OFT details doubts over ITV merger
The office of Fair Trading found that a merger of Carlton and Granada could lead to a rise in the price of television advertising and would remove competition in the London market.
The competition watchdog rejected the argument of Carlton and Granada, the main ITV companies, that they do not compete as the network is parcelled up into discrete regional franchises. In the capital, Carlton has the weekday franchise while Granada sells advertising for weekend output.
Publishing its findings on the proposed merger yesterday, the OFT said: "Review of the change in Carlton's share of ITV London advertising spend between 1998 and 2001 appears to show that substantial proportions of revenue have moved between Carlton and Granada over that time.... It seems reasonable to conclude that there might be significant competition in the London area between Carlton and Granada that would be eliminated by the merger."
The Carlton-Granada deal was referred for a full investigation by the Competition Commission earlier this month, by the Secretary of State for Trade and Industry, on the advice of the OFT.
John Enser, a partner at the law firm Olswang, said: "The fact that the OFT are not swayed by a significant number of Carlton and Granada's arguments is not good news for them ... they are going to have to fight very hard to get this merger through."
Carlton and Granada told the OFT that they cannot increase the price of advertising as supply – the number of slots available – is fixed by regulators, so combining the companies would not increase their market power.
The OFT said: "Even if total ITV advertising airtime were fixed, it is possible that the merger would create the incentive and opportunity for the prices of many advertising slots to be increased."
The OFT's verdict on pricing and the London market challenges Carlton and Granada's attempt to keep all their operations in the combined company. Lawyers said the OFT view pointed to a London franchise and one of the two sales houses having to be put in to a separate company.
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