FTC Consent Order Requires Relief in Itron, Inc.'s $255 Million Acquisition of Schlumberger Electricity, Inc

Preserving competition in the U.S. market for mobile radio frequency (RF) automatic meter reading (AMR) technologies for electric utilities, the Federal Trade Commission today conditionally approved Itron, Inc.'s (Itron) $255 million acquisition of Schlumberger Electricity, Inc. (Schlumberger), which the companies announced in July 2003. Under the proposed consent order, Itron is required to grant a royalty-free, perpetual, and irrevocable license to Hunt Technologies, Inc. (Hunt) for Itron's mobile RF AMR technology, allowing Hunt to become a viable and significant competitor in the manufacture and sale of mobile RF AMR systems.

Mobile RF AMR systems allow utility companies and others to gather electric consumption data automatically and remotely from electricity meters. The technology for the systems consists of two principal components, an endpoint - electronic circuitry integrated into an electric meter that records and broadcasts use data - and a mobile receiving device that can be either hand-held or transported in a vehicle to gather the data signal.

"Absent the relief provided by the proposed consent order, Itron would effectively obtain a 99 percent share of the U.S. market for mobile RF AMR manufacture and sales," said Susan Creighton, Director of the FTC's Bureau of Competition. "The required divestiture to Hunt will preserve competition in this important, highly concentrated market and will ensure that the current levels of service and innovation are maintained."

Parties to the Proposed Transaction:

Itron, headquartered in Spokane, Washington, is the leading supplier of mobile RF AMR

systems to electric utilities in the United States. Its mobile RF AMR system is based on encoder-receiver-transmitter (ERT) technology and is comprised of electronic circuitry that gathers consumption information from an electricity meter and broadcasts the data via radio frequency using a technology known as the ERT protocol. To gather the data, Itron supplies hand-held and vehicle-transportable receivers, also known as drive-by data collectors. Itron also supplies mobile RF AMR systems to water and natural gas utilities and is a leading supplier in each of these areas.

Schlumberger is a wholly owned subsidiary of Schlumberger Limited, a leading provider of oil field services. Headquartered in Oconee, South Carolina, Schlumberger is the leading supplier of residential electricity meters in the United States, and the second-largest supplier of mobile RF AMR systems nationwide. Schlumberger also sells hand-held and drive-by data collectors through a partnership with Neptune Technology Group, Inc., with the Neptune/Schlumberger mobile RF AMR receivers able to gather data from both Itron and Schlumberger systems.

Hunt, headquartered in Pequot Lakes, Minnesota, researches, develops, manufactures, and sells powerline carrier (PLC) systems to electric utilities. Such systems are a type of AMR technology used primarily for rural service and are complementary with mobile RF AMR systems. According to the FTC, due to its involvement in the electric AMR industry, Hunt has the resources, related expertise, and capabilities to ensure it will become an effective competitor in the mobile RF AMR system market for electric utilities.

The Commission's Complaint:

According to the Commission's complaint, Itron's acquisition of Schlumberger as proposed would be anticompetitive and in violation of the FTC Act and Section 7 of the Clayton Act in the market for the manufacture and sale of mobile RF AMR systems in the United States. The FTC contends that the U.S. market for such systems is highly concentrated, with Itron and Schlumberger together accounting for more than 99 percent and the three remaining firms with a market share of less than one-half of one percent. Itron and Schlumberger are the only two mobile RF AMR suppliers with access to the proprietary ERT technology, and therefore are close competitors in the relevant market.

Direct competition between Itron and Schlumberger has resulted in lower prices for consumers of mobile RF AMR technology, improved service, and greater innovation. Such benefits would be eliminated if the transaction as proposed were allowed to proceed with no relief. Finally, the FTC's complaint states that sufficient entry into the U.S. market for mobile RF AMR systems would not occur quickly enough to offset the likely anticompetitive effects of the acquisition as proposed.

Terms of the Proposed Order:

The proposed consent order is designed to remedy the anticompetitive effects of the proposed transaction as identified by the Commission in the U.S. market for the research, development, manufacture, and sale of mobile RF AMR systems. This will be accomplished by requiring Itron to grant a royalty-free license to its mobile RF AMR technology. Specifically, Itron will license its "RF AMR Assets" to Hunt, thereby providing Hunt with the technology and rights needed to manufacture and sell a mobile RF AMR system - including both endpoints and receivers - that is interoperable with Itron's system.

Under the proposed order, if Itron does not complete the license divestiture within the time and manner required, the FTC may appoint a trustee to divest the RF AMR Assets subject to the Commission's approval. This trustee will have 12 months from the time of his appointment, subject to any necessary extensions by the FTC, to accomplish the divestiture. In addition, until Hunt has made the necessary manufacturing arrangements, it may purchase electric RF endpoints and mobile RF AMR receivers from Itron at terms that will allow it to compete aggressively with Itron and be competitive in the market.

The proposed consent order contains other features designed to ensure the asset package is divested successfully. First, to help Hunt manufacture and sell its mobile RF AMR system, Itron will be required to provide Hunt with technical assistance, including 200 hours at no cost. In addition, Itron must provide Hunt with any updates to its ERT technology for three years. Finally, the proposed order will allow the FTC to appoint an interim monitor, if necessary, to ensure that Itron complies with the order.

The Commission vote to accept the proposed consent order and to place a copy on the public record was 5-0. The order will be subject to public comment for 30 days, until July 2, 2004, after which the Commission will decide whether to make it final. Comments should be sent to: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, proposed consent order, and an analysis to aid public comment are available on the FTC's Web site at www.ftc.gov. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC File No. 031-0201)