IP/00/800
Brussels, 19 July 2000
Commission clears Pirelli’s acquisition of BICC’s power cables plants
The European Commission has cleared the acquisition by Pirelli Cavi e Sistemi, the cable division of Italian Pirelli Group, of BICC General’s power cable production plants in Italy and in Britain. After a careful analysis, the Commission concluded that power cable markets are in the process of becoming European, thanks in particular to the gradual liberalisation of the electricity sector and that Pirelli will face sufficient competition including from alternative cable providers. It will also have to count with the strong bargaining power ofthe powerful energy utilities.
Pirelli Cavi e Sistemi S.p.A. is active in the production and sale of general wiring and power cables. BICC General is a cable manufacturer controlled by General Cable Corp which develops, designs and distributes a wide range of copper, aluminium, general wiring and cable products. BICC General will retain its plants in Spain and Portugal.
The markets concerned by the operation are the production and sale of power cables to energy utilities. The Commission identified separate markets for low and medium voltage power cables, used for the distribution of electricity, and for high and extra-high voltage cables, used for the transmission of power.
The key issue in the present case was the definition of the geographical market, more precisely whether competition is carried out at national or European level.
Prior to liberalisation, the electricity market was marked by monopoly suppliers purchasing largely from domestic cable manufacturers. But the gradual liberalisation of electricity markets combined with the European Union’s public procurement directives has changed profoundly the relationship between power utilities and cable manufacturers. Therefore, the Commission did not rely just on past market data but took into account the changes which have already occurred and which can be expected to occur in the foreseeable future.
The investigation revealed that manufacturers in Europe are in a position to supply their cables in different EU-Member States since product harmonisation is very advanced and transport costs are relatively low. Utility companies are equally able to source cables from foreign suppliers. Besides Pirelli/BICC, there are at least four other larger cable manufacturers as well as a number of smaller companies (“fringe players”), the entry of which could be induced by the strategic allocation of orders.
The inquiry revealed that there would remain sufficient competition in the market for high and extra-high voltage power cables where, apart from Pirelli/BICC, there are a number of other credible suppliers such as Alcatel, ABB, NKT and BICC General’s remaining production plants in Spain and Portugal. Two other players, Brugg and Sagem, have also the capacity and know-how to be considered as alternative suppliers to the transmission grid operators.
Transmission grid operators buy large quantities and have a strong bargaining position. This means they could place larger parts of their supplies with alternative suppliers if Pirelli/BICC were to apply anti-competitive prices.
The Commission also examined a possible collective dominant position of Pirelli together with Alcatel, the sector’s number two player, both for low and medium and high and extra-high voltage power cables, but found no conclusive evidence for conscious parallel behaviour. The companies’ market shares are asymmetric, the market is characterised by a low frequency in tenders and by a low degree of price transparency.
Furthermore, in the high and extra-high voltage segment, cable manufacturers have a strong incentive to compete due to the structure of the bidding process, where utilities often award the whole contract value to the lowest bidder. The Commission also concluded that the markets for medium and low voltage power cables also do not lend themselves to conscious parallel behaviour, as there are a number of smaller suppliers (the so-called “fringe firms”) who could be used as alternative suppliers if prices were to be increased by the two leading firms. These suppliers could also meet the requirements of regional utilities, which have a more limited purchasing power compared to the national grid operators.
For the reasons explained above, the Commission has concluded that the concentration will not lead to the creation or strengthening of any dominant position, either single or collective, in respect of the markets for the provision of power cables of low/medium and high/extra-high voltage to the energy utilities.
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