Affected market: Escalators
Please note square brackets indicate figures either deleted or
replaced by a range at the request of the parties
Otis Limited (Otis) is a leading multinational provider of the
manufacture, installation, servicing and repair of lifts and escalators.
It has a network of depots throughout the UK. Otis is ultimately owned
by United Technologies Corporation of the US. Estec Limited (Estec)
is an escalator service and repair company with an annual turnover of
around £1million. It is based in Keighley, West Yorkshire and has
additional staff in Glasgow, London and the West Midlands.
Otis acquired Estec Limited on 30 April 2004 for the sum of £[ ]. The
parties made an informal submission to the Office of Fair Trading on 28
June 2004 and the administrative timetable expires on 23 August 2004 and
the statutory deadline for consideration of the merger expires on 29
As a result of this transaction Otis Limited and Estec Limited have
ceased to be distinct. The parties overlap in the supply of escalator
servicing/repair and refurbishment and the share of supply test in
section 23 of the Enterprise Act 2002 (the Act) is met. The OFT
therefore believes that it is or may be the case that a relevant merger
situation has been created.
The parties overlap in the provision of servicing/repair and
refurbishment of escalators.
On the demand side there are no alternatives for the servicing and
repair of escalators in that it is essential to retain the equipment in
good order. Some larger users of escalators such as London Underground
undertake a large proportion of such work in-house. However, overall
there is a trend towards out sourcing and most customers would not have
the option of in-house provision. The competitive constraint from the
use of in-house provision would not, therefore, represent a substantial
competitive constraint on the merged entity.
On the supply side some escalator servicing contracts are tendered
jointly with lift servicing contracts. There is some cross-over in
skills required to service and repair escalators and lifts. However, in
order for an operative to become competent in the provision of servicing
and repairing escalators it is necessary for the engineer to undertake
on-the-job training in addition to relevant training courses. For this
reason supply side substitution is unlikely unless the competitor
already has the relevant knowledge and expertise of escalator servicing
and repair to be able to offer an operative on-the-job training.
Escalator refurbishment is a relatively small sector. Typically it is
more cost effective, given the costs associated with an escalator that
has reached its life span being out of action, to replace rather than
refurbish the escalator. One exception to this is the London Underground
network where escalators are embedded and cannot simply be replaced.
Third parties have indicated that in order to provide escalator repair
and servicing it is necessary to be located within a suitable distance
of the customer (around 60-100 miles). This is in order to provide a
timely response to breakdowns. However, Estec had operatives based in
four locations prior to the merger but served a number of national
contracts. In addition, many escalator contracts are national as many
escalator users are retail chains. Notwithstanding the relatively short
distance range indicated by third parties it is appropriate, therefore,
to consider the impact of this transaction at a national level.
Escalator service/repair: There are no definitive shares of supply
figures available. Otis estimates that it has around [5-15 per cent]
market share of service and repair of escalators but was unable to
provide share of supply estimates for its competitors. The Lift and
Escalator Industry Association (LEIA) indicated that there are 7,100
installed escalators in the UK. Otis and Estec have service contracts
for around [ ] and [ ] respectively, giving a combined share of
supply of [60-70 per cent] (increment [0-5 per cent])(see [note
1]). However, Kone indicated that it itself had a share of
[40-50 per cent] of servicing, with Otis the second largest supplier.
Other estimates suggest that around [10-20 per cent] of supply comes
from outside the 'big four' suppliers (Kone, Thyssen, Schindler and
Otis). However, it is clear that the acquisition of Estec represents a
relatively small accretion to Otis' existing share of supply in this
Overall, the lift and escalator service and repair sectors together are
characterised by the presence of the big four international lift and
escalator suppliers with some smaller independents and specialist
companies active in the escalator sector alone. There are some smaller
independent firms who are active in both the provision of lift and
escalator services. The evidence suggests that Otis and Estec were not
close competitors in the escalator sector as Estec was not actively
bidding for tenders, instead preferring to work on a negotiated contract
basis whenever approached by customers.
Escalator refurbishment: Otis estimates its share of supply to be in the
region of [35-45 per cent], mainly with London Underground. Otis
further estimates that Kone holds a share of supply in this sector in
the region of [25-35 per cent] (see [note 2]). Estec's main
focus was in the servicing and repair sector, producing minimal sales in
the refurbishment sector.
Barriers to entry and expansion
Evidence presented to the Office suggests that barriers to entry to the
provision of escalator servicing and repair are relatively low for an
individual already qualified and experienced in the servicing and repair
of escalators. For such an individual the costs of setting up a business
would be minimal, covering company registration, the purchase of
equipment (estimated at £25,000 by one third party) and insurance. Estec
and others have entered this market in such manner i.e. individuals
breaking away from one of the major suppliers and setting up their own
Whilst entry on a small scale may be relatively easy, it could be
considered more difficult for new entrants to expand and to offer a
truly national service. However, Estec itself was competing from a base
of four locations and servicing some national contracts. This indicates
that expansion to a national level is achievable.
THIRD PARTY VIEWS
Customers were largely unconcerned about the transaction believing that
sufficient alternative options are available. While some concern was
raised by smaller competitors in that they were not keen to see Otis
absorb a fellow small competitor, large lift and escalator companies
were not concerned as they did not see Estec as a direct competitor or a
strong competitive constraint on Otis.
The escalator service and repair sector is characterised by the presence
of four major international lift and escalator companies as well as some
smaller suppliers. Estec was a small player and offered limited
competitive constraint on the big four suppliers. Overall, the small
accretion to Otis' share of supply resulting from the merger with Estec
does not significantly alter the structure of the market.
Barriers to entry, particularly at local level, are low. Should there be
an incentive to do so, there would appear to be little to prevent
individuals setting up their own small scale competing businesses using
the experience gained in-house with one of the major firms.
Consequently, the OFT does not believe that it is or may be the case
that the merger has resulted or may be expected to result in a
substantial lessening of competition within a market or markets in the
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.
- Otis wishes to state that it agrees there are no definitive shares of
supply available and the figures stated should be considered on that
- Otis wishes to state that this is an estimate only, supplied at the
OFT's request, and is not based on detailed market analysis.