EN
This text is made available for information purposes only.
A summary of this decision is published in all Community languages in the Official Journal of the
European Union.
Case No COMP/M.4854 TOMTOM/TELE
ATLAS.
Only the English text is authentic.
REGULATION (EC) No 139/2004
MERGER PROCEDURE
Article 8 (1)
Date: 14/05/2008
COMMISSION OF THE EUROPEAN COMMUNITIES
Brussels, 14/05/2008
C(2008) 1859
COMMISSION DECISION
of 14/05/2008
declaring a concentration to be compatible with the common market
and the EEA Agreement
(Case No COMP/M.4854 - TOMTOM/ TELE ATLAS)
PUBLIC VERSION
2
COMMISSION DECISION
of 14/05/2008
declaring a concentration to be compatible with the common market
and the EEA Agreement
(Case No COMP/M.4854 - TOMTOM/ TELE ATLAS)
(Only the English text is authentic)
(Text with EEA relevance)
THE COMMISSION OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Community,
Having regard to the Agreement on the European Economic Area, and in particular Article
57 thereof,
Having regard to Council Regulation (EC) No 139/2004 of 20 January 2004 on the control
of concentrations between undertakings1
, and in particular Article 8(1) thereof,
Having regard to the Commission's decision of 28 November 2007 to initiate proceedings in
this case,
After consulting the Advisory Committee on Concentrations2
,
Having regard to the final report of the Hearing Officer in this case3
,
Whereas:
1 OJ L 24, 29.1.2004, p. 1.
2 OJ C ...,...200. , p....
3
OJ C ...,...200. , p....
3
I. THE PARTIES
(1) TomTom N.V. ("TomTom"), headquartered in Amsterdam, Netherlands, is a
manufacturer of portable navigation devices (PNDs) and a supplier of navigation
software for use in navigation devices. The company is listed on the Euronext
Stock Exchange in Amsterdam.
(2) Tele Atlas N.V. ("Tele Atlas"), headquartered in 's-Hertogenbosch, Netherlands,
is one of two main suppliers, both in Europe and North America, of digital map
databases for navigation and other end-uses. The company is listed on the
Euronext Stock Exchange in Amsterdam and on the Frankfurt Stock Exchange.
II. CONCENTRATION
(3) On 2 October 2007, TomTom launched a cash tender offer for all issued and
outstanding publicly listed shares of Tele Atlas. The proposed transaction
therefore constitutes a concentration within the meaning of Article 3(1)(b) of
Council Regulation (EC) No 139/2004 (the "Merger Regulation").
III. COMMUNITY DIMENSION
(4) The parties to the proposed concentration do not meet either of the alternative
turnover thresholds set out in Article 1(2) and 1(3) of the Merger Regulation,
since the combined aggregate worldwide turnover of the undertakings concerned
does not exceed EUR 2.5 billion and moreover, the turnover of Tele Atlas does
not exceed EUR 25 million in at least three Member States in which the
combined turnover of the parties concerned must exceed EUR 100 million.
Therefore, the proposed transaction does not have a Community dimension.
IV. ARTICLE 4(5) REFERRAL
(5) The proposed transaction would have been subject to mandatory scrutiny under
national merger control law in four Member States, namely, in Germany, the
Netherlands, Spain and Portugal.
(6) On 24 August 2007, the Commission received a reasoned submission by
TomTom in which the company requested a referral to the Commission pursuant
to Article 4(5) of the Merger Regulation. No Member State objected to the
referral of the proposed transaction to the Commission. The proposed transaction
was therefore deemed to have a Community dimension and has been examined
by the Commission.
V. THE PROCEDURE
(7) On 22 October 2007, the Commission received a formal notification pursuant to
Article 4 of the Merger Regulation by which TomTom acquires within the meaning
of Article 3(1)(b) of the Merger Regulation control of the whole of Tele Atlas by
way of a public bid.
4
(8) On 28 November 2007, the Commission concluded that the notified operation
raised serious doubts as to its compatibility with the common market and the
functioning of the EEA Agreement. The Commission accordingly initiated
proceedings in this case pursuant to Article 6(1)(c) of the Merger Regulation.
(9) On 18 December 2007, pursuant to Article 10(3) of the Merger Regulation,
following a request from the notifying party, the time limit within which a
decision must be adopted in this case was extended by ten working days.
(10) On 29 February 2008, a Statement of Objections was sent to TomTom pursuant
to Article 18 of the Merger Regulation. Thereafter, a number of interested third
parties were invited to submit comments on a non-confidential summary of the
Statement of Objections.
(11) After sending of the Statement of Objections, the Commission finalised an
empirical study, which analyses the merged firm's incentives to engage in
vertical foreclosure and the impact of the proposed transaction on the PND
market. The robustness of the study's conclusions was thoroughly tested.
(12) On 17 March TomTom submitted its reply to the Statement of Objections.
Subsequently, this reply was examined in depth by the Commission and new
factual elements were cross-checked with interested third parties.
(13) On 26 March 2008, pursuant to Article 10(3) of the Merger Regulation, the
Commission decided, with the agreement of the notifying party, to extend by a
further ten working days the time limit within which a decision must be adopted
in this case.
VI. RELEVANT MARKETS
6.1. Introduction
(14) The proposed transaction is of a purely vertical nature, since it involves two
companies operating at different levels in the supply chain. This merger is a case
of "upstream" integration in the sense that a producer of a good acquires its main
provider of an important input. The acquirer, TomTom, is principally active in two
"downstream" markets for the provision of navigation software and PNDs
respectively. Companies active in these markets use the same input, namely
navigable digital map databases (the "upstream" market) such as those produced
by the target company, Tele Atlas.
(15) TomTom integrates the navigable digital databases it purchases from Tele Atlas
into the navigation software the company produces. The integrated product
(software and database) is then either included in the PNDs that TomTom itself
sells to end-consumers or is sold to other manufacturers of navigation devices for
inclusion in their devices (the navigation software may also be sold separately
without the map database). Navigation software is therefore an intermediate
product situated between the upstream product (navigable digital map databases)
and the downstream product (PNDs and other navigation devices) in the vertical
supply chain.
5
(16) In order to assess the proposed transaction's impact on competition, the
Commission must define the upstream market, the intermediate market and the
downstream market.
6.2. The Upstream Market – Navigable Digital Map Databases
6.2.1. Definition of the relevant product market
(17) A digital map database is a compilation of digital data which typically includes (i)
geographic information which contains the position and shape of each feature on a
map (such as roads, railways, rivers and indications of land use), (ii) attributes
which contain additional information associated with features on the map (such as
street names, addresses, driving directions, turn restrictions and speed limits) and
(iii) display information. Suppliers keep map data in a relational database which is
not in itself a digital map4
. The relational database is used by customers to
generate digital maps and provide services based on map information. The map
data included in the databases is derived from a multitude of sources such as aerial
photographs, satellite images, official government map databases and other
government sources as well as from field data generated by field forces using
customised vehicles.
(18) In addition to the core database, several layers of add-on information is provided
by the providers of digital map databases. These layers that may be offered are
base maps (basic information which enables the display of a digital map), updates,
points of interest (POIs, such as restaurants, hotels, petrol stations and
landmarks)5
, phonemes (enabling the provision of vocal instruction), truckspecific
attributes (such as height and weight restrictions, lane restrictions and
ideal routes), postal codes, 3D landmarks, and Advanced Driver Assistance
Systems (ADAS) attributes6
. However, customers do not necessarily buy all layers
offered.
(19) Digital map databases are sold to manufacturers of navigation devices, producers
of navigation software and providers of non-navigation applications (such as
Internet maps, various government uses and corporate solutions such as fleet
management). Furthermore, they are used for a variety of purposes, the most
important being address location, route planning7
and navigation8
. To provide
navigation, the digital map database must be combined with a system for instant
4
In a relational database the data is internally structured in tables.
5
Providers of digital map databases include at least basic POI information. Providers either generate
this information themselves or source it from aggregators. Sometimes device manufacturers
themselves source premium POI content directly from aggregators and incorporate it in their
navigation devices.
6
Advanced Driver Assistance Systems provide "vehicle intelligence" including driver assistance,
enhanced safety, advisory systems and fuel management systems.
7
Route planning is the provision of a sequential description of a route from origin to destination.
The calculated route is usually shown on a map with step-by-step directions in text form. Route
planning is typically provided on-line and printed out by the user.
8
For the purposes of this Decision, the term navigation denotes the use of GPS technology to
display the user's current position and provide turn-by-turn directions to guide the user to a
destination in real time. Guidance is provided in visual form on the screen of the navigation device,
usually complemented by voice guidance. In addition, re-routing ("back-on-track") functionality is
usually provided.
6
geographic positioning, primarily using Global Positioning System (GPS)
technology.
(20) Digital databases are provided to customers in a number of different formats,
which are dictated by customers' application requirements9
. Both Tele Atlas and
NAVTEQ Corporation ("NAVTEQ"), its largest competitor and one of the two
main suppliers of digital map databases with EEA coverage, are capable of
supplying map data in all available formats and customers can switch between
data supplied in different formats10
Customers are generally capable of receiving
map data in different formats and of switching between formats. Format switching
may necessitate reconfiguration of the data so that it is compatible with the
navigation software used by the customer. Such reconfiguration costs are not
prohibitive. There is therefore no need to delineate separate product markets for
digital map databases depending on the format in which the data is delivered to the
customers.
(21) The Commission has considered whether or not digital map databases for
navigation purposes and non-navigation purposes constitute separate relevant
product markets. The provision of digital map databases for navigation purposes
accounted for approximately [60-90]* % of Tele Atlas's turnover in 200611
.
TomTom only buys digital map databases for navigation purposes.
(22) The degree of demand-side substitutability between digital map databases for
navigation purposes and for non-navigation purposes must be regarded as limited,
because the quality requirements are very different. In order to be used for
navigation, a digital map database must be sufficiently detailed, accurate and
updated and must contain the necessary attributes and add-on layers, whereas a
more basic database will suffice to provide simpler services such as route planning
and address location12
. A navigation device will not function (or will at least not
function properly) if used with a basic digital map database of inferior quality.
* Parts of this text have been edited to ensure that confidential information is not disclosed; those parts
are enclosed in square brackets and marked with an asterisk.
9
Tele Atlas provides its digital map databases in four exchange formats: (i) GDF-AS (ASCIISequential),
the standard international exchange format for navigable digital map databases
approved by the European Committee of Standardization (CEN); (ii) GDF-AR (ASCII-Relational),
a version of GDF-AS developed by Tele Atlas to facilitate integration of data into applications
based on relational databases (the GDF-standard is predominantly used by the automotive
industry); (iii) Shape, a format which is easy to integrate into Geospatial Information System (GIS)
based applications (the Shape format is used by most PND manufacturers including TomTom);
(iv) Oracle, a format compatible with Oracle Corporation's database management systems. Reply
by Tele Atlas of 14 January 2008 to question 2 of the Commission's request for information.
NAVTEQ provides its data in GDF, Shape and Oracle formats and several additional formats,
including two formats developed by NAVTEQ itself, SIF+ and RDF. Reply by NAVTEQ of 12
January 2008 to question 3 of the Commission's request for information.
10
Reply by NAVTEQ of 12 January 2008 to question 3 of the Commission's request for information.
11
In 2006, "personal navigation", that is to say essentially sales to producers of PNDs, PDAs and
GPS-enabled mobile telephones, accounted for [40-60]*% of the turnover and "automotive" sales,
that is to say, sales to producers of "in-dash" navigation devices, accounted for [10-30]*%.
12
For instance, a navigable digital map database must contain attributes such as road type, road class,
traffic flow information (one-way, two-way, lane separation) and turn restrictions.
7
(23) The degree of supply-side substitutability must be regarded as one-sided, because
a provider of the higher quality digital map databases for navigation purposes may
also easily provide the simpler database used for non-navigation purposes. The
core databases used for the two types of applications are very similar (in fact, the
basic map is the same). However, there is no supply-side substitution in the other
direction due to the substantial costs and time required to upgrade a basic database
to navigable quality. Whereas it is possible to produce a basic digital map database
for many territories relatively quickly and at limited cost by compiling data from
various public sources, producing a navigable digital map database is costly and
very resource-intensive.
(24) In order to compile the data necessary for navigation, the features of each road in
the database have to be recorded manually. Tele Atlas and NAVTEQ compile such
data by operating field forces using a fleet of vehicles that drive along each road in
the database. The use of field surveys is crucial for the accuracy as well as for the
completeness of the databases because they are used both to verify data
accumulated from other sources and to record additional data not available by
other means. Tele Atlas provides navigable digital map databases covering 64
countries and 21.3 million kilometres of roads while NAVTEQ's databases cover
53 countries and over 16 million kilometres of roads13
.
(25) A producer of basic digital map databases that wants to switch its production to
digital map databases of navigable quality would therefore have to commit
substantial resources to collect all additional information necessary for navigation
capability. Although more information is currently available from alternative
sources, it is still indispensable to employ field forces driving down every single
road in order to record all road features in the geographic area which will be
covered by the navigable digital map database14
. Once a complete database has
been compiled, it has to be constantly updated so that it incorporates all changes
made to the road network. Field surveys are needed also for updating the database.
Even if the database provider obtains information about changes from various
external sources (for instance, from local authorities) the veracity and accuracy of
the information supplied have to be checked by means of a field survey. Once the
data has been compiled, very large volumes of data have to be processed and
incorporated into the database.
(26) Compiling and processing the data necessary for a navigable digital map database
is a very time-consuming process. Upgrading in this manner a basic digital map
database covering the European Union, is likely to take several years15
. Creating
13
Reply by [PND Manufacturer]* of 4 January 2008 to question 13 of the Commission's request for
information.
14
The indispensability of field forces is confirmed by the minutes of a telephone conversation with
Facet Technology Corporation ("Facet") of 1 February 2008 and by the reply of Sony Ericsson
Mobile Communications AB ("Sony Ericsson") of 22 November 2007. Furthermore, NAVTEQ's
reply to the Commission's invitation to comment on a summary of the Statement of Objections of
25 March 2008 indicates that Tele Atlas and NAVTEQ both rely upon field surveys to a large
extent and neither company has indicated any intentions to stop using field surveys in the future.
NAVTEQ concedes that field surveys are still important, albeit less important than in the 1980s
when NAVTEQ first built its database.
15
[Mobile Telephone Manufacturer]* estimates that it would take 1000 people 5-10 years to replicate
the databases offered by Tele Atlas and NAVTEQ. Reply by [Mobile Telephone Manufacturer]* of
22 November 2007 to question 11 of the Commission's questionnaire. [Car Maker]* estimates it
8
and maintaining a navigable digital map database of sufficient quality is much
costlier than creating and maintaining a basic non-navigable digital map database.
Tele Atlas estimates the cost of the former at approximately EUR [5-15]* per km
whereas the cost of the latter is estimated at EUR [0-10]* per km16
.
(27) Given the lack of demand-side as well as supply-side substitutability, it may be
concluded that digital map databases for navigation and non-navigation
applications constitute separate product markets.
(28) The Commission has considered the feasibility of sub-dividing the market for
navigable digital map databases according to the type of navigation device within
which they are used, whether PND, Personal Digital Assistant (PDA), GPSenabled
mobile telephone or "in-dash" navigation device. Although certain
features may vary between for instance PNDs and GPS-enabled mobile
telephones, the databases used for all types of navigation devices are technically
and performance-wise very similar. The Commission market investigation has
confirmed that it would be inappropriate to sub-divide the market in this manner.
(29) There is therefore no need to sub-divide the market for navigable digital map
databases according to the type of navigation device.
(30) Finally, it must be considered whether the market for the provision of navigable
digital map databases ought to be sub-divided according to the geographic
coverage of the databases sold. It should be noted that the geographic coverage of
navigable digital databases is a product feature relevant for the delineation of the
relevant product market in this case. The geographic coverage of the database
must not be confused with the geographic scope of the market, which is dealt with
separately in Section 6.2.2.
(31) Tele Atlas and NAVTEQ license the use of their navigable digital map databases.
The companies usually grant non-exclusive, perpetual, "per device" licences that
allow the licensed database to be used on the device for the duration of its useful
life17
. The level of the licence fee depends on several elements, including the
extent of the geographic coverage and the content of the map data. The greater the
geographic coverage of map data and content, the higher the licence fee. The main
determinant for the licence fee, which is always defined in the customer contracts
concluded by Tele Atlas and NAVTEQ, is the geographic coverage of the database
being licensed, that is to say, the licensed territory18
.
(32) From the demand side, the substitutability of navigable digital map databases with
different geographic coverage must generally be regarded as limited. A device
manufacturer that intends to sell a navigation device in a particular territory must
include a navigable digital map database with a corresponding geographic
coverage, otherwise the device will simply not function and cannot be sold.
However, navigable digital databases which overlap partially may be substitutable
would take 2000 employees 6-8 years to build a map database of the same quality as that of Tele
Atlas and NAVTEQ. Reply by [Car Maker*] of 8 November 2007 to question 15 of the
Commission's questionnaire.
16
Reply by Tele Atlas of 14 January 2008 to question 3 of the Commission's request for information.
17
Notification, page 30.
18
In this context, the term licensed territory refers to the geographic coverage of the database being
licensed and not the territory in which the licence is valid as in most other industries.
9
to a certain extent. For example, a navigable digital map database with regional
coverage (including several countries) is partially substitutable to a database with
national coverage, provided that the country covered is included in the regional
database. A device maker could possibly substitute the larger regional database
with the smaller national database and install it into those navigation devices it
intends to sell in the country in question.
(33) The degree of supply-side substitutability of navigable digital map databases with
different geographic coverage is also limited due to the resources and time
required to build a navigable digital map database from the very beginning (as
described in paragraph 26). The limited supply-side substitutability applies also to
the established suppliers, that is to say, Tele Atlas and NAVTEQ. Despite the fact
that both companies possess the necessary knowledge and resources, including
field forces and vehicle fleets, there would still be a substantial time-lag before
they could extend their geographic coverage to a new territory.
(34) The territories licensed by Tele Atlas and NAVTEQ are either individual countries
or supra-national regions which consist of several countries bundled together.
Examples of such regional licences found in contracts are the DACH-region19
, the
ALPS-region20
, the BENELUX-countries21
, the Nordic region22
, the Iberian
peninsula23
, Western Europe24
, Eastern Europe25
and Europe, that is to say
Western Europe and Eastern Europe as a whole26
. Tele Atlas and NAVTEQ rarely
license territories smaller than an individual country27
.
(35) Tele Atlas maintains that currently a significant portion of the demand for
navigable digital map databases for use in navigation devices is attributed to
national or regional coverage, as opposed to broader European coverage. […]*
(36) Tele Atlas maintains a single core map database which is supplied to all
customers. Each customer then chooses which geographic coverage and which
functionalities he wants to use and pays licence fees accordingly. Tele Atlas
charges its customers different licence fees for the following product categories;
Europe, Western Europe, Eastern Europe, large country or region and small
country. Customers report to Tele Atlas the number of units purchased broken
down into these categories but are not required to specify which particular
countries or regions they have licensed. Therefore, Tele Atlas does not keep
country-by-country or region-by-region data for its sales of navigable digital map
databases28
.
19
Germany, Austria and Switzerland.
20
Typically Southern Germany, South-East France, Switzerland, Austria and Northern Italy.
21
Belgium, the Netherlands and Luxembourg.
22
Sweden, Denmark, Norway and Finland.
23
Spain, Portugal, Andorra, Gibraltar and a small part of France.
24
Usually Austria, Belgium, Denmark, Finland, France, Germany, Italy, Luxembourg, Norway,
Portugal, the Republic of Ireland, Spain, Sweden, Switzerland, the Netherlands and the United
Kingdom.
25
Usually Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia,
Turkey and connector maps for central Eastern Europe.
26
Reply by Tele Atlas of 25 Januray 2008 to question 3 of the Commission's request for information.
27
Reply by Tele Atlas of 25 January 2008 to question 2 of the Commission's request for information.
NAVTEQ's reply of 25 January 2008 to question 2 of the Commission's request for information.
28
Reply by Tele Atlas of 25 January 2008 to question 4 of the Commission's request for information.
10
(37) Similarly, NAVTEQ usually licenses its navigable digital map database on a
continental basis. The customer then chooses the geographic coverage, that is to
say, the whole database, a particular region or a country, and the functionality,
such as map display, route planning or navigation he wishes to use. NAVTEQ is
normally not aware which countries a customer will use, since the latter only pays
afterwards for the geographic regions actually used29
.
(38) The Commission considers that the relevant product market upstream should be
defined as the provision of navigable digital map databases where the geographic
coverage of the licensed database determines the scope of the relevant product
markets30
. However, for the purposes of this Decision the exact delineation of the
relevant product markets, that is to say, whether or not individual country or
regional licences constitute separate product markets, may be left open, since it
does not affect the Commission's assessment of the proposed transaction.
6.2.2. Definition of the relevant geographic market
(39) The two established providers of navigable digital map databases Tele Atlas and
NAVTEQ are located in the Netherlands and in the United States of America (the
United States) respectively. Both companies keep their databases on servers in
their respective countries. The companies deliver the data by sending a "master"
CD-ROM to customers or by allowing them to download over the internet the data
they have licensed31
. Tele Atlas distributes its products from the Netherlands to
device makers and software providers located elsewhere in the EEA and in other
parts of the world. NAVTEQ distributes its databases from the United States to the
EEA and other parts of the world where device makers and software providers are
located. Major device makers and software developers are located in the EU, the
United States, Japan and South Korea.
(40) Navigable digital map databases sold by NAVTEQ are imported by customers
located in the EEA, while Tele Atlas exports its products to customers outside the
EEA. Quotas, tariffs or other trade barriers do not limit these imports and exports
of digital data of this kind32
.
(41) There are no material differences in the way in which navigable digital map
databases are sold or distributed within the EEA and in other parts of the world.
(42) An analysis of the contracts that Tele Atlas and NAVTEQ have concluded with
device makers and software providers does not indicate that the prices or other
29
Reply by NAVTEQ of 25 January 2008 to question 1 of the Commission's request for information.
30
Tele Atlas and NAVTEQ distribute their navigable digital map databases to customers all over the
world (see Section 6.2.2.). It is conceivable that product markets for the sale of digital map
databases with a coverage beyond European borders, in particular databases covering the United
States, would be affected by the proposed transaction. However, the Commission will limit its
investigation to those product markets which concern the provision of digital map databases which
cover territories within the EEA, because any potential anti-competitive effects of the merger in the
product markets for databases with a coverage beyond European borders are likely to have only
marginal, indirect effects in the Community.
31
In some cases, the digital map database providers make copies of the CD-ROM and send the
required number of CD-ROMs to the device manufacturers for installation in the navigation
devices. This procedure applies to car manufacturers and suppliers of in-dash devices to car
manufacturers.
32
Notification, page 94.
11
sales conditions vary significantly depending on the geographic location of the
customer.
(43) Transport costs are negligible and do not constrain the distribution of navigable
digital map databases33
.
(44) Considering the evidence presented in paragraphs 39-43, the Commission
concludes that the relevant geographic market for the provision of navigable
digital map databases is worldwide. The notifying party does not contest this
conclusion34
.
6.3. The Intermediate Market – Navigation Software
6.3.1. Definition of the relevant product market
(45) All navigation devices make use of navigation software which combines
geographic positioning from a GPS-receiver, data contained in a navigable digital
database and other information in order to provide navigation functionality. The
navigation software uses an algorithm to calculate routes and provide real time
turn-by-turn directions on the screen of the device. Most devices also provide
voice guidance.
(46) There are three main types of navigation software, which are; (i.) on-board
systems, where the navigation software and map data are stored in the device, –
(ii.) off-board systems, where the navigation device connects with a navigation
server using General Packet Radio Service (GPRS) or Universal Mobile
Telecommunications Systems (UMTS) technology that performs route
calculations and stores the map data, and (iii.) hybrid systems, which combine an
on-board system with dynamic information such as traffic data from external
sources.
(47) The question whether separate relevant product markets should be defined
depending on the type of navigation software may be left open in the present case,
since TomTom only provides on-board systems35
.
(48) As stated in paragraph 20, navigable digital map databases are delivered in various
formats and navigation software must ensure interoperability with these different
database formats. Most navigation software is compatible with several database
formats and software may be adapted to different formats at costs which are not
prohibitive.
(49) The Commission therefore considers it inappropriate to delineate separate product
markets depending on the database formats used to integrate the data with the
navigation software.
(50) Finally, separate relevant product markets could possibly be delineated depending
on the type of navigation device within which the navigation software is installed,
33
The only case where a meaningful transport cost can be identified is the dispatch of larger volumes
of CD-ROMs to the automotive industry. This cost is only a fraction of the total licence fee.
34
The notifying party considers that the geographic market is at least EEA-wide and possibly
worldwide. Notification, page 61.
35
Notification, page 66.
12
that is to say, whether, PNDs, PDAs or GPS-enabled mobile telephones. Although
navigation software for these end-uses may differ technically in certain respects,
these technical differences are not crucial. Technical differences often relate to the
graphic interface. For example, PNDs and PDAs require larger and more detailed
images than GPS-enabled mobile telephones. Moreover, the core functionality of
the navigation software, that is algorithms calculating routes, is identical for all
types of navigation devices and the software always uses identical inputs. GPSsignals
are obviously identical for all devices and navigable digital map databases
do not differ depending on the type of device within which they are installed. For
these reasons, the degree of supply-side substitutability for navigation software
designed for use in different types of navigation devices must be regarded as very
high, a circumstance which is corroborated by the fact that most producers of
navigation software supply software for use in several types of navigation devices.
(51) The Commission therefore considers it inappropriate to demarcate separate
relevant product markets depending on the type of navigation device in which the
software is used.
6.3.2. Definition of the relevant geographic market
(52) Navigation software is created and distributed throughout the world and licensed
to customers wherever the customer is located. Although navigable digital map
databases differ in geographic coverage, producers of navigation devices may use
the same navigation software for devices sold in the EEA, the United States and
other parts of the world. There are no technological differences, trade barriers or
legal barriers that could justify a narrower scope of the geographic market.
(53) The Commission therefore concludes that the relevant geographic market for the
provision of navigation software has a worldwide scope.
6.4. The Downstream Market – PNDs
6.4.1. Definition of the relevant product market
Navigation devices
(54) Navigation devices use geographic positioning technology (predominantly GPS),
navigable digital map databases and navigation software to provide real time turnby-turn
navigation functionality. Some navigation devices are able to display
additional information about chosen routes, such as speed limits and heightrestrictions,
as well as POIs such as restaurants, parking spaces and fuel stations.
(55) The first generation of navigation devices appeared on the market in the mid-
1980s. These devices were hand-held GPS-receivers with basic navigation
functionality used primarily for leisure, marine and hiking purposes. In the late
1990s the first navigation devices for automotive use were introduced. These "indash"
devices are pre-installed in the dashboard of new cars. In 2002, the first
PDAs with navigation functionality were introduced and in the following few
years the first PNDs and mobile telephones with navigation functionality were
introduced into the market.
13
(56) At present, four main types of navigation devices may be identified, these being,
PNDs, PDAs, mobile telephones with navigation functionality and in-dash
navigation devices.
(57) The first PNDs were introduced in 2003. They are portable and self-contained
navigation devices. The digital map database and the navigation software are
stored on-board in the device's internal memory or on memory cards, such as
Secure Digital Cards (SD), and MultiMedia Cards (MMC). PNDs are
predominantly single purpose devices but may sometimes include multi-media and
photo functionalities. The screen size and user interface are optimised for
navigation purposes.
(58) PDAs are portable with a wide range of mainly data-centric applications often
including navigation. PDAs normally do not include mobile telephony but may
incorporate local connectivity such as Bluetooth or Wi-Fi. Recently sales of PDAs
have decreased due to competition from other navigation devices.
(59) Today, the vast majority of mobile telephones have multimedia functionalities,
such as digital camera and MP3 player. To an increasing extent, mobile telephones
in the medium and high end price segments have navigation functionality. Mobile
telephones with navigation functionality use either on-board or off-board
navigation solutions.
(60) In-dash devices are installed permanently in the dashboard of a vehicle. They have
navigation software and a digital map database installed "on-board". In-dash
devices are usually produced by the car makers' Original Equipment
Manufacturers (OEMs) and pre-installed in new vehicles. The design process and
product life cycle of these devices are linked to those of new cars.
(61) The Commission has assessed whether it is appropriate to define separate relevant
product markets for each main type of navigation device or whether the definition
of a single product market comprising all types of devices better reflects market
realities. While recognising the fact that these markets may be converging to a
certain extent due to rapid technical evolution, the Commission's market
investigation indicates that a number of circumstances distinguish PNDs from
other types of navigation devices.
(62) For end-users the choice of navigation device depends to a large extent on the
functionalities of each device. Due to different functionalities, different types of
navigation devices are not fully interchangeable.
(63) PNDs and mobile telephones with navigation functionality meet different
consumer needs. A PND is primarily a navigation device, while a mobile
telephone with navigation functionality usually incorporates a wide range of
functions allowing the user to make calls, send SMS and MMS messages, take
photographs, listen to music, access the internet and send e-mails. Navigation is
not the core functionality of such mobile phones. The different functionalities are
reflected in the price. While mid-range PNDs retail at approximately EUR 200,
mobile telephones with navigation functionality typically cost approximately EUR
500.
(64) Because they are currently single-purpose devices, PNDs are better adapted to
navigation. The user interface is designed so that it is easy to enter address
14
information and search for POIs. To this end, most PNDs have touch-screen
functionality. Mobile telephones rarely have keys dedicated for navigation and
users have to rely on the standard alphanumeric keypad to use navigation features.
PNDs have larger screens and therefore are better suited for automotive use.
Mobile telephones with navigation functionality have smaller screens which are
less adequate for in-car use36
.
(65) For these reasons, the Commission considers that PNDs and mobile telephones
with navigation functionality currently constitute separate relevant product
markets.
(66) For similar reasons, that is to say, different functionalities, different prices and
different degrees of adaptation to automotive use, the Commission considers that
PNDs and PDAs currently constitute separate product markets.
(67) PNDs and in-dash devices are different in a number of respects. PNDs are sold and
marketed as normal consumer electronics in retail outlets while in-car systems are
pre-installed in new cars at the time of production. In-dash devices have more
features, larger screens and may be integrated with car safety systems. In-dash
devices are predominantly installed in premium cars. These differences are
reflected in the price. PND prices range from EUR 100 - EUR 500 while in-dash
devices invariably cost more than EUR 1 000.
(68) The differences in distribution methods and prices lead to very different product
life cycles. Currently a PND has a lifecycle which spans between six months and a
year and the time-to-market for PNDs is very short, which increases flexibility and
makes it easier to swiftly introduce innovative features. In-dash devices have
much longer development cycles which coincide with the development cycles for
new car models. It follows that in-dash devices are more difficult to update and
replace. The suppliers of PNDs and in-dash devices are largely different, although
a few in-dash providers have attempted to enter the PND market.
(69) For these reasons, the Commission considers that PNDs and in-dash devices
constitute separate relevant product markets.
(70) For the purposes of this Decision, the relevant product market downstream is the
market for the provision of PNDs37
.
(71) Respondents to the market investigation consider that PNDs, mobile telephones
with navigation functionality and in-dash device will continue to co-exist as
separate markets for the foreseeable future. Mobile telephones with navigation
functionality at present represent only a very small share of all navigation devices
sold, it is predicted that their share is likely to grow substantially in the future. In
contrast, PDAs are considered to be a market in decline. However, it is not
unlikely that innovation will, to a certain extent, blur the boundaries between the
36
For instance, mobile telephones using Nokia's S60 software platform on the Symbian operating
system typically have screen sizes of only 2.6 inches (240 by 320 pixels). Canalys Report, page 42.
37
Even if a wider product market would be considered, such as a single product market for all mobile
navigation devices (that is to say, including PNDs, PDAs and mobile telephones with navigation
functionality but excluding in-dash devices which are not mobile in the sense that they are
permanently installed in vehicles), the market shares of the major providers would be similar
because PNDs currently account for 90% of all mobile navigation devices sold.
15
different types of navigation devices in coming years. In the future the relevant
product market for PNDs may have to be extended to include mobile telephones
with navigation functionality and other consumer electronic products with
navigation functionality that may appear on the market.
6.4.2. Definition of the relevant geographic market
(72) The following circumstances indicate that the geographic market is at least EEAwide.
PNDs used in different EEA States require substantially the same hardware
and software to operate. The largest PND suppliers, such as TomTom, Garmin ltd
("Garmin") and MiTAC Technology Corporation ("MiTAC"), operate and
compete for customers on an EEA-wide basis, even though they may also
conclude distribution contracts on a national basis. Most brands are sold
throughout the EEA and the relative strength of the main players is broadly similar
in most national markets, although national brands have large market shares in
certain states. There is also scope for significant supply-side substitution.
Manufacturers of PNDs can easily start selling their products in another EEA
State, provided that they include in their devices a digital map database which
covers the state in question. Brand recognition can increase the costs of entry. On
this basis, the Commission concludes that the geographic market is at least EEA-
wide.
VII. MARKET CONDITIONS
7.1. Navigable Digital Map Databases
7.1.1. Market shares
(73) As mentioned in paragraph 20, there are two providers of navigable digital map
databases which cover states situated in the EEA, these being Tele Atlas and
NAVTEQ. These companies account for all sales of navigable digital map
databases with EEA coverage. The market(s) for the provision of navigable digital
map databases covering EEA States may therefore be regarded as a duopoly38
.
(74) Tele Atlas emphasises the fact that the relative importance of licences with
different geographic coverage is not static over time. The company's sales of
digital map databases with national coverage have steadily declined over the last
three years, while sales of regional and European licences have increased. The
portion of sales by volume of national licences has declined from more than [40-
60]*% in 2005 to approximately [20-40]*% in 2007. Last year Tele Atlas's sales
of national, regional and European licences each accounted for roughly [20 –
40]*% of the number of licences sold by the company39
.
38
This view is supported by industry analysts that consistently characterise the market as a duopoly.
See: "Tele Atlas – Potential still there but pricing is an issue", SNS Securities report of 1 August
2006.
39
Reply by Tele Atlas of 25 January 2008 to question 3 of the Commission's request for information.
16
(75) NAVTEQ typically licenses its European digital map database on a continental
basis but also makes pricing available for the use of databases with regional and
national coverage40
.
(76) The trend of increasing sales of navigable digital map databases with wider
geographic coverage is consistent with developments in the downstream markets
for navigation devices, where increasingly powerful (as regards data storage
capacity) and sophisticated devices are introduced into the market at an increasing
pace.
(77) If it is assumed that all navigable digital map databases with EEA coverage,
whether national, regional or European, constitute a single relevant product
market, the following market shares may be calculated. In 2006, Tele Atlas
generated a turnover of EUR […]*41
while NAVTEQ's total revenue amounted to
EUR […]*42
which corresponds to a market share of between [50-70]*% and [50-
70]*% for Tele Atlas and between [30-50]*% and [30-50]*% for NAVTEQ.
(78) If it is assumed that all navigable digital map databases with regional and
European coverage belong to the same relevant product market43
, the following
market shares may be calculated. In 2006, the total revenue of Tele Atlas
amounted to EUR […]*44
, whereas NAVTEQ generated total revenue of EUR
[…]*45
, which corresponds to a market share of between [40–60]*% and [40-
60]*% for Tele Atlas and between [40-60]*% and [40-60]*% for NAVTEQ.
(79) Finally, if all navigable digital databases covering a particular state located in the
EEA are considered as belonging to the same relevant product market, the market
shares indicated in Table 1may be estimated (all figures concern 2006)46
.
Table 1: Tele Atlas's and NAVTEQ's market shares based on the companies'
estimated sales of navigable digital map databases with national coverage in 2006.
COUNTRY TELE ATLAS's
SHARE (%)
NAVTEQ's SHARE
(%)
Austria [50-70]* [30-50]*
Belgium [0-20]* [80-100]*
Bulgaria [0-20]* [80-100]*
40
Reply by NAVTEQ of 25 January 2008 to the Commission's request for information, nonconfidential
version received on 22 February 2008.
41
Reply by Tele Atlas of 25 January 2008 to question 4 of the Commission's request for information.
42
Reply by NAVTEQ of 8 February 2008 to question 2 of the Commission's request for information.
43
Tele Atlas, but not NAVTEQ, has provided data that separates sales for smaller regions such as
BENELUX, DACH and the Nordic countries from larger regions such as Western Europe, Eastern
Europe and Europe as a whole.
44
Reply by Tele Atlas of 5 February 2008 to question 2 of the Commission's request for information.
45
Reply by NAVTEQ of 25 January 2008 to question 3 of the Commission's request for information.
46
Tele Atlas does not have access to precise country-by-country sales data, because customers
paying licence fees for digital map databases with national coverage are not required to report to
Tele Atlas which specific country the licence covers. Tele Atlas has used management estimates
and allocations based on third-party sources in order to calculate its sales for each licensed country.
In contrast to data which the company's customers are required to report, that is to say, national,
regional or European, the country-by-country breakdown must be regarded as estimates. All
figures in Table 1 result from the reply by Tele Atlas of 25 January 2008 to question 4 of the
Commission's request for information and from the reply by NAVTEQ of 25 January 2008 to
question 3 of the Commission's request for information.
17
Czech Republic [0-20]* [80-100]*
Denmark [0-20]* [80-100]*
Finland [0-20]* [80-100]*
France [40-60]* [40-60]*
Germany [50-70]* [20-40*
Greece [60-80]* [20-40]*
Hungary [0-20]* [80-100]*
Ireland [80-100]* [0-20]*
Italy [50-70]* [20-40]*
Netherlands [0-20]* [80-100]*
Norway [80-100]* [0-20]*
Poland [0-20]* [80-100]*
Portugal [0-20]* [80-100]*
Romania [0-20]* [80-100]*
Slovenia [0-20]* [80-100]*
Spain [50-70]* [30-50]*
Sweden [0-20]* [80-100]*
United Kingdom [80-100]* [0-20]*
(80) The same picture emerges from the market share analysis regardless of which
alternative product market is used. The worldwide market(s) for the provision of
navigable digital map databases with EEA-coverage is a duopoly where Tele Atlas
is the larger player as evidenced by its larger market shares in the total market, in
the market for databases with regional and European coverage, in the accumulated
market for databases with national coverage and in the larger markets for
individual countries such as databases covering France, Germany, Italy, Spain or
the United Kingdom47
.
7.1.2. Price Developments
Historic price developments
(81) The average selling price of Tele Atlas's navigable digital databases declined
substantially over the last few years.
(82) An industry analyst estimated that prices for navigable digital map databases
decreased by 6% - 8% in 200648
. Another analyst stated that prices for navigable
digital map databases decreased by 6% - 15% in 2006. However, a large part of
this decrease concerned prices of producers of in-dash devices. Moreover, if only
47
Measuring market shares for databases covering smaller countries is not very meaningful since the
volumes sold are very limited. This is explained by the fact that coverage of many smaller
countries are included in regional packages (for instance databases covering Belgium or Sweden
are almost exclusively sold in BENELUX and Nordic country regional packages and hardly ever
on a stand-alone basis) or because the sales of navigation devices have still to take off in other
countries (such as Bulgaria and Romania). However, the larger countries are large enough with
regard to their population and geographically to constitute stand-alone markets.
48
"NAVTEQ, Opportunities and Challenges Aplently", CIBC World Markets report of 20 May
2007.
18
databases destined for personal navigation are considered pricing was relatively
steady in 2006 compared to the significant price decreases in 2004 and 200549
.
(83) In a report by industry analyst SNS Securities, the average selling price of Tele
Atlas's databases was set out as indicated in Table 250
.
Table 2: Average selling price of Tele Atlas's navigable digital map databases in
2006-2007.
Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007
EUR 18,70 EUR 17,10 EUR 16,80 EUR 16,30 EUR 14,60
(84) According to this source, the average price charged by Tele Atlas decreased by
22% in one year. The decrease was predominantly due to the changes in the
product mix, that is to say, sales of more regional map databases and fewer
databases with full continental coverage, since Tele Atlas's pricing grid remained
the same.
(85) Most respondents to the market investigation confirm the decreasing prices for
navigable digital map databases. [PND manufacturer]* stated that the company's
average purchase price for databases used in PNDs fell by 40% to 50% between
2005 and 200751
. [Navigation Device Manufacturer]* indicated that the prices the
company paid for its navigable digital map databases decreased by 10 to 15%
during the same period52
. According to [PND-manufacturer]*, the prices the
company paid for its navigable digital map databases decreased by 1% to 10%
during the last three years53
.
(86) The figures mentioned in paragraphs 82-85 vary substantially and come from a
limited number of sources. The different price decreases may possibly be partly
explained by differences in bargaining power of device makers with regards to the
suppliers of navigable digital map databases. A major producer of PNDs may be
expected to negotiate greater price reductions than smaller device makers.
Nevertheless, even though it is not possible to calculate reliably the average price
decrease on the basis of such limited data, there is a clear trend towards decreasing
prices during the last few years.
(87) In 2005 and 2006 Tele Atlas's gross margins were approximately 85% according
to industry analysts54
. Since marginal costs are low in the industry, NAVTEQ is
likely to have gross margins of a similar magnitude.
49
"Navigation 2.0: truth or dare?", Fortis Sector Report of 4 April 2008, page 54, Notification,
Annex 21.
50
"Tele Atlas – Okay quarter, ASP worries overdone", SNS Securities report of 4 May 2007.
51
Reply by [PND Manufacturer]* of 4 January 2008 to question 6 of the Commission's request for
information.
52
Reply by [Navigation Device Manufacturer] of 11 January 2008 to question 6 of the Commission's
request for information.
53
Reply by [PND Manufacturer] of 4 January 2008 to question 6 of the Commission's request for
information.
54
"Tele Atlas – No change in stance: pricing remains key", SNS Securities report of 31 October
2006. In the notification, the parties indicate […]* gross margins: [70-90]*% in 2004, [70-90]*%
in 2005 and [70-90]*% in 2006 (all figures apply to the EMEA-region), Notification, Annex 49.
19
Future price developments
(88) Before the announcement of the proposed merger between TomTom and Tele
Atlas, and the subsequent announcement of Nokia's proposed acquisition of
NAVTEQ, industry analysts predicted that average selling prices for navigable
digital map databases would continue to decline.
(89) In July 2007, industry analyst, SNS Securities forecast that the average selling
prices for Tele Atlas would decrease by 17% in 200755
. The company predicted
that the price erosion of the company's products would continue in the following
years with the average selling prices for navigable digital map databases declining
by a further 10% in 2008 and 2009 respectively56
.
(90) Other forecasts made by industry analysts predict lower price decreases in the next
few years. In a report published in April 2007, Fortis forecast that the prices of
Tele Atlas's databases for personal navigation (that is to say, excluding databases
for in-dash devices) would decrease by 10%, whereas a 7% price decrease was
predicted for NAVTEQ. Fortis went on to make the following statement: "Given
the trend towards more content in general, we believe that map price erosion for
the various market segments will be limited in the coming years. (…), volume
growth in the navigation industry is driving down the cost per map each year"57
.
(91) Predicting the future evolution of prices for navigable digital map databases is a
difficult exercise, as evidenced by the diverging forecasts by industry analysts
(made before the proposed merger was announced). Extrapolating the substantial
decreases in recent years and assuming that prices will continue to decrease at the
same rate as in the recent past, would be overly simplistic. However, the market
investigation and the general characteristics of the industry indicate that prices are
likely to continue to decrease in the next few years, albeit possibly at a more
moderate pace than before.
7.1.3. Contractual relationships
(92) TomTom and Tele Atlas entered into an agreement in […]* which was
subsequently amended and extended until […]*. According to the amended
agreement TomTom […]*. In 2006, TomTom purchased [70-90%]* of its
navigable digital map databases from Tele Atlas58
. TomTom is the largest
customer of Tele Atlas, accounting for approximately 30% of the company's
revenue59
.
(93) In 2005 TomTom entered into a data licence agreement for PND applications with
NAVTEQ concerning the supply of map data covering Western and Eastern
Europe as well as North America and "world markets". […]*.
(94) Garmin uses almost exclusively navigable digital map databases supplied by
NAVTEQ. Garmin's contract with NAVTEQ, which was originally concluded in
55
"Tele Atlas lagging the sector for no good reason", SNS Securities Flash Note of 18 July 2007.
56
"Tele Atlas – Riding the navigation wave – part II", SNS Securities report of 28 March 2007.
57
"Navigation 2.0: truth or dare?", Fortis Sector Report of 4 April 2008, page 54; Notification,
Annex 21.
58
Notification, page 26.
59
Report on Tele Atlas by Soleil Securities Group of 7 May 2007.
20
1999, was amended and extended in 2007. Through these amendments, Garmin's
licences were extended until the end of 2015 with an option to extend further until
the end of 2019. In anticipation of future general price decreases for navigable
digital map databases, the revised contract contains provisions which reduce on a
yearly basis the fees to be paid60
.
(95) The contract periods vary greatly from one year contracts at one extreme to the
eight-year extension of Garmin's agreement with NAVTEQ. The long extension of
the Garmin agreement is uncharacteristic of the industry pre-merger and is in all
likelihood a reflection of uncertainty about the future of the industry following the
announcement of the proposed transaction. The typical duration of the current
contracts of Tele Atlas and NAVTEQ is of [0 - 5]* years.
(96) Some contracts contain clauses in which Tele Atlas and NAVTEQ undertake to
supply updates of the database at regular intervals (for instance, […]* per year or
even more frequently), certain agreements stipulate that updates will be provided
according to published schedules and some contracts do not mention updates at all.
It follows that some, although not all, customers have contracts which protect
them, at least partially, from possible attempts by the merged undertaking to hold
back upgrades of the database from competitors of TomTom61
.
(97) Furthermore, an even smaller number of customers have "most-favouredcustomer"
clauses guaranteeing access to digital map databases on conditions at
least as good as any other customer or other clauses guaranteeing the quality of the
data provided. Therefore, only a minority of customers would be protected from
possible attempts by the merged undertaking to degrade the quality of the
databases delivered to TomTom's competitors62
.
(98) With a limited number of exceptions, such as TomTom and certain producers of
"in-dash" devices63
, dual sourcing does not seem to be prevalent in the industry.
Most customers prefer purchasing their navigable map databases for a given
region from one supplier. In particular, customers tend to acquire databases "en
bloc" for each continent (for instance, they acquire databases covering Western
Europe and North America respectively from the same player). To the extent that
dual sourcing occurs, customers procure databases for different continents from
separate suppliers64
. Dual sourcing for navigable map databases with EEA
60
Reply by NAVTEQ of 4 December 2007 to the Commission's request for information.
61
The merged firm could start updating its database more frequently but only distribute updates with
the minimum frequency stipulated in the contract. In such a scenario, these clauses would give
only partial protection against delayed updates.
62
Among the replies by PND manufacturers of 14 December 2007 to questions 25 and 26 of the
Commission's request for information, only a minority stated that their contracts with the supplier
of digital map databases guaranteed timely access to the latest map database of a quality at least as
good as other customers. Even fewer respondents declared they had "most-favoured-customer"
clauses in their contracts.
63
According to NAVTEQ, dual sourcing of navigable digital map databases is common among car
manufacturers. NAVTEQ response to the invitation from the Commission to submit comments on
a summary of the Statement of Objections of 25 March 2008, page 5.
64
This conclusion is supported inter alia by [PND Manufacturer]*, which states that PND suppliers
generally procure navigable digital map databases covering a particular geographic area from one
supplier at a time, for instance, map databases covering Western Europe are typically sourced from
Tele Atlas or NAVTEQ but not both at the same time. Reply by [PND Manufacturer]* to the
21
coverage is rare, as is dual sourcing for different device models (that is to say a
device maker that uses Tele Atlas databases for one model or product line and
NAVTEQ for another65
).
7.1.4. Barriers to switching
(99) When switching suppliers of navigable digital map databases, the customer must
reconfigure the new database so that it works with the customer's navigation
software. The main cost of switching is reconfiguration costs. Other switching
costs include the cost of modifying production tools to handle different data
formats as well as costs for changing product packaging and marketing materials.
(100) Tele Atlas and NAVTEQ are capable of supplying map data in all available
formats. As stated in footnote 9, the formats in which Tele Atlas and NAVTEQ
provide their databases are largely overlapping. Both companies supply their
databases in the Shape format, which is used by most PND-makers. It follows that
a customer may either switch suppliers while retaining the same database format
or he may switch suppliers and change formats at the same time. Reconfiguration
costs may be presumed to be higher in the latter case than in the former.
(101) The parties allege that switching costs are low. In the notification, the parties
estimate the cost of switching from one database provider to another to between
EUR [100 000 – 300 000]* and EUR [100 000 – 300 000]* and that it would take
[0 – 10]* software engineers approximately [0 – 10 months]* to develop the
modified converter software and test its interaction with the new database. The
lead-time may be shortened by using more than [5-10]* engineers66
.
(102) NAVTEQ argues that switching is not costly. The costs of handling different
database formats are not significant since customers typically purchase map data
in publicly available, industry-wide formats. Knowledge about the definition of
these formats and map data compilation methods are easily accessible on the
internet. Therefore, any customer can compile data received in the industry format
quickly and efficiently. NAVTEQ estimates that the process of switching between
map data formats typically takes between one and six months67
.
(103) [PND Manufacturer]* submits that switching map database suppliers involves
certain costs (such as engineering resources, administrative and packaging and
marketing costs), however, these costs do not deter PND manufacturers from
switching. In [PND Manufacturer's]* view technical barriers to switching are not
substantial. The latter concludes that barriers to switching are not excessive68
.
invitation from the Commission to comment on a summary of the Statement of Objections of 25
March 2008, page 2.
65
In 2006, TomTom decided to source navigable digital map databases destined for the company's
ONE series of PNDs from NAVTEQ while remaining a customer of Tele Atlas for other products.
Notification, page 107.
66
Notification, page 106.
67
NAVTEQ response to the invitation from the Commission to submit comments on a summary of
the Statement of Objections of 25 March 2008, page 5.
68
[PND Manufacturer] response to invitation from the Commission to submit comments on a
summary of the Statement of Objections of 25 March 2008, page 3.
22
(104) The short lead-time for switching database suppliers - [0-12 months]* - alleged by
the parties and NAVTEQ is corroborated by one respondent to the Commission
market investigation. This [Navigation Device Manufacturer]* indicates that, in a
recent switch of map database suppliers, two to three weeks of work of a qualified
engineer were committed to this task69
. However, other respondents suggest that
lead-times may be longer. [Navigation Device Manufacturer]* indicates that
changing from one database format to another and converting the data to the
software provider's own proprietary format took 18 months70
.
(105) As regards the parties' estimated cost of switching (EUR [100 000 – 300 000]*),
the Commission's market investigation suggests that costs may be higher.
[Navigation software provider]* estimates the cost of switching between Tele
Atlas and NAVTEQ to vary between EUR 500 000 to EUR 1 million, which costs
mainly related to development and quality assurance71
. The second [Navigation
Device Manufacturer]* mentioned in paragraph 104 estimates that switching
formats and converting the data to work with the company's software would cost
approximately EUR 1 million72
.
(106) Considering the fact that switching has occurred in the recent past73
and the
circumstances mentioned in paragraph 104, the Commission considers barriers to
switching to be relatively limited. However, since switching costs, in particular
reconfiguration costs, are likely to be the same irrespective of the size of the
company that wishes to switch, the relative costs of switching are higher for a
small device maker or navigation software provider than for a major PND
manufacturer.
7.1.5. Competitive conditions pre-merger
(107) The Commission's market investigation confirms that the market for the provision
of navigable digital map databases was competitive before the announcement of
the proposed transaction (and the subsequent proposed acquisition of NAVTEQ by
Nokia). Not only the largest players such as TomTom and Garmin but also smaller
firms were able to profit from the rivalry between Tele Atlas and NAVTEQ,
provoking competitive bidding between the two rivals which resulted in
significant decreases in the average selling prices. The absence of capacity
constraints, due to the fact that Tele Atlas and NAVTEQ are able to increase
output (that is to say the number of licences) while only incurring negligible
additional costs, also contributed to the downward trend in pricing74
.
69
Reply by [Navigation Device Manufacturer]* of 28 January 2008 to question 15 of the
Commission's request for information.
70
Reply by [Navigation Device Manufacturer]* of 18 January 2008 to questions 18 and 20 of the
Commission's request for information.
71
Reply by [Navigation Software Provider]* of 18 January 2008 to question 23 of the Commission's
request for information.
72
Reply by [Navigation Device Manufacturer]* of 18 January 2008 to questions 18 and 20 of the
Commission's request for information.
73
In the Notification the parties listed five companies that switched between Tele Atlas and
NAVTEQ between 2004 and 2006.
74
At first sight, the existence of gross profit margins in the range of [50-90%]* might possibly be
construed as an indication of an absence of competition. However, in an industry with,[ very large
fixed costs and marginal costs close to zero, high gross margins]* which by definition disregards
fixed costs, do not necessarily lead to supra-competitive profits. Return on investment, which takes
23
7.1.6. Market entry
Arguments by the parties
(108) In the notification, the notifying party states that there are several companies that
provide navigable digital map databases covering other parts of the world. The
Japanese firms Zenrin Inc. and Toyota Mapmaster Inc. ("Mapmaster") both offer
databases covering Japan. Meanwhile, the South-Korean company ThinkWare Inc.
produces a navigable digital map database covering South Korea. According to the
notifying party, these firms have the technological knowledge and industry
experience to provide navigable digital databases of comparable quality to those
provided by Tele Atlas and NAVTEQ75
. At a later stage of the Commission's
investigation, the notifying party identified an additional potential market entrant,
a United States firm Facet Technology Corporation ("Facet") that announced on
29 November 2007 the availability of a navigable digital map database covering
the continental United States. According to the company's own claims, Facet's
United States database is more accurate than those offered by Tele Atlas and
NAVTEQ. Furthermore, Facet announced its intention to expand its geographic
coverage to Canada and Europe76
.
(109) In addition, TomTom argues that there are number of companies that provide
digital map databases of lower quality than those supplied by Tele Atlas and
NAVTEQ, ranging from basic digital map databases with "find address" and
display capabilities only, such as Europa Technologies ltd. and Ordnance
Survey77
, to digital map databases which offer basic turn-by-turn navigation, such
as Central European Data Agency a.s. ("CEDA"), Nav'nGo and, in particular,
AND International Publishers N.V. ("AND").78
According to Tele Atlas, the
digital map databases provided by AND contain all attributes necessary to make it
navigable79
.
(110) Finally, it is submitted in the notification that new entries from firms that currently
do not supply navigable digital map databases at all could possibly enter the
market. These companies, essentially Google Inc ("Google") and Microsoft
Corporation ("Microsoft"), are currently customers of Tele Atlas and NAVTEQ
and provide map services over the internet. According to TomTom, these firms
could use their technical knowledge and financial capabilities to upgrade their map
databases to navigable quality by using feedback from their user communities80
.
into account fixed costs, is a more adequate measure. In this respect it should be noted that Tele
Atlas became profitable only recently.
75
Notification, page 120.
76
Reply by Tele Atlas of 14 January 2008 to question 11 of the Commission's request for
information. TomTom's submission of 24 January 2008. "Facet Technology Corp Announces
Navigation Content for the Continental US", press release by Facet of 29 Novemeber 2007 at
http://www.facet-
tech.com/News/Facet_Announces_Navigation_Content_for_the_Continental_US.htm.
77
Ordnance Survey is a public body supplying digital map data covering the United Kingdom.
Ordnance Survey has added certain routing and logistics attributes to its basic database, which is
openly available to everybody. Submission by Tele Atlas of 12 October 2007.
78
Notification, page 121.
79
Reply by Tele Atlas of 14 January 2008 to question 11 of the Commission's request for
information.
80
Notification, pages 121-122.
24
(111) The notifying party submits that barriers to entry have decreased since the first
PNDs were introduced in 2004 and that the potential revenue for market entrants is
much greater today due to the rapid uptake of devices using navigable digital map
databases. TomTom claims that for a number of reasons entry costs have fallen,
mentioning among other causes improved aerial photography, improved quality of
satellite images and the possibility to use feedback from end-user communities. It
is alleged that costs of entry are likely to fall further in the future81
. Tele Atlas
considers it possible to produce low-end navigable digital map databases without
using a field force recording road data82
. According to a study commissioned by
Tele Atlas, market entry could occur within [1 -5]* years at a cost that does not
exceed EUR [100 – 200]* million83
.
(112) In their reply to the Commission's Statement of Objections, the parties go beyond
the statements made in the Notification and maintain that entry is very likely to
occur in the near future and that entry would certainly be precipitated should Tele
Atlas engage in anti-competitive behaviour84
.
(113) The Commission will examine the cost of entry, the time of entry, the feasibility of
low-end, "country-by-country" entry. In addition, the Commission will assess the
likelihood of AND and Facet entering the market since these two companies have
been identified as the most likely entrants by the parties.
Cost of entry
(114) A good starting point when estimating the cost of entry is to look at historic entry
costs. According to industry analyst SNS Securities, Tele Atlas has spent almost
EUR 1 billion compiling its database85
. This estimate is corroborated by
[Navigation Device Manufacturer]*, who maintains that Tele Atlas invested EUR
1 billion in its database and developed it during a 20 year period86
. Similarly,
[Navigation Software Provider]* estimates that, based on the previous experience
of Tele Atlas and NAVTEQ, the cost of duplicating the databases of Tele Atlas or
NAVTEQ would amount to approximately EUR 1 billion87
. The Commission
notes that the parties do not dispute this figure in their reply to the Commission's
Statement of Objections, merely branding the EUR 1 billion estimate as "high
end"88
. Notably, the parties concede in a footnote that the EUR 1 billion figure is
the cumulative investment made by Tele Atlas to build and continually maintain
and upgrade its worldwide map database for all applications89
.
(115) Once the historic entry costs have been established, the Commission must consider
whether a company entering the market for the provision of navigable digital map
81
Notification, pages 110-111; submission by Tele Atlas of 12 October 2007.
82
Reply by Tele Atlas of 14 January 2008 to question 11 of the Commission's request for
information.
83
Notification, pages 136-137; submission by Tele Atlas of, 12 October 2007.
84
Reply by TomTom to the Statement of Objections of 17 March 2008, page 16.
85
See: "Tele-Atlas – Potential still there but pricing is an issue", SNS Securities report of 1 August
2006.
86
Letter from [Navigation Device Manufacturer]* to the Commission of 4 March 2008.
87
Reply by [Navigation Software Provider]* of 11 January 2008 to question 31 of the Commission's
request for information.
88
Reply by TomTom to the Statement of Objections of 17 March 2008, page 18.
89
Reply by TomTom to the Statement of Objections, 17 March 2008, footnote 31, page 20.
25
databases with EEA-coverage today would have to make an investment at the
historic level or whether entry costs have changed since the two incumbents
entered the market.
(116) As stated in paragraph 111, the notifying party states that barriers to entry are
decreasing for two reasons, firstly, the potential benefits of entry are growing due
to increased demand for navigable digital map databases and secondly, the costs of
entry are declining due to technical innovation90
.
(117) While not denying the rather obvious fact that entry into a market becomes more
attractive as the market expands, this circumstance has no bearing whatsoever on
the actual level of investment necessary to enter the market. It merely indicates
that potential market entrants have greater incentives to make the necessary
investments because the potential reward of doing so is greater. Moreover, it does
not indicate in any way the likelihood of a successful market entry actually
capturing a sufficiently large share of the market to constrain the behaviour of the
incumbents.
(118) The parties' allegation that entry costs or more specifically, costs of compiling and
processing map data are falling is mainly based on improvements in aerial
photography, increased availability of map data from public sources, the
possibility to use community end-user and probe feedback data and the
commercial ability of software that can handle large amounts of geographic data91
.
The statement that data compilation costs are decreasing is supported by
NAVTEQ92
and several other respondents to the market investigation93
.
(119) While there could be cost savings due to increased availability of aerial
photography and map data from public sources, the impact of these cost savings
on the total cost for producing a navigable digital map database must be regarded
as minor.
(120) The Commission, for several reasons, considers it unlikely that a "Wikipedia-like"
collaborative approach using end-user feedback could be used to create a
navigable digital map database. First, developing an IT-tool making it easy for
end-users to edit map data would be very complicated due to the very long list of
inputs for navigable data (editing a digital map database is much more
complicated than editing a text document like Wikipedia). Second, while users
may have an incentive to edit an existing high-quality product they are already
using, they have few incentives to help create a new product or increase the quality
of a poor product that is functioning badly. Third, the veracity of all edits must be
checked by the mapping company, something which is very resource consuming.
Fourth, updating a digital map database using customer feedback is unlikely to
succeed simply because of information asymmetries. Unlike Wikipedia, where
anyone of millions of users may possess the knowledge to update a certain topic,
90
Notification, page 111; reply by TomTom to the Statement of Objections of 17 March 2008, pages
17-18.
91
Notification, pages 115-120.
92
NAVTEQ's response to invitation from the Commission to submit comments on a summary of the
Statement of Objections of 25 March 2008, page 3.
93
As summarised in the reply by TomTom to the Statement of Objections of 17 March 2008, pages
21-22.
26
the number of people with sufficient local knowledge is very small (for any token
street depicted in a database, very few people have the necessary detailed and upto-date
knowledge to make a correct edit).
(121) Regardless of the technical developments discussed in paragraphs 118-120, the
fact remains that it is still indispensable to employ field forces in customised
vehicles which record and update very large volumes of road data in order to
produce high-quality navigable digital map databases. The indispensability of field
surveys is confirmed by Facet. According to this company, it is impossible today
to build a truly navigable digital map database without conducting field surveys
using dedicated vehicles because it is the only way to reliably record sign
information and other road features such as barriers, gates and other obstacles94
.
NAVTEQ confirms that field forces are still important (albeit less crucial than
when NAVTEQ first built its database in the 1980s)95
. The fact that Tele Atlas and
NAVTEQ, that is to say, the companies that must be considered as world-leading
in digital map database making, continue to use field surveys despite technical
developments, confirms the indispensability of this form of data collection.
Finally, AND's problems in producing a well-functioning navigable digital map
database without field surveys, as mentioned in paragraph 129 is a further
indication that field surveys are necessary to obtain a high-quality product.
(122) In addition to the necessary technological knowledge, a credible market entrant
needs to make substantial up-front investments in order to produce navigable
digital map databases of a quality comparable to those supplied by Tele Atlas and
NAVTEQ. The cost estimates for producing a digital map database covering the
EEA today, vary greatly. The lowest estimate by far is made by Facet, which
predicts that it would cost the company less than EUR 100 million to produce a
navigable digital map database with a "broad European coverage"96
. NAVTEQ
estimates that it would cost approximately EUR 159 million for a market entrant to
build an EEA-wide database with the same features as the NAVTEQ database97
.
As stated in paragraph 111, a study commissioned by Tele Atlas indicated that
entry costs would not exceed EUR [100 – 400 million]*98
. [Japanese Digital Map
Database Provider]* estimates that it would cost more than EUR 360 million to
create a navigable map database covering the EEA99
. Finally, there is the historic
cost benchmark of EUR 1 billion, confirmed by the parties. However this
worldwide estimate should be reduced by the cost of compiling North American
data and data for other territories outside the EEA, and the cost reductions
generated by technical innovation.
(123) The estimate forwarded by Facet is surprisingly low, considering the fact that is
substantially lower than the broadly concurring estimates of Tele Atlas and
94
Minutes from telephone conference with Facet of 1 Febraury 2008.
95
Reply by NAVTEQ to invitation from the Commission to submit comments on a summary of the
Statement of Objections of 25 March 2008, page 2.
96
Minutes from telephone-conference with Facet of 1 February 2008.
97
NAVTEQ estimates the cost at USD 250 million. Reply by NAVTEQ to invitation from the
Commission to submit comments on a summary of the Statement of Objections of 25 March 2008,
page 4. USD amount converted to EUR using the rate applicable on 9 April 2008, 1 USD = EUR
0.636264, indicated on www.XE.com.
98
Notification, pages 136-137; submission by Tele Atlas of 12 October 2007.
99
Reply by [Japanese Digital Map Database Provider] of 10 January 2008 to question 11 of the
Commission's request for information.
27
NAVTEQ. Facet presumably bases its estimate on the costs incurred for producing
its United States database. However, it is doubtful whether the cost of producing a
map database in the United States is a reasonable benchmark for the cost of
producing a map database in the EEA. The cost of compiling map data in the
United States, which is a largely homogeneous geographic area with regards to
elements such as traffic regulation and signposting when compared to the EEA
which is a heterogeneous area consisting of 30 states with varying ways of
regulating traffic. A simple linear extrapolation of Facet's costs based on
kilometres of the road network in the United States as opposed to the kilometres of
road network in the EEA is therefore likely lead to an underestimation of the data
compilation costs. Finally, it appears that Facet's estimate does not include
complete EEA-coverage. The company has stated that it has yet to determine the
scope of its future European map database but that it will be "broad" from the
outset100
. For these reasons, the Commission considers it likely that Facet
underestimates the cost of building a navigable digital map database with complete
EEA-coverage.
(124) In the notification, the parties present a minimum viable scale model which
purports to show that entry costs are surmountable and profitable market entry is
feasible101
. In their reply to the Statement of Objections, the parties assume that
the cost of entry would amount to EUR [300-400 million]* (as estimated by
[Japanese Digital Map Database Provider]*) and estimates that a market entrant
would need to forecast revenues of approximately EUR [100-400 million]* per
year for [5-15]* years after the launch of the map database102
. Under these
assumptions, the parties estimate that the market entrant would need to obtain a
market share of [10-40%]* in 2012. Without discussing in any detail the numerous
assumptions made in the parties' model, the Commission notes that capturing a
market share of [10-40%]* shortly after entry is a difficult task considering, inter
alia, the fact that the the largest PND maker, accounting for a large part of the
total market for navigable digital map databases, would be exclusively supplied by
Tele Atlas (due to TomTom's vertical integration with Tele Atlas) and the fact that
the second largest PND maker, Garmin, has concluded a long-term contract with
NAVTEQ. For this reason alone, the Commission considers the minimum viable
scale model presented by the parties as unrealistic.
(125) While the projected cost may certainly be debated, it is undisputed that building a
navigable digital map database with EEA coverage is resource-intensive and
expensive. Furthermore, the majority of these costs must be regarded as such costs
as have been incurred but are unrecoverable.
Time of entry
(126) As mentioned in paragraph 111, according to a study commissioned by Tele Atlas
entry could occur within [1 – 5 years]* 103
and at a later stage of the investigation
they alleged that entry is very likely to occur in the near future104
.
100
Minutes from telephone-conference with Facet of 1 February 2008.
101
Notification, page 141.
102
Reply by TomTom to the Statement of Objections of 17 March 2008, page 22.
103
Notification, pages 136-137; submission by Tele Atlas of 12 October 2007.
104
Reply by TomTom to the Statement of Objections of 17 March 2008, page 16.
28
(127) NAVTEQ makes a similar estimate about the time of entry. The company
considers that entry by the most likely entrants, which according to NAVTEQ are
current suppliers of digital map data such as AND and current suppliers of
internet-based map applications such as Google, would require between one and
three years. However, NAVTEQ recognises that a new entrant would need more
time to create a navigable database105
.
(128) Some respondents to the market investigation consider that market entry would
take longer than estimated by the parties and NAVTEQ. The time-lag before fullscale
entry may occur has been estimated to require between five and ten years by
several respondents to the market investigation106
.
(129) The Commission notes in this regard, that AND, which has dispensed with the use
of a field force when compiling its data, has spent "many years" collecting the data
for its navigable digital map databases107
.
(130) Similarly, Facet claims to have been compiling its map data for the United States
"for years"108
. When asked by the Commission, Facet stated that it took the
company four to eight years to create its United States database but that it would
have been possible to shorten this time period with additional funding109
.
Nonetheless, Facet estimates that the company could create a database with broad
European coverage in 18 months110
. Considering the time it took the company to
create its United States database and considering the reservations mentioned in
paragraph 123 Facet's estimate of entry costs (the same reservations apply for the
time of entry), the Commission considers it likely that Facet underestimates the
time required to build a navigable digital map database with complete EEA-
coverage.
(131) [Provider of Internet-based Mapping Solutions]* uses Tele Atlas as its provider of
navigable digital map databases states that while it would be theoretically possible
for [Provider of Internet-based Mapping Solutions]* to build its own database,
doing so would require a "vast commitment of time and resources" and that
collecting the data and incorporating it in the company's products would be a
"massive undertaking". The latter estimates it would take five years to build its
own digital map database which enables the features currently available from the
company111
.
(132) It is beyond dispute that the creation of a navigable digital map database of a
quality comparable to those created by Tele Atlas and NAVTEQ is a timeconsuming
exercise. To build a database covering the EEA, vast volumes of data
have to be collected from various sources and field survey teams have to drive
down every road in the EEA and record all features on the way. The Commission
105
NAVTEQ's response to invitation from the Commission to submit comments on a summary of the
Statement of Objections of 25 March 2008, page 4.
106
See Section 6.4.1. regarding definition of the relevant product market.
107
AND web-site, www.and.com.
108
Facet press release of 29 Novemeber 2007.
109
See E-mail from Facet of 9 April 2008.
110
Minutes from telephone-conference with Facet of 1 February 2008.
111
Submission by [Provider of Internet-based Mapping Solutions]* to the Commission of 19 January
2008, pages 4 and 6.
29
therefore considers that entry by a credible entrant able to constrain the behaviour
of the incumbents is unlikely to occur within the next three years.
Low-end "country-by-country" entry
(133) The parties submit that entry of a provider of a basic navigable map database with
limited geographic coverage is likely and that such entry would constrain the
competitive behaviour of Tele Atlas and NAVTEQ. For several reasons, the
Commission considers it unlikely that such entry, if it occurs, would have a
significant impact on competition.
(134) First, a well-functioning navigation capability is crucial for the reputation and
commercial success of device makers. Given the fact that the licence fee for the
database constitutes a minor part of the total production cost of a PND, device
makers have limited incentives to opt for a low cost, low quality map database
instead of a fully navigable one because the reputational and commercial risk
involved is likely to outweigh the limited cost savings. Moreover, any damage to
the device maker's reputation caused by malfunctioning, low-end PNDs is likely to
spill over to the producer's mid-range and high end devices. Therefore, the future
uptake of basic map databases for use in navigation devices is likely to be limited
even in low-end devices.
(135) Second, device manufacturers need to ensure "seamless" navigation as customers
move across national borders. In order to ensure seamless navigation and minimise
problems with compatibility, device makers tend to source their navigable digital
map databases from the same supplier (at least for each region). The market
investigation indicates that the industry practice is buying licences for databases
"en bloc" for each continent as stated in paragraph 98. Given the economies of
scale (volume discounts are prevalent in the industry) and scope (no costs for
ensuring "seamless" map coverage) involved in buying from a single supplier as
well as the transaction costs generated by sourcing databases from multiple
suppliers, this buying pattern is unlikely to change in the future. These
circumstances make a "country-by-country" entry strategy unlikely to be sufficient
to constrain the competitive behaviour of Tele Atlas and NAVTEQ.
AND
(136) The Commission has evaluated in detail the role of AND in order to determine
whether the company would be able to constrain the competitive behaviour of Tele
Atlas and NAVTEQ today or whether it will be able to do so in the short or
medium term.
(137) AND has approximately 250 employees located in the Netherlands and India112
.
The company's worldwide turnover in 2006 was less than EUR 5 million113
. The
company initially aimed to produce digital map databases covering countries
which Tele Atlas and NAVTEQ had not yet covered114
. AND also supplies a
112
AND web-site, www.and.com.
113
AND's worldwide turnover for the period from January to September 2007 amounted to EUR 3-4
million. Reply by AND of 31 October 2007 to question 2 of the Commission's request for
information.
114
Potential Entry to Digital Mapping (Europe) .
30
World Map which covers more than 200 countries with a level of accuracy
significantly lower than NAVTEQ and Tele Atlas. . This non-navigable digital
map database is mostly used for tracking and tracing, logistics solutions and online
applications115
. Most customers use AND's digital map databases for basic, nonnavigation
applications116
.
(138) In a press release issued on 17 September 2007, AND announced its release of
"street level" map data for the BENELUX countries117
. On 19 November 2007,
AND made a similar statement announcing "street level" data also for Germany.
Moreover, the company intended to release digital map databases covering the rest
of Western Europe in 2008118
.
(139) Today, AND provides allegedly navigable digital map databases covering the
following states in the EEA: Belgium, Bulgaria, Germany, Luxembourg, the
Netherlands and Slovenia. The company claims that these databases "have all
attributes necessary for navigation and include select points of interest". AND
creates its navigable digital map databases by compiling map data from a variety
of publicly available sources, supplements this data with aerial and satellite
imagery and processes the collected data in its facility in India. The company does
not, as do Tele Atlas and NAVTEQ, use field forces and specialised vehicles to
record road information119
.
(140) AND states that one of its customers – [Producer of In-dash Navigation Devices]*
– uses AND digital map databases for navigation purposes120
.
(141) However, the Commission has been unable to identify any device maker or
software developer that currently uses AND products covering states within the
EEA for actual real-time, turn-by-turn navigation. Moreover, the Commission
market investigation indicates that the quality of AND's navigable digital map
databases is inferior to those offered by Tele Atlas and NAVTEQ.
(142) Despite AND's statement to the contrary, [Producer of In-dash Navigation
Devices]* denies using AND digital map databases for navigation purposes. The
latter added that it has tested navigable digital map databases from AND but they
did not meet the company's quality requirements. Furthermore, it stated that it does
not expect that a third supplier offering navigable digital map databases of
comparable quality to those produced by Tele Atlas and NAVTEQ will enter the
market before 2010121
.
115
Reply by AND of 31 October 2007 to question 3 of the Commission's request for information.
116
AND web-site, www.and.com and reply by AND of 31 October 2007 to question 3 of the
Commission's request for information.
117
"AND releases street level data for the Benelux", AND press release of 17 September 2007,
http://www.and.com/company/press/item80en.php.
118
"AND releases street level data for Germany", AND press release of 19 November 2007,
http://www.and.com/company/press/item83en.php
119
Reply by AND of 31 October 2007 to question 5 of the Commission's request for information.
120
Reply by AND of 31 October 2007 to question 4 of the Commission's request for information.
121
[Producer of In-dash Navigation Devices]* tested AND's navigable digital map database covering
Turkey in 2006 and concluded that the database had very limited coverage. Local roads in towns
and cities are not included and the data was dated. Reply by [Navigation Device Manufacturer]* of
11 January 2008 to questions 14, 15, 17 of the Commission's request for information and Annex 2.
31
(143) "[PND Manufacturer]* has had the opportunity to evaluate certain AND
"routable" maps covering non-European and, more recently, European regions.
The results of [PND Manufacturer's]* evaluations suggest that, although the most
recent map data appears to have improved map accuracy, AND map data is
generally not of sufficient high quality to be used in [PND Manufacturer's]*
PNDs"122
.
(144) The same [PND Manufacturer]* does not consider AND as a credible competitor
and does not believe that the company will become one in the foreseeable future.
Furthermore, [PND Manufacturer]* is not aware of any PND supplier that uses
AND databases for navigation. AND has indicated to [PND Manufacturer]* that
AND does not consider itself as competing with Tele Atlas and NAVTEQ but
rather that the company considers itself a provider of low-cost, "b-level" navigable
digital map databases. Due to the fact that the quality of a PND is judged by endusers
primarily on the basis of the quality and accuracy of the underlying map
data, it is doubtful whether there is any current demand for "b-level" digital map
databases or that such demand will arise in the future123
.
(145) Finally, this [PND Manufacturer]* argues that AND lacks the financial resources
necessary to expand, in the short or medium term, its coverage and improve the
quality of its navigable digital map databases to a sufficient level. AND's limited
turnover and small number of staff is a significant competitive disadvantage which
limits the credibility of AND's claim that it will introduce a navigable digital map
database covering the whole of Europe by 2009124
.
(146) [Navigation Device Manufacturer]* produces and sells navigation software to
device makers on a stand-alone basis. The company also sells complete PNDs
under the […]* brand and has recently tested AND's digital map database covering
Germany. The company's tests indicate that the road coverage of the AND map
database is reasonably complete, however, that there is a complete lack of
advanced navigation features such as the Traffic Message Channel (TMC)
functionality125
, speed information and lane information. The conclusion of the
[Navigation Device Manufacturer]* is that the AND map database only allows a
very basic navigation functionality126
.
122
Reply by [PND Manufacturer]* of 4 January 2008 to question 15 of the Commission's request for
information. This Quotation contains summarised text submitted by [PND Manufacturer]*
substituting more detailed information given in the confidential version of the reply. Revised nonconfidential
version, received on the 20 February 2008.
123
Reply by [PND Manufacturer]* of 4 January 2008 to question 17 of the Commission's request for
information.
124
Reply by [PND Manufacturer]* of 4 January 2008 to question 17 of the Commission's request for
information.
125
TMC is a specific application of the FM Radio Data System (RDS) used for broadcasting real-time
traffic and weather information. Data messages are received silently and decoded by a TMCequipped
car radio or navigation system, and delivered to the driver in a variety of ways. The most
common of these is a TMC-enabled navigation system that can offer dynamic route guidance
alerting the driver of a problem on the planned route and calculating an alternative route to avoid
the incident. Nearly all in-dash navigation systems and many PNDs sold today have TMC
capability. Source: The TMC-Forum web-site ,
http://www.tmcforum.com/en/about_tmc/what_is_tmc/.
126
See e-mail from [Navigation Device Manufacturer] to the Commission of 11 February 2008.
32
(147) [Navigation Device Manufacturer]* currently uses AND's digital map database
covering Turkey but considers the AND database to be of inferior quality
compared to Tele Atlas and NAVTEQ due to the fact that AND uses different road
classes and is less accurate127
.
(148) [Provider of Internet-based Mapping Solutions]*, a company which does not offer
navigation services but merely turn-by-turn route planning, does not consider the
navigable digital map databases provided by AND to be a viable alternative to the
databases provided by Tele Atlas, its main provider of map data. The latter states
that most of the data included in AND's navigable digital map databases has been
licensed from municipalities. The licensed data has not been verified by AND to a
sufficient degree which means that it lacks in reliability. Moreover, [Provider of
Internet-based Mapping Solutions]* has tested AND's navigable digital map
databases covering the BENELUX-countries and concludes that they are 80-90%
as accurate as the databases provided by Tele Atlas. [Provider of Internet-based
Mapping Solutions]* concludes that, in any event, the geographic coverage
offered by AND is insufficient for the company's European product offering128
.
(149) As regards the competitive threat posed by AND, the outcome of the market
investigation is clear. AND is attempting to enter the market by offering allegedly
navigable digital map databases covering BENELUX and Germany. However,
neither the Commission, nor the parties have been able to identify a device maker
or navigation software developer that currently uses navigable digital map
databases with EEA coverage produced by AND. Tests performed by several
respondents to the market investigation have clearly shown that the digital map
databases produced by AND are inferior to those produced by Tele Atlas and
NAVTEQ in key respects. In any event, the geographic coverage of AND's
navigable digital map database is far from complete.
Facet
(150) Given the claims made by the notifying party and the claims made by the company
itself, the Commission has evaluated the likelihood of Facet entering the market
for the provision of navigable digital map databases with EEA coverage in order to
assess whether the company would be able to constrain the competitive behaviour
of Tele Atlas and NAVTEQ in the short or medium term.
(151) For a number of years, Facet has produced digital imagery for the United States
Census Bureau and for Microsoft. The company has developed and patented
sophisticated software for image analysis and identification of objects of interest.
A few years ago, Facet decided to use its vast database of digital imagery to
produce a navigable map database covering the continental United States. Facet's
United States database, called SightMap, was ready for delivery to customers in
April 2008129
.
127
Reply by [Navigation Device Manufacturer] of 4 January 2008 to questions 14 and 15 of the
Commission's request for information.
128
Submission by [Provider of Internet-based Mapping Solutions]* to the Commission of 19 January
2008, page 4.
129
Minutes from telephone conference with Facet of 1 February 2008.
33
(152) According to Facet, the digital map databases of NAVTEQ and Tele Atlas
currently have an absolute accuracy of approximately 5 metres, whereas Facet
claims it can obtain an absolute accuracy of 5 centimetres or less. According to
Facet, the quality of the SightMap database has been validated by the Census
Bureau and Microsoft. Facet intends to license its United States database at a price
which is substantially lower than the prices currently charged by Tele Atlas and
NAVTEQ. Furthermore, Facet is currently compiling a navigable digital map
database covering Canada which it intends to launch to the market in early
2009130
.
(153) Facet has publicly announced plans to create a navigable digital map database
with European coverage131
. The company intends to team up with a European
partner which will carry out the field surveys using a fleet of approximately […]*
vehicles equipped with Facet's patented technology for capturing road data132
.
(154) Facet's announced market entry in the United States was not mentioned by the
consultancy firm that conducted, on behalf of Tele Atlas, an in-depth review of
potential market entrants133
and moreover, none of the respondents in the
Commission market investigation identified Facet as a potential market entrant.
(155) As regards the potential entry by Facet into the market for navigable digital map
databases with European coverage, the Commission notes that the company has
yet to capture a share of the United States market. The company's plans to produce
a map database with European coverage are very preliminary and at this point in
time it is uncertain whether Facet has the financial capability to build a Europeanwide
database from beginning to end in a limited period of time. The Commission
does not exclude that Facet may be able to launch a viable product with European
coverage in the foreseeable future but due to the time-lags inherent in the
production process, entry by Facet will not be timely enough to constrain the
competitive behaviour of Tele Atlas and NAVTEQ.
Market entry - conclusions
(156) When entering a market is sufficiently easy, a merger is unlikely to pose any
significant anti-competitive risk. For entry to be considered as a sufficiently
competitive constraint on the merging parties, it must be shown to be likely, timely
and sufficient enough to deter or defeat any potential anti-competitive effects of
the merger.
(157) There are no indications in the Commission market investigation that any of the
current providers of navigable digital map databases active in Japan and South
Korea or elsewhere in the world plan to enter the markets for databases with
coverage of states in the EEA134
. Entry by these firms must therefore be regarded
as unlikely Even if they did have intentions to enter, the substantial time-lag
involved in producing from a navigable digital map database covering the EEA
130
Minutes from telephone conference with Facet of 1 February 2008.
131
Facet press release of 29 November 2007.
132
Minutes from telephone conference with Facet of 1 February 2008.
133
Submission by Tele Atlas of 12 October 2007.
134
Reply by [Japanese Supplier of Digital Map Databases]* of 10 January 2008 to question 6 of the
Commission's request for information.
34
from beginning to end would prevent any potential future entry from being timely
enough to constrain the competitive behaviour of the incumbents in the short or
medium term.
(158) New entry by firms offering internet-based map applications must also be regarded
as unlikely. None of the firms offering such services contacted by the Commission
announced any intention to enter the market. Neither Google, nor Microsoft has
developed its own map database covering the EEA. The same time-lag would
apply as for existing providers of navigable digital map databases, which makes
timely entry by such firms unlikely.
(159) Apart from AND, the market investigation contains no indications that any of the
producers currently producing non-navigable digital map databases with European
coverage intends to upgrade its databases to make them navigable. In any case, the
substantial time-lag involved in such an undertaking makes timely market entry
unlikely. Moreover, the same time-lag would apply before Facet could enter the
market for digital map databases with EEA-coverage.
(160) The parties suggest that possible financial constraints of small companies aiming
to enter the market (such as AND and Facet) may be overcome by users of digital
map databases sponsoring entry of a third market player. However, when queried
by the Commission, none of the respondents considered sponsoring entry as a
viable option. Therefore, sponsored entry must be regarded as unlikely. Even if a
sponsor should come forward, the time-lags discussed in paragraph 132 would still
apply.
(161) While marginal entry may not be excluded, the Commission concludes that entry
into the markets for the provision of navigable digital map databases with EEAcoverage
will be neither timely, that is to say sufficiently swift and sustained, nor
sufficient with regards to its scope and magnitude to deter or defeat any potential
anti-competitive effects of the merger.
7.2. Navigation Software
7.2.1 Vertically affected market
(162) The parties submit that the market for the provision of navigation software is not
or is only very marginally a vertically affected market. The parties argue that for
the most important providers of navigation devices (such as TomTom and
Garmin), navigation software is not a downstream of the market for digital map
databases since they develop their software in-house. The provision of navigation
software is not a priority for TomTom, representing only [0-5%]* of the
company's turnover. Moreover, the parties allege that navigation software
providers typically contract with device manufacturers rather than with suppliers
of digital map databases135
.
(163) However, the Commission's market investigation indicates that a number of
navigation device manufacturers do not develop their own software in-house and
therefore, purchase navigation software from external providers. These software
135
Notification, page 67.
35
providers are either device makers themselves (such as TomTom) or specialised
software companies.
(164) Moreover, most providers describe navigable digital map databases as a key input
for navigation software. This applies both to those cases where the software
provider sells the software and the database as a single package to the device
maker and to those cases where the software and the database are procured
independently by the device manufacturer. In both cases, the software provider
must configure the software so that it is fully compatible with the database.
(165) It may therefore be concluded that navigable digital map databases are important
inputs not only for device makers but also for providers of navigation software,
that navigation software is supplied by third parties to those device makers which
do not produce software in-house and moreover, that navigation software is sold to
device makers either on a stand-alone basis or as a part of package consisting of
software and database. For these reasons, the Commission concludes that the
market for the provision of navigation software must be regarded as a market
which is vertically affected by the proposed transaction.
7.2.2. Market shares
(166) Tele Atlas is not active in the market for the provision of navigation software136
.
(167) TomTom develops navigation software primarily for use in its own navigation
devices. The company is the largest producer of navigation software in the EEA,
accounting for approximately [30-40%]* of the total production volume in
2006137
. However, only a minor part, approximately [5-10%]* of the total
production volume in 2006138
, is supplied to third parties (such as producers of
PNDs, PDAs and mobile telephones with navigation functionality). TomTom's
share of the contestable part of the market (the merchant market), that is to say,
when all the intra-company sales of TomTom and other producers are excluded, is
rather modest, approximately [0-10%]*.
(168) The parties have provided, as indicated in Table 3, the estimates of the market
shares pertaining to the main providers of navigation software in the merchant
market139
.
136
Notification, page 150.
137
Notification, page 151.
138
Reply by TomTom of 12 December 2008 to Commission Article 6(1)(c) decision, page 9.
139
The market share estimates provided by the parties are based on non-captive sales by volume of
on-board navigation software in the EMEA-region (Europe, Middle East, Africa) in 2006. Reply
by TomTom of 12 December 2008 to Commission Article 6(1)(c) decision, Annex 3. In order to be
consistent with the market definition, the sales data ought to have covered worldwide sales as well
as an alternative, combined market for on-board and off-board navigation software. Market shares
calculated on the basis of sales value would also have been useful. However, none of these
alternative calculations are likely to alter significantly the relative market shares of the main
players and in particular, TomTom's relative insignificance in the open market for navigation
software.
36
Table 3: Navigation software - market shares by volume in 2006 (merchant market)
COMPANY ESTIMATED MARKET SHARE
Navigon [20-30]*
Nav n'go [10-20]*
Destinator [10-20]*
Elektrobit [0-10]*
Gate 5 (Nokia) [0-10]*
Route 66 [0-10]*
TomTom [0-10]*
Map & Guide [0-10]*
Alturion [0-10]*
ALK [0-10]*
Via Michelin [0-10]*
Navicore [0-10]*
7.2.3. Pricing
(169) Customers normally license the use of the navigation software. Licence fees are
paid on a per-unit basis and are valid for the lifetime of the device in which the
onboard software is installed. Alternatively and predominantly for off-board
systems, licence fees may be paid by means of a subscription over time (on a
daily, weekly or monthly basis). Prices typically vary according to the size of the
licensed territory.
7.2.4. Distribution patterns
(170) Most software developers supply their navigation software to manufacturers of all
types of devices. Currently, the market for navigation software is primarily driven
by PND-manufacturers, which account for the largest part of sales.
(171) In contrast to the two largest providers of PNDs, TomTom and Garmin, and some
other PND manufacturers which all produce their navigation software in-house, a
large number of medium-sized and small PND producers procure navigation
software from external suppliers140
. A significant portion of these companies
purchase the navigation software separately from the navigable digital map
database141
.
7.2.5. Market entry
(172) TomTom submits that barriers to entry are low. This is evidenced by the fact that
small companies have been able to develop and distribute navigation software.
140
Out of eighteen PND manufacturers that responded to the Commission's questionnaire, twelve
stated that they purchase navigation software from external suppliers. Commission questionnaire to
device manufacturers of 12 December 2007, question 18.
141
Out of eighteen PND manufacturers that responded to the Commission's questionnaire, seven
indicated that they purchase the navigation software separately from the digital map database.
Commission questionnaire to device manufacturers of 12 December 2007, question 19.
37
Examples of such companies are SVI, Alturion and Destinator Technologies.
According to TomTom, any general software developer would in principle be able
to develop navigation software. Finally, TomTom emphasises the fact that some
recent entrants into the market for PNDs have successfully developed their own
navigation software142
.
(173) The Commission's market investigation tends to confirm TomTom's allegation that
barriers to entry are relatively limited. For instance, the vast majority of the PNDmanufacturers
which participated in the Commission market investigation
responded that they were already able or would be able to develop their own
navigation software in-house143
.
7.3. PNDs
7.3.1. Navigation devices in general
Sales forecasts
(174) According to Canalys, shipments of mobile navigation devices (that is to say,
excluding in-dash devices which are not mobile in the sense that they are
permanently installed in cars) in the EMEA region reached 7.9 million units in the
first half of 2007, an increase of 85% compared to the first half of 2006. In the first
half of 2007, PNDs accounted for 90% of devices, PDAs accounted for 4% while
mobile telephones and wireless PDAs accounted for the remaining 6%144
.
(175) Tables 4 and 5 include forecast sales of different types of devices with on-board
navigation solutions145
.
Table 4: Worldwide sales of mobile navigation devices ('000)
2005 2006 2007 2008 2009 2010
PDA 2719 1 306 1 070 816 632 520
PND 5 351 15 532 30 264 43 008 53 571 62 119
Mobile telephone
with navigation 362 415 2 509 6 225 11 898 19 607
Wireless PDA 264 321 1 117 1 434 1 869 2 435
Total 8 696 17 574 34 960 51 483 67 970 84 681
142
Notification, pages 160-161.
143
Out of eighteen PND manufacturers that responded to the Commission's questionnaire, sixteen
indicated that they were already able or would be able to develop their own navigation software inhouse.
Commission questionnaire to device manufacturers of 12 December 2007, question 20.
144
"Smart mobile device and navigation trends 2007/2008", report by Canalys.
145
"Smart mobile device and navigation trends 2007/2008", report by Canalys.
38
Table 5: EMEA sales of mobile navigation devices ('000)
2006 2007 2008 2009 2010
Handheld (PDA) 2 289 953 645 464 360 2005
PND 4 082 10 769 18 206 24 202 27 201 29 737
Mobile telephone
with navigation
functionality 331 360 1 502 3 692 6 635 10 048
Wireless PDA 208 200 776 990 1 297 1 684
Total 6 910 12 282 21 129 29 348 35 493 41 765
(176) According to the forecast of Canalys, the PND market will continue to grow
dynamically in the next few years. The PDA market, which represented nearly a
third of all navigation devices in 2005, will decline to almost 0.5% of all mobile
navigation devices sold in 2010. By contrast, there is an increasing user interest in
navigation-enabled mobile phones. This segment will likely see dynamic growth
in the coming years. According to the main market players, this growth is unlikely
to have a strong, negative impact on sales of PNDs. Mobile telephones with
navigation functionality and PNDs are likely to be complementary products in the
foreseeable future. However, one industry analyst forecasts that until 2015 the
PND market will decline at the expense of an expanding market for mobile
telephones with navigation functionality146
.
7.3.2. PNDs - market shares
(177) The main PND manufacturers had the following market shares in 2006147
.
Table 6: EEA market shares by volume (units) in 2006
Volume market shares EEA (units)
All portable end-uses PNDs
TomTom [30-40]* [30-50]*
Mio Tech & Navman [10-20]* [10-20]*
Garmin [10-20]* [10-20]*
MEDION [0-10]* [0-10]*
MyGuide [0-5]* [0-5]*
146
"Tele Atlas, Riding the navigation wave part II", report by SNS Securities of 28 March 2007.
147
Notification, pages 168-169.
39
Table 7: EEA market shares by value (turnover) in 2006
Value market shares EEA
All portable end-uses PNDs
TomTom [30-50]* [30-50]*
Mio Tech & Navman [10-20]* [10-20]*
Garmin [10-20]* [10-20]*
MEDION [0-5]* [0-5]*
MyGuide [0-5]* [0-5]*
(178) TomTom is undoubtedly the largest player in the European PND market, followed
by other electronics companies like Garmin, MiTAC (Mio and Navman),
MEDION and MyGuide.
7.3.3. Pricing
(179) Retail prices for the least expensive PNDs currently vary between EUR 99 and
EUR 180. Such low-end devices have limited features and the coverage of the
digital map databases installed may be more limited. On the other hand, mid-range
devices currently retail between EUR 180 and EUR 250, while the prices of more
expensive PNDs currently exceed EUR 250148
. According to the market
investigation, PND manufacturers obtain the highest margins on high-end devices.
The price segment which is expected to grow most in the future is the low end of
the PND market. PNDs are typically sold through hypermarkets, consumer
electronics stores and discount chains.
(180) Average selling prices of PNDs have fallen sharply in recent years. The average
wholesale selling price for TomTom PNDs dropped from EUR 310 in the second
quarter of 2006 to EUR 195 in the second quarter of 2007149
.
7.3.4. Outsourcing
(181) The design and production of hardware for PNDs can be outsourced to original
design manufacturers (ODMs) or performed in-house. For example, Navman
entered the PND market by purchasing hardware from ODMs. The navigation
software used in PNDs can also be developed in-house or bought from specialized
vendors. Independent suppliers of navigation software include Navigon, Route 66,
Nav'nGo, Destinator Technologies, NXP Software, Ubirotech and others.
Furthermore, the majority of PND suppliers use contract manufacturers from
Taiwan or China.
7.3.5. Cost structure
(182) According to the market investigation, the main cost component for PNDs is the
hardware which represents 70-80% of the total variable cost of best-selling
devices. The navigation software and navigable digital map databases each
148
Figures based on responses to the Commission questionnaire to device manufacturers of 12
December 2007.
149
"Smart mobile Device and Navigation trends 2007/2008", report by Canalys, page 47.
40
represent approximately 10% of the production cost150
. According to the market
investigation, the costs of components for PNDs have fallen substantially. Due to
increased outsourcing of hardware to Asia, costs of hardware have fallen by 40-
50% over the past three years. Moreover, costs have fallen by 10-15% over the
past three years. In the same period the costs of software have fallen by
approximately 40%151
. However, marketing and distribution costs have increased.
In 2007 the largest PND manufacturers obtained margins on the best selling
devices of 30-50%. The smaller companies obtained margins of 10-20%152
.
7.3.6. Market Entry
(183) In 2004 TomTom, Garmin, Navman and six other firms entered the market. As the
market expanded, numerous entrants followed. 40 companies entered in 2005, 63
entrants were registered in 2006 and an additional 22 companies entered in 2007.
Among the market entrants were major consumer electronics companies such as
Samsung, LG Electronics, Sony Corporation, JVC and Packard Bell B.V.
However, many of these market entrants are very small and some market rebranded
versions of other companies' products153
.
(184) The parties maintain that barriers to entry are not significant. All PND components
are readily available from multiple sources while software and navigable digital
map databases are always available since there are no capacity constraints for
these inputs154
.
(185) The very large number of companies that have entered the market during the
previous four years confirms the parties' view that barriers to entry are not
significant. However, the vast majority of market entrants, including major
companies with ample resources and strong brand names, have failed to capture
other than marginal market shares and remain minor players. This circumstance
and the fact that early market entrants such as TomTom, Garmin and MiTAC
retain large shares of the market suggest that these firms benefit from first mover
advantages and, that barriers to expansion may be substantial.
(186) Barriers to expansion may include the expense and difficulty of marketing and
distributing a consumer electronics product like PNDs in a market with such a
large number of competing brands. Market entrants must acquire consumer brand
recognition (or expand existing brands to encompass their new PND products).
Furthermore, a large number of suppliers have to compete for limited shelf space
in major electronics stores and other retail outlets. PND suppliers currently engage
in extensive marketing campaigns and only major firms can afford to spend large
amounts on advertising. Finally, PND manufacturers must also invest in customer
150
Figures based on responses to the Commission's request for information of 12 November 2007 sent
to major PND manufacturers. Although the numbers differ depending on the company and device
model, the cost structure of most devices is reflected in these ranges.
151
Figures based on responses to the Commission questionnaire to device manufacturers of 12
December 2007.
152
Figures based on responses to the Commission's request for information of 12 November 2007 sent
to major PND manufacturers. Although the numbers differ, depending on the company and model
of device, these ranges reflect the size of margins obtained on most devices.
153
Notification page 182. The list of market entrants mentioned in the Notification is based on GfK
sales data covering the EEA.
154
Notification, page 181.
41
support infrastructure. Recent market exits, for instance Cobra Electronics
Corporation and ViaMichelin, are likely to have been precipitated, at least in part
by barriers to expansion.
VIII. COMPATIBILITY WITH THE COMMON MARKET AND THE EEA AGREEMENT
ASSESSMENT
8.1. Introduction
(187) Following the notification of the present concentration, the Commission received
on 18 February 2008 a notification of a subsequent transaction according to which
Nokia Corporation (Finland) intends to acquire sole control of NAVTEQ (Case M.
4942 Nokia/NAVTEQ). The second transaction partly covers the same markets as
the markets on which TomTom and Tele Atlas are active.
(188) In view of the dates of notification, the present transaction has been assessed
independently of the second transaction. This approach is in line with the
Commission's practice in recent cases of parallel (horizontal) mergers155
.
8.2. Competition Concerns
(189) The Commission has focused its market investigation on assessing the likelihood
of competitive harm arising as a result of the proposed transaction due to:
(a) Non-coordinated effects156
and
(b) Coordinated effects157
.
8.3. Input Foreclosure in the PND and Navigation Software Markets
8.3.1. Introduction
(190) A number of PND manufacturers expressed concerns during the market
investigation that the merged entity would engage in input foreclosure. In
particular, these PND manufacturers were concerned that the merged entity would
increase map database prices, provide them with map databases of lower quality or
delay the availability of new features and updates, thereby preventing them from
effectively competing with TomTom in the PND market.
155
See in particular Commission decisions in cases COMP/M.4601 KarstadtQuelle / MyTravel, of 4
May 2007 and COMP/M.4600 TUI / First Choice of 4 June 2007.
156
See Sections 8.3. and 8.4.
157
See Section 8.5.
42
(191) According to the Non-Horizontal Merger Guidelines158
, a merger is said to result
in foreclosure where actual or potential rivals’ access to supplies or markets is
hampered or eliminated as a result of the merger, thereby reducing these
companies’ ability and incentive to compete. Such foreclosure is regarded as anticompetitive
where, as a result of the merger, the merging companies, and possibly
also some of its competitors, are able to profitably increase the price charged to
consumers.
(192) When assessing the likelihood of such an anticompetitive input foreclosure
scenario, the Commission examined whether the merged entity would have the
ability post-merger to foreclose access to inputs, whether it would have the
incentive to do so, and moreover, whether a foreclosure strategy would have a
significant detrimental effect in the downstream PND market. When assessing
effects, the Commission also took into account the efficiencies resulting from the
merger.
8.3.2. Ability to foreclose
(193) The analysis developed in the following paragraphs focuses on whether the
merged entity would be able to foreclose competing PND manufacturers and
software manufacturers either by increasing prices or by providing degraded maps
or delayed updates. An alternative total input foreclosure strategy, according to
which the merged entity would stop supplying maps to TomTom’s competitors
downstream, was not identified as a likely scenario by the market investigation
and was already excluded when the Commission addressed its Statement of
Objections to the parties159
.
(194) The Non-Horizontal Merger Guidelines point to three conditions which are
necessary for the merged entity to have the ability to foreclose its downstream
competition, namely the existence of a significant degree of market power, the
importance of the input and the absence of timely and effective counter-strategies.
(195) First, the guidelines indicate that input foreclosure can only be a concern if the
merged entity has a significant degree of market power in the upstream market. In
the case at hand, Tele Atlas sells map databases above marginal cost160
and has a
market share of more than 50% in the upstream market, NAVTEQ being the only
other provider of navigable digital map databases with a similar coverage and
quality level. Given the imperfect constraint exerted by the counter-strategies
detailed in paragraphs 202-209, Tele Atlas can reasonably be expected to
influence the conditions of competition in the upstream market. The Commission
Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the
control of concentrations between undertakings, adopted on 28 November 2007,
http://ec.europa.eu/comm/competition/mergers/legislation/nonhorizontalguidelines.pdf.
159
In addition, the parties submit that the merged entity lacks the ability to stop supplying map databases
because it could not commit to such a strategy (submissions of 7 November 2007 and 19 November
2007). Given the lack of incentive for the merged entity to engage in total input foreclosure, as shown
in section 8.3.3., the question regarding the merged entity's ability to commit not to supply map
databases to TomTom's competitors can be left open.
160
High gross margins do not necessarily indicate supra-competitive profits in an industry with high fixed
costs and low marginal costs.
43
therefore concluded that the merged entity enjoys a significant degree of market
power on the market for navigable digital map databases.
(196) This conclusion is contested by the parties, who submit that there is no ability to
foreclose if there is "at least one other equivalent input source”. However, neither
the Commission’s practice in previous decisions, nor the Non-Horizontal Merger
Guidelines support this view. The parties further submit that Tele Atlas does not
have market power within the meaning of the Non-Horizontal Merger Guidelines,
since they argue that market power should be interpreted closely to the concept of
market dominance. However, this interpretation is incompatible with the wording
of the Non-Horizontal Merger Guidelines which explicitly refer to “a significant
degree of market power (which does not necessarily amount to dominance)”161
.
(197) Second, input foreclosure may raise competition problems only if it concerns an
important input for the downstream product. The Non-Horizontal Merger
Guidelines clarify that irrespective of its cost, an input may also be sufficiently
important for other reasons. For instance, the input may be a critical component
without which the downstream product could not be manufactured or effectively
sold on the market.
(198) Although digital map databases only account for a relatively limited share of the
PND cost, they constitute a critical component without which PNDs could not
serve their purpose. The parties do not contest that navigable digital map databases
are critical PND components. However, the parties argue that Tele Atlas would
not be able to deprive TomTom’s PND rivals access to this critical component. In
particular, the parties argue that quality degradation or delayed release of updates
would be impossible because Tele Atlas only has one core digital navigable map
database for any given geographic area.
(199) While the parties submit that having a single database may make quality
degradation difficult from a technical point of view, nothing would prevent the
merged entity from duplicating its database if it had an incentive to do so postmerger.
Moreover, having a single database does not prevent degradation by
delaying upgrades, because Tele Atlas could still release the updated version of the
database to TomTom’s competitors with some delay.
(200) The parties submit that “many of Tele Atlas’s significant customers have
concluded licensing agreements requiring frequent updates to Tele Atlas's latest
map database releases, typically every [1-10]* months”162
. However, a review of
Tele Atlas’s contracts has confirmed the existence of such clauses only for a
minority of customers. In any event, many contracts have a duration of only [1-5
years]* and are therefore not sufficient to ensure that these customers will get
access without delay to map database updates in the future.
(201) Currently, both Tele Atlas and NAVTEQ provide their European digital map
databases to PND suppliers in one of several exchange formats (Shape, GDF and
Oracle), which are chosen by each PND supplier. The Commission examined
whether Tele Atlas would be able to foreclose PND manufacturers and navigation
software providers competing with TomTom by providing new features or
161
See paragraph 23 of the Non-Horizontal Merger Guidelines.
162
Reply by TomTom to Commission Statement of Objections of 17 March 2008, page 79.
44
updates, exclusively or earlier, in only one of the current data formats, thereby
raising rivals' costs for format conversion. As indicated by the parties in their reply
to the Statement of Objections, the impact of such a strategy is likely to be limited.
TomTom uses the same format (Shape) as several other competitors and would
therefore incur the same conversion costs as many other companies if this format
was abandoned by Tele Atlas. In addition, PND manufacturers could switch to
NAVTEQ which would continue to provide all current formats. Although Tele
Atlas would have the technical ability not to supply or delay access to its database
in certain formats, the impact and profitability of such a strategy therefore appear
doubtful.
(202) Third, the Commission considered, on the basis of the information available,
whether there are effective and timely counter-strategies that rival firms in the
PND market could deploy. Potential constraints resulting from the competition
with NAVTEQ, the threat of entry and constraints resulting from the role of
intermediaries are discussed in paragraphs 203-207. In particular, the Commission
shows that while some of these factors limit the merged entity's ability to increase
prices or degrade quality, they do not fully eliminate its ability to do so.
(203) NAVTEQ would still compete with Tele Atlas post-merger, thereby limiting Tele
Atlas's ability to foreclose its competitors. However, NAVTEQ's best response to
a price increase by Tele Atlas would be to also increase its prices163
. It is therefore
concluded that competition with NAVTEQ does not completely eliminate the
merged entity's ability to increase prices or degrade quality.
(204) The parties contest this argument by arguing that NAVTEQ would not become
aware of any increased market power and would have no incentive to increase its
prices. The parties also contest the applicability of paragraph 38 of the NonHorizontal
Merger Guidelines to partial input foreclosure scenarios. While it is
clear that it would not be in the PND manufacturers' best interest to inform
NAVTEQ of degraded supply conditions with Tele Atlas, there is no convincing
reason to restrict the applicability of paragraph 38 of the Non-Horizontal Merger
Guidelines to scenarios of total foreclosure. In a case of partial foreclosure,
NAVTEQ may not become aware of its increased market power as easily as if
Tele Atlas stopped supplying its former customers, but NAVTEQ will
nevertheless realize that the demand it faces changes as a result of Tele Atlas's
partial foreclosure tactics. Therefore, it is concluded that competition with
NAVTEQ would not fully deprive Tele Atlas of its ability to increase prices or
degrade quality or delay access to updates.
(205) A possible opposite effect that would lead to a downward pressure on NAVTEQ's
prices is described in paragraph 38 of the Non-Horizontal Merger Guidelines,
wherein it is stated that "the attempt [by non-vertically integrated upstream
suppliers]* to raise the input price may fail when independent input suppliers [i.e.
NAVTEQ]*, faced with a reduction in the demand for their products (from the
163
This does not mean, however, that NAVTEQ would necessarily match any eventual price increase by
Tele Atlas. Although NAVTEQ would likely respond to price increases by Tele Atlas by increasing its
own prices, NAVTEQ would still represent an (albeit imperfect) competitive constraint to any
foreclosure strategy of the merged entity, in particular in the light of the evidence regarding switching
costs gathered during the market investigation. The extent to which the merged entity may profitably
increase prices or degrade quality is discussed in the next section.
45
downstream division of the merged entity or from independent downstream firms),
respond by pricing more aggressively". In this case however, NAVTEQ will not
be faced with a reduction in the demand for map databases by TomTom since
TomTom is already a Tele Atlas customer. As regards the demand from other
PND manufacturers, NAVTEQ would have no reason to price more aggressively
post-merger.
(206) Entry is unlikely to provide an effective and timely counter-strategy that would
constrain the merged entity's ability to foreclose its downstream competitors. As
stated in paragraph 161, the Commission considers it unlikely that a new map
database provider would build a digital navigable map database with the same
level of coverage and quality as Tele Atlas or NAVTEQ and provide a timely
constraint on the merged entity.
(207) Another limit to Tele Atlas's ability to increase prices or degrade quality could be
provided by intermediaries that have a license from Tele Atlas or NAVTEQ to
provide the map database together with their navigation software. Such
intermediaries constitute an effective constraint only if they are themselves
protected from price increases and quality degradation. This is likely to be the case
for Garmin, as detailed in paragraph 208. However, the constraint exerted by
Garmin as a map database redistributor, only applies to PND manufacturers that
do not have in-house software capabilities, which represent approximately one
third of the PND market.
(208) It is also important to note that Tele Atlas does not have the ability to foreclose all
of TomTom's downstream competitors due to contractual provisions. In particular,
Tele Atlas's ability to foreclose its downstream competitors is limited by the longterm
contract that Garmin has concluded with NAVTEQ, which protects Garmin
against price increases and guarantees yearly price decreases at least until 2015.
Taking into account the likely evolution of map prices over the next few years,
Garmin therefore, does not have to pay higher prices than it would have had to pay
in the absence of the merger. Even if map prices decreased more significantly than
predicted, the price protection mechanism in the contract still limits the possibility
that Garmin would pay more for maps than in the absence of the merger.
(209) In addition, [Navigation Device Manufacturer]* and [Navigation Software
Provider]* have long-term contracts for the provision of digital maps. Although
the duration and provisions of these contracts do not provide the same level of
protection as for Garmin, these contracts provide a degree of protection against
price increases. Considering the fact that only Garmin is protected against price
increases and that Garmin represents less than 20% of the PND market, the
merged entity’s ability to foreclose could affect more than two thirds of the sales
of TomTom’s downstream competitors. If one takes into account that [Navigation
Device Manufacturer]* and [Navigation Software Provider]* are also protected,
approximately half of the market could possibly be affected by a foreclosure
strategy.
(210) In the light of these arguments, the Commission concludes that the merged entity
is likely to have the ability to increase prices or degrade quality or delay access for
some PND manufacturers and navigation software providers competing with
TomTom.
46
8.3.3. Incentive to foreclose
(211) Post-merger, TomTom/Tele Atlas will take into account how the sales of map
databases to TomTom's competitors will affect its profits not only upstream but
also on the downstream market. Therefore, when considering the profitability of
an input foreclosure strategy, the merged entity faces a trade-off between the profit
lost in the upstream market due to a reduction of input sales and the profit gained
on the downstream market by raising its rivals' costs.
(212) This trade-off depends on the level of profits that the merged entity obtains
upstream and downstream. Since the profits obtained by selling a PND are much
higher than the profits acquired on the sale of a map database164
, the Commission
preliminarily concluded in the Statement of Objections that the merged entity
could have an incentive to increase map database prices or degrade quality or
delay access to updated map databases for TomTom’s competitors. Based on an
in-depth qualitative and quantitative analysis, which is presented in detail in this
section, the Commission has now concluded that the merged entity would lack
incentives to foreclose its competitors.
(213) As described in paragraph 42 of the Non-Horizontal Merger Guidelines, the
incentive for the integrated firm to raise rivals’ costs further depends on two
critical factors, that is to say, the extent to which downstream demand is likely to
be diverted away from foreclosed rivals and the share of that diverted demand that
can be captured by the downstream division of the integrated firm.
(214) The Commission has analyzed the extent to which the merged entity could
actually capture sales on the PND market by engaging in an input foreclosure
strategy to the detriment of TomTom’s competitors. This analysis is necessary to
determine whether the profits that the merged entity could gain downstream by
increasing map database prices, would compensate the upstream losses. Such an
assessment requires a careful examination of the sales that TomTom could capture
as a result of such a strategy.
(215) It is important first to emphasize that a series of qualitative elements indicate that
an input foreclosure strategy consisting in increasing prices or degrading quality or
delaying access is likely to fail. For reasons described in paragraph 223, Tele Atlas
would be likely to lose significant sales to NAVTEQ if it increased prices
upstream or degraded map database quality or delayed access to updates, while the
benefits from increasing map database prices to TomTom’s competitors are likely
to be relatively limited. The main qualitative elements supporting this conclusion
are outlined in paragraphs 216-220.
(216) First, since map databases account on average for less than 10% of the PND
wholesale price, map database prices would have to increase substantially to have
an effect on downstream PND market prices and allow the merged entity to
164
On the basis of an average price of a digital map database of EUR [10-20]*, an average wholesale
price of EUR [150-250]* for a TomTom PND, gross margins for Tele Atlas of [50-100]* and of
[0-50]* for TomTom, the sales of one PND by TomTom generates a gross profit of EUR [50-
100]*, while the sale of one map database by Tele Atlas generates a gross profit of EUR [10-20]*.
These numbers imply that the merged entity can afford to lose sales of approximately [5-10]* map
databases for each additional PND device sold as a consequence of an input foreclosure strategy.
47
capture a significant amount of sales on the downstream market. Moreover, the
impact of the foreclosure strategy depends on the extent to which TomTom's
competitors would pass on the map database price increase to end-consumers. For
example, a 10% price increase of the map would only lead to a 0.5% price increase
for the PND if the price of the map represents 10% of the price of a PND and PND
manufacturers pass on 50% of the change in their cost. Under any reasonable ownprice
elasticity and diversion rate to the merged entity, such a small price increase
would lead to very few additional sales for the merged firm.
(217) Second, it appears that at least some PND suppliers would be reluctant to pass on
an increase in map database prices onto the PND price, which would therefore
further reduce any effect on PND prices165
.
(218) Third, Garmin, which is TomTom's most important competitor in the PND market,
is largely protected against increases in the price of map databases by virtue of its
long-term contract with NAVTEQ, as detailed in paragraph 208. This protection
from foreclosure for Garmin will limit the profits that TomTom could capture on
the downstream market if it engaged in input strategy166
.
(219) Fourth, as stated in paragraph 106, switching costs are surmountable167
. As a
result, Tele Atlas would lose significant amount of sales to NAVTEQ if it
increased prices upstream or degraded map database quality or delayed access to
updates.
(220) Finally, quality degradation only applies to Tele Atlas's customers, since
NAVTEQ would arguably continue to provide good-quality map databases to all
PND manufacturers in a non-discriminatory manner. NAVTEQ would not gain
any downstream sales in the PND market by degrading the quality of its map since
it is not vertically integrated. In addition, degrading the map quality would
decrease NAVTEQ’s map database sales since many end-users may be expected to
switch to a TomTom PND in order to get a quality map. It is also important to note
that degrading map database quality would be less profitable for the merged entity
than increasing prices since, unlike a price increase, degrading quality does not
bring higher margins for the map databases that Tele Atlas would continue to sell
upstream168
.
165
Replies to the Commission's market investigation. See also Reply by TomTom to Commission
Statement of Objections of 17 March 2008, pages 72-73.
166
Given that prices for map databases have decreased substantially year after year, the Commission had
preliminarily concluded that this trend would continue and that Garmin’s protection may be limited as a
result. In the reply to the Statement of Objections, however, the parties pointed to contradictory
evidence in the file with regards to future map database price trends. In view of this, it cannot be
excluded that the long term contract of NAVTEQ would provide a degree of protection to Garmin,
which would limit the effects of any foreclosure strategy on a major competitor (with around 15% of
the PND market). This circumstance would also further limit the incentives for Tele Atlas to engage in
such foreclosure strategies in the first place.
167
Note that switching costs may be low when compared with the value of the contracts with the medium
and large PND providers. These costs would be relatively higher for the smallest PND manufacturers.
However, as indicated by the parties, the smallest PND manufacturers are more likely to rely on a
software provider.
168
Quality degradation may have a strong effect on competitors downstream (such as delayed entry of new
products), however, PND manufacturers can always turn to NAVTEQ for a quality map database.
Therefore, even in the case of quality degradation, there is an upper limit to the competitive harm that
can be felt by competitors (that is to say, being supplied at a higher price by NAVTEQ).
48
(221) In order to measure the upstream and downstream trade-off the Commission
carried out an econometric estimation of downstream price elasticities to measure
the sales that the merged entity could capture if it increased map database prices
for TomTom’s competitors downstream169
. The results of this simple profit tradeoff
analysis are presented in paragraph 228.
(222) The likelihood of a total input foreclosure strategy, according to which the merged
entity would stop supplying map databases to TomTom’s competitors
downstream, is examined first. If such a strategy was implemented by the merged
entity, the competitive pressure exercised on NAVTEQ would be reduced, which
may allow NAVTEQ to raise the map database price it charges to TomTom’s
competitors downstream. In essence, a total input foreclosure by the merged entity
would increase NAVTEQ’s market power170
.
(223) More specifically, if the merged entity were to stop selling map databases, it
would lose all its profits on map databases but would only recuperate profits on
the sales that it is able to capture downstream171
. For a total foreclosure strategy to
be profitable for Tele Atlas, it must recuperate enough profits downstream to at
least compensate the lost profits on map databases. In order to measure the extent
of sales that the merged entity would be able to capture downstream, the
Commission estimated downstream price elasticities and found that the merged
entity would only capture a relatively limited amount of sales downstream by
increasing map database pricing for TomTom’s competitors172
. Since map
database prices represent a relatively minor proportion of the price of PND
devices, and given the elasticity estimates, the Commission's analysis indicates
that it would be necessary for NAVTEQ to increase prices by a very substantial
amount to ensure that an input foreclosure strategy would be profitable for the
merged entity. In fact, the Commission calculated that if NAVTEQ does not raise
prices by several hundred percent, a total input foreclosure strategy would not be
169
The Commission estimated downstream elasticities using a nested logit model following "Estimating
Discrete-Choice Models of Product Differentiation", Steven Berry, The Rand Journal of Economics,
Vol. 25, No. 2, 1994, pages 242-262. The Commission tested that the estimated elasticities are robust to
a wide variety of assumptions, in particular concerning the nest structure, the size of the market and the
instruments used. The average elasticity found in product level elasticity is 2.75% and the brand level
elasticities are broadly consistent with the observed margins. The estimation carried out by the
Commission is described in more details in "TomTom/Tele Atlas, Economic Analysis", CET of 25
March 2008, together with the estimation of the likely impact of the proposed operation.
170
Under certain conditions, NAVTEQ may not be able to increase prices as a result of its increased
market power because of an inability to commit towards a customer to sell at high prices to that
customer’s rivals (as explained in footnote 40 of the Non-Horizontal Merger Guidelines). On 18
February 2008, [a PND manufacturer]* submitted an economic study which argues that NAVTEQ is
unlikely to face such a commitment problem in the light of the industry characteristics. In their reply to
the Statement of Objections, the parties disagree with this conclusion. However, given that Tele Atlas
would have no incentive to foreclose even if we assume that NAVTEQ does not face such a
commitment problem, this question can be left open.
171
In 2006, Tele Atlas sold [2-3 million]* navigable map database licences in addition to the sales to
TomTom in the EMEA region. Tele Atlas would lose all the profits on these map databases if it
engaged in total input foreclosure.
172
See: "TomTom/Tele Atlas, Economic Analysis", CET of 25 March 2008.
49
profitable for Tele Atlas173
. It appears unlikely that NAVTEQ's prices would rise
by such a magnitude174
.
(224) Map database costs expressed as a share of the total production cost for a PND has
increased over the last few years because prices for other components such as
hardware have decreased even faster than map database prices. In order to account
for the possibility that the map database share of total production cost continues to
increase in the near future, the Commission made alternative calculations where
map databases represented a higher percentage of the total price of a PND device.
The same conclusion is obtained under these assumptions175
.
(225) The calculation carried out by the Commission concurs with the parties' economic
submission on foreclosure176
. The submission computes equilibrium prices in a
simple model of Bertrand competition with differentiated products. The
submission supposes that, as a result of a total input foreclosure strategy by Tele
Atlas, NAVTEQ increased prices by 100%. Under this assumption, the study
indicates that it would not be profitable for the merged entity to engage in total
input foreclosure. The Commission also checked that the results submitted by the
parties are robust to a variety of alternative assumptions177
.
(226) The likelihood of a partial input foreclosure strategy, according to which the
merged entity would increase prices or degrade the quality of map databases
supplied to TomTom’s competitors downstream, is discussed in the following
paragraphs178
. As mentioned in paragraph 211, the merged entity faces a trade-off
between the profits lost in the upstream market and the profits in the downstream
markets in order to determine its optimal price. If the merged entity decides to
increase prices upstream, it would gain additional profits from customers that stay
with Tele Atlas, but it would lose profits from customers that switch to NAVTEQ.
In addition, the merged entity would gain additional profits due to the loss of
competitiveness by TomTom’s competitors downstream. Since a price increase
173
Considering gross margins for TomTom of [0-50%]* and [50-100%]* for Tele Atlas, the share of the
map database in the wholesale price for TomTom of [0-10%]*, the share of the map database in the
wholesale price for other PND manufacturers of [0-10%]*, TomTom's share in the PND market of [30-
50%]*, other Tele Atlas customers' share of [10-30%]* and a pass-through rate of 50%, we can
calculate the upstream losses and downstream gains resulting from a total foreclosure strategy. Using
the estimated downstream elasticities (supposing Garmin is protected from a price increase), the critical
map database price increase by NAVTEQ that makes a total foreclosure profitable for Tele Atlas would
be [400-500%]*. Even if Garmin was not protected, the critical price increase by NAVTEQ that would
make foreclosure profitable exceeds 200%.
174
A full quality degradation, which would force Tele Atlas's buyers downstream to switch to NAVTEQ,
is identical to total input foreclosure. For the same reason as for total input foreclosure, full quality
degradation would thus not be attractive for the merged entity.
175
With map databases representing 10% of the total price of a PND device, the Commission found that
the critical price increase would be [400-500%]* and [300-400%]* if map databases represent 20% of
the price of a PND.
176
Submission by the parties of 28 January 2008.
177
The parties' economic study also indicates that, even in the presence of total foreclosure by Tele Atlas,
the vertical integration would lead to an average price decrease. However, this result depends on the
assumption made in the report that the merger would lead to a [0-10%]* cost reduction for the merged
entity by virtue of the efficiencies brought by the merger. The study calculates that even under this
assumption of total foreclosure, average downstream prices would not increase if the merger brings
about a cost reduction for the integrated company of only [0-5%]*
178
Following the Non-Horizontal Merger Guidelines, the term price increase in this section also refers to
product degradation.
50
upstream will benefit the post-merger entity in a way it did not pre-merger, the
merged entity would have an increased incentive to raise prices for TomTom's
competitors. However, the fact that the merged entity would only capture a
relatively limited amount of sales downstream by increasing map database pricing
for TomTom’s competitors, implies that the incentive to foreclose competitors will
be limited179
.
(227) The Commission checked the robustness of this simple profit test with a wide
range of alternative assumptions concerning, for instance, the pass-through rate,
the upstream and downstream price elasticities, and the share of the map database
in the total price. This sensitivity analysis confirmed the conclusion that any
significant price increase would not be profitable for the merged entity180
. In
addition, the Commission checked that the same conclusion is obtained if one
considers that TomTom will raise prices downstream rather than expanding sales.
Finally, the Commission also checked that the same conclusion is also obtained if
one makes the assumption that NAVTEQ matches Tele Atlas's price increase.
Indeed, under this assumption, it can be shown that Tele Atlas would have an
incentive to undercut any price increase that would have a significant anticompetitive
impact on the downstream market181
.
(228) The results of this simple profit test indicate that any price increase that would
have a non-negligible impact on the downstream market would not be profitable
for the merged entity as the downstream gains would not be sufficient to
compensate upstream losses. This finding concurs with the results of the parties'
submissions on partial foreclosure, which indicate that any price increase that
would more than compensate the positive impact of the elimination of the double
marginalization on the downstream market does not constitute an equilibrium182
.
(229) While the calculations presented in paragraph 223 relate to foreclosure in the PND
market, any incentive for the merged entity to engage in input foreclose in the
navigation software market appears even less likely, in particular in view of the
more limited presence of TomTom in this market and the smaller profits that could
be captured in the software market.
(230) In the light of these arguments, the Commission concludes that the merged entity
would have no incentive to increase prices in a manner which would lead to anticompetitive
effects downstream.
179
Supposing for example that the merged entity increases map database prices by 10% and that
competitors pass through 50% of the increase in the price of the map database in the PND price, on the
basis of the estimated elasticities, and taking NAVTEQ's behaviour as constant, one finds that the
merged entity would only capture sales worth EUR [0-500 000]*, which is lower than the upstream
losses under likely upstream elasticities. In fact, the higher the price increase, the less profitable such a
strategy becomes.
180
As detailed in "TomTom/Tele Atlas, Economic Analysis", CET of 25 March 2008. It is also important
to note that this assessment applies equally to PND devices of different price category. Indeed, for
lower price PNDs, although an increase in the price of the map database may have a greater impact, the
additional profits gained will be lower. For premium devices, the additional profit resulting from the
sale of one device will be higher, but the impact on the PND price of an increase of the map database
price will be lower. It is also important to note that the nested logit model estimated by the
Commission explicitly takes into account the difference between low-price and high-price PNDs.
181
"TomTom/Tele Atlas, Economic Analysis", CET of 25 March 2008.
182
TomTom submissions of 28 January 2008 and 12 February 2008.
51
8.3.4. Effects in the downstream market
(231) The overall effects of the vertical integration of TomTom and Tele Atlas have to
be assessed in the downstream market. As mentioned in paragraph 47 of the NonHorizontal
Merger Guidelines, “a merger will raise competition concerns because
of input foreclosure when it would lead to increased prices in the downstream
market thereby significantly impeding effective competition".
(232) There are a series of qualitative elements that indicate that the proposed vertical
integration of TomTom and Tele Atlas is unlikely to have any effect. In fact, the
same qualitative factors that explained the lack of incentive to engage in partial
foreclosure also lead to a lack of effects. For instance, the low percentage of the
map database in the PND price, the evidence regarding a limited pass-through rate,
the limited switching costs and the competition with NAVTEQ all tend to limit the
price increase that could be imposed by Tele Atlas on TomTom's competitors.
(233) Moreover, the Non-Horizontal Merger Guidelines state that "if there remain
sufficient credible downstream competitors whose costs are not likely to be raised,
for example because they are themselves vertically integrated or they are capable
of switching to adequate alternative inputs, competition from those firms may
constitute a sufficient constraint on the merged entity and therefore prevent output
prices from rising above pre-merger levels"183
. Such a situation limiting the
possible effects of foreclosure is present in this case since Garmin, the major
customer of NAVTEQ, is largely protected against price increases by a long term
contract, which limits the impact of a possible price increase.
(234) In addition, PND manufacturers that do not develop their navigation software inhouse
may source their navigable digital map databases from navigation software
providers and in particular from Garmin, which also provides software and, as
mentioned in the preceding paragraph, is protected by a long-term contract. This
alternative source of supply provides additional protection for PND manufacturers
that do not have in-house software capabilities. Although these PND
manufacturers represent a minority of the market, together with Garmin, they
decrease the share of the downstream market that could be foreclosed and hence
limit the likely effect of a foreclosure strategy.
(235) In addition, the profit trade-off described in Section 8.3.3. implies that the
downstream PND market is unlikely to be affected in any significant way by the
vertical integration of TomTom and Tele Atlas. On the basis of the market
characteristics and, in particular, of the relatively limited price elasticities
downstream and the small share of map databases in the PND price, the profit test
indicates that a significant price increase by Tele Atlas would lead to a decrease in
revenue on the upstream market that will not be compensated by sufficient gains
for TomTom downstream.
(236) The same reasoning applies to partial quality degradation, except that degrading
quality is less attractive for the merged entity than increasing price since it does
not bring higher margins upstream184
.
183
Paragraph 50 of the Non-Horizontal Merger Guidelines.
184
Overall quality degradation may have strong effects on competitors downstream (such as delayed entry
of new products), however, they can always turn to NAVTEQ for a quality map database. Even in the
52
(237) In view of these arguments, the Commission concludes that the proposed
transaction will not lead to any anti-competitive harm on the downstream market.
It is important to note that this finding does not rely on the fact that the vertical
integration will give an incentive for the merged entity to decrease prices since it
eliminates double mark-ups.
Efficiencies
(238) The overall impact of the transaction however will also be affected by the likely
efficiencies that are brought about by the merger and substantiated by the parties.
While there is a lack of anti-competitive effects irrespective of efficiencies, these
efficiencies form a part of the overall competitive assessment.
(239) As set out in the Non-Horizontal Merger Guidelines, "a vertical merger allows the
merged entity to internalise any pre-existing double mark-ups resulting from both
parties setting their prices independently pre-merger"185
. In this case, the problem
of double mark-ups can not be discarded since the marginal cost of map databases
[is close to zero and consequently gross margins on map databases are high]*.
(240) The impact of the elimination of double mark-ups may be illustrated in the
following manner. Suppose the map database represents 5% of the price of the
PND ([…]*). Post-merger, the integrated company will realize that the true cost it
has for an additional map database is not 5% of the PND price, but a small fraction
of this amount. As a result, the merged entity will have an incentive to expand
sales to take advantage of the higher profits it makes on the sale of a PND. If it is
assumed that 50% of the cost decrease is passed on, one finds that the price of
TomTom's PND would decrease by [0-5%]*, which represents approximately a
[0-5%]* decrease in the average market PND price (disregarding changes in
market shares due to switching towards TomTom's PND as they have become
cheaper).
(241) When assessing whether efficiencies generated by the elimination of double markups
are merger specific, the Commission examined whether vertical cooperation or
vertical agreements may, short of a merger, achieve similar benefits. In particular,
the Commission examined whether it would be likely that the merging parties
would in the absence of the merger conclude contracts with non-linear pricing
with a price for marginal units close to the marginal cost of map databases, which
in this case would be close to zero. In particular, the Commission reviewed Tele
Atlas's and NAVTEQ’s contracts with PND manufacturers, and found that, while
volume discounts are common in the industry, these discounts are too limited to
substantially eliminate double mark-ups.
(242) The elimination of the double marginalization should therefore be considered, to a
large extent, as merger-specific. As payment for the map databases it acquires
from Tele Atlas, TomTom currently pays […]*. Post-merger, the integrated
company's true cost for the map database will be Tele Atlas's marginal cost for
producing the map databases. It is true that some other PND manufacturers obtain
volume discounts and that the marginal cost of the map database could in theory
case of quality degradation, there is an upper limit to the competitive harm that can be felt by
competitors (that is to say, being supplied at a higher price by NAVTEQ).
185
Paragraph 55 of the Non-Horizontal Merger Guidelines.
53
also be reduced with such discounts. However, these volume discounts are
generally quite limited. No other company receives volume discounts which could
bring the price of an additional map database close to its marginal cost, as will be
the case for the integrated company.
(243) In order to estimate the overall effect of the proposed transaction taking into
account the elimination of double mark-ups, the Commission estimated pre- and
post-merger equilibrium prices using a simple model with linear demand. The
model indicates that the overall impact of the vertical integration of TomTom and
Tele Atlas, taking into account the elimination of the double marginalization by
the integrated company, is a small decline in the average PND prices. This concurs
with the economic submissions of the parties186
.
(244) In addition to the elimination of the double marginalization, the proposed
operation is likely to create other efficiencies. The fact that vertical integration
may lead to such efficiencies is explicitly referred to in the Non-Horizontal
Merger Guidelines, which indicate that vertical mergers "may align the incentives
of the parties with regard to investments in new products, new production
processes and in the marketing of products"187
.
(245) In this case, the parties state that the rationale of the merger is to allow the merged
entity to produce "better maps – faster". In accordance with the guidelines, the
Commission examined in its competitive assessment whether the alleged
efficiencies would benefit customers and whether they are verifiable and merger
specific.
(246) Specifically, the parties argue that the transaction will bring significant efficiencies
due to the integration of TomTom’s [...]* data to improve Tele Atlas’s map
databases. In particular, TomTom gathers a very significant amount of feedback
data from its large customer base through Map Share. For example, the parties
indicate that in December 2007 alone, Map Share users uploaded […]* error
corrections188
. […]*
(247) The parties have submitted a study, which attempts to quantify the efficiency
benefits of the proposed transaction189
. The study proposes two approaches to
quantify these efficiencies. First, it calculates the cost savings that could be
achieved post-merger to provide the pre-merger level of map database quality.
Second, it calculates the additional costs that would be necessary to achieve with
the pre-merger technology the same level of map database quality as will be
obtained post merger. The first approach estimates that the annual map database
production cost savings by 2011 would exceed EUR [0-50 million]* per annum
(approximately [50-100 million]* over the 2008-2011 period). The second
approach estimates that an additional expenditure of around EUR [0,5 – 1 billion]*
would be necessary over the 2008-2011 period to reach, with the current
technology, the same level of map database quality as would be achieved through
the merger.
186
TomTom's submissions of 28 January 2008 and 12 February 2008.
187
Paragraph 57 of the Non-Horizontal Merger Guidelines.
188
TomTom's submissions of 14 January 2008 and 12 February 2008.
189
TomTom's submission of 14 January 2008.
54
(248) Although end-customers would certainly benefit from the more frequent and
comprehensive map database updates made possible by the merger, these
efficiencies are difficult to quantify and the estimates provided by the parties are
not particularly convincing. The first approach proposed does not correspond to
the likely post-merger outcome, as the merged entity will more likely use the
feedback data to improve map databases than to make cost savings with regard to
the current level of map database quality. The second approach on the other hand
is likely to overestimate the value of better map databases to customers, given that
with the current technology, it is not profitable for Tele Atlas to produce the postmerger
level of map database quality.
(249) The Commission also examined whether these efficiencies should be considered
merger specific. Although part of the efficiencies put forward by the parties could
potentially be achieved through contract190
, both parties are unlikely to pursue
investments of the same order of magnitude as the integrated company. Such
investments are risky for the non-integrated company since they are very specific
to the particular relationship and hence subject to a so-called hold-up problem.
Such a situation arises when a party refrains from cooperating with another due to
the concern that it would become captive of its partner, for instance, because of
specific investments that are only valuable if used with this partner and therefore
loses all bargaining power191
. In addition, the difficulty in specifying all the
required investments upfront and the uncertainty about the future environment in
which the parties will operate makes it impossible to provide full protection to a
non-integrated company through a long-term contract. It must therefore be
concluded that the proposed transaction will be likely to bring “better maps –
faster”, as the parties suggested, than what could be achieved through contractual
means in the absence of the merger, and hence that they are, at least in part,
merger specific.
(250) In any case, it is not necessary to precisely estimate the magnitude of these likely
efficiencies given the proposed transaction's lack of anti-competitive effect
irrespective of efficiencies.
8.3.5. Input foreclosure - conclusion
(251) The Commission assessed whether the proposed operation would lead to anticompetitive
input foreclosure and reached the conclusion that it would be unlikely
that the proposed operation would significantly impede competition to the
detriment of end-users. The merged entity lacks the incentive to stop supplying
map databases to its downstream competitors. In addition, any foreclosure strategy
to increase prices or degrade quality for TomTom’s competitors would not have a
significant anti-competitive effect in the downstream PND and navigation
software markets. This conclusion does not rely on likely efficiencies resulting
from the proposed operation. However, the conclusion is strengthened further once
efficiencies are taken into account.
190
Several companies indicated during the market investigation that feedback data could be exchanged
through contractual means. However, there is currently no example of such a contract.
191
In particular, the parties submit that the use of the data will radically change Tele Atlas's operation,
which would make it very vulnerable to a hold-up problem in the absence of integration, in particular
given that no other PND manufacturer gathers similar amount of end-user data as TomTom.
55
8.4. Access by the Merged Entity to Confidential Information in the Market for
PNDs
8.4.1. Introduction
(252) According to Paragraph 78 of the Non-Horizontal Merger Guidelines, a vertical
merger may give the merged entity access to commercially sensitive information
regarding the downstream activity of rivals. For instance, by becoming a supplier
to its downstream competitors the merged entity may obtain critical information,
which could allow it to compete less aggressively or could put competitors at a
competitive disadvantage making entry and expansion less attractive.
(253) Third parties have expressed concerns that certain categories of information
considered confidential which they currently pass to Tele Atlas could, after the
merger, be shared with TomTom. Access to information about the future
behaviour of its downstream customers, would allow the merged firm to pre-empt
any of their actions aimed at winning more customers (through better prices,
innovative features, new business concepts, increased coverage of map databases).
This would in turn reduce the incentive of TomTom’s competitors to co-operate
with Tele Atlas on pricing policy, innovation and new business concepts, all of
which would require exchange of information. This would strengthen the market
power of NAVTEQ, the only alternative map supplier, with regards to these PND
operators and could lead to increased prices or less innovation in the market for
navigable digital map databases.
(254) The Commission finds that the confidentiality issues post-merger are unlikely to
lead to a significant impediment of effective competition.
(255) The Commission reached this conclusion after first examining what information is
actually exchanged between Tele Atlas and its customers. Thereafter, it considered
whether such information flows could be limited without harming consumers. It
finally considered whether the merged entity would have the incentives to
continue protecting its customers' confidential information post-merger.
8.4.2. Exchange of confidential information between Tele Atlas and its customers
Introduction
(256) The confidentiality concern, as expressed by third parties, is based on the premise
that Tele Atlas's customers have to share information on their future competitive
actions with their map supplier. However, current contracts do not oblige
customers to pass such information about their future conduct to Tele Atlas. These
contractual obligations are mainly limited to historic sales data and therefore
would not reveal future competitive conduct. However, third parties indicated that
information about future plans can sometimes be passed on by customers to Tele
Atlas for commercial and technical reasons and in those instances when
contractual amendments are negotiated. In a number of examples provided to the
Commission by third parties, companies voluntarily passed information about their
estimated future sales, product roadmaps, and new features included in the latest
versions of their devices. They did this for four main reasons, firstly, to negotiate
better prices, secondly, to incorporate existing features in new products, thirdly to
encourage the map suppliers to develop new features, and finally, in order to
56
ensure technical interoperability of new features with the core map and the
software.
(257) In their submissions, and in particular in their reply to the Statement of Objections,
the parties have presented convincing evidence showing that such exchanges are
limited and that they could even be reduced post-merger without any detrimental
effect being caused to Tele Atlas's customers, should these customers be
concerned about the use that the merged entity could make of the information
exchanged. Thereafter, the information provided in the parties' reply to the
Statement of Objections regarding this issue was further cross-checked with third
parties by the Commission192
. The different types of examples provided by third
parties and the counter-arguments advanced by the merging parties are examined
in paragraphs 258-271.
Price negotiations
(258) Third parties informed the Commission that, upon signing new contracts, Tele
Atlas requested from customers sales forecasts in order to estimate the revenue
potential. Customers sometimes also submit information about their product
roadmap and expected sales in different segments in order to obtain better pricing
conditions. Tele Atlas would also be informed about the timing of promotional
campaigns for PNDs when customers asked for discounts on map databases.
(259) The market investigation shows that customers can avoid discussing sales
forecasts with Tele Atlas. The parties demonstrated that Tele Atlas sells map
databases to customers who refuse to give this type of information. New customers
can agree to a minimum purchasing requirement and thus avoid revealing sensitive
information about future sales. Prices for existing customers are often agreed
based on their historical sales figures. In any event, Tele Atlas's customers have
full control over the type and amount of information revealed during price
negotiations.
(260) With regard to the timing of promotional campaigns, there is already a high degree
of market transparency (before summer holidays and around Christmas). This type
of information should therefore not be considered as highly sensitive. The
magnitude of the overall PND discounts cannot be inferred by the map database
maker because the map database only accounts for 10% on average of the cost of a
PND device and PND manufacturers could negotiate reductions on other
components of the PND device and reduce their margins.
Incorporation of add-on features
(261) A typical map database included in a PND device consists of a core map database
and add-on layers. The core database includes the basic geographic information
covering road layout and main landmarks. It allows any point on the map database
to be identified with X,Y coordinates. However, the demand for information goes
beyond the basic road geometry and main landmarks. PND manufacturers use
various add-on features such as additional POIs, phonemes, 3D landmarks and 2D
city maps. These add-on features can be put on top of the main map by means of
192
E-mail from [Navigation Device Manufacturer]* of 16 April 2008 and minutes from telephone
conference with [Navigation Device Manufacturer]* of 9 April 2008.
57
the process of geo-coding. This requires the attribution of geographic coordinates
to each feature and is relatively straightforward from a technical point of view.
(262) Third parties have expressed a concern that the information regarding add-on
features, which they would like to use in their future products, could be passed on
to TomTom. PND manufacturers often hold talks about new products several
months before the planned launch date in order to ask about the availability of
add-on features.
(263) As described in Section 7.1, there are currently only two companies supplying a
core map database of a quality sufficient for navigation and covering most EEA
countries. However, add-on layers such as additional POIs, phonemes, 3D
landmarks and 2D city maps are supplied by a number of smaller companies. Geocoding
can be done easily by PND manufacturers themselves, their software
providers or by sub-contractors. As confirmed by third parties, PND
manufacturers are able to purchase add-on features from smaller suppliers and
combine them with the Tele Atlas's core map database. All Tele Atlas's newer
licensing contracts contain a 'sub-contractor clause' that allows the customers of
Tele Atlas to use contractors and consultants to create the necessary
interoperability between the core map database and externally supplied add-on
data without informing Tele Atlas. Alternative suppliers can therefore be a good
source of add-on features for companies concerned about confidentiality.
(264) The Commission finds that even the concerns related to add-on features supplied
by Tele Atlas can be mitigated in several ways. First of all, customers do not need
to inform Tele Atlas in advance about the features they plan to use in a new
product. Add-on features supplied by Tele Atlas can be made available to
customers together with the core map database as part of an all-inclusive package.
The customer can then choose the features for each of its devices. This was
confirmed by third parties. Tele Atlas's most important customers including
TomTom's major PND rivals are always supplied with all features from the
database of Tele Atlas as soon as they are available. In fact, all customers are
automatically sent all new features unless they instruct Tele Atlas to limit the
content of the database they receive.
(265) Finally, the use of existing features does not require prior changes to the contract.
The customer simply makes a choice from the wide range of attributes delivered in
the package and informs Tele Atlas only once license fees are calculated. This was
confirmed by third parties. Since customers have access to the features as soon as
they are available, all necessary compatibility tests can be performed before
informing Tele Atlas that they would like to use these features. Assuming that
PND suppliers have competent technical staff, they can test new features without
much technical support from Tele Atlas.
Development of new add-on features
(266) Third parties informed the Commission that they sometimes approach map
database suppliers to encourage them to invest in a new feature or extend coverage
of their map databases. They expressed the concern that the information about new
add-on features, which they would like Tele Atlas to develop for their use, could
be shared with TomTom. Since sales of PNDs are partly driven by innovation,
58
TomTom's access to the innovations of its competitors could give the company a
competitive advantage.
(267) The Commission concludes that the merger is unlikely to increase TomTom's
ability to obtain information about innovations proposed by the PND
manufacturers upstream. First, PND manufacturers can request that other
companies develop innovative add-on features and incorporate them into the map
database. The Commission obtained examples of smaller companies offering such
products. The Commission also established that independent PND manufacturers
purchase add-on features from external companies. Secondly, Tele Atlas does not
base its investment decisions on requests from individual companies. A decision to
invest in new features or geographic coverage is taken after consultations with the
largest customers in order to gauge demand. This circumstance implies that most
ideas related to new content are communicated to other customers (including
TomTom) prior to investment decisions. Third parties confirmed that Tele Atlas
consults them regularly about new investment ideas and that the ideas submitted
by them to Tele Atlas are usually consulted with other important customers.
(268) Once a new feature is developed, it is offered to all Tele Atlas's customers at the
same time. The company also informs its customers about the availability of new
features prior to their launch by presenting a product roadmap during regular
meetings. The Commission obtained past examples of Tele Atlas's product
roadmaps which confirm these conclusions.
Technical assistance
(269) Third parties expressed a concern that confidential information passed during
technical consultations with Tele Atlas could be shared with TomTom. PND
manufacturers sometimes ask for technical assistance in order to make third-party
features compatible with the core map database or with converting data from Tele
Atlas's proprietary format to their own.
(270) As far as the incorporation of add-on layers is concerned, Tele Atlas provides its
customers with all the technical specifications of its products required for this
purpose. The customer can choose to turn to the customer support unit of Tele
Atlas for technical assistance but could also incorporate the add-ons in-house
through geo-coding or seek assistance from an external company.
(271) Technical problems, which only Tele Atlas is able to solve, are very rare. The
Parties have shown that virtually all questions directed by customers to Tele
Atlas's Customer Support Unit concerned minor technical issues that the
customers could have solved themselves. Even if direct assistance by Tele Atlas's
support team is required, confidentiality safeguards ensure that access to sensitive
customer information is restricted to customer support staff.
8.4.3. Incentives of the parties to protect confidential information
(272) Pre-merger, independent map makers such as Tele Atlas have a strong incentive to
ensure that information passed by customers remain confidential and is not shared
with competing customers. Firewalls and non-disclosure agreements are used by
Tele Atlas to protect sensitive business information of its customers. The
reputation of being an impartial supplier in the navigation markets is crucial for
the expansion of its customer base and revenues.
59
(273) Therefore it has to be examined whether the incentive to protect its customers'
confidential information would change post-merger, should the merged company
be in a position to obtain confidential information from its customers. The
Commission's analysis reveals that Tele Atlas would have incentives to keep its
current customers from switching to NAVTEQ, since losing a customer would not
be compensated by sufficient additional gains downstream independently of
whether NAVTEQ significantly raised its prices.
(274) The market investigation showed that in this case confidentiality concerns can be
considered as similar to product degradation in that the perceived value of the map
for PND manufacturers would be lower if they feared that their confidential
information could be revealed to TomTom. As a consequence, Tele Atlas's map
database could be perceived as relatively less valuable than NAVTEQ's map
database. Confidentiality concerns could thus lead Tele Atlas's customers to
consider switching to NAVTEQ.
(275) When assessing whether the merged entity would have the incentives to protect
the confidentiality of its customers' information, it is important to assess whether
the merged company would be willing to let customers move to NAVTEQ due to
confidentiality reasons without reacting. In view of the analysis in paragraph
251of the merged company’s incentives to engage in partial foreclosure, this now
seems unlikely. The gains that could be achieved by TomTom in the downstream
PND market as a result of such a strategy are not likely to compensate the loss in
the upstream map database market. In addition, confidentiality concerns could
result in damage to Tele Atlas's reputation harming the merged company’s map
database business in other markets such as in-car and mobile phones. Due to the
absence of incentives for the parties to engage in input foreclosure, it is likely that
the parties would react to possible confidentiality concerns, for instance, by
offering customers conditions which make switching to NAVTEQ unattractive.
8.4.4. Confidential information - conclusion
(276) In view of these arguments, the proposed transaction merger is not likely to
significantly impede effective competition due to confidentiality concerns. The
Commission has established that the amount of information of competitive value
exchanged between Tele Atlas and its customers is limited and could be further
reduced. It is therefore unlikely that the merged entity will be in a position to
obtain competitive information from its customers, should they fear that such
information could be used to the advantage of the merged entity in the downstream
PND market. In addition, the merged entity would have incentives to mitigate
third party concerns related to confidentiality. In view of the absence of incentives
for the parties to engage in input foreclosure, it is likely that the parties would
react to possible confidentiality concerns in various ways, most importantly by
offering conditions to its customers that would make switching to NAVTEQ
unattractive.
8.5. Coordinated Effects
(277) The Commission also examined whether the proposed vertical integration of
TomTom and Tele Atlas would create any concerns as regards coordinated effects.
Following existing jurisprudence on this issue, as well as its application to vertical
mergers as developed by the Non-Horizontal Merger Guidelines, the Commission
60
found that the proposed transaction is unlikely to lead to anti-competitive effects
through coordination for the reasons explained in paragraphs 278-283193
.
(278) First, there is currently no indication of coordination between Tele Atlas and
NAVTEQ. On the contrary, the results of the market investigation indicate that,
pre-merger, Tele Atlas and NAVTEQ competed on both price and non-price
aspects. As a result, map database prices have been declining substantially and
map innovations have been important over the last few years194
.
(279) Second, the Commission examined whether coordination would be likely to take
place in the light of existing market characteristics. Effective coordination in a
market requires that companies are able to reach the terms of coordination, deter
and monitor deviations from the terms of coordination as well as ensure the
absence of destabilizing reactions from outsiders.
(280) In the light of these criteria, effective coordination appears unlikely in the market
for navigable digital map databases. It is unlikely that the parties could reach the
terms of a collusive agreement. In particular, coordination on prices would be
difficult since map database prices are not transparent. In addition, there is no
evidence of a geographic split between Tele Atlas and NAVTEQ, which
essentially compete in the same regions. Finally, an allocation of customers would
also be difficult in the PND market, where the relative size of PND manufacturers
is far from stable and numerous firms have entered since 2004. In addition, it
appears unlikely that effective monitoring and deterring mechanisms could be
established in the light of existing market characteristics. For instance, map
database prices are not transparent and there are large and infrequent contracts,
which make deviation from a potential collusive agreement more likely. In
addition, the high fixed costs and low marginal costs in the industry may make
deviation attractive. Moreover, customers could react to any coordination by
enticing deviation with long term contracts.
(281) Finally, and most importantly, there is no clear evidence that the vertical
integration of TomTom and Tele Atlas would increase the scope for coordination
between map database producers. Unlike horizontal mergers, the proposed
operation does not facilitate the achievement of terms of coordination by removing
one player in the market. The proposed operation neither increases price
transparency, nor does it eliminate a pricing maverick that would prevent
coordination from taking place. Moreover, the proposed integration of TomTom
and Tele Atlas decreases market symmetry in a situation where NAVTEQ is not
integrated with Nokia. While some aspects of a vertical merger may possibly
increase the scope for coordination195
, coordination appears unlikely in this case in
the light of the market characteristics described in paragraph 280.
193
This conclusion had already been reached before sending the Statement of Objections to the parties.
This document therefore did not include any objections based on coordinated effects.
194
Tele Atlas’s gross margin, which by definition disregards fixed costs, is high since the marginal cost of
a map database is close to zero. However, taking into account the fixed costs of building the map
database, one sees that Tele Atlas has only recently started to be profitable by virtue of the growth of
the market for digital map databases.
195
For instance, the fact that one downstream customer is now integrated with an upstream company could
reduce the possibility for the non-integrated company to deviate from a collusive agreement. However,
a vertical merger also has effects that may decrease the scope for coordination. For instance, the fact
61
(282) The proposed operation is also unlikely to create any scope for coordination on the
PND market, which is a very dynamic market in which numerous players are
present and entry regularly takes place. The proposed operation will not lead to
foreclosure, as demonstrated in paragraph 251, and hence will not reduce this
number of suppliers on the PND market.
(283) Bearing these considerations in mind, the Commission concludes that the proposed
operation is unlikely to lead to anti-competitive effects through coordination.
IX. CONCLUSION
(284) For these reasons, it is concluded that the proposed concentration would not
significantly impede effective competition in the common market or in a
substantial part of it. The concentration should therefore be declared compatible
with the common market pursuant to Article 8(1) of the Merger Regulation and
the EEA Agreement.
that one downstream customer is now integrated diminishes the possibility to punish the integrated
company if it were to deviate.
62
HAS ADOPTED THIS DECISION:
Article 1
The notified concentration whereby TomTom N.V. acquires sole control within the
meaning of Article 3(1)(b) of Regulation (EC) No 139/2004 of the undertaking Tele Atlas
N.V. is hereby declared compatible with the common market and the EEA Agreement.
Article 2
This Decision is addressed to:
TomTom N.V.
Rembrandtplein 35
NL-1017 CT AMSTERDAM
Done at Brussels, 14/05/2008
For the Commission
Signed by
Neelie KROES
Member of the Commission