Phonak Reports Strong Growth; Acquisition of GN on Hold

Stafa, Switzerland—The Phonak Group has reported that full-year results for 2006-07 exceeded for the first time 1-billion Swiss Francs, with a 23.8% sales increase to CHF 1.073 billion (US$872 million), and internal sales growth of 16.1% (in local currencies and excluding acquisitions), significantly higher than the hearing instrument market's growth. Several new hearing systems were launched at the American Academy of Audiology (AAA) convention held in Denver in April, including Audéo, the Personal Communication Assistant, Una in the entry-level segment, and Moxi from Unitron Hearing.

Phonak's board of directors proposed to its shareholders to change the corporate name of Phonak Holding AG to Sonova Holding AG effective August 1. The motion will be decided at the company shareholders' meeting this month.

Phonak-GN acquisition on hold. During an April industry analysts' meeting that coincided with the AAA convention, Phonak CEO Valentin Chapero highlighted the group's new products and expressed optimism over the immediate and long-term future of the Phonak Group—whatever the outcome of the company's $2.8 billion bid to purchase the GN hearing group that includes hearing aid manufacturers ReSound and Interton, diagnostic equipment manufacturer GN Otometrics, and Beltone Electronics. That bid, announced October 2, 2006, has been stalled by the German Federal Cartel Office's (FCO) ruling, and forced the two companies to appeal to a higher court (Oberlandesgericht Düseldorf) for an accelerated hearing on the matter. The FCO on March 22 expressed competition concerns regarding Phonak's proposed acquisition of GN ReSound.

Chapero says that there is still a 50% or better chance for the deal to take place; however, he says neither Phonak nor GN can afford to allow the regulatory process to drag on for years. Thus, the higher court must grant an accelerated hearing, or the purchase has little chance for completion. Before the FCO's ruling, the transaction had been expected to be completed in the first half of 2007.

According to Phonak, the concerns of the FCO are not motivated by a fear that Phonak, as an individual competitor, could obtain a dominant market position; rather, the FCO claims there will be an oligopoly (collective market dominance) in the German hearing aid market as a result of the combination. The company would be in possession of Phonak, GN ReSound, Unitron, Beltone, and also German-headquartered Interton Hoergerate. Phonak is convinced that competition in Germany—a country that makes up about 10% of worldwide hearing aid sales—is very intense today, and that this situation would not change after closing the deal. Reports suggest the Phonak/GN group would account for about one-third of all the hearing aids sold in Germany, while the Siemens and William Demant groups supply about half of the country's hearing aids.

On that basis, Chapero was highly critical of the FCO's decision that blocked the deal from going through. He characterized it as a "theoretical structural argument" that is based on maintaining the balance of a set number of major competitors in the German market, with Siemens being the only company having a dominant market position. Chapero was careful to emphasize, however, he did not believe German-headquartered Siemens had any complicity or influence in the court's decision. He says the ruling, if it stands, is bad for all the major hearing aid companies because it effectively prohibits any future global mergers if those companies have a significant stake in the German market. Chapero served as president of Siemens Audiologische Technik from 1996 to 1999.

Industry analysts have stated that three likely scenarios exist for the deal. In the best-case scenario for the two corporate groups, the German appeals court would repeal the injunction, and the acquisition would move forward. If completed, the purchase would make the Phonak Group, headquartered in Stafa, Switzerland, the largest group of companies in the hearing industry, followed closely by the Siemens Group. In a second scenario, the court would not grant an accelerated hearing or appeal, and/or Phonak and GN would not find it in their best interests to pursue the deal further, and another buyer would be found for GN. However, in this case, the potential hearing industry purchasers would probably be limited to Starkey Laboratories and Widex, because Siemens and William Demant would presumably face the same FCO prohibition. Purchasers outside the industry have also expressed interest in the company. The third scenario would be that the GN Group would remain intact as it is now.

New Hearing Aid Tax Credit Bill Introduced

Alexandria, Va—Highlighting "Hearing on The Hill '07," Reps Carolyn McCarthy (D-NY) and Vern Ehlers (R-Mich) introduced the Hearing Aid Assistance Tax Credit Act, HR 2329, in the House of Representatives May 15 and Sen Norm Coleman (R-Minn) introduced the companion bill, S 1410, in the Senate. The Act would provide a $500-per-hearing-aid tax credit for seniors age 55 and older and dependent children once every 5 years. Representatives of most member companies of the Hearing Industries Association (HIA), host of the biennial "Hearing on The Hill," were on Capitol Hill to applaud the introduction of the bills and to lobby members of Congress in support of the legislation in over 50 individual meetings in Congressional offices that day.

HIA Chair and Phonak President Cathy Henderson Jones launched "Hearing on the Hill '07" at the Library of Congress, noting for those assembled that "the tax credit legislation we are here to introduce has only supporters, and together all of our efforts will enhance the services and products we deliver to people with hearing loss in America." She and former HIA Chair Jerry Ruzicka, Starkey Laboratories, welcomed Sen Coleman who introduced his companion bill that day. Coleman has championed the tax credit legislation in the last two Congresses. The senator welcomed the hearing health care community to Capitol Hill by noting, "It takes a little time in Washington to get things done. The key to success is often just staying at the table."

Coleman told the story of his father's hearing loss and success with hearing aids, underscoring the importance of treating hearing loss. The senator further reinforced the importance of the tax credit for hearing aid purchases, emphasizing that "In America, there shouldn't be a financial threshold for you to have the ability to hear..."

Following the senator's speech, HIA hosted a luncheon featuring Margaret Giannini, MD, director of the Office on Disability at HHS, and presentations by Brenda Battat of the Hearing Loss Association of America, and Gayla Hutsell of AG Bell. After the luncheon, HIA conducted hearing screenings for members of Congress and Congressional staff.

"Hearing on The Hill '07" concluded with a reception at the Library of Congress. Opening with an original rap song about hearing protection, "Turn It To The Left," by Ben Jackson, compliments of the American Academy of Audiology Foundation, the HIA event lauded Reps James Walsh (R-NY), and HR 2329 co-sponsors McCarthy and Ehlers. Reps McCarthy and Ehlers both welcomed the group to Washington and reinforced the theme of patience in getting legislation passed. Rep McCarthy reminded the group that "Members need to see people from their communities here, talking about things that need to be done to make people's lives better." She encouraged everyone to stay in touch with their elected officials, assuring the group, "It will make a difference in the end." Rep Ehlers emphasized the importance of addressing hearing health issues including the tax credit that will provide a measure of assistance for children and older Americans. Rep Walsh also expressed his support for the bill and reviewed initiatives in the area of infant hearing screening and treatment.

To learn more about the bill and how to support it, visit www.hearing.org/public.

HLAA Announces Agreement with Wireless Industry

Washington, DC—A consortium of consumer groups, including the Hearing Loss Association of America (HLAA, formerly Self Help for Hard of Hearing People, or SHHH), has reached a consensus agreement with the wireless industry on increasing the accessibility of wireless telephones over the next few years. HLAA is one of the nation's largest membership and advocacy groups for people with hearing loss.

The consensus has significance for people with hearing loss who use wireless phones, the organization reports. It is the first time since the struggle to achieve hearing aid compatible (HAC) telephones began in 1973 that consumers and the industry have come to consensus without federal oversight to achieve agreement. The groups have sought to find common ground with industry to come up with rules that took into consideration the technical challenges facing industry, but at the same time addressed the accessibility needs of hearing aid and cochlear implant users.

HLAA, together with Gallaudet University, the RERC on Hearing Enhancement, and the Alexander Graham Bell Association for Deaf and Hard of Hearing (AG Bell), negotiated with the key wireless service providers and manufacturers from November 2006 to March 2007 in Working Group 10 of the Alliance for Telecommunication Industry Solutions (ATIS) AISP.4-HAC Incubator.

"Based on experience with mandated regulations that are not complied with or enforced, it made more sense to work together with industry to develop rules that they committed to comply with up front, but that also gave consumers ever-increasing access to wireless telephones," says Brenda Battat, associate executive director of HLAA.

HLAA's approach was to increase the number of telecoil-compatible phones for those consumers who have the greatest hearing loss; to ensure that consumers will benefit from new technology from the outset; that research be conducted on how to improve audio output and volume control on telephones; that consumers can choose from accessible telephones with different prices, features, and styles; that there be increased availability of M-rated phones for all people with hearing loss; and that the portfolio of communication-accessible phones is kept fresh from year to year.

"As communications technology advances, it is important that people with hearing loss not be left behind," says HLAA executive director Terry D Portis, EdD. "Mobile communications devices are critical for home, community, workplace, and especially for emergency situations."

The proposal was presented to the FCC April 23. The FCC has taken the proposal under advisement and is awaiting further input on a few data points. Comments from the telecommunications manufacturers clearly show they felt this was a successful effort. "It makes sense to work with industry and get a commitment up front," says Scott Kelly of Motorola and co-chair of the working group for the telecommunATIS HAC Incubator WG10. "We believe we have an agreement between consumers and industry to provide more wireless phones that will work for people with hearing loss."

In related news, the Hearing Industries Assocation (HIA) is currently considering labeling language that would accompany hearing aid packaging and explain how the ratings can be used to assess cell phone performance with hearing aids. For more information on this subject, see the article by Seabury and Hill in the April 2007 HR Archives.