[Federal Register Volume 69, Number 112 (Thursday, June 10, 2004)]
[Notices]
[Pages 32550-32552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13082]


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FEDERAL TRADE COMMISSION

[File No. 031-0201]


Itron, Inc., et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of Federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before July 2, 2004.

ADDRESSES: Comments should refer to ``Itron, Inc., et al., File No. 031 
0201,'' to facilitate the organization of comments. A comment filed in 
paper form should include this reference both in the text and on the 
envelope, and should be mailed or delivered to the following address: 
Federal Trade Commission/Office of the Secretary, Room H-159, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. Comments containing 
confidential material must be filed in paper form, as explained in the 
Supplementary Information section. The FTC is requesting that any 
comment filed in paper form be sent by courier or overnight service, if 
possible, because U.S. postal mail in the Washington area and at the 
Commission is subject to delay due to heightened security precautions. 
Comments filed in electronic form (except comments containing any 
confidential material) should be sent to the following e-mail box: 
[email protected].

FOR FURTHER INFORMATION CONTACT: Matthew Reilly, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2350.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and section 2.34 
of the Commission's Rules of Practice, 16 CFR 2.34, notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of thirty (30) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for June 3, 2004), on the World Wide Web, at http://www.ftc.gov/os/2004/06/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Written comments must be submitted 
on or before July 2, 2004. Comments should refer to ``Itron, Inc., et 
al., File No. 031 0201,'' to facilitate the organization of comments. A 
comment filed in paper form should include this reference both in the 
text and on the envelope, and should be mailed or delivered to the 
following address: Federal Trade Commission/Office of the Secretary, 
Room H-159, 600 Pennsylvania Avenue, NW., Washington, DC 20580. If the 
comment contains any material for which confidential treatment is 
requested, it must be filed in paper (rather than electronic) form, and 
the first page of the document must be clearly labeled 
``Confidential.'' \1\ The FTC is requesting that any comment filed in 
paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington area and at the Commission 
is subject to delay due to heightened security precautions. Comments 
filed in electronic form should be sent to the following e-mail box: 
[email protected].
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    \1\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See Commission Rule 4.9(c), 16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive

[[Page 32551]]

public comments, whether filed in paper or electronic form, will be 
considered by the Commission, and will be available to the public on 
the FTC Web site, to the extent practicable, at www.ftc.gov. As a 
matter of discretion, the FTC makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC Web site. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Orders To Aid Public Comment

I. Introduction

    The Federal Trade Commission has accepted, subject to final 
approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Itron, Inc. and Schlumberger Electricity, Inc. The 
purpose of the Consent Agreement is to remedy the anticompetitive 
effects of Itron's acquisition of Schlumberger Electricity. Under the 
terms of the Consent Agreement, Itron is required to grant a royalty-
free, perpetual and irrevocable license to Hunt Technologies, Inc. for 
Itron's mobile radio frequency (``RF'') automatic meter reading 
(``AMR'') technology for electric utilities, as well as components of 
Schlumberger Electricity's mobile RF AMR technology for electric 
utilities.
    The proposed Consent Agreement has been placed on the public record 
for thirty days to solicit comments from interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission will again review the proposed 
Consent Agreement and the comments received, and will decide whether it 
should withdraw from the proposed Consent Agreement or make it final.
    Pursuant to a stock and asset purchase agreement dated July 16, 
2003, Itron agreed to acquire Schlumberger Electricity and 51 percent 
of the shares of Walsin Schlumberger Electricity Measurement 
Corporation (a Taiwan corporation), and certain foreign assets of 
Schlumberger Canada Limited, Schlumberger Distribucion S.A. de C.V., 
Schlumberger Servicios S.A. de C.V., and Axalto S.A. (formerly 
Schlumberger Systemes S.A.), all owned indirectly by Schlumberger 
Limited, in a cash transaction for approximately $255 million 
(``Proposed Acquisition''). The Commission's Complaint alleges that the 
Proposed Acquisition, if consummated, would violate section 7 of the 
Clayton Act, as amended, 15 U.S.C. 18, and section 5 of the Federal 
Trade Commission Act, as amended, 15 U.S.C. 45, by substantially 
lessening competition in the United States market for the research, 
development, manufacture, and sale of mobile RF AMR systems for 
electric utilities.

II. The Parties

    Headquartered in Spokane, Washington, Itron is the leading supplier 
of mobile RF AMR systems to electric utilities in the United States. 
Itron's mobile RF AMR system is based upon encoder-receiver-transmitter 
(``ERT'') technology and related communication protocols. The Itron ERT 
is electronic circuitry that gathers consumption information from an 
electricity meter and then broadcasts the data via radio frequency, 
using a specific communication protocol, known as the ERT protocol. To 
gather this data stream, Itron supplies handheld and vehicle-
transportable receivers, also known as drive-by data collectors. The 
ERT is sold as either a retrofit for existing electromechanical 
electricity meters, or is integrated into newly manufactured 
electromechanical and solid state meters. Itron also supplies mobile RF 
AMR systems to water and natural gas utilities. In each of these areas, 
Itron is a leading mobile RF AMR systems supplier. Itron is also active 
in other lines of business serving the utility sector, including 
handheld computers for manual meter reading, as well as specialized 
software systems for billing systems, route management, and line 
design.
    Schlumberger Electricity is a wholly owned subsidiary of 
Schlumberger Limited, a leading provider of oilfield services. With its 
headquarters in Oconee, South Carolina, Schlumberger Electricity is the 
leading supplier of residential electricity meters in the United 
States, and the second largest supplier of mobile RF AMR systems in the 
United States. Presently, Schlumberger Electricity's mobile RF AMR is 
based on the R300, which is integrated into Schlumberger Electricity's 
meters. Schlumberger Electricity also sells handheld and drive-by data 
collectors through a partnership with Neptune Technology Group, Inc. 
The Neptune/Schlumberger mobile RF AMR receivers are capable of 
gathering data from the Itron ERT and the Schlumberger R300.
    As the result of a license arrangement, Itron's and Schlumberger 
Electricity's mobile RF AMR systems utilize the same technology and 
proprietary communication protocols. Hence, products produced by Itron 
and Schlumberger are fully interoperable. Electric utilities, 
therefore, can utilize a combination of Itron and Schlumberger mobile 
RF AMR components, i.e., endpoints and receiving devices, within the 
same system. No other company manufactures a mobile RF AMR system that 
is interoperable with the mobile RF AMR systems manufactured by Itron 
or Schlumberger.

III. Mobile RF AMR Systems

    Electric utilities utilize mobile RF AMR systems to automatically 
and remotely gather consumption data from residential electricity 
meters and certain electricity meters used by smaller commercial 
enterprises. A mobile RF AMR system consists of two principle 
components: (1) An endpoint, which is electronic circuitry integrated 
into an electricity meter that records and broadcasts consumption data, 
and (2) a mobile receiving device, which can be handheld or vehicle-
transportable, to gather the data signal.
    Mobile RF AMR systems allow consumption data from electricity 
meters to be read automatically and remotely, eliminating the need for 
a utility to send a meter reader to manually inspect each individual 
meter. Manual meter reading is labor-intensive and time-consuming, 
requiring the meter reader to physically access and visually inspect 
each electricity meter. Further, many meters are hard to access. 
Consequently, manual meter reading requires the effort of a substantial 
workforce of meter readers. By deploying a mobile RF AMR system, an 
electric utility can reduce its labor costs significantly. Additional 
cost savings are obtained by eliminating other problems endemic to 
manual meter reading, such as transcription errors, unread meters, and 
theft of service. As a result of these benefits, electric utilities are 
unlikely to alter their mobile RF AMR purchases relative to manual 
meter reading even if the price of mobile RF AMR systems increased by 
five to ten percent. Likewise, in response to a small but significant 
increase in mobile RF AMR prices, customers are unlikely to utilize 
other, non-mobile AMR technologies as they entail different technical 
requirements and are substantially more expensive.
    The United States is the appropriate geographic market for mobile 
RF AMR systems in which to analyze the competitive effects of the 
Proposed Acquisition. There are not now, nor have there ever been, any 
imports of mobile RF AMR systems. Companies cannot compete from abroad 
for two primary reasons. First, electric utilities will not purchase 
mobile RF AMR systems from companies that do not

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have a substantial presence and track record in the United States. This 
is due to the importance of timely and effective service and support, 
as well as a strong ``buy American'' sentiment. Second, there are no 
significant foreign companies that produce mobile RF AMR systems.
    The United States market for mobile RF AMR systems is highly 
concentrated. Itron and Schlumberger Electricity are the two largest 
suppliers of mobile RF AMR systems to electric utilities in the United 
States, and combined would account for over 99 percent of the market. 
There are three other firms in the market that together have a market 
share of less than one-half of one percent. Additionally, because Itron 
and Schlumberger Electricity are the only two mobile RF AMR suppliers 
with access to the proprietary ERT technology, the industry standard, 
they are especially close competitors, and the direct competition 
between Itron and Schlumberger Electricity has benefitted consumers 
significantly in the form of lower prices, improved service and greater 
innovation. Absent Commission action, Itron's acquisition of 
Schlumberger Electricity raises serious antitrust concerns.
    Finally, sufficient new entry into the United States mobile RF AMR 
market is unlikely to occur in a timely manner as there are significant 
impediments to entry and expansion. A new entrant would need to devote 
significant time and expense to researching and developing a product. 
Second, a new entrant must undertake the lengthy and costly process of 
establishing a track record of performance and reliability for its 
product, which is critical to utility customers because they rely on 
the quality and accuracy of AMR systems in order to properly bill their 
customers. Further, a new entrant would not have access to the 
intellectual property necessary to sell a mobile RF AMR system that is 
compatible with the substantial installed base of systems produced by 
Itron and Schlumberger Electricity, which would significantly limit the 
available sales opportunities.

IV. The Consent Agreement

    The Consent Agreement effectively remedies the Proposed 
Acquisition's anticompetitive effects in the U.S. market for the 
research, development, manufacture, and sale of mobile RF AMR systems 
by requiring Itron to grant a royalty-free license to its mobile RF AMR 
technology. Pursuant to the Consent Agreement, a package of assets 
referred to in the Consent Agreement as the RF AMR Assets, will be 
licensed to Hunt. The RF AMR Assets provide Hunt with all the 
technology and rights necessary to manufacture and sell a mobile RF AMR 
system, including endpoints and receivers, that is entirely 
interoperable with Itron's mobile RF AMR system. Should Itron fail to 
accomplish the divestiture within the time and in the manner required 
by the Consent Agreement, the Commission may appoint a trustee to 
divest the RF AMR Assets subject to Commission approval. The trustee 
will have the exclusive power and authority to accomplish the 
divestiture within twelve (12) months of being appointed, subject to 
any necessary extensions by the Commission.
    The Commission is satisfied that Hunt is a well-qualified acquirer 
of the divested assets. Hunt is a private corporation headquartered in 
Pequot Lakes, Minnesota, that researches, develops, manufactures, and 
sells powerline carrier (``PLC'') systems to electric utilities. PLC 
systems are a type of AMR technology used primarily for rural service 
areas. PLC systems are therefore complementary to mobile RF AMR 
systems, which are utilized primarily in areas of low population 
concentration. Therefore, Hunt does not pose separate competitive 
issues as the acquirer of the license to the RF AMR assets. Due to its 
involvement in the electric utility industry, Hunt has the resources, 
related expertise and capabilities to ensure that it will become an 
effective competitor in the market for mobile RF AMR systems for 
electric utilities.
    Until Hunt has made the necessary manufacturing arrangements, Hunt 
will procure Electric RF Endpoints from Itron at terms that will allow 
Hunt to aggressively compete with Itron immediately upon the closing of 
the transaction. Under a separate supply agreement, Hunt may also 
procure mobile RF AMR receivers from Itron under terms that would 
enable Hunt to compete effectively with Itron. To provide mobile RF AMR 
receivers, however, Hunt may choose to partner with Neptune, as did 
Schlumberger Electricity. To ensure that Hunt retains the ability to 
partner with Neptune for mobile RF AMR receiving devices and to allow 
Neptune to continue to make sales for its own account, the proposed 
consent agreement requires Itron to assign all of Schlumberger 
Electricity's mobile RF AMR receiving device rights to Neptune.
    The Consent Agreement contains several further provisions designed 
to help ensure that the divestiture of the mobile RF AMR Assets is 
successful. First, to assist Hunt in the manufacture and sale of the 
Hunt mobile RF AMR system, Itron will provide technical assistance to 
Hunt, including 200 hours of technical assistance at no cost to Hunt. 
Second, Itron must provide Hunt with any updates to ERT technology for 
a period of three years. Finally, the Decision and Order allows the 
Commission to appoint an Interim Monitor, if necessary, to ensure that 
Itron complies with all of its obligations and performs all of its 
responsibilities as required by the Consent Agreement.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement, and is not intended to constitute an official 
interpretation of the proposed Decision and Order or the Order to 
Maintain Assets, or to modify their terms in any way.

    By direction of the Commission.
C. Landis Plummer,
Acting Secretary.
[FR Doc. 04-13082 Filed 6-9-04; 8:45 am]
BILLING CODE 6750-01-P