European Commission Approves Acquisition by NVIDIA of Company With Negligible Revenue
- UK Competition and Markets Authority Approves Four-to-Three Mobile Merger
- Acquisition of Royal Mail Approved Under UK NSI Act Following Separate Up-Front Agreement With Government
UK Digital Markets, Competition and Consumers Act 2024 Comes Into Force
On 1 January 2025, provisions of the UK Digital Markets, Competition and Consumers Act (DMCC Act) introducing the new digital markets regime and changing the UK merger control and competition law rules came into force pursuant to secondary legislation. These provisions amend the principal UK competition and merger control statutes, the UK Competition Act 1998 and UK Enterprise Act 2002.
In digital markets, the DMCC Act introduces the strategic market status (SMS) regime, a UK version of the EU Digital Markets Act.
Under this regime, the UK Competition and Markets Authority (CMA), through its Digital Markets Unit, can designate an activity of a digital company as having SMS if the company has “substantial and entrenched market power” and “a position of strategic significance” with respect to that digital activity in the UK. Only companies above a certain total worldwide or UK turnover threshold can be designated.
A number of obligations will apply to companies subject to SMS designation, primarily that the CMA will impose bespoke codes of conduct to regulate behaviour related to a covered activity. The CMA will have wide discretion, but the underlying principles for these codes are fair dealing, open choices, and trust and transparency.
Although only a limited number of large tech companies will fall within the regime, any company that advertises, buys or sells online should be interested in its implementation. Such companies can make representations to the CMA as to why a sector should be considered a priority.
The changes to the merger control and competition rules apply to all companies. There is now an additional merger control jurisdictional test in the UK, which applies when the target has a UK nexus and one of the parties has an existing 33% share of supply in the UK and a UK turnover of at least £350 million. This is an acquirer-focussed test aimed at catching “killer acquisitions.”
The act also increases the existing merger control jurisdictional test focussing on a target’s UK turnover from £70 million to £100 million while leaving unchanged the other existing jurisdictional test that requires an overlap in the UK and a combined 25% share of supply. There is a formal de minimis exemption for small acquisitions.
The changes to the general competition rules largely are procedural or technical, but generally increase the powers available to the CMA to enforce the law, including its geographic reach.
European Commission Approves Acquisition by NVIDIA of Company With Negligible Revenue
On 20 December 2024, the European Commission (EC) approved under the EU Merger Regulation (EUMR) the proposed acquisition of Israeli start-up Run:ai Labs by NVIDIA Corp. The matter provides an example of how small “below threshold” transactions potentially impacting the EU are reviewed under EU merger rules following the 3 September 2024 European Court of Justice (ECJ) judgment overturning the EC’s decision to review Illumina’s acquisition of GRAIL.
NVIDIA’s acquisition of Run:ai did not reach the notification thresholds for EU-level merger review as set out in the EUMR because Run:ai’s revenues are negligible. However, the Italian national competition authority used its general “call-in” powers for transactions falling below the standard merger control thresholds under Italian law to require notification of the deal in Italy.
The Italian authority then submitted a “referral” request to the EC pursuant to Article 22(1) of the EUMR. This provision allows EU member states to request the EC to examine a merger that is not subject to review under the EUMR thresholds but affects trade within the EU and threatens to significantly affect competition within the territory of the member state(s) making the request. On 31 October 2024, the EC accepted Italy’s request, and the transaction was notified to the EC on 15 November 2024.
The EC found that NVIDIA likely holds a dominant position in the global market for discrete graphic processing units (GPUs) for use in data centres. Run:ai supplies GPU orchestration software allowing corporate customers to schedule, manage and optimise their artificial intelligence compute infrastructure on premises, in the cloud or in hybrid environments.
The EC assessed whether, post-transaction, NVIDIA would be able to hamper the compatibility between its GPUs and the GPU orchestration software of Run:ai’s competitors, and the compatibility between Run:ai’s software and the GPUs of NVIDIA’s competitors. These were potential “vertical” foreclosure issues.
No concerns were found because Run:ai does not have a significant position on the market for GPU orchestration software. According to the EC, customers would continue to have access to sufficient credible alternatives to Run:ai with similar advanced software features as well as the ability to build their GPU orchestration software in-house.
The referral and review by the EC is of interest because it follows the ECJ judgment concerning Illumina and GRAIL. GRAIL had no revenue in the EU, the transaction did not reach the EUMR or any EU member state merger thresholds, and it was not notified for clearance in any EU member state.
Nevertheless, the EC accepted a referral request from six member states in relation to the transaction. That decision was overturned by the ECJ on the basis that the EUMR did not provide for a review in these circumstances and that the EC had overreached.
The EC commented that general “call-in” powers for “below threshold” transactions are available to several EU member states, and those could still legally be used to give the member state the ability to refer the transaction to the EC.
The Italian authority’s decision to require notification of NVIDIA’s acquisition and then to ask the EC to review it under the EU rules is an example of that procedure in operation. The European commissioner responsible for competition, Teresa Ribera, commented “this case, referred by Italy, highlights the importance of Member State referrals in enabling the Commission to continue to check potentially problematic transactions.”
UK Competition and Markets Authority Approves Four-to-Three Mobile Merger
The CMA approved a joint venture between Vodafone Group and CK Hutchison Holdings that merges their UK mobile telecoms operations. This will be a “four-to-three merger,” changing the market from four competitors to three. The combined “Vodafone” and “Three” business now competes against only two other UK mobile network operators (MNOs), BTEE and Virgin Media O2.
After a detailed inquiry lasting over a year, the CMA concluded that the transaction would likely result in a substantial lessening of competition in two markets in the UK, the supply of retail mobile telecommunications services to end customers and the supply of wholesale mobile telecommunications services.
In the retail market, the CMA found that the transaction would lead to price increases or reduced services, such as smaller data packages, for customers. In the wholesale market, the CMA found that by reducing the number of MNOs from four to three, it would be harder for independent mobile virtual network operators (MVNOs) that do not own their own networks to secure competitive terms, restricting their ability to offer competitive deals to retail customers.
The CMA nevertheless allowed the transasction to proceed based on remedies requiring the combined business to:
- Implement a programme of upgrade, integration and improvements to the combined network over the next eight years, to be monitored by the UK telecoms regulator (Ofcom) and the CMA. The CMA, supported by Ofcom, said this would produce efficiencies by improving the quality of the combined network and boosting competition between the three MNOs in the long term.
- Cap selected mobile tariffs and data plans for three years, thereby “directly protecting large numbers of Vodafone/Three customers from short-term price rises in the early years of the network plan.”
- Offer preset prices and contract terms for wholesale services for three years “to ensure that virtual network providers can obtain competitive terms and conditions as the network plan is rolled out.”
The CMA has long advocated structural remedies (i.e., divestments) as the best basis for approval of mergers that raise material substantive concerns and blocks problematic deals when no structural remedy can be found. However, the remedies accepted in this case are purely behavioural, and the terms (a binding investment commitment and three-year price controls) are novel and unprecedented.
CMA staff have taken pains to deny that the case is unusual, with the chief economic adviser describing the decision as “all pretty standard.” It is nevertheless a significant change in the CMA’s approach to merger control and one that could signal a greater openness to behavioural remedies, particularly when there is evidence of potential efficiencies or customer benefits and/or government or sectoral regulator support.
The change may be due in part to the position of the new UK prime minister elected in July 2024, who impliedly criticised the CMA for its approach to merger control. In a speech in October 2024, he said, “We will rip out the bureaucracy that blocks investment … and we will make sure that every regulator in this country … especially our economic and competition regulators … takes growth as seriously as [I do].” The CMA professes to take all its decisions independently, but it seems possible that the government provided a “steer” in the case to support its proposed industrial strategy.
The Vodafone/Three joint venture arguably has a number of characteristics that make it more suitable than other deals for approval on the basis of behavioural remedies, including the possibility of oversight from an existing sectoral regulator. Nevertheless, the CMA’s decision is an important development and one that should be studied carefully by companies and advisers contemplating transactions that impact the UK and give rise to potential concerns.
Acquisition of Royal Mail Approved Under UK NSI Act Following Separate Up-Front Agreement With Government
The UK government approved the acquisition of Royal Mail under the UK National Security and Investment Act 2021 (NSI Act), which controls acquisitions of and investments in UK entities and assets on national security grounds. The approval followed an earlier binding agreement put in place between the buyer and the UK government and is the first time a company has agreed to contractual up-front remedies amid an ongoing review under the NSI Act.
Royal Mail is the UK’s incumbent postal service provider that was privatized in 2013. Daniel Křetínský’s EP Group agreed to acquire its holding company in May 2024, and the proposed acquisition was subject to approval under the NSI Act.
Prior to the announcement of a decision under the NSI Act, on 16 December 2024, the UK Department for Business & Trade announced the binding deed of undertaking with EP Group. The deed covers issues not relevant to national security, including the location of Royal Mail’s headquarters, restrictions on “value extraction,” continuation of the universal delivery service and continued recognition of the postal workers unions.
That agreement paved the way for formal approval under the NSI Act, which followed on 19 December 2024. The decision provided no detail of remedies other than indicating that the buyer would ensure that Royal Mail “remains able to and continues to provide services that are in support of UK national security.”
The NSI Act review and approval appears to have been used to secure the up-front contractual agreement covering non-national security issues and was ultimately a rubber-stamp process. Nonstatutory agreements have been used previously, and their use in this case implies that the procedure will continue to be used in parallel to an NSI Act review if the UK government wants to deal with issues that go beyond national security concerns.
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