Swatch sales of ETA watch movements to big rivals halted

Zurich

SWATCH Group AG faces a provisional ban on supplying watch movements to big rivals next year, threatening their production of mechanical timepieces, as Switzerland's antitrust regulator reviews competition in the industry.

The stopgap measure takes effect in January and applies until the regulator makes a decision on new rules, according to a statement released on Thursday. The regulator, known as Comco, said it expects to make its decision around next summer.

While still a blow to Swatch, the measure is a step back from a proposal for a total ban that the regulator had reportedly been considering. Component-maker Sellita is set to gain more business as it's the largest alternative to Swatch's ETA component-making unit.

Movements are the mechanisms that make watches tick, and Swatch used to make the majority of them after an industry-wide crisis put most rivals out of business.

"It looks like Comco has been aiming at finding a compromise here between forceful measures to open competition in the market and taking into account Swatch's interests," said Peter Picht, a competition lawyer at Schellenberg Wittmer and professor of law at the University of Zurich. "But Comco needs to come up with a long-term decision soon, and it cannot be an outright ban."

Swatch can deliver to smaller watchmakers, and the company is freed of any obligation to supply third parties, Comco Director Patrik Ducrey said. The provisional measure can be extended to the end of 2020.

The regulator's new position comes just two weeks before the market was expected to be fully liberalised for 2020. A decade ago, Swatch, which owns more than a dozen brands including Omega and Longines, was obligated to supply components to competitors due to its dominant position. In 2013, the company reached an agreement with the regulator to gradually reduce sales to third parties.

In recent years, Sellita has overtaken ETA, with an estimated production of 1.2 million compared with the half-million sold by Swatch's unit, according to Rene Weber, an analyst at Vontobel.

"The provisional measures adopted by Comco are incomprehensible and unacceptable," Swatch said in a statement sent out late Wednesday, ahead of the formal announcement. "Comco is also interfering in economic policy and is restructuring the entire Swiss watchmaking industry. In doing so, it is exceeding and violating its authority."

Swatch said it reserves the right to claim damages due to the negative financial repercussions. "Comco is effectively driving ETA out of the market," Swatch said. BLOOMBERG